Strategic Education(STRA) - 2023 Q1 - Quarterly Report

PART I — FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Strategic Education, Inc., including the balance sheets, statements of income (loss), comprehensive income (loss), stockholders' equity, and cash flows, along with detailed notes explaining the company's operations, significant accounting policies, and specific financial line items Unaudited Condensed Consolidated Balance Sheets Unaudited Condensed Consolidated Balance Sheets (in thousands) | Metric | Dec 31, 2022 (in thousands) | Mar 31, 2023 (in thousands) | Change (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Assets | $2,161,747 | $2,165,768 | +$4,021 | | Total Liabilities | $525,957 | $555,339 | +$29,382 | | Total Stockholders' Equity | $1,635,790 | $1,610,429 | -$25,361 | | Cash and cash equivalents | $213,667 | $202,824 | -$10,843 | | Marketable securities (current) | $9,156 | $24,490 | +$15,334 | | Tuition receivable, net | $62,953 | $71,860 | +$8,907 | | Contract liabilities (current) | $88,488 | $122,984 | +$34,496 | Unaudited Condensed Consolidated Statements of Income (Loss) Unaudited Condensed Consolidated Statements of Income (Loss) (in thousands) | Metric | 3 Months Ended Mar 31, 2022 (in thousands) | 3 Months Ended Mar 31, 2023 (in thousands) | Change (in thousands) | YoY Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------------- | :--------- | | Revenues | $258,855 | $256,606 | -$2,249 | -0.9% | | Total costs and expenses | $245,414 | $257,955 | +$12,541 | +5.1% | | Income (loss) from operations | $13,441 | $(1,349) | -$14,790 | -110.0% | | Net income (loss) | $7,029 | $(2,028) | -$9,057 | -128.8% | | Basic EPS | $0.29 | $(0.09) | -$0.38 | -131.0% | | Diluted EPS | $0.29 | $(0.09) | -$0.38 | -131.0% | Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) Unaudited Condensed Consolidated Statements of Comprehensive Income (Loss) (in thousands) | Metric | 3 Months Ended Mar 31, 2022 (in thousands) | 3 Months Ended Mar 31, 2023 (in thousands) | Change (in thousands) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------------- | | Net income (loss) | $7,029 | $(2,028) | -$9,057 | | Foreign currency translation adjustment | $20,499 | $(9,340) | -$29,839 | | Unrealized gains (losses) on marketable securities, net of tax | $(517) | $108 | +$625 | | Comprehensive income (loss) | $27,011 | $(11,260) | -$38,271 | Unaudited Condensed Consolidated Statements of Stockholders' Equity Unaudited Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric | Dec 31, 2022 (in thousands) | Mar 31, 2023 (in thousands) | Change (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total Stockholders' Equity | $1,635,790 | $1,610,429 | -$25,361 | | Retained earnings | $159,690 | $142,893 | -$16,797 | | Common stock dividends paid | N/A | $(14,769) | N/A | Unaudited Condensed Consolidated Statements of Cash Flows Unaudited Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | 3 Months Ended Mar 31, 2022 (in thousands) | 3 Months Ended Mar 31, 2023 (in thousands) | Change (in thousands) | | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | :-------------------------- | | Net cash provided by operating activities | $56,595 | $35,242 | -$21,353 | | Net cash used in investing activities | $(8,761) | $(23,285) | -$14,524 | | Net cash used in financing activities | $(21,828) | $(19,719) | +$2,109 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $28,103 | $(8,649) | -$36,752 | | Cash, cash equivalents, and restricted cash — end of period | $307,315 | $218,805 | -$88,510 | Notes to Unaudited Condensed Consolidated Financial Statements Note 1. Nature of Operations Strategic Education, Inc. provides campus-based and online post-secondary education and job-ready skills programs - Strategic Education, Inc. is an education services company providing campus-based and online post-secondary education and job-ready skills programs[18] - The company operates through three reportable segments: U.S. Higher Education (USHE), Education Technology Services, and Australia/New Zealand[19] Note 2. Significant Accounting Policies This note details the company's critical accounting policies, including revenue recognition, expense classification, and asset valuation methodologies - The financial statements are unaudited and include normal recurring adjustments, condensed or omitting certain GAAP disclosures[21] - Instructional and support costs include faculty salaries, academic administration, admissions, course development, facilities, and bad debt expense[23] - General and administration expenses include management