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Student Retention Advising
Once a student enrolls in an online program, the institutionZovio provides consistent, ongoing support to assist the student in acclimating to the online environment and to address challenges that arise in order to increase the likelihood that the student will persist through graduation.
Providing a superior learningstudent support experience to every student is a key component in retaining students at our institutions.students. We believe that our team-based approach to recruitment and the robust student services we provide enhance retention because of the quality of each student'sstudent’s interaction with his or her team and the accountability inherent in the team structure. We also incorporate a systematic approach to contacting students at key milestones during their experience, at our institutions, providing encouragement and highlighting their progress. There are frequent personal interactions between academic advisors and students, which we view as a key component to our retention strategy. Ashford University hasWe have a retention committeeteam that monitors performance metrics and other key data to analyze student retention rates, as well as the causes of and potential risks for student drops. In addition,
Marketing and communication
Marketing and communication services consist primarily of lead acquisition, digital communication strategies, brand identity advertising, media planning and strategy, video, data science and analysis, marketing to potential students and other promotional and communication services.
We have invested significant resources in developing processes and implementing technologies that allow us to effectively identify, recruit and retain qualified students. We develop and participate in various marketing activities to generate leads for prospective students and to build the Zovio and university brands.
For the online student population, our dispute resolution department serves as a neutral third party for students to raise any concerns or complaints. Such concerns and complaintsuniversity partners align themselves with working adults, many of whom have already completed some postsecondary courses. The admissions policies are then elevated to the appropriate department.
The branding campaigns utilize digital channels to communicate their message, and leads are generated from online sources. We also purchase keywords from search providers to generate online leads directly, rather than acquiring them solely through aggregators. Additionally, we have a team internally who focuses on generating online leads through search engine optimization techniques.
Environmental, Social and Governance Programs
Environmental, social and governance (“ESG”) refers to three central factors in measuring the sustainability and societal impact of an investment in our Company. These criteria, and the activities making up each area, have long been a part of the way we operate. The way we approach sustainability at our facilities, how we interact with our communities, the processes by which we make our decisions and our people-first culture all contribute to our ESG program.
Environmental Matters
We provide our services primarily online, classroom experience, prepare them for successwhich inherently results in their coursesa friendlier impact on the environment. As a leader in education technology services, we can help drive sustainability through our products and help them self-evaluate their readinessservices. Our programs are 100% online, and courseware is 100% digital.
Optimizing and conserving our resources through sustainable practices are at the center of our Company’s focus on the environment. With a mindset of continuous improvement, we focus on sustainability by using industry-leading technologies within our facilities to succeedminimize the impact on the environment where applicable. We have many initiatives in an online college setting. The experiencethe areas of conserving energy and reducing waste at our facilities. Our Arizona-based headquarters is 130,000 square-feet and generates approximately 480kWh of solar power annually that provides a realistic, up-front overview of expectations so that students are aware of what is expected of them as they prepare for their studies. Students also gain an understanding of how to access and navigate within the online classroom so they can feel confident when they move to their first course in their respective programs. For students taking the orientation course, successful completionat least 30% of the orientationbuilding's electricity needs. The facility also includes 24 electric car charging stations on site, and energy-efficient LED lighting throughout the building. Additionally, there is required before they can begin their first class.an approximately 100 square foot biophilic plant wall in the building. Efforts such as this helped us in being awarded the 2020 Arizona Red Award for Office Interiors Project of the Year. We have also identified and implemented methods that improve resource conservation and maintain compliance with the U.S. Green Building Council, in addition to federal, state, and local regulations.
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Human Capital Management and Social Awareness
A key pillar of our corporate strategy is attracting, developing, and retaining top talent with a shared purpose to help everyone be in a class of their own. The Company is committed to building a culture where ambitious individuals can come together to create innovative solutions for a brighter future. We subscribe to a set of beliefs—make meaningful connections, craft exceptional experiences, all voices matter, develop bold ideas—that guide how we interact, champion change, and inspire others.
In 2020 and 2021, the COVID-19 pandemic had a direct impact on our employees. We pivoted the vast majority of our workforce to remote work with minimal disruption while reducingimplementing additional safety measures for employees conducting critical on-site work. Despite the financialchallenging economic realities brought on by the pandemic, Zovio hired almost 600 employees in fiscal year 2021, hiring workers from many of the community’s hardest-hit industries. To minimize risk to employees, the student.
As of December 31, 2017,2021, the Company and institutions alsoits subsidiaries employed approximately 2,200 combined non-faculty1,400 individuals, 1,365 of which were full-time. This includes staff in the areas of university services, academic advising and academic support, enrollment services, university administration, financial aid, marketing, information technology, human resources, legal and compliance, external affairs, corporate accounting, finance and other administrative functions. NoneAt the conclusion of 2021, Zovio’s workforce was 57% female and 43% male and women represented 52% of those in leadership roles.
To attract, retain, and inspire our talent, we offer fair, competitive compensation and award-winning benefits programs that support our employees through the entire employee lifecycle. Our compensation and benefits program includes: base pay, short-term incentives, cash and stock-based long-term incentives, an employee savings plan that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended, with an employer match, an employee stock purchase plan, health and wellness benefits, health savings accounts, flexible spending accounts, paid time off, paid parental leave, an award winning wellness program and an employee assistance program. Additionally, we offer an on-site gym and café with healthy food alternatives, a fully-staffed Health and Wellness Center, lifestyle coaching, ergonomic programs, and financial education and coaching to help employees reach their personal financial goals. The Company also benchmarks positions and regularly reviews the design of employee compensation and benefits programs to ensure we remain competitive with the market. We undertake an external third-party facilitated pay equity analysis annually and conduct regular internal assessments on pay disparities and make adjustments as necessary.
Creating a culture that embraces diversity, where all employees feel supported and valued, is paramount to delivering innovative solutions to our university partners and students. Our employees participate in an annual survey to measure overall engagement. In 2021, 87% of Zovions reported that they feel cared about as a partyperson and 74% reported that they intend to anystay at Zovio.
In 2021, we launched “Belonging @ Zovio” – our Diversity and Inclusion strategy. One of its key pillars is “bringing collective bargaining voices together” which is activated by connecting those with similar interests and passions through Employee Resource Groups. These groups focus on professional development & networking opportunities, volunteer activities, raising awareness, and providing insights that inform our products and services.
The Company is committed to developing its people where employees are empowered to drive their own career progression. The Company provides training to its employees annually, focusing on on-the-job development and on-demand learning. For those interested in taking on leadership roles, our Leadership Education and Development LEAD program is designed to provide new leaders with the basic tenants of leading, ensuring they are well-supported as they take on this important role in the organization.
To support personal and professional growth, Zovio offers employees an opportunity to obtain their bachelor’s and/or similar agreementmaster’s degree for free through Global Campus. The Company also has several tuition reimbursement programs. We provide a tuition benefit, up to $5,250 annually, alongside a College Savings 529 Plan and Student Debt Repayment program for eligible employees. We also offer free online tutoring services for employees and their dependents as many parents turned to virtual learning during the COVID-19 pandemic.
During 2021, Zovio supported the Arizona Coronavirus Relief Fund, Chandler Chamber of Commerce’s COVID-19 Relief Program, United Way Workplace Campaign, food drives, community laptop drives, and provided materials to support online instruction to our educational partners.
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We understand the life-changing impact that education resources can have on individuals, no matter their background, experience, or career goals. Zovio supports nonprofit organizations aligned with us.our pillars of “Opportunities for All” and “Learning Beyond the Classroom” through our Corporate Giving program. In 2021, Zovio supported various educational partners including Arizona Tech Council, Greater Phoenix Chamber Foundation, Jobs for Arizona’s Graduates, Center for the Future of Arizona, Wounded Warriors Project, and The Johnston Family Foundations for Urban Agriculture. All Zovio employees are provided 16 hours of paid time off to volunteer at nonprofit organizations of their choice. In 2021, Zovio employees logged more than 3,100 volunteer hours, either virtually or in person.
Our culture is anchored in a long-standing commitment to giving back to the communities in which our employees live and work. Since 2005, the Company has donated over $11 million in charitable contributions. Our employees have collectively given 160,000 hours in volunteer efforts and have generously donated over $2.2 million through workplace giving campaigns.
Governance Standards
Management of the Company is led by talented leaders with deep experience in education and technology. The Board of Directors of the Company (the “board”) sets high standards for the Company’s employees, officers and directors. Implicit in this philosophy is the importance of sound corporate governance. It is the duties of the board to serve as a prudent fiduciary for stockholders and to oversee the management of the Company’s business. To fulfill its responsibilities and to discharge its duty, the board follows the procedures and standards that are set forth in the Corporate Governance Guidelines, committee charters and other governance documents, which can be viewed on our corporate website at www.ir.zovio.com.
Segment Information
Prior to December 1, 2020, the Company operated in one segment for reporting purposes. Following the Sale Transaction on December 1, 2020, we now operate our business in two reportable segments, including the University Partners Segment and the Zovio Growth Segment. The Company’s reportable segments are determined based on (i) financial information reviewed by the chief operating decision maker, the Chief Executive Officer (“CODM”), (ii) internal management and related reporting structure, and (iii) the basis upon which the CODM makes resource allocation decisions. University Partners includes the technology and services provided to colleges and universities to enable the online delivery of degree programs. The inaugural partner in the University Partners Segment is Global Campus. The Zovio Growth Segment includes our other subsidiaries, including Fullstack and TutorMe.
Seasonality
Our operations are generally subject to seasonal trends. Our university partner generally experiences a seasonal increase in new enrollments during the first quarter of each year, subsequent to holiday break, as well as during the third quarter each year, when most other colleges and universities begin their fall semesters. While our university partner enrolls students throughout the year, the fourth quarter revenue generally is lower than other quarters due to the holiday break in December, with a relative increase in the first quarter of each year.
Competition
The education technology services market is fairly new, with no individual company representing a significant market share. The postsecondary education market is also highly fragmented and competitive, with no private or public institution representing a significant market share. Our institutions compete primarily with public and private degree-granting regionally accredited colleges and universities. Many colleges and universities enroll working adults, in addition to traditional 18 to 24 year-old students. Many of those colleges and universities offer a variety of distance education and online initiatives.
Intellectual Property
We rely on a combination of copyrights, trademarks, service marks, patents, trade secrets, domain names and agreements with employees and third parties to protect our intellectual property rights. We have trademark and service mark registrations and pending applications for additional registrations in the United States and select foreign jurisdictions. We also own the domain name rights for our institutions, as well as other words and phrases important to our business. In addition, we have applied for domestic and international patents for certain technology developed by us. We also have registered copyrights for exemplary business course materials. In manycertain instances, our institutions' course content is produced by faculty and other content experts under work-for-hire agreements pursuant to which we own the course content in return for a fixed development fee. In certain limited cases, course content is licensed from third parties on a royalty fee basis.
We believe our facilities are in material compliance with federal, state and local laws and regulations that have been enacted or adopted regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment. Compliance with these laws and regulations has not had, and is not expected to have, a material effect on our capital expenditures, results of operations or competitive position.
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Additional Information
We were incorporated in Delaware in May 1999 under the name TeleUniversity, Inc. andIn February 2004, we changed our name to Bridgepoint Education, Inc., and in February 2004.April 2019, we changed our name to Zovio Inc. Our website is located at www.bridgepointeducation.com.www.zovio.com. We make available free of charge on our website our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The website for the SEC is located at www.sec.gov. The reference to our website is intended to be an inactive textual reference and the contents of our website are not incorporated by reference into, or in any way a part of, this report.
Institutions that participate in Title IV programs are subject to an extensive regulation by a varietyset of agencies. These agencies include WSCUC, the agency that accredits Ashford University,laws and HLC, the agency that accredits University of the Rockies. Accrediting agencies provide an independent assessment of educational quality. Our institutions are also subject to regulation by educational licensing authorities in states where our institutions are physically located or conduct certain operations. We are also subject to regulation by the Department due to our participation in Title IV programs.regulations. To participate in Title IV programs, a schoolan institution must maintain authorization by the state education agency or agencies where it is physically located, be accredited by an accrediting agency recognized by the Department and be certified by the Department as an eligible institution. Institutions that participate in Title IV programs are subject toAccrediting agencies provide an extensive setindependent assessment of laws and regulations.educational quality. The laws, regulations and standards of WSCUC, HLC,an accrediting body, the Department and state agencies affect the vast majority of our institutions'university partner operations.
Accreditation
Accreditation is important to our institutionsan institution, as it establishes comprehensive criteria designed to promote educational quality and effectiveness. Accreditation also represents a public acknowledgment by a recognized independent agency of the quality and effectiveness of our institutions and theiran institution’s programs. It also facilitates the transferability of educational credits when students transfer to or apply for graduate school at other regionally accredited colleges and universities. The Department relies on accreditation as an indicator of educational quality and effectiveness in determining an institution'sinstitution’s eligibility to participate in Title IV programs, as do certain corporate and government sponsors in connection with tuition reimbursement and other student aid programs.
On November 12, 2020, WSCUC approved the substantive change of control application filed to complete the Sale Transaction, subject to certain conditions.
On December 1, 2020, the parties to the Purchase Agreement entered into Amendment No. 1 to the Purchase Agreement, pursuant to which, it is physically located. Ashfordamong other things, the University was approvedof Arizona and Global Campus waived the closing condition regarding issuance of a pre-acquisition review notice by the BPPEDepartment. Under the terms of the Purchase Agreement, the Closing was subject to operatecustomary closing conditions for transactions in California until July 15, 2018.this sector. As a result, the university is subject to laws and regulations applicable to private, postsecondary educational institutions located in California, including reporting requirements related to graduation, employment and licensing data, certain changes of ownership and control, faculty and programs, and student refund policies. Ashford also remains subject to other state and federal student employment data reporting and disclosure requirements.
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Department Regulation of Title IV Programs
To be eligible to participate in Title IV programs, an institution must comply with the Higher Education Act and the regulations thereunder that are administered by the Department. Among other things, the law and regulations require that an institution (i) be licensed or authorized to offer its educational programs by the states in which it is physically located, (ii) maintain institutional accreditation by an accrediting agency recognized for such purposes by the Department and (iii) be certified to participate in Title IV programs by the Department. Our institutions' participationParticipation in Title IV programs subjects them toallows for extensive oversight and review pursuant to regulations promulgated by the Department. Those regulations are subject to revision and amendment from time to time by the Department. The Department'sDepartment’s interpretation of its regulations likewise is subject to change. As a result, it is difficult to predict how Title IV program requirements will be applied in all circumstances.
An institution must periodically seek recertification from the Department to continue to participate in Title IV programs and may, in certain circumstances, be subject to review by the Department prior to seeking recertification. The University of the Rockies is certified until March 21, 2019 and is required to submit its reapplication for continued certification by December 31, 2018. On October 20, 2017, Ashford University received an updated Program Participation Agreement from the Department. Based on the updated Program Participation Agreement, Ashford University is provisionally certified to participate in Federal Student Financial Aid Programs until December 31, 2018. Ashford University was previously eligible to participate on a month-to-month basis while its reapplication for certification was pending with the Department. As a result of the updated Program Participation Agreement, Ashford University’s previously pending educational programs have been approved and Ashford University is required to submit its reapplication for continued certification by September 30, 2018. During the time when an institution is provisionally certified, it may be subject to adverse action with fewer due process rights than those afforded to other institutions, and it must apply for and receive approval from the Department for any substantial change including but not limited to the establishment of an additional location, an increase in the level of academic offerings, or the addition of certain programs.
Borrower Defense to Repayment
On June 14, 2017,March 15, 2019, the Department announced a postponementissued guidance for the implementation of parts of the defenseregulations. The guidance covers an institution’s responsibility in regard to reporting mandatory and discretionary triggers as part of the financial responsibility standards, class action bans and pre-dispute arbitration agreements, submission of arbitral and judicial records, and repayment regulations and its intention to resubmitrates.
On August 30, 2019, the Department finalized the regulations throughderived from the negotiated rulemaking process. The Department announced an additional postponement on October 24, 2017. On February 14, 2018, the Department announced they are postponing the effective date of this rule until July 1, 2019 so they can complete the2017-2018 negotiated rulemaking process and developsubsequent public comments. This version of the new regulations. While rulemaking occurs,borrower defense regulations applies to all federal student loans made on or after July 1, 2020, and, among other things: grants borrowers the right to assert borrower defense to repayment claims against institutions, regardless of whether the loan is in default or in collection proceedings; allows borrowers to file defense to repayment claims three years from either the student’s date of graduation or withdrawal from the institution; and gives students the ability to allege a specific amount of financial harm and to obtain relief in an amount determined by the Department, will continuewhich may be greater or lesser than their original claim amount. The regulations also include financial triggers and other factors for recalculating an institution’s financial responsibility composite score that differ from those in the 2016 regulations.
On March 18, 2021, the Department announced it would adopt a streamlined approach for granting full debt relief to process claims underborrowers reversing the currentmethodology first announced in December 2019 that allowed for partial student loan cancellation for borrowers. The Department determined that the previous methodology did not result in an appropriate relief determination.
In July 2020, the Department notified the Company that they would be initiating a preliminary review of borrower defense rules. We will continue to monitor changesapplications from borrowers who made claims regarding the University. As part of the initial fact-finding process, the Department sent individual student claims to the existing regulations that may arise asUniversity and allowed the institution to submit a resultresponse to the individual borrower’s claim. In 2020, the Company received and timely responded to the submitted claims. The Company has responded to each individual student claim received and cannot predict the outcome of negotiated rulemaking.the Department's review at this time.
Potential sanctions for noncompliance with Title IV regulations
The Department can impose sanctions for violating the statutory and regulatory requirements of Title IV programs, including:
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•transferring an institution from the advance method or the heightened cash monitoring level one method of Title IV payment, each of which permit the institution to receive Title IV funds before or concurrently with disbursing them to students, to the heightened cash monitoring level two method of payment or to the reimbursement method of
payment, each of which delay an institution'sinstitution’s receipt of Title IV funds until student eligibility has been verified by the Department;
•imposing a monetary liability against an institution in an amount equal to any funds determined to have been improperly disbursed or not to have been properly returned upon student withdrawal;
•requiring an institution to post a letter of credit in favor of the Department as a condition for continued Title IV eligibility;
•initiating proceedings to impose a fine or to limit, suspend or terminate an institution'sinstitution’s participation in Title IV programs;
•referring a matter for possible civil or criminal investigation;
•failing to grant an institution'sinstitution’s application for renewal of its certification, or revocation of an institution'sinstitution’s provisional certification, to participate in Title IV programs, or imposing conditions on its participation in Title IV programs; or
•taking emergency action to suspend an institution'sinstitution’s participation in Title IV programs without prior notice or a prior opportunity for a hearing.
Privacy of student records
The Family Educational Rights and Privacy Act of 1974 (“FERPA”) and the Department'sDepartment’s FERPA regulations require educational institutions to, among other things, protect the privacy of students'students’ educational records by limiting an institution'sinstitution’s disclosure of a student'sstudent’s personally identifiable information without the student'sstudent’s prior written consent. If an institution fails to comply with FERPA, the Department may require the institution to take corrective action or may terminate the institution'sinstitution’s receipt of federal funds. Educational institutions are also obligated to safeguard student information pursuant to the Gramm-Leach-Bliley Act (“GLBA”), which requires an institution to, among other things, develop and maintain a comprehensive written information security program designed to protect against the unauthorized disclosure of personally identifiable financial information of students, parents or other individuals with whom such institution has a customer relationship. If an institution fails to comply with the applicable GLBA requirements, it may be required to take corrective action, be subject to monitoring and oversight by the FTC,Federal Trade Commission (“FTC”), and be subject to fines or penalties imposed by the FTC.
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Item 1A. Risk Factors.Factors
Investing in our common stock involves risk. Before making an investment in our common stock, you should carefully consider the risk factors set forth below, as well as the other information contained in this Annual Report on Form 10-K, including our annual consolidated financial statements and the information set forth in Part I, Item 1, “Business” and Part II, Item 7, “Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The risks described below are those which we believe are the material risks we face.
Upon the consummation of the Sale Transaction on December 1, 2020 (as discussed in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), we became a service provider of education services to Global Campus, our inaugural university client. Accordingly, we have set forth below additional material risks to reflect those factors now applicable to our new business operations. Given that our revenue from operations is currently derived primarily from our contractual relationship with Global Campus, the risk factors include risks attributable to Global Campus operating as a non-profit university, which could materially affect our business. Through December 1, 2020, we were the owner of a for-profit university and certain of the risk factors set forth below are the risks associated with that business.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may impact our business operations. Any of the risks described below could materially adversely affect our business, prospects, financial condition, cash flows and results of operations. In these circumstances, the trading price of our common stock could decline and you could lose all or part of your investment.
Risks Related to the Sale Transaction and Change in the Structure of Our Operations
The Sale Transaction with the University of Arizona and Global Campus, is subject to certain terms and conditions that if not achieved, could disrupt our business.
In connection with the closing of the Sale Transaction, the Company and Global Campus entered into a long-term Services Agreement pursuant to which the Company will provide recruiting, financial aid, counseling, institutional support, information technology, and academic support services to Global Campus. The Services Agreement has an initial term through June 30, 2036, subject to renewal options, although Global Campus has the right to terminate the Services Agreement after its fiscal year ending June 30, 2028 subject to the payment of a termination fee equal to one-hundred (100%) of the services fees paid to the Company in the trailing twelve (12) month period (payable half in cash and half in an unsecured note).
In return for providing services under the Services Agreement, Global Campus, after covering its direct costs of operations (which may not be increased by more than 2% per year), will pay to the Company services fees equal to the Company’s direct costs to provide the services plus an additional amount equal to 19.5% of Global Campus’s tuition and fees revenue. If, following its fiscal year ending June 30, 2028, Global Campus’s tuition and fees revenue is $440.0 million or less, then the Company’s revenue share percentage is subject to decrease on a sliding scale to between 18.1% and 15.5%, subject to increase back up to 19.5% if, in any subsequent fiscal year, Global Campus’s tuition and fees revenue again exceeds $440.0 million. In addition, the parties to the Services Agreement have agreed on certain minimum profit levels to be achieved by Global Campus after payment of the Company’s services fees of $0 for the period ending June 30, 2021, $0 for Global Campus’ fiscal year ending June 30, 2022, $12.5 million for the fiscal year ending June 30, 2023, $25.0 million for the fiscal years ending June 30, 2024, 2025 and 2026, and $10.0 million for each fiscal year thereafter through the remainder of the initial term; subject to certain limitations, the Company is required to adjust its fees in any year to the extent necessary for Global Campus to achieve such minimum levels. In addition, in accordance with the conditions of the WSCUC approval, the Services Agreement incorporates identified key performance indicators, all as mutually agreed upon the parties.