salaries, finance, HR, legal, regulatory, marketing, advertising, and corporate facility costs[24] - Amortization of intangible assets relates to intangible assets and software from the Torrens University (ANZ) acquisition[25] - Merger and integration costs include expenses from the Capella Education Company merger and ANZ acquisition[25] - Restructuring costs include severance, personnel-related expenses, early lease termination, and impairment of right-of-use lease assets and fixed assets due to restructuring plans[26] - As of March 31, 2023, restricted cash totaled $15.481 million (current) and $0.5 million (non-current), primarily for advance tuition payments from international students in ANZ and a Pennsylvania protective endowment[29][30][31] - Marketable securities are classified as held-to-maturity (amortized cost) or available-for-sale (fair value, unrealized gains/losses in OCI), with no impairment charges recorded for the three months ended March 31, 2022 and 2023[32][33][35][71] - Tuition receivable, net, increased from $62.953 million (Dec 31, 2022) to $71.860 million (Mar 31, 2023), while allowance for credit losses decreased from $47.113 million to $45.286 million in the same period[38] - Goodwill and indefinite-lived intangible assets (trade names) are assessed annually for impairment, with no impairment charges for goodwill or indefinite-lived intangibles in Q1 2023, and finite-lived intangible assets (student relationships) are amortized over three years[44][45][46][76][77][78][79][80] - The company has 32,000,000 shares of common stock authorized, with 24,591,375 shares issued and outstanding as of March 31, 2023[48] - A regular quarterly cash dividend of $0.60 per share was declared in February 2023 and paid on March 13, 2023[49] - For Q1 2023, 593 thousand anti-dilutive shares were excluded from the diluted EPS calculation due to net loss[51] - Accumulated other comprehensive loss was $44.3 million (net of tax of $0.1 million) as of March 31, 2023, compared to $35.1 million (net of tax of $0.1 million) as of December 31, 2022[52] Note 3. Revenue Recognition This note outlines the company's revenue recognition policies, primarily focusing on tuition revenue and segment-specific contributions - Revenues primarily consist of tuition, recognized ratably over the instruction period[55] Segment Revenue (in thousands) | Segment | 3 Months Ended Mar 31, 2022 (in thousands) | 3 Months Ended Mar 31, 2023 (in thousands) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | | U.S. Higher Education | $195,766 | $196,895 | | Australia/New Zealand | $48,512 | $41,503 | | Education Technology Services | $14,577 | $18,208 | | Consolidated Revenue | $258,855 | $256,606 | - Strayer University's Graduation Fund allows students to earn tuition credits (one free course for every three completed), redeemable in the final year, with a contract liability of $45.920 million at March 31, 2023, down from $46.842 million at December 31, 2022[61][63] Note 4. Restructuring and Related Charges This note details the restructuring costs incurred, including impairment charges and severance expenses, reflecting strategic adjustments - Restructuring costs increased to $5.6 million in Q1 2023 from $1.9 million in Q1 2022[160] - Q1 2023 costs include a $3.6 million right-of-use lease asset impairment charge and higher severance expenses[69][160] - The final severance payments under the 2020 restructuring plan were made in Q3 2022[67] Note 5. Marketable Securities This note provides a breakdown of marketable securities, their fair value measurements, and related unrealized gains or losses Marketable Securities (in thousands) | Type | Amortized Cost (in thousands) | Gross Unrealized Gain (in thousands) | Gross Unrealized Losses (in thousands) | Estimated Fair Value (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Available-for-sale | $21,030 | $2 | $(570) | $20,462 | | Held-to-maturity | $16,727 | $0 | $0 | $16,727 | - Unrealized losses are primarily due to interest rate changes; no impairment charges recorded as the company does not intend to sell these securities before recovery[71] - Proceeds from maturities of marketable securities were $1.960 million in Q1 2023, up from $1.100 million in Q1 2022[72] Note 6. Fair Value Measurement This note details the fair value measurements of financial assets, categorized by valuation hierarchy levels Fair Value Measurement (in thousands) | Asset | Total Fair Value (in thousands) | Level 1 (Quoted Prices) (in thousands) | Level 2 (Observable Inputs) (in thousands) | Level 3 (Unobservable