On an annual basis, immaterial cash penalties could arise from not meeting individual key performance indicators. However, breaches of these key performance indicators over a multi-year period could have a material impact on our business, financial condition and results of operations.
Following the Sale Transaction, we are subject to various risks and uncertainties arising out of the changes in the structure of our operations, any of which could materially and adversely affect our business and operations, and our stock price.
Following the Sale Transaction, various aspects of our operations have changed in important ways. We are no longer the owner and operator of a regulated institution of higher education, but we are now an education technology service provider. While the services we provide were part of our business prior to the Sale Transaction, we have no experience operating solely as an education technology service provider to third parties.
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Initially, substantially all of our revenue is derived pursuant to the Services Agreement. Accordingly, Global Campus’ ability to increase its enrollment and tuition and fee revenue, and our ability to continue to perform the services necessary to enable Global Campus to achieve such goals, will be critical to the success of our services business.
If we are unable to successfully re-focus our business to providing education technology services to third-party education providers, or if the Services Agreement fails to achieve the anticipated levels of performance, then our business, financial condition and results of operations, as well as our stock price, could be materially and adversely affected.
If the University is found to have violated any regulatory requirement while we owned and operated it, we remain responsible for any liabilities arising from such violation, either directly or because of our obligation to indemnify Global Campus, and the payment of any such damages or fines could materially and adversely affect our business and operations, and our stock price.
Following the Sale Transaction, we retained all liabilities associated with the University during the time we owned and operated it and agreed to indemnify Global Campus for such matters if the University is found liable for violations during such period, including regulatory non-compliance. Should violations be determined, we may be required to either pay such liabilities directly or indemnify Global Campus. Such payments could be substantial and could adversely affect us.
If the Department does not recertify Global Campus to continue participating in the Title IV programs, Global Campus' students would lose their access to Title IV program funds, or there could be significant limitations as a condition of Global Campus' continued participation in the Title IV programs, and as a service provider, our business, financial condition and results of operations, as well as our stock price, could be materially and adversely affected.
Institutions are required to seek recertification from the Department on a regular basis in order to continue their participation in Title IV programs. An institution must also apply for recertification by the Department if it undergoes a change in control, as defined by the Department regulations, and may be subject to similar review if it expands its operations or educational programs in certain ways. There can be no assurance that the Department will recertify Global Campus or that the Department will not impose conditions or other restrictions as a condition of granting Global Campus a provisional certification. If the Department does not renew, or withdraws, the certification of Global Campus to participate in the Title IV programs at any time, students would no longer be able to receive Title IV program funds. Similarly, the Department could renew Global Campus’ certification, but restrict or delay its students’ receipt of Title IV funds, limit the students to whom Global Campus could disburse funds, decline to approve Global Campus as a nonprofit institution for Title IV purposes, or place other restrictions on Global Campus.
Any of these outcomes could have a material adverse effect on us. We no longer own or operate the University, and we no longer participate in the Title IV programs as an institution. However, we face the risks discussed above in connection with providing services as a third-party education technology services provider, including adverse effects on our business and operations from a reduction or loss in our revenues under the Services Agreement.
If we are determined to have paid improper incentive compensation to our covered employees, or tuition sharing arrangements are deemed to violate the incentive compensation regulations, our business will be impaired.
An institution that participates in the Title IV programs may not provide any commission, bonus, or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in student recruitment, admissions, or financial aid awarding activity. Current regulations provide that higher education institutions agree that it will not provide any commission, bonus, or other incentive payment based in any part, directly or indirectly, upon success in securing enrollments or the award of financial aid, to any person or entity who is engaged in student recruitment or admission activity, or in making decisions regarding the award of Title IV, HEA program funds. Pursuant to this regulation, we are prohibited from offering our covered employees, which are those employees involved with or responsible for recruiting or admissions activities, any bonus or incentive-based compensation based on the successful recruitment, admission or enrollment of students into a postsecondary institution. We are also precluded from offering our covered employees that work on financial aid matters (if any), any bonus or incentive-based compensation based on the award of financial aid to students enrolled in a postsecondary institution.
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Risks Related to the Extensive Regulation of Our Business and University Partners
If our institutions failcurrent or any future university partner fails to comply with applicable regulatory requirements, they could face monetary liabilities or penalties, operational restrictions, or loss of eligibility to participate in Title IV programs from which we derive most of our revenue.
To participate in Title IV programs, an institution must be (i) legally authorized to operate in the state in which it is physically located, (ii) accredited by an accrediting agency recognized by the Department as a reliable indicator of educational quality and (iii) certified as an eligible institution by the Department. As a result, we are subject to extensive regulation by the Department, WSCUC, and HLC (our institutions' accrediting agencies), and state education agencies. These regulatory requirements cover many aspects of our operations. They also restrict our ability to acquire or open new schools, add new educational programs, expand existing educational programs, change our corporate structure or ownership, and make other substantive changes to our business. Given that the Department, WSCUC HLC and state education agencies periodically revise their requirements and modify their interpretations of existing requirements, we cannot reliably predict how these regulatory requirements will be applied or whether we will be able to comply with all of the requirements. If one of our institutionscurrent or any future university partner fails to comply with these regulatory requirements, the Department could impose sanctions on that institution, including monetary liabilities or penalties, operational restrictions, or loss of eligibility to participate in Title IV programs from which we derive most of our revenue. For additional information, see “Regulation — Department Regulation of Title IV Programs — Potential sanctions for noncompliance with Title IV regulations” in Part I, Item 1, “Business.” If our institutionscurrent or future university partners were to lose eligibility to participate in Title IV programs or were to have such participation substantially curtailed, enrollments and our revenues, financial condition, cash flows and results of operations would be materially and adversely affected.
An institution must periodically seek recertification from the Department to continue to participate in Title IV programs and may, in certain circumstances, be subject to review or other action by the Department in connection with such recertification. The University of the Rockies is certified until March 21, 2019 and is required to submit its reapplication for continued certification by December 31, 2018. Ashford University is provisionally certified by the Department until December 31, 2018 and is required to submit its reapplication for continued certification by September 30, 2018. The Department may review an institution'sinstitution’s continued certification to participate in Title IV programs in the event of a change of control and may take emergency action to suspend an institution'sinstitution’s certification without advance notice if it determines the institution is violating Title IV requirements and immediate action is necessary to prevent misuse of Title IV funds. If the Department revokes or does not renew our institutions'the certifications to participate in Title IV programs, our institutions'university partner’s students would no longer be able to receive Title IV funds, which would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
An institution must be accredited by an accrediting agency recognized by the Department to participate in Title IV programs. Ashford University is accredited by WSCUC and University of the Rockies is accredited by HLC. For additional information, see “Regulation — Accreditation — Evaluations and renewals of accreditation” in Item 1, “Business.” Each of WSCUC and HLC is recognized by the Department as a reliable authority regarding the quality of education and training provided by the institutions it accredits. To remain accredited, our institutionsuniversity partners must continuously meet accreditation standards relating to, among other things, performance, governance, institutional integrity, educational quality, faculty, administrative capability, resources and financial stability. If either of our institutionsa university partner fails to satisfy any of the standards of its accrediting agency, it could lose its accreditation. Loss of accreditation by either of our institutions would denigrate the value of its educational programs and would result in its loss of eligibility to participate in Title IV programs, which would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
•An institution must beis not legally authorized to offer its educational programs by the states in which it is physically located. For additional information, see “Regulation — Department Regulation of Title IV Programs — State authorization” in Item 1, “Business.” Ashford University's California facilities have been designated as its main campus for Title IV purposes, and Ashford also has a campus located in Iowa. Ashford has been authorized by the BPPE to operate in California and is registered as a postsecondary school in Iowa by ICSAC. University of the Rockies is located in Colorado and is authorized to operate by the Colorado Commission on Higher Education. To maintain these authorizations and registrations, Ashford University and University of the Rockiesan institution must comply with applicable requirements under the statutes and rules of the applicable state. Any loss of authorization to operate by our institutions and the resulting imposition of sanctions, including the loss of authorization to deliver educational programs and grant degrees and other credentials and the loss of eligibility to participate in Title IV programs, would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
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For each federal fiscal year, the Department calculates a rate of student defaults over a three-year measuring period for each educational institution, which is known as a “cohort default rate.” An institution may lose its eligibility to participate in the Direct Loan Program and the Federal Pell Grant Program if for each of the three most recent federal fiscal years 30% or more of its students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year. The most recent official three-year cohort default rates for Ashford University for the 2014, 2013 and 2012 federal fiscal years were 14.9%, 14.5% and 15.3%, respectively. The most recent official three-year cohort default rates for University of the Rockies for the 2014, 2013 and 2012 federal fiscal years were 5.5%, 3.8% and 4.3%, respectively. If too many of our institutions' students were to default on their loans resulting in an increase in our institutions' respective cohort default rates, our institutions may lose eligibility to participate in Title IV programs, which would have
•An institution has a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
responsibility. To participate in Title IV programs, an eligible institution must satisfy specific measures of financial responsibility prescribed by the Department. For additional information, see “Regulation — Department Regulation of Title IV Programs — Financial responsibility” in Item 1, “Business.” One measure of financial responsibility is an institution'sinstitution’s composite score, a number between negative 1.0 and positive 3.0. An institution'sinstitution’s composite score must be at least 1.5 for the institution to be deemed financially responsible without the need for further Department oversight. We expect the consolidated composite score to be 2.5 for the year ended December 31, 2017; however, the consolidated calculation is subject to determination by the Department once it receives and reviews our audited financial statements for the year ended December 31, 2017. Additionally, for the year ended December 31, 2017, the composite score at each of our institutions is higher than the consolidated score. If our institutions are found not to have satisfied the Department's financial responsibility requirements, they could be limited in their access to or lose Title IV program funding, or they may be required to post a letter of credit in favor of the Department and possibly accept other conditions to their participation in Title IV programs, which would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
The Higher Education Act prohibits an institution from providing any commission, bonus or other incentive payment based directly or indirectly on securing enrollments or financial aid to any persons or entities involved in student recruiting or admissions activities or making decisions about the award of student financial assistance. The criteria for complying with the Department'sDepartment’s rules prohibiting incentive compensation are not clear in all circumstances, and the Department will not review or approve compensation plans prior to their implementation.