Inputs) (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Money market funds | $100,323 | $100,323 | $0 | $0 | | Available-for-sale securities | $20,462 | $0 | $20,462 | $0 | | Total | $120,785 | $100,323 | $20,462 | $0 | - No changes in valuation techniques or transfers between fair value hierarchy levels occurred during the three months ended March 31, 2022 and 2023[74] Note 7. Goodwill and Intangible Assets This note provides an overview of goodwill and intangible assets by segment, including currency translation adjustments and amortization expenses Goodwill by Segment (in thousands) | Segment | Balance Dec 31, 2022 (in thousands) | Currency Translation Adjustments (in thousands) | Balance Mar 31, 2023 (in thousands) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :---------------------------------------- | | U.S. Higher Education | $632,075 | $0 | $632,075 | | Australia / New Zealand | $519,202 | $(7,947) | $511,255 | | Education Technology Services | $100,000 | $0 | $100,000 | | Total | $1,251,277 | $(7,947) | $1,243,330 | - No impairment charges for goodwill or indefinite-lived intangible assets were recorded in Q1 2023[76][80] - Finite-lived intangible assets (student relationships) are amortized on a straight-line basis over a three-year useful life, with amortization expense at $2.7 million in Q1 2023, down from $2.9 million in Q1 2022[77] Note 8. Other Current Assets This note details the composition of other current assets, including prepaid expenses, restricted cash, and cloud computing arrangements Other Current Assets (in thousands) | Item | Dec 31, 2022 (in thousands) | Mar 31, 2023 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Prepaid expenses | $19,073 | $27,650 | | Restricted cash | $13,287 | $15,481 | | Cloud computing arrangements | $7,859 | $7,587 | | Other | $3,066 | $3,328 | | Total | $43,285 | $54,046 | Note 9. Other Assets This note outlines the components of other non-current assets, such as long-term prepaid expenses, equity method investments, and non-current tuition receivable Other Assets (in thousands) | Item | Dec 31, 2022 (in thousands) | Mar 31, 2023 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Prepaid expenses, net of current portion | $18,192 | $17,975 | | Equity method investments | $13,879 | $14,874 | | Cloud computing arrangements, net of current portion | $7,507 | $9,032 | | Other investments | $3,396 | $2,806 | | Tuition receivable, net, non-current | $2,673 | $2,539 | | Other | $4,005 | $3,954 | | Total | $49,652 | $51,180 | - Equity method investments increased from $13.879 million to $14.874 million, with a pro-rata share in net income of $0.877 million in Q1 2023[84][85] Note 10. Accounts Payable and Accrued Expenses This note details the composition of accounts payable and accrued expenses, including trade payables and accrued compensation Accounts Payable and Accrued Expenses (in thousands) | Item | Dec 31, 2022 (in thousands) | Mar 31, 2023 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Trade payables | $45,826 | $54,497 | | Accrued compensation and benefits | $32,608 | $28,330 | | Accrued student obligations and other | $12,154 | $10,320 | | Total | $90,588 | $93,147 | Note 11. Long-Term Debt This note provides information on the company's long-term debt, including the Revolving Credit Facility and compliance with its terms - Outstanding debt under the Revolving Credit Facility was $101.3 million as of March 31, 2023, slightly down from $101.4 million at December 31, 2022[95] - Interest and unused commitment fees paid increased significantly to $2.4 million in Q1 2023 from $0.4 million in Q1 2022[96] - The company was in compliance with all Amended Credit Facility terms as of March 31, 2023[95] Note 12. Other Long-Term Liabilities This note outlines the components of other long-term liabilities, such as non-current contract liabilities and asset retirement obligations Other Long-Term Liabilities (in thousands) | Item | Dec 31, 2022 (in thousands) | Mar 31, 2023 (in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Contract liabilities, net of current portion | $36,540 | $34,881 | | Asset retirement obligations | $6,283 | $5,966 | | Other | $3,183 | $3,193 | | Total | $46,006 | $44,040 | Note 13. Equity Awards This note details stock-based compensation expenses and related tax benefits from equity award arrangements - Stock-based compensation expense increased to $5.632 million in Q1 2023 from $5.068 million in Q1 2022[100] - Tax benefit related to share-based payment arrangements was $1.479 million in Q1 2023, up from $1.334 million in Q1 2022[100] Note 