If the Department determines that one of our institutionsan institution has engaged in substantial misrepresentation, the Department may (i) attempt to revoke the institution'sinstitution’s program participation agreement if the institution is provisionally certified, (ii) impose limitations on the institution'sinstitution’s participation in Title IV programs if the institution is provisionally certified, (iii) deny applications from the institution for approval of new programs or locations or other matters or (iv) initiate proceedings to fine the institution or limit, suspend or terminate its eligibility to participate in Title IV programs. Because Ashford University is provisionally certified, it could be subject to the actions set forth in clauses (i) and (ii) above in addition to any other actions taken by the Department. The imposition of these sanctions, including the loss of eligibility to participate in Title IV programs, would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
•An institution participating in Title IV programs mustfails to correctly calculate the amount of unearned Title IV program funds that have been disbursed to students who withdraw from their educational programs before completion, and must return those unearned funds in a timely manner, generally within 45 days of the date the institution determines that the student has withdrawn. For additional information, see “Regulation — Department Regulation of Title IV Programs — Return of Title IV funds for students who withdraw” in Item 1, “Business.” Failure to make timely returns of Title IV program funds for 5% or more of students sampled in the institution'sinstitution’s annual financial aid compliance audit in either of its two most recently completed fiscal years can result in an institution having to post a letter of credit equal to 25% of the amount of unearned Title IV funds the institution was required to return for its most recently completed fiscal year. If unearned funds are not properly calculated and returned in a timely manner, an institution may also be subject to monetary liabilities or an action to impose a fine or to limit, suspend or terminate its participation in Title IV programs. For the fiscal year ended December 31, 2017, our institutions did not exceed the 5% threshold for late refunds sampled.
Changes to the 90/10 rule or related Title IV regulation could adversely impact our university partners, which in turn could adversely affect our revenues or our ability to grow.
In March 2021, President Biden signed the American Rescue Plan Act (“ARPA”) of 2021. The Department’s new regulations regardingARPA includes a major change in the 90/10 revenue test that provides for-profit institutions and their students access to the Federal Student Aid (“FSA”) programs. Under the ARPA, the Higher Education Act would be modified to change the formula from counting only Title IV program funds on the '90 side' to instead include all “federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution” or collectively “federal education assistance funds.” The 90/10 provision will be subject to negotiated rulemaking after October 2021, with an earliest effective date on or after January 1, 2023. Additionally, in June 2021, the Department held virtual public hearings to receive stakeholder feedback on potential issues for the upcoming negotiated rulemaking sessions. These issues include borrower defense to repayment mayfor students, gainful employment requirements, and change in ownership and change in control of institutions of higher education among other topics. If these changes were to go into effect, it could adversely impact our university partners, which in turn could adversely affect our revenues or our ability to grow.
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The borrower defense to repayment regulations expand the circumstances in which students may assert a defense to repayment against an institution and may also provide that certain conditions or events could trigger a requirement that an institution post a letter of credit or other security that could result in the imposition of significant restrictions on us and our university partners ability to operate.
The current standard for determining whetherDepartment has regulations regarding borrower defense to repayment. The regulations allow a borrower has a defense to repayment of a student loan allows borrowers to assert a defense to repayment ifon the basis of a causesubstantial misrepresentation, any other misrepresentation in cases where certain other factors are present, a breach of action would have arisen under applicable state law. On June 14, 2017,contract or a favorable non-default contested judgment against a school for its act or omission relating to the making of the borrower’s loan or the provision of educational services for which the loan was provided. In addition, the financial responsibility standards contained in the regulations establish the conditions or events that trigger the requirement for an institution to provide the Department announcedwith financial protection in the form of a postponementletter of proposed changescredit or other security against potential institutional liabilities. Triggering conditions or events include, among others, certain state, federal or accrediting agency actions or investigations, and in the case of publicly traded companies, receipt of certain warnings from the SEC or the applicable stock exchange, or the failure to timely file a required annual or quarterly report with the SEC. The regulations also prohibit schools from requiring that students agree to settle future disputes through arbitration.
Under the borrower defense to repayment regulations, and its intention to resubmit the regulations through the negotiated rulemaking process. The Department announced an additional postponement on October 24, 2017. On February 14, 2018, the Department announced they are postponing the effective date of this rule until July 1, 2019 so they can complete the negotiated rulemaking process and develop the new regulations. While rulemaking occurs, the Department will continue to process claims under the current borrower defense rules.
In July 2020, the Department notified the Company that the Department would be initiating a preliminary review of borrower defense applications from borrowers who made claims regarding the University. As part of the initial fact-finding process, the Department sent individual student claims to the University and Ashfordallowed the institution to assistsubmit a response to the individual borrower’s claim. The Company received and timely responded to each individual student claim and cannot predict the outcome of the Department's review at this time.
If we fail to maintain adequate systems and processes to detect and prevent fraudulent activity in its assessmentstudent enrollment and financial aid, our business could be adversely impacted.
We are susceptible to an increased risk of Ashford’s compliancefraudulent activity by outside parties with respect to student enrollment and student financial aid programs. The potential for outside parties to perpetrate fraud in connection with the prohibition on substantial misrepresentations. In addition, our institutions are from time to time subject to certain actions or investigations by various state, federal or accrediting agencies,award and as a public company we could be subject to the additional triggering events outlined by the Department in new regulations;
The Department’s regulations require institutions that participate in Title IV programs to refer to the OIG credible information indicating that any applicant, employee, third-party servicer or atagent of the affected location, which couldinstitution that acts in a capacity that involves administration of Title IV programs has been engaged in any fraud or other illegal conduct involving Title IV programs. If the systems and processes that we have a material adverse effect on our revenues, financial condition, cash flowsestablished to detect and results of operations.
Governmental proceedings or other claims and lawsuits asserting regulatory noncompliance could result in monetary liabilities or penalties, injunctions or loss of Title IV funding for students at our institutions.current or any future university partner.
Because we operateour current, and any future university partner operates in a highly regulated industry, we and our institutions are subject to compliance reviews, claims of noncompliance and lawsuits by government agencies, regulatory agencies and third parties, including claims brought by third parties on behalf of the federal government under the federal False Claims Act. If the results of these reviews or proceedings are unfavorable to us or if we are unable to defend successfully against such lawsuits or claims, we may be required to pay money damages or be subject to fines, limitations, loss of Title IV funding, injunctions or other penalties, which could have a material adverse effect on our business, financial condition, cash flows and results of operations. Even if we adequately address issues raised by an agency review or successfully defend a lawsuit or claim, we may have to divert significant financial and management resources from our ongoing business operations to address issues raised by those reviews or to defend against those lawsuits or claims. In addition, claims and lawsuits brought against us may damage our reputation or adversely affect our stock price, even if such claims and lawsuits are eventually determined to be without merit. For additional information, see Note 20, “Commitments and Contingencies” to our annual consolidated financial statements included elsewhere in this report.
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Additional regulations or regulatory scrutiny resulting from action by the Department could result in increased compliance costs, fines, sanctions or lawsuits, which could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
individualized disclosures to enrolled and prospective students in distance education programs, including disclosures regarding adverse actions taken against the institution, the institution’s refund policies and whether each of the institution’s programs meet applicable state licensure or certification requirements, and (iv) require institutions to explain to students the consequences of moving to a state where the school is not authorized, which could include loss of eligibility for federal student aid. The final regulations recognize authorization through participation in a state authorization reciprocity agreement, as long as the agreement does not prevent a state from enforcing its own consumer laws. The final regulations are scheduled to take effect on July 1, 2018.
We cannot predict the scope and content of the regulations that may emerge from these or other rulemaking activities that the Department initiates. The Company’s compliance with these regulations or any additional or modified regulations,Departments actions could result in direct and indirect costs related to compliance, increased scrutiny, fines, liabilities, sanctions or lawsuits, which could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Any action by Congress to revise the laws governing Title IV programs or to reduce funding for these programs could negatively impact our business.
Congress must periodically reauthorize the Higher Education Act and annually determine the funding level for each Title IV program through the budget and appropriations process. In 2008, the Higher Education Act was reauthorized through September 2014, and on December 13, 2017, the House of Representatives’ Committee on Education and the Workforce passed H.R. 4508, the Promoting Real Opportunity, Success, and Prosperity through Education Reform Act (“PROSPER Act”). No date has been set for consideration by the full House on the legislation, nor has a companion Higher Education Act reauthorization bill been introduced in the U.S. Senate. The Higher Education Act'sAct’s programs will continue year-to-year without explicit reauthorization as long as Congress appropriates funds for the programs. Congress may propose and pass revisions to the Higher Education Act between reauthorizations by using other legislative vehicles such as budget bills and appropriations bills, which could impact funding for student financial aid programs.
We cannot predict what legislation, if any, will arise out of the reauthorization of the Higher Education Act or other Congressional deliberations, or what impact any such legislation might have on the for-profit education sector and our business in particular.business. However, any action by Congress that significantly reduces Title IV program funding or the eligibility of our institutionscurrent or any future university partners or students to participate in Title IV programs, or that requires us to modify our practices in ways that could increase our administrative costs and reduce our profit margin, would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Risks Related to Our Business
a decline in enrollment in, Global Campus programs could significantly reduce our revenue and impact our overall financial performance.
We expect the acceptanceprograms of online educationGlobal Campus to account for a large percentage of our revenue for the foreseeable future. Any decline in reputation or education provided by private sector postsecondary education companies.changes in policies of Global Campus could adversely affect its student enrollment and its overall financial and operating results, which could materially impact us. Furthermore, Global Campus has the right to terminate the Services Agreement early if certain conditions apply. If Global Campus were to terminate or not renew its relationship with us, or if certain of the programs with Global Campus were to materially underperform for any reason, it could negatively affect our reputation, revenue and future operating results.
We face litigation and legal proceedings that could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
We and our institutions are subject to lawsuits, investigations and claims covering a wide range of matters. We are the subject of complaints alleging violations of various laws including, but not limited to, federal securities laws, (including a securities class action),and the federal False Claims Act and state employment laws, as well as investigations by the SEC, the U.S. Department of Justice (the “DOJ”), and state AttorneysCalifornia State Attorney General. Derivative shareholder complaints have also been asserted on our behalf against certain of our current and former officers and directors alleging breaches of fiduciary duties, waste of corporate assets and unjust enrichment. These and other legal proceedings could cause us to incur significant defense costs, are disruptive to our normal business operations and could damage our reputation and adversely affect our stock price. An adverse outcome of any legal proceeding could result in monetary losses or restrictions on our business, which could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
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On March 7, 2022, the Superior Court of the State of California, County of San Diego, or the Court, issued a Statement of Decision in favor of the Attorney General of the State of California, or the California Attorney General, in an action brought by the California Attorney General alleging we, and our previous subsidiary, Ashford University, LLC, or Ashford, among other things deliberately misled Ashford students and falsely advertised Ashford’s academic programs. Ashford no longer exists and we are responsible for Ashford’s portion of the liability under this matter. The Court ordered us to pay $22.4 million in statutory penalties but denied the California Attorney General’s demands for restitution and injunctive relief. We are currently considering all options available to us related to the Statement of Decision. On April 7, 2022, we filed a motion for a new trial and/or to set aside and vacate the judgement, which is currently set for a hearing on May 13, 2022. Regardless of the ultimate outcome, this decision could have a material adverse effect on our reputation and financial condition.
For additional information regarding current material legal proceedings involving us and our institutions, including investigations by the SEC, the DOJ and state Attorneys General,subsidiaries, see Note 20,19, “Commitments and Contingencies” to our annual consolidated financial statements included elsewhere in this report.
We may need to raise additional funding, which may not be available on acceptable terms, or at all. If such financing is not available or not available on terms acceptable to us, it could adversely affect our ability to continue operations.
We assess going concern considerations in accordance with Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity's Ability to Continue as a Going Concern,” as to whether there is substantial doubt about the ability to continue as a going concern for a period of one year after the date that our financial statements are issued.
As a percentage of revenues,December 31, 2021, our bad debt expense is high relative to our competitors.cash and cash equivalents were $28.3 million. If we are unable to remedy the underlying causes,obtain sufficient capital when needed, our bad debt expense could increase, which could have a material adverse effect on ourbusiness, financial condition cash flows and results of operations.operations could be materially and adversely affected.
A failure of our information systems to properly store, process and report relevant data may reduce our management’s effectiveness, interfere with our regulatory compliance and increase our operating expenses.
We are heavily dependent on the integrity of our data management systems. If these systems do not effectively collect, store, process and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies or human error, our ability to effectively plan, forecast and execute our business plan and comply with applicable laws and regulations will be impaired. Any such impairment could have a material adverse effect on our business, revenues, financial condition, cash flows and results of operations.
We have a license agreement with Instructure pursuant to which we license an online Canvas learning management system and platform for students at our institutions. Our institutionsuniversity partners. We currently rely on Instructure for administrative support and hosting of the applicable systems. If Instructure ceases to operate or is unwilling or unable to work with our institutions,us, or if our agreement with Instructure is otherwise terminated, the online learning platform for students at our institutionsuniversity partners and related administrative support and hosting could be interrupted or become unavailable, which could have a material adverse effect on our business.
We are subject to laws and regulations as a result of our collection and use of personal information, and any violations of such laws or regulations, or any security or cybersecurity breach, theft or loss of such information, could adversely affect our business.
Possession and use of personal information in our operations subjects us to risks and costs that could harm our business. We collect, use and retain large amounts of personal information regarding our applicants, students, faculty and staff. We also collect and maintain personal information about our employees in the ordinary course of our business. Our services can be accessed globally through the Internet.internet. Therefore, we may be subject to the application of national privacy laws in countries outside the United States from which applicants and students access our services. Such privacy laws could impose conditions that limit the way we market and provide our services.
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Our computer networks and the networks of certain of our vendors that hold and manage confidential information on our behalf may be vulnerable to unauthorized access, employee theft or misuse, computer hackers, computer viruses and other security and cybersecurity threats. Confidential information may also inadvertently become available to third parties when we integrate systems or migrate data to our servers following an acquisition of a school or in connection with periodic hardware or software upgrades. Due to the sensitive nature of the personal information stored on our servers, our networks may be targeted by hackers seeking to access this data. A userUsers who circumvents security measures could misappropriate sensitive information or cause interruptions or malfunctions in our operations. Although we use security and business controls to limit access to and use of personal information, a third partythird-party may be able to circumvent those security and business controls, which could result in a breach of student or employee privacy. In addition, errors in the storage, use or transmission of personal information could result in a breach of privacy for current or prospective students or employees.
We may experience unforeseen tax consequences.
FERPA generally prohibits an institution of higher education participating in Title IV programs from disclosing personally identifiable information from a student’s education records without the student’s consent. Our university partners and their students disclose to us certain information that originates from or comprises a student education record under FERPA. As an entity that provides services to institutions participating in Title IV programs, we are indirectly subject to FERPA, and we may not limitedtransfer or otherwise disclose any personally identifiable information from a student record to lowering the U.S. federal corporate income tax rate from 35% to 21%; bonus depreciation that will allow for full expensing of qualified property; limitations on the deductibility of certain executive compensation andanother party other deductions; and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017 to 80% of taxable income with an indefinite carryforward period.
Changes in accounting principles and guidance could result in unfavorable accounting charges or effects.
We prepare our consolidated financial statements in accordance with GAAP. These principles are subject to interpretation by the SEC and various bodies formed to create and interpret appropriate accounting principles and guidance. A change in these principles or guidance, or in their interpretations, may have a material effect on our results and disclosures, as well as our processes and related controls. For example, during May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), for which certain elements may impact our current disclosures or our future accounting for revenue. For additional information, see Note 2, “Summary of Significant Accounting Policies - Recent Accounting Pronouncements” to our annual consolidated financial statements included elsewhere in this report.
System disruptions and vulnerability from security risks to our technology infrastructure could damage our reputation and the reputation of our institutionsother subsidiaries, and negatively impact our business.
The performance and reliability of our technology infrastructure (including the software and related hosting and maintenance services for our online learning platform, student information system, and lead management system) is critical to our reputation and our ability to attract and retain students. Any system error or failure, or a sudden and significant increase in bandwidth usage, could result in the unavailability of systems to us or our institutions' studentsuniversity partners and negatively impact our business and reputation. Our computer networks may also be vulnerable to unauthorized access, computer hackers, computer viruses, denial of service attacks and other security problems. Although we continually monitor the security of our technology infrastructure and take proactive measures to prevent potential threats, these efforts may not protect our computer networks against all threats of security breaches, which could damage our reputation and the reputation of our institutionsother subsidiaries, and negatively impact our business and prospects.
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Our expensesspending in the areas of new investments or other marketing opportunities may cause us to incur additional operating losses if we do not realize our expected revenues.
Our spending is based in significant part on our estimates of future revenue and is largely fixed in the short term. As a result, we may be unable to adjust our spending in a timely manner if our revenue falls short of our expectations. Accordingly, any significant shortfall in revenues in relation to our expectations would have an immediate and material adverse effect on our profitability. In addition, weWe anticipate increasing operating expenses to expand program offeringson new investments and marketing initiatives. Any such increase could cause material losses to the extent we do not generate additional revenues sufficient to cover those expenses.
We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business.
Our success depends largely on the skills, efforts and motivations of our executive officers, who generally have significant experience with our company and within the education industry. Due to the nature of our business, we face significant competition in attracting and retaining personnel who possess the skill sets we seek. In addition, key personnel may leave us and may subsequently compete against us. We do not carry life insurance on our key personnel as part of our benefits. The loss of the services of any of our key personnel or our failure to attract, replace and retain other qualified and experienced personnel on acceptable terms could impair our ability to sustain and grow our business. In addition, because we operate in a highly competitive industry, our hiring of qualified executives or other personnel may cause us or such persons to be subject to lawsuits alleging misappropriation of trade secrets, improper solicitation of employees or other claims.
If we are unable to hire new employees or to continue to develop existing employees responsible for student recruitment, the effectiveness of our new enrollment efforts would be adversely affected.
We intend to (i) hire, develop and train additional employees responsible for new enrollment and (ii) retain and continue to develop and train our existing new enrollment personnel. Our ability to develop and maintain a strong new enrollment function may be affected by a number of factors, including our ability to integrate and motivate our enrollment service advisors, our ability to effectively train our enrollment service advisors, the length of time it takes new enrollment service advisors to become productive, regulatory restrictions on the method of compensating enrollment service advisors and the competition involved in hiring and retaining enrollment service advisors. If we are unable to hire new employees or retain and develop current employees responsible for new enrollment, it could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
A decline in the overall growth of enrollment in postsecondary institutions, or in the number of students seeking degrees online, or in our core disciplines, could cause usour university partners to experience a further decline in enrollment.
If enrollment at our institutions.
existing markets or expand our markets by creating new academic programs in areas where there is market demand could have a material adverse effect on our revenues, financial condition, cash flows and results of operations.
Our success depends in part on our institutions'university partners' ability to update and expand the content of existing programs and to develop new programs and specializations on a timely basis and in a cost-effective manner.
The updates and expansions of existing programs and the development of new programs and specializations may not be accepted by existing or prospective students or prospective employers of our institutions'university partners’ graduates. If we do not adequately respond to changes in market requirements by updating and expanding our existing programs or developing new programs, our business will be adversely affected. Even if our institutionsuniversity partners are able to develop acceptable new programs, they may not be able to introduce these new programs as quickly as students require or as quickly as our competitors introduce competing programs. To offer a new academic program, our institutionsuniversity partners may be required to obtain appropriate federal, state and accrediting agency approvals, which may be conditioned or delayed in a manner that could significantly affect our operations. In addition, to be eligible for federal student financial aid programs, a new academic program may need to be approved by the Department.
Establishing new academic programs or modifying existing programs requires investments in management, faculty and capital expenditures, additional marketing expenses and reallocation of other resources. We and our institutions may have limited experience with programs in new disciplines and may need to modify existing systems and strategies or enter into arrangements with other educational institutions to provide new programs effectively and profitably. If our institutionsuniversity partners are unable to increase enrollment in new programs, offer new programs in a cost-effective manner or otherwise manage effectively the operations of newly established academic programs, it could have a material adverse effect on our revenues, financial condition, cash flows and results of operations.
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Our current or any future university partners failure to keep pace with changing market needs could harm our institutions'their ability to attract students.
Our success depends to a large extentpartially on the willingness of employers to hire, promote or increase the pay of our institutions'university partners’ graduates. Increasingly, employers demand that their new employees possess appropriate technical and analytical skills, and also appropriate interpersonal skills, such as communication and teamwork. These skills can evolve rapidly in a changing economic and technological environment. Accordingly, it is important that our institutions'university partners’ educational programs continually evolve in response to those economic and technological changes.
The expansion of existing academic programs and the development of new programs may not be accepted by current or prospective students or by prospective employers of our institutions' graduates.employers. Even if our institutionsuniversity partners develop acceptable new programs, they may not be able to begin offering those new programs in a timely fashion or as quickly as our competitors offer similar programs. If we are unable to adequately respond to changes in market requirements due to regulatory or financial constraints, unusually rapid technological changes or other factors, the rates at which our institutions'university partners’ graduates obtain jobs in their fields of study could suffer, our ability to attract and retain students could be impaired and our business could be adversely affected.
We may be unable to sufficiently protect our proprietary rights and we may encounter disputes from time to time relating to our use of the intellectual property of third parties.
We rely on a combination of copyrights, trademarks, service marks, patents, trade secrets, domain names and agreements with employees and third parties to protect our proprietary rights. We have trademark and service mark registrations and pending applications for additional registrations in the United States and select foreign jurisdictions. We also own the domain name rights for our institutions, as well as other words and phrases important to our business. In addition, we have applied for domestic and international patents for certain technology developed by us. We also have registered copyrights for exemplary business course materials. Nonetheless, as new challenges arise in protecting these proprietary rights online, we cannot assure youensure that these measures will be adequate to protect our proprietary rights, that we have secured, or will be able to secure, appropriate protections for all of our proprietary rights in the United States or select foreign jurisdictions, or that third parties will not infringe upon or violate our proprietary rights. Despite our efforts to protect these rights, unauthorized third parties may attempt to duplicate or copy the proprietary aspects of our technology, curricula and online resource material, among others. Our management'smanagement’s attention may be diverted by these attempts, and we may need to expend funds in litigation to protect our proprietary rights against any infringement or violation.
We may also encounter disputes from time to time over rights and obligations concerning intellectual property, and we may not prevail in these disputes. In certain instances, we may not have obtained sufficient rights to the content of a course. Third parties may raise claims against us alleging an infringement or violation of their intellectual property. Some third-party intellectual property rights may be extremely broad, and it may not be possible for us to conduct our operations in such a way as to avoid all alleged violations of such intellectual property rights. Any such intellectual property claim could subject us to costly litigation and impose a significant strain on our financial resources and management personnel regardless of whether
such claim has merit. Our insurance may not cover potential claims of this type adequately or at all, and we may be required to pay monetary damages, which may be significant, or our institutions may be required to alter the content of their classes to be non-infringing.