14. Income Taxes This note provides information on income tax expense, tax payments, and unrecognized tax benefits - Income tax expense decreased to $1.1 million in Q1 2023 from $5.2 million in Q1 2022[101] - Tax payments increased to $3.8 million in Q1 2023 from $0.5 million in Q1 2022[103] - Unrecognized tax benefits remained at $0.9 million as of March 31, 2023[102] Note 15. Segment Reporting This note presents financial data by reportable segment, including revenues and income (loss) from operations, highlighting performance variations Segment Revenues (in thousands) | Segment | 3 Months Ended Mar 31, 2022 (in thousands) | 3 Months Ended Mar 31, 2023 (in thousands) | YoY Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :--------- | | U.S. Higher Education | $195,766 | $196,895 | +0.6% | | Australia/New Zealand | $48,512 | $41,503 | -14.4% | | Education Technology Services | $14,577 | $18,208 | +24.9% | | Consolidated Revenues | $258,855 | $256,606 | -0.9% | Segment Income (Loss) from Operations (in thousands) | Segment | 3 Months Ended Mar 31, 2022 (in thousands) | 3 Months Ended Mar 31, 2023 (in thousands) | YoY Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :--------- | | U.S. Higher Education | $15,483 | $9,589 | -38.0% | | Australia/New Zealand | $(749) | $(7,182) | -859.0% | | Education Technology Services | $4,713 | $5,796 | +23.0% | | Consolidated Income (Loss) from Operations | $13,441 | $(1,349) | -110.0% | Note 16. Litigation This note discusses ongoing legal proceedings, including borrower defense applications against Capella University, and the company's assessment of potential financial impact - The company is involved in ordinary course litigation, with outcomes uncertain but not expected to have a material adverse effect on financial position, results of operations, or cash flows[109] - Capella University is subject to borrower defense applications related to alleged misrepresentations of doctoral program length, with the Department of Education joining a proposed class settlement in June 2022 for automatic relief for students at listed institutions, including Capella[110][111] - The Department stated automatic relief does not initiate recoupment proceedings against institutions, but Capella would dispute any future recovery attempts[112] Note 17. Regulation This note outlines significant regulatory developments impacting the education sector, including student loan relief, the '90/10 Rule,' and proposed Title IX changes - Student loan relief under the CARES Act has been extended, with payments resuming 60 days after program implementation or litigation resolution, or by June 30, 2023 if unresolved[115] - The American Rescue Plan Act of 2021 amended the '90/10 Rule' to include 'all federal education assistance' in the '90' side, with new regulations effective for fiscal years beginning on or after January 1, 2023, expanding the definition of federal revenue to include military tuition assistance and veteran benefits[116] - The Department of Education intends to establish rulemaking committees in 2023 to propose new regulations on distance education, deferments/forbearances, third-party servicers, cash management, return of federal funds, state authorization, and accreditation[117] - Federal Student Aid (FSA) is monitoring complaints and borrower defense applications from veterans/service members regarding deceptive recruitment and will use 'secret shoppers' to monitor compliance and identify predatory practices[119][120] - The Higher Learning Commission (HLC) and Middle States Commission on Higher Education (Middle States), accreditors for Capella and Strayer Universities, respectively, received NACIQI recommendations for five-year recognition renewal[122] - The National Council for State Authorization Reciprocity Agreements (NC-SARA) is considering policy changes, including proposals to apply more stringent standards to for-profit institutions or eliminate their participation, which could materially adversely affect Strayer and Capella Universities[123] - Proposed Title IX regulations, released in June 2022, clarify sex discrimination to include sex stereotypes, characteristics, pregnancy, sexual orientation, and gender identity, and eliminate live hearing requirements at the post-secondary level, with a final rule expected in May 2023[124] - Department guidance expanded the definition of third-party servicers and covered activities, with the effective date delayed until six months after new, revised final guidance, and litigation challenging this guidance is ongoing[125] - Capella University executed