Government regulations relating to the Internetinternet could increase our cost of doing business, affect our ability to grow or otherwise have a material adverse effect on our business.
The increasing popularity and use of the Internetinternet and other online services has led and may lead to the adoption of new laws and regulatory practices in the United States or in foreign countries and to new interpretations of existing laws and regulations. These new laws and interpretations may relate to issues such as online privacy, copyrights, trademarks and service marks, sales taxes, fair business practices and the requirement that online education institutions qualify to do business as foreign corporations or be licensed in one or more jurisdictions where they have no physical location or other presence. New laws, regulations or interpretations related to doing business over the Internetinternet could increase our costs and materially and adversely affect enrollments.
A protracted economic slowdown and rising unemployment could lead to lower enrollment and impactat our students' ability to repay their loans.university partner.
We believe that many students pursue postsecondary education to be more competitive in the job market. However, a protracted economic slowdown could increase unemployment and diminish job prospects generally. Diminished job prospects and heightened financial worries could affect the willingness of students to incur loans to pay for postsecondary education and to pursue postsecondary education in general. As a result, enrollments at our university partner could suffer.
In addition, many of our institutions' students borrow Title IV loans to pay for tuition, fees and other expenses. A protracted economic slowdown could negatively impact their ability to repay those loans which would negatively impact our institutions' cohort default rates. Our institutions'university partner’s students also are frequently able to borrow Title IV loans in excess of their tuition. The excess is received by such students as a stipend. However, if a student withdraws, weour university partner must return any unearned Title IV funds,
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including stipends. A protracted economic slowdown could negatively impact such students'students’ ability to repay those stipends. As a result, the amount of Title IV funds we would have to return without reimbursement from students could increase, and our results of operations could suffer.
The acquisition, integration and growth of acquired businesses may present challenges that could harm our business.
The successful integration and profitable operation of an acquired institution or business, including the realization of anticipated cost savings and additional revenue opportunities, can present challenges, and the failure to overcome these challenges can have an adverse effect on our business, financial condition, cash flows and results of operations. Some of these challenges include:
•the inability to maintain uniform standards, controls, policies and procedures;
•distraction of management'smanagement’s attention from normal business operations during the integration process;
•the inability to attract and/or retain key management personnel to operate the acquired entity;
•the inability to obtain, or delay in obtaining, regulatory or other approvals necessary to operate the business;
•the inability to correctly estimate the size of a target market or accurately assess market dynamics;
•the inability to retain the clients of the acquired entity;
•the lingering effects of poor client relations or service performance by the acquired entity, which also may negatively affect the Company’s existing business;
•the inability to fully realize the desired efficiencies and economies of scale;
•expenses associated with the integration efforts; and
•unidentified issues not discovered in the due diligence process, including legal contingencies.
An acquisition related to an institution or other educational business often requires one or multiplevarious regulatory approvals. If we are unable to obtain such approvals, or we obtain them on unfavorable terms, our ability to consummate a transaction may be impaired or we may be unable to operate the acquired entity in a manner that is favorable to us. If we fail to properly evaluate an acquisition, we may be required to incur costs in excess of what we anticipated, and we may not achieve the anticipated benefits of such acquisition.
An increase in interest rates could adversely affect our institutions'university partners' ability to attract and retain students.
Interest rates have reached relatively low levels in recent years, creating a favorable borrowing environment for students. However, if Congress increases interest rates on Title IV loans, or if private loan interest rates rise, our institutions'university partners’ students would have to pay higher interest rates on their loans. Any future increase in interest rates will result in a corresponding increase in educational costs to existing and prospective students. Higher interest rates could also contribute to higher default rates with respect to students'students’ repayment of their education loans. Higher default rates may in turn adversely impact our institutions'an institution’s eligibility to participate in some or all Title IV programs, which could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Our failurefinancial results may suffer if we fail to comply with environmental lawssuccessfully implement our restructuring plans and/or cost reduction initiatives aimed at right-sizing our operations to match revenue streams.
We have described elsewhere in this Annual Report on Form 10-K our reductions in force which are intended to strengthen our business by right-sizing our operations to match revenue streams. We also described various restructuring charges related to these plans. If we fail to achieve the intended cost savings, our financial condition, results of operations and regulations governingcash flows may be further impacted. This plan also may have an adverse impact upon the morale or motivation of our activities couldemployees and may result in financial penaltiesfurther distractions to our management. In addition, management will continue to evaluate our cost structure, and other costs.
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If we fail to effectively identify, pursue and consummate acquisitions, either in the U.S. or outside of the U.S., our ability to grow could be impacted and our profitability may be adversely affected.
Acquisitions are one component of our overall long-term growth strategy. The successful implementation of this strategy depends upon the Company’s ability to identify suitable domestic and international acquisition candidates, acquire such businesses on acceptable terms and finance such acquisitions. There can be no assurance that such candidates will be available or, if such candidates are available, that the price will be attractive or that the Company will be able to identify, acquire or finance such businesses successfully. In addition, in pursuing such acquisition opportunities, the Company may compete with anyother entities with similar growth strategies; these competitors may be larger and have greater financial and other resources than the Company. Competition for these acquisition targets could also result in increased prices of these environmental lawsacquisition targets and/or a diminished pool of companies available for acquisition. There may be particular difficulties and regulations,complexities (regulatory or otherwise) associated with our expansion into international markets, and our strategies may not succeed beyond our current markets. If we are responsible forunable to effectively address these challenges, our ability to execute this component of our long-term strategy will be impaired, which could have an adverse effect on our ability to grow and our profitability.
We may be susceptible to a spillnumber of political, economic, and geographic risks that could harm our business. Significant disruptions in the global economic environment, as a result of a pandemic such as COVID-19, may adversely affect our business and financial results.
The occurrence of certain political, economic or releasegeographic events, such as natural disasters or a pandemic, including the outbreak of hazardous materials,COVID-19 could result in a significant decline in our revenue. We are dependent on customers that are geographically diverse and could be negatively impacted if economic conditions in the U.S. and globally were negatively impacted. Such an occurrence could cause a decrease in our university partner’s enrollment, including a decline in student retention.
The outbreak of COVID-19 continues to grow both in the U.S. and globally, and related government and private sector responsive actions could adversely affect our business operations, including continued work-from home orders. The extent to which COVID-19 impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the COVID-19 and the actions taken to contain it or treat its impact. We have asked our corporate employees whose jobs allow them to work remotely to do so, as deemed necessary. Such precautionary measures could create operational challenges as we adjust to a remote workforce, which could incur significant costs for clean-up, damagesadversely impact our business. We are also dependent on customers that are geographically diverse and fines or penalties.would be negatively impacted if economic conditions in the U.S. and globally continue to be negatively impacted and cause a decrease in our enrollment.
The price of our common stock has fluctuated significantly in the past and may continue to do so in the future. As a result, you could lose all or part of your investment.
Volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares. The market price of our common stock has fluctuated significantly in the past, and may continue to fluctuate significantly for a variety of different reasons, including, without limitation:
•developments regarding the accreditation or state licensing of our academic institutions, particularly Ashford University;university partners;
•our quarterly or annual earnings or those of other companies in our industry;
•public reaction to our press releases, corporate communications and SEC filings;
•changes in earnings estimates or recommendations by research analysts who track our common stock or the stocks of other companies in our industry;
•seasonal variations in our student enrollment;
•new laws or regulations or new interpretations of laws or regulations applicable to our industry or business;
•negative publicity, including government hearings and other public lawmaker or regulator criticism, regarding our industry or business;
•changes in enrollment;
•changes in accounting standards, policies, guidance, interpretations or principles;
•litigation involving our company or investigations or audits by regulators into the operations of our company or our competitors;
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•sales of common stock by our directors, executive officers and significant stockholders; and
•changes in general conditions in the United States and global economies or financial markets, including those resulting from war, incidents of terrorism or responses to such events.
In addition, in recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. Changes may occur without regard to the operating performance of these companies. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company.
Sales of outstanding shares of our common stock into the market in the future could cause the market price of our stock to drop significantly, even if our business is doing well.
If our stockholders sell, or indicate an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. At December 31, 2017, 27.22021, 33.5 million shares of our common stock were outstanding.
In addition, as of December 31, 2017,2021, there were 2.91.2 million shares of our common stock underlying outstanding stock options and 1.44.9 million shares of our common stock underlying outstanding stock awards, including restricted stock units and performance stock units. All shares subject to outstanding stock options are eligible for sale in the public market to the extent permitted by the provisions of the applicable stock option agreement and Rule 144 under the Securities Act. If these additional shares of common stock are sold, or if it is perceived that they will be sold in the public market, the trading price of our common stock could decline. Under Rule 144, shares held by non-affiliates for more than six months may generally be sold without restriction, other than a current public information requirement, and may be sold freely without any restrictions after one year. Shares held by affiliates may also be sold under Rule 144 after one year, subject to applicable restrictions, including volume and manner of sale limitations.
If securities or industry analysts change their recommendations regarding our common stock adversely or cease to cover our company, or if our operating results do not meet their expectations, our stock price could decline.
The trading market for our common stock is influenced by the research and reports that industry or securities analysts publish about us or our business or industry. If one or more of these analysts ceases coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline. Moreover, if one or more of the analysts who cover our company downgrades our common stock, or if our operating results do not meet their expectations, our stock price could decline.
We currently do not intend to pay dividends on our common stock and, consequently, your only opportunity to achieve a return on your investment in our common stock is if the price of our common stock appreciates.
We do not expect to pay dividends on shares of our common stock in the foreseeable future and we intend to use our cash position to grow our business. Consequently, your only opportunity to achieve a positive return on your investment in our common stock will be if the market price of our common stock appreciates.
Your percentage ownership in the Company may be diluted by future issuances of capital stock, which could reduce your influence over matters on which stockholders vote.
Subject to the rules of the New YorkNasdaq Stock Exchange (the “NYSE”Market LLC (“NASDAQ”), our board of directors has the authority, without any action or vote of our stockholders, to issue all or any part of our authorized but unissued shares of capital stock. At December 31, 2017,2021, there were 300.0 million shares of common stock authorized for issuance under our certificate of incorporation, 27.233.5 million shares of which were outstanding. At December 31, 2017,2021, there were 20.0 million shares of preferred stock authorized for issuance under our certificate of incorporation, no shares of which were outstanding. Issuances of common stock or voting preferred stock would reduce the influence of our current stockholders over matters on which our stockholders vote and, in the case of issuances of preferred stock, would likely result in the rights of our current stockholders being subject to the prior rights of holders of that preferred stock.
Our common stock has relatively low trading volume, compared to many other public companiescompanies.
Our common stock trades on the NYSE.NASDAQ. Our average daily trading volume over these various mediums is relatively low, particularly when compared to many larger public companies. This low trading volume can cause our common stock price to fluctuate significantly and can make it difficult for investors to buy or sell our common stock quickly and efficiently, compared to companies with a larger publicly traded float and higher average daily trading volumes.
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If we fail to maintain proper and effective internal controls, our ability to produce accurate financial statements on a timely basis could be impaired.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, the Sarbanes-Oxley Act and the rules and regulations of NASDAQ. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. We are required to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on the effectiveness of our internal control over financial reporting in our Annual Report on Form 10‑K filing for that year, as required by Section 404 of the Sarbanes-Oxley Act. This may require us to incur substantial additional professional fees and internal costs to further expand our accounting and finance functions and expend significant management efforts. As a smaller reporting company (as defined by the SEC), we are not required to obtain a separate attestation of our internal control over financial reporting from our independent auditors. If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls, we may not be able to produce timely and accurate financial statements. If that were to happen, the market price of our stock could decline and we could be subject to sanctions or investigations by the stock exchange on which our common stock is listed, the SEC or other regulatory authorities.
Provisions in our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a change of control of our company or changes in our management and, therefore, may depress the trading price of our stock.
Our certificate of incorporation and bylaws contain provisions that could depress the trading price of our stock by acting to discourage, delay or prevent a change of control of our company or changes in our board of directors that the stockholders of our company may deem advantageous. These provisions:
•authorize the issuance of “blank check” preferred stock by our board of directors to increase the number of outstanding shares to discourage a takeover attempt;
•provide for a classified board of directors (three classes);
•provide that stockholders may only remove directors for cause;
•provide that any vacancy on our board, of directors, including a vacancy resulting from an increase in the size of the board, may only be filled by the affirmative vote of a majority of our directors then in office, even if less than a quorum;
•provide that a special meeting of stockholders may only be called by our board of directors or by our chief executive officer;
•provide that action by written consent of the stockholders may be taken only if the board of directors first approves such action, except that if Warburg Pincus holds at least 50% of our outstanding capital stock on a fully diluted basis, whenever the vote of stockholders is required at a meeting for any corporate action, the meeting and vote of stockholders may be dispensed with, and the action may be taken without such meeting and vote, if a written consent is signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at the meeting of stockholders; provided that, notwithstanding the foregoing, we will hold an annual meeting of stockholders in accordance with NYSENASDAQ rules for so long as our shares are listed on the NYSE,NASDAQ, and as otherwise required by the bylaws;
•provide that the board of directors is expressly authorized to make, alter or repeal our bylaws; and
•establish advance notice requirements for nominations for elections to our board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
Additionally, we are subject to Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any “interested” stockholder for a period of three years following the date on which the stockholder became an “interested” stockholder.
Item 1B. Unresolved Staff Comments.Comments
None.
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Item 2. Properties.Properties
As of December 31, 2017,2021, we do not own any property. We lease property in Arizona, California, Colorado Iowa, Arizona and Washington D.C.New York, for academic operations, corporate functions, enrollment services and student support services. Below is
Our headquarters are located at 1811 E. Northrop Blvd in Chandler, Arizona, where we lease office space. During fiscal year 2021, we paid annual rent of approximately $1.7 million under the terms of this lease, which expires in September 2030.
We also lease a table summarizingfew additional smaller facilities that we, and our leased properties.
| Number of Buildings | Location | Total Square Footage | Lease Expiration | ||||
| 4 | San Diego, CA | 625,000 | 2018-2020 | ||||
| 2 | Denver, CO | 182,000 | 2021-2023 | ||||
| 2 | Clinton, IA | 36,720 | 2018 | ||||
| 2 | Phoenix, AZ | 41,200 | 2018 | ||||
| 1 | Washington, D.C. | 2,000 | 2018 | ||||
Our facilities are utilized consistent with management'smanagement’s expectations, and we believe such facilities are suitable and adequate for current requirements and that additional space can be obtained on commercially reasonable terms to meet any future requirements.
Item 3. Legal Proceedings.Proceedings
For information regarding any legal proceedings, see Note 20,19, “Commitments and Contingencies” to our annual consolidated financial statements included elsewhere in this report,Annual Report on Form 10-K, the text of which is incorporated by reference into this Item 3 of Part I.
Item 4. Mine Safety Disclosures.Disclosures
None.
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PART II
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases
of Equity Securities.Securities
Market Information
Our common stock is listed on the New York Stock Exchange (the “NYSE”)NASDAQ under the symbol “BPI.“ZVO.” The following table sets forth, for each full quarterly period in 2017 and 2016, the high and low sales prices per share of our common stock as reported on the NYSE.
| High | Low | ||||||
| 2017 | |||||||
| First Quarter | $ | 11.58 | $ | 8.26 | |||
| Second Quarter | $ | 15.85 | $ | 10.45 | |||
| Third Quarter | $ | 15.12 | $ | 8.44 | |||
| Fourth Quarter | $ | 10.40 | $ | 8.18 | |||
| 2016 | |||||||
| First Quarter | $ | 10.93 | $ | 6.15 | |||
| Second Quarter | $ | 10.49 | $ | 6.84 | |||
| Third Quarter | $ | 8.33 | $ | 5.38 | |||
| Fourth Quarter | $ | 10.86 | $ | 6.34 | |||
Holders of Record
As of February 15, 2018,March 31, 2022, there were 1630 holders of record of our common stock. This figure does not include an indeterminate number of beneficial owners of our common stock whose shares are held of record by banks, brokers and other financial institutions.
Dividends
We have not paid any cash dividends on our common stock to date and do not anticipate paying cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, operating results and capital requirements, any contractual restrictions related to our ability to pay dividends and such other factors as our board of directors may deem appropriate.
Securities Authorized for Issuance Under Equity Compensation Plans
Recent Sales of Unregistered Securities
Of the 2,874,138 shares of common stock reserved under the 2021 CEO Inducement Equity Incentive Plan, 574,138 shares were issued pursuant to a grant of an equity-based award exempt from registration under Section 4(a)(2) of the Securities Act.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
| Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Be Purchased Under the Plans or Programs | ||||||
| October 1, 2017 through October 31, 2017 | — | — | — | — | ||||||
| November 1, 2017 through November 30, 2017 | 2,100,000 | $ | 7.90 | — | $ | 20,000,000 | ||||
| December 1, 2017 through December 31, 2017 | — | — | — | — | ||||||
| Total | 2,100,000 | $ | 7.90 | — | $ | 20,000,000 | ||||
Item 6. Selected Consolidated Financial Data.[Reserved]
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Item 7, “Management's7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our annual consolidated financial statements included elsewhere in this report. The consolidated statement of income (loss) data, consolidated balance sheet data, and consolidated other data set forth below as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013 have been derived from our annual consolidated financial statements. Historical results are not necessarily indicative of the results to be expected for future periods. The risk factors set forth in Item 1A, “Risk Factors” also discuss material risks and uncertainties that could cause the data reflected below not to be indicative of our future financial condition or results of operations. We declared no cash dividends during the periods presented.Operations
| Year Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Consolidated Statement of Income (Loss) Data: | (In thousands, except per share data) | ||||||||||||||||||
| Revenue | $ | 478,397 | $ | 527,090 | $ | 561,729 | $ | 638,705 | $ | 751,449 | |||||||||
| Operating income (loss) | 7,852 | (40,221 | ) | (42,295 | ) | 14,311 | 68,463 | ||||||||||||
| Net income (loss) | 10,537 | (30,040 | ) | (70,454 | ) | 9,688 | 45,883 | ||||||||||||
| Income (loss) per share: | |||||||||||||||||||
| Basic | $ | 0.33 | $ | (0.65 | ) | $ | (1.54 | ) | $ | 0.21 | $ | 0.85 | |||||||
| Diluted | 0.32 | (0.65 | ) | (1.54 | ) | 0.21 | 0.83 | ||||||||||||
| As of December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Consolidated Balance Sheet Data: | (In thousands) | ||||||||||||||||||
| Cash, cash equivalents, restricted cash and investments | $ | 207,591 | $ | 381,769 | $ | 373,987 | $ | 356,545 | $ | 356,435 | |||||||||
| Total assets | 287,539 | 463,376 | 506,766 | 558,095 | 570,012 | ||||||||||||||
| Total stockholders' equity | 128,458 | 280,706 | 303,650 | 365,881 | 344,538 | ||||||||||||||
| Year Ended December 31, | |||||||||||||||||||
| 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
| Consolidated Other Data: | (In thousands, except enrollment data) | ||||||||||||||||||
| Cash flows provided by (used in): | |||||||||||||||||||
| Operating activities | $ | (4,075 | ) | $ | 11,083 | $ | 18,801 | $ | 14,177 | $ | 75,538 | ||||||||
| Investing activities | 43,684 | 14,741 | 51,287 | (32,996 | ) | 115,196 | |||||||||||||
| Financing activities | (166,418 | ) | (319 | ) | 3,805 | 2,284 | (197,227 | ) | |||||||||||
| Period-end enrollment (1): | |||||||||||||||||||
| Online | 40,672 | 45,007 | 48,729 | 55,081 | 62,668 | ||||||||||||||
| Campus-based | 58 | 80 | 430 | 742 | 956 | ||||||||||||||
| Total | 40,730 | 45,087 | 49,159 | 55,823 | 63,624 | ||||||||||||||
The following Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our annual consolidated financial statements and related notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data.” In addition to historical information, this discussion includes forward-looking information that involves risks and uncertainties that could cause actual results to differ materially from management'smanagement’s expectations. See Part I, Item 1A, “Risk Factors” and “Special Note Regarding Forward-Looking Statements” at the beginning of this report.
Overview
Until December 1, 2020, the Company, through its wholly owned subsidiary, Ashford University, LLC (“AU LLC”), owned and operated Ashford University, a regionally-accredited, online university (the “University”). On December 1, 2020, the Company and AU LLC finalized the Purchase Agreement, by and among the Company, AU LLC, the Arizona Board of Regents, a body corporate, for and on behalf of the University of Arizona (the “University of Arizona”), and the University of Arizona Global Campus, a newly formed Arizona nonprofit corporation (“Global Campus”).
In April 2019, we acquired Fullstack Academy, Inc. (“Fullstack”) an immersive coding bootcamp offering web development and cybersecurity training to students looking for competitive paying and in-demand tech jobs. Fullstack offers full- and part-time programs online, in addition to working with colleges and universities to expand their program offerings and close technological skills gaps in their local communities.
Also in April 2019, we acquired TutorMe.com, Inc. (“TutorMe”), which provides 24/7 tutoring services. Students are matched online with tutors within minutes who can help them with more than 300 subjects. With live video chat, whiteboarding, and screen sharing, students can get the personalized help they need, in the subject they need, at a time that works for them. TutorMe optimizes the student learning journey and is a valuable-resources for high-school and college students. TutorMe is also offered as an employee benefit, providing an added benefit for parents of high-school students.
Reporting Segments
Prior to December 1, 2020, the Company operated in one segment for reporting purposes. Following the Sale Transaction on December 1, 2020, our business operates in two reportable segments, including the University Partners segment and the Zovio Growth segment. The Company’s reportable segments are determined based on (i) financial information reviewed by the chief operating decision maker, (“the CODM”), (ii) internal management and related reporting structure, and (iii) the basis upon which the CODM makes resource allocation decisions. University Partners includes the technology and services provided to colleges and universities to enable the online delivery of degree programs. The inaugural partner in the University Partners segment is Global Campus. University Partners also includes the tuition revenue related to the University prior to the Sale Transaction. The Zovio Growth segment includes our other subsidiaries, including Fullstack and TutorMe.