a fully certified Program Participation Agreement with the Department of Education, approving continued participation in Title IV programs through September 30, 2025[126] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and operational results for the three months ended March 31, 2023, compared to the prior year, detailing segment performance, critical accounting policies, and liquidity, highlighting a consolidated net loss driven by lower USHE earnings, higher ANZ losses, and increased restructuring costs Background Strategic Education, Inc. is an education services company focused on high-quality education and job-ready skills, operating through its various university and technology service segments - Strategic Education, Inc. (SEI) is an education services company focused on high-quality education and job-ready skills, operating through Strayer University, Capella University (US), and Torrens University (Australia)[131] - The Education Technology Services segment builds employer education benefits programs, serving as a key source of student enrollment for USHE institutions[131] Segments Overview This overview details enrollment trends, persistence rates, and strategic initiatives across the U.S. Higher Education, Education Technology Services, and Australia/New Zealand segments - U.S. Higher Education (USHE) enrollment increased 2.3% to 79,935 in Q1 2023 (vs. 78,172 in Q1 2022)[136] - Trailing 4-quarter student persistence within USHE was 87.4% in Q4 2022, up from 86.8% in Q4 2021[136] - Trailing 4-quarter government grants and loans per credit earned decreased 6.2% as of Q4 2022, influenced by growing employer-affiliated enrollment and alternative pathways[133] - Employer-affiliated enrollment as a percentage of USHE enrollment increased to 26.3% in Q1 2023 (vs. 23.0% in Q1 2022)[137] - Education Technology Services supports employer partners via Workforce Edge and Sophia Learning, offering education benefits administration and low-cost online courses[137] - Australia/New Zealand (ANZ) enrollment decreased 6.3% to 19,269 in Q1 2023 (vs. 20,575 in Q1 2022)[138] - The ANZ segment comprises Torrens University, Think Education, and Media Design School, offering certificate and degree programs across various fields[107][138] Critical Accounting Policies and Estimates This section highlights the significant management estimates and judgments involved in preparing the financial statements, including allowances, tax provisions, and asset valuations - Management makes significant estimates for allowance for credit losses, income tax provisions, useful lives of property and equipment and intangible assets, redemption rates for scholarship programs and valuation of contract liabilities, fair value of right-of-use lease assets, incremental borrowing rates, valuation of deferred tax assets, goodwill, and intangible assets, forfeiture rates and achievability of performance targets for stock-based compensation plans, and accrued expenses[140] - Approximately 96% of Q1 2023 revenues were tuition-related, recognized ratably over the course of instruction[142] - Bad debt expense was 3.8% of revenue in Q1 2023, up from 2.8% in Q1 2022, with a 1% change in allowance for credit losses impacting income from operations by approximately $1.2 million[150] - No impairment charges for goodwill or finite-lived intangible assets were recorded in Q1 2023[151][152] Results of Operations This section analyzes the company's financial performance for the quarter, detailing revenue, expenses, and segment-specific income (loss) from operations Key Financial Metrics (in millions, except EPS) | Metric | Q1 2022 (in millions) | Q1 2023 (in millions) | YoY Change | | :-------------------------- | :-------------------------- | :-------------------------- | :--------- | | Revenue | $258.9 | $256.6 | -0.9% | | Income (loss) from operations | $13.4 | $(1.3) | -110.0% | | Net income (loss) | $7.0 | $(2.0) | -128.8% | | Diluted EPS | $0.29 | $(0.09) | -131.0% | - Consolidated revenue decreased primarily due to timing of ANZ academic terms and unfavorable foreign currency, partially offset by USHE enrollment growth[155] - USHE revenue increased 0.6% to $196.9 million, driven by 2.3% enrollment growth, despite lower revenue per student[155] - ANZ revenue decreased 14.4% to $41.5 million, due to academic term timing and unfavorable foreign currency impacts[155] - Education Technology Services revenue increased 24.9% to $18.2 million, due to Sophia Learning growth and higher employer-affiliated enrollment[156] - Instructional and support costs increased to $152.9 