Key operating dataFinancial Metrics
In evaluating our operating performance, our management focuses in large part on our revenue and operating income and period-end enrollment at our academic institutions.(loss). The following table, which should be read in conjunction with our annual consolidated financial statements included elsewhere in this report, presents our key operating data for each of the periods presented (in thousands, exceptthousands):
| Year Ended December 31, | |||||||||||||||||
| Consolidated Statement of Income (Loss) Data: | 2021 | 2020 | |||||||||||||||
| Revenue and other revenue | $ | 263,033 | $ | 397,121 | |||||||||||||
| Operating loss | $ | (42,608) | $ | (61,900) | |||||||||||||
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Revenue and other revenue
After December 1, 2020, revenue is now primarily derived from service revenue from our university partners. On December 1, 2020, the Company entered into the Services Agreement with Global Campus whereby the Company will provide certain educational technology and support services, which has an initial term of fifteen years and seven months, subject to renewal options and certain early termination provisions. The amounts earned from the Services Agreement are denoted as revenue on the consolidated statements of income (loss). On December 1, 2020, the Company also entered into a transition services agreement with Global Campus whereby the Company will provide certain temporary transition services (the “Transition Services Agreement”), which has a term of three years. The amounts earned from the Transition Services Agreement are denoted as other revenue on the consolidated statements of income (loss).
Prior to December 1, 2020, the majority of the amounts earned by the Company were from tuition, technology fees, and digital materials related to students whose primary funding source is governmental funding. The amounts earned from these streams is denoted as university-related revenue on the consolidated statements of income (loss). Factors affecting this revenue include (i) the number of students who enroll and remain enrolled in courses, (ii) degree and program mix, (iii) changes in tuition rates and (iv) the amount of scholarships offered. Enrollments are a function of the number of continuing students at the beginning of each period and new enrollments during the period, offset by students who either graduated or withdrew during the period.
Costs and expenses
Technology and academic services costs consist primarily of costs related to ongoing maintenance of educational infrastructure, including online course delivery and management, student records, assessment, customer relations management and other internal administrative systems. This also includes costs to provide support for enrollment data):curriculum and new program development, support for faculty training and development and technical support. This expense category includes salaries, benefits and share-based compensation, information technology costs, curriculum and new program development costs (which are expensed as incurred), provision for bad debt and other costs associated with these support services. This category also includes an allocation of depreciation, amortization, rent, and occupancy costs attributable to the provision of these services.
Counseling services and support costs consist primarily of costs including team-based counseling and other support to prospective and current students as well as financial aid processing. This expense category includes salaries, benefits and share-based compensation, and other costs such as dues, fees and subscriptions and travel costs. This category also includes an allocation of depreciation, amortization, rent, and occupancy costs attributable to the provision of these services.
Marketing and communication costs consist primarily of lead acquisition, digital communication strategies, brand identity advertising, media planning and strategy, video, data science and analysis, marketing to potential students and other promotional and communication services. This category was primarily from our historical captions of advertising and marketing and promotional. This expense category includes salaries, benefits and share-based compensation for marketing and communication personnel, brand advertising, marketing leads and other promotional and communication expenses. This category also includes an allocation of depreciation, amortization, rent, and occupancy costs attributable to the provision of these services. Advertising costs are expensed as incurred.
General and administrative costs consist primarily of compensation and benefit costs, including related stock-based compensation, for employees engaged in corporate management, finance, human resources, compliance, and other corporate functions. This category also includes an allocation of depreciation, amortization, rent, and occupancy costs attributable to the provision of these services.
University-related expenses represent those costs that were transferred to Global Campus in the Sale Transaction and that are no longer incurred by the Company. These costs were previously primarily components of instructional costs and services, with some costs from admissions advisory and marketing and some general and administrative.
Legal expense is comprised of charges related to the amounts to resolve the previously disclosed investigation by the California Attorney General.
Restructuring and impairment expenses are primarily comprised of (i) severance costs related to headcount reductions made in connection with restructuring plans and (ii) estimated lease losses related to facilities vacated or consolidated under restructuring plans.
Loss on transaction amount represents the net assets transferred in the Sale Transaction, as well as other transaction-related expenses and costs to sell.
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| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Consolidated Statement of Income (Loss) Data: | |||||||||||
| Revenue | $ | 478,397 | $ | 527,090 | $ | 561,729 | |||||
| Operating income (loss) | 7,852 | (40,221 | ) | (42,295 | ) | ||||||
| Consolidated Other Data: | |||||||||||
| Period-end enrollment (1) | |||||||||||
| Online | 40,672 | 45,007 | 48,729 | ||||||||
| Campus-based | 58 | 80 | 430 | ||||||||
| Total | 40,730 | 45,087 | 49,159 | ||||||||
We believe the declinefollowing factors have had, or can be expected to have, a significant effect on the comparability of recent or future results of operations:
Sale transaction
The results of operations prior to December 1, 2020 are not comparable to those following that date. On December 1, 2020, the Company entered into the Services Agreement with Global Campus whereby the Company will provide certain educational technology and support services. On December 1, 2020, the Company also entered into the Transition Services Agreement with Global Campus whereby the Company will provide certain temporary transition services. After December 1, 2020, revenue is primarily derived from service revenue from our university partners.
Seasonality
Our operations are generally subject to seasonal trends. Our university partners generally experience a seasonal increase in enrollment overnew enrollments during the past few years is partially attributablefirst quarter of each year, subsequent to a general strengthening of the economy which drives lower unemployment, increased competition,holiday break, as well as during the third quarter each year, when most other colleges and universities begin their fall semesters. While our university partners enroll students throughout the year, fourth quarter revenue is generally lower than other quarters due to the holiday break in December, with a general weakeningrelative increase in the overall industry due in large part to increased regulatory scrutiny. The decline is also partially caused by the initiatives our institutions have put in place to help ensure student preparedness, raise academic quality and improve student outcomes, as well as our voluntary decision to stop enrolling new students eligible to use GI Bill benefits in the fourthfirst quarter of 2017.
Trends and uncertainties regarding revenue and continuing operations
Restructuring and impairment charges
We have implemented various restructuring plans to better align our resources with our business strategy and the related charges are recorded in the restructuring and impairment charges line item on our consolidated statements of income (loss). The restructuring and impairment charges are primarily comprised of (i) severance costs relatedChanges to headcount reductions, (ii) estimated lease costs related to facilities vacated orthese estimates could have a material impact on the Company’s consolidated (iii) charges related to the write-off of certain fixed assets and assets abandoned and (iv) student transfer agreement costs for Ashford University ground-based students. As required by GAAP, the estimated lease losses include sublease assumptions.financial statements. For information regarding the restructuring and impairment charges recorded, refer to Note 3,4, “Restructuring and Impairment Charges” to our consolidated financial statements included elsewhere in Part II, Item 8 of this report.Annual Report on Form 10-K.
Valuation allowance
We recognize deferred tax assets if realization of such assets is more-likely-than-not. In order to make this determination, we evaluate factors including the ability to generate future taxable income from reversing taxable temporary differences, and forecasts of financial and taxable income or loss, and the ability to carryback certain operating losses to refund taxes paid in prior years.loss. The cumulative loss incurred over the three-year period ended December 31, 20172021 constituted significant negative objective evidence against our ability to realize a benefit from our federal deferred tax assets. Such objective evidence limited our ability to consider in our evaluation other subjective evidence such as our projections for future growth. On the basis of our evaluation, we determined that our deferred tax assets were not more-likely-than-not to be realized and that a valuation allowance against our deferred tax assets should continue to be maintained as of December 31, 2017.
Critical Accounting Policies and Use of Estimates
Critical accounting policies are those policies that, in management'smanagement’s view, are most important in the portrayal of our financial condition and results of operations. The footnotes to our annual consolidated financial statements included elsewhere in this report include disclosure of significant accounting policies. The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. These critical accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
The discussion of our financial condition and results of operations is based upon our annual consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses. We evaluate our estimates and assumptions on an ongoing basis. These estimates are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements.
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Revenue recognition
On December 1, 2018, we will recognize revenue under2020, the Company entered into the Services Agreement with Global Campus, which has an initial term of fifteen years and seven months, subject to renewal options and certain early termination provisions. The amounts earned from the Services Agreement are within the scope of ASC 606, Revenue Fromfrom Contracts Withwith Customers (“ASC 606”), and are denoted as revenue on the consolidated statements of income (loss). However, up throughOn December 31, 2017, we continued1, 2020, the Company also entered into a the Transition Services Agreement, which has a term of three years. The amounts earned from the Transition Services Agreement are denoted as other revenue on the consolidated statements of income (loss).
The Services Agreement has a single performance obligation, as the promises to recognize revenue in accordance with ASC 605, Revenue Recognition. Under ASC 605, we recognize revenue when persuasive evidenceprovide the identified services are not distinct within the context of an arrangement exists,these agreements. The single performance obligation constitutes a series of distinct services have been rendered or delivery has occurred,as the fee or price is fixed or determinable, and collectibility is reasonably assured. The majority of our revenue comes from tuition revenue and is shown net of scholarships and refunds. Tuitioncustomer benefits as services are provided. Service revenue is recognized onover time using the input method cost. The input method provides a straight-line basisfaithful depiction of the performance toward complete satisfaction of the performance obligation and can be tied to the direct cost incurred. The service fees received over the applicable periodterm of instruction,the agreement are variable in nature in that they are dependent upon the number of students attending the university and revenues generated from those students during the service period. The service fees are subject to certain adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance during each service period. Such adjustments are presented as minimum residual liability within accounts payable and accrued liabilities in the consolidated financial statements. The Company allocates variable consideration to the distinct increments of service to which it relates, as the variability is directly related to the Company’s effort to satisfy the distinct increments of service provided. This is consistent with the exception of an online student's first course per degree level at Ashford University. An online student's first course per degree level at Ashford University falls under a three-week conditional admission periodallocation objective in whichASC 606. The Company meets the revenue is deferred untilcriteria in the student matriculates intostandard and exercises the course.
Fullstack offers both full-time and part-time technology bootcamps. The tuition fees for these programs are recognized as revenue and student deposits and related account receivable balancesas the services are reduced to present amounts attributableprovided to the current course.
TutorMe provides online student (other than military, scholarship studentson-demand tutoring services through hourly and access license contracts. Revenue for these contracts are recognized based on hours used or certain corporate reimbursement students), and recognizes that revenue ratably over the average expected enrollmentcontract period depending on the type of a student. The average expected enrollmentcontract. For most TutorMe contracts, cash is collected at or near the onset of the studentcontract. The collected cash is estimated each quarter based upon historical duration of attendance and qualitative factorsrecognized as deemed necessary.deferred revenue until recognized into revenue.
We test goodwill and indefinite-lived intangible assets for impairment, testing annually in the fourththird quarter of each fiscal year, or more frequently if events and circumstances warrant. Under ASC 350, Intangibles - Goodwill and Other, to evaluate the impairment of goodwill, we first assess qualitative factors, such as deterioration in general economic conditions or negative company financial performance, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. To evaluate the impairment of the indefinite-lived intangible assets, we assess the fair value of the assets to determine whether they are in excess ofwere greater or less than the carrying values. Determining the