million (59.6% of revenue) from $144.6 million (55.9% of revenue), due to higher bad debt, student material, and technology costs[157] - General and administration expenses increased to $95.5 million (37.2% of revenue) from $94.8 million (36.6% of revenue), due to increased investments in branding initiatives[158] - Restructuring costs increased to $5.6 million from $1.9 million, primarily due to a $3.6 million right-of-use lease asset impairment charge and higher severance expenses[160] - USHE income from operations decreased to $9.6 million from $15.5 million, due to increased marketing investments[161] - ANZ loss from operations increased to $7.2 million from $0.7 million, due to lower revenue, increased marketing, and unfavorable foreign currency impacts[161] - Education Technology Services income from operations increased 23.0% to $5.8 million from $4.7 million, due to growth in Sophia Learning and employer-affiliated enrollment[161] - Other income (expense) shifted from a $1.2 million expense to a $0.4 million income, driven by increased investment and interest income, partially offset by higher interest expense[162] Non-GAAP Financial Measures This section presents non-GAAP financial measures, providing adjusted insights into the company's operational performance by excluding certain non-recurring or non-cash items Adjusted Financial Metrics (in millions, except EPS) | Metric | Q1 2022 (Adjusted) (in millions, except EPS) | Q1 2023 (Adjusted) (in millions, except EPS) | YoY Change | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :--------- | | Adjusted Income from Operations | $19.4 | $8.2 | -57.7% | | Adjusted Operating Margin | 7.5% | 3.2% | -4.3 pp | | Adjusted Net Income | $13.1 | $5.8 | -55.7% | | Adjusted Diluted EPS | $0.54 | $0.24 | -55.6% | - Non-GAAP adjustments exclude amortization of intangible assets, merger/integration costs, restructuring costs, income/loss from partnership and other investments, and discrete tax adjustments[172] - On a constant currency basis, Q1 2023 adjusted revenue would be $259.584 million and adjusted net income $5.902 million[177] Liquidity and Capital Resources This section discusses the company's cash position, cash flow activities, and capital allocation strategies, including dividends and share repurchases - Cash, cash equivalents, and marketable securities totaled $240.0 million at March 31, 2023, compared to $235.9 million at December 31, 2022, and $321.5 million at March 31, 2022[178] - Net cash provided by operating activities decreased to $35.2 million in Q1 2023 from $56.6 million in Q1 2022, due to lower earnings, increased working capital use, and higher tax payments[181] - Net cash used in investing activities increased to $23.3 million in Q1 2023 from $8.8 million in Q1 2022, primarily due to $17.1 million in marketable securities purchases[182] - Net cash used in financing activities decreased to $19.7 million in Q1 2023 from $21.8 million in Q1 2022, mainly due to a $4.0 million decrease in common stock repurchases[183] - The company paid $14.8 million in cash dividends in Q1 2023 ($0.60/share)[184] - $246.8 million of share repurchase authorization remained as of March 31, 2023, valid through December 31, 2023[184] - The company believes existing cash, operating cash flow, and the Amended Credit Facility will be sufficient to meet its cash requirements for the next 12 months and beyond[186] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section assesses the company's exposure to market risks, specifically interest rate risk and foreign currency risk, and outlines potential impacts on financial performance Interest Rate Risk This section analyzes the company's exposure to fluctuations in interest rates and their potential impact on earnings and debt obligations - A 1% increase or decrease in interest rates would not materially impact future earnings, fair values, or cash flows related to cash equivalents or interest-earning marketable securities[187] - Outstanding debt under the Amended Credit Facility was $101.3 million at March 31, 2023, bearing LIBOR-based interest plus a margin[188] - A 100 basis point increase in LIBOR would result in an incremental $3.5 million in annual interest expense if the entire $350 million Revolving Credit Facility were utilized[189] - The Revolving Credit Facility includes mechanisms for replacing LIBOR, with no expected material difference[190] Foreign Currency Risk This section evaluates the company's exposure to foreign currency exchange rate fluctuations, particularly for revenues denominated in non-USD currencies - Revenues denominated in non-USD currencies (primarily AUD) accounted for 16.2% of consolidated revenues in Q1 2023[191] - A hypothetical 10% adverse change in average foreign currency exchange rates would decrease consolidated revenues by approximately $4.2 million[191] - The effect of exchange rate changes on cash, cash equivalents, and restricted cash was a decrease of $0.9 million in Q1 2023[191] - The company does not use foreign exchange contracts or derivatives to hedge foreign currency exposures[191] Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the company's disclosure controls and procedures as of March 31, 2023, concluding they were effective, with no material changes to internal control over financial reporting occurring during the quarter - Disclosure controls and procedures were deemed effective as of March 31, 2023, ensuring timely and accurate reporting[193] - No material changes in internal control over financial reporting occurred during Q1 2023[193] PART II — OTHER INFORMATION Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, including borrower defense applications against Capella University, and while outcomes are uncertain, management believes these matters will not have a material adverse effect on the company's financial position, results of operations, or cash flows - The company accrues for estimated costs when probable and estimable, and currently believes no material adverse effect from litigation[194] - Refers to Note 16 for additional details on legal proceedings, including borrower defense applications against Capella University[194] Item 1A. Risk Factors This section highlights potential risks that could materially affect the company's business, stock price, or investment value, emphasizing the importance of maintaining state authorizations for its universities and the potential impact of proposed changes to the State Authorization Reciprocity Agreement (SARA) - No material changes to risk factors from the 2022 Form 10-K, except for a revised risk factor regarding state authorizations[195] - Failure of Strayer University or Capella University to maintain state authorizations could limit operations and Title IV program participation, materially adversely affecting the business[196][197][198] - Proposed changes to NC-SARA policies, such as applying more stringent standards to for-profit institutions or eliminating their participation, could have a material adverse effect on Strayer University, Capella University, and the Company[203] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock under its repurchase program during the three months ended March 31, 2023, with $246.8 million remaining authorization through December 31, 2023 - No common stock repurchases were made in Q1 2023[204] - $246.8 million of share repurchase authorization remained as of March 31, 2023, valid through December 31, 2023[204] Item 3. Defaults Upon Senior Securities No defaults upon senior securities were reported - No defaults upon senior securities were reported[205] Item 4. Mine Safety Disclosures This item is not applicable to the company - This item is not applicable to the company[205] Item 5. Other Information This section details the results of the 2023 Annual Meeting of Stockholders, where all four proposals, including the election of directors and advisory votes on executive compensation, were passed, and notes an amendment to Robert S. Silberman's employment agreement in connection with his transition to Chairman - All four proposals submitted at the 2023 Annual Meeting of Stockholders on April 26, 2023, were passed[206] - Robert S. Silberman's employment agreement was amended and restated for his transition from Executive Chairman to Chairman, setting a five-year term, an annual base salary of $800,000, and eligibility for equity incentive compensation[210] Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including amended articles of incorporation, bylaws, an amended employment agreement, and various certifications - Includes Amended and Restated Articles of Incorporation, Amended and Restated Bylaws, and Amended and Restated Employment Agreement for Robert S. Silberman[211] - Certifications from CEO and CFO (Rule 13a-14(a), 18 U.S.C. Section 1350) are included[211] - Inline XBRL documents are also listed[211] SIGNATURES The report was duly signed on behalf of Strategic Education, Inc. by Daniel W. Jackson, Executive Vice President and Chief Financial Officer, on April 28, 2023 - The report was signed by Daniel W. Jackson, Executive Vice President and Chief Financial Officer, on April 28, 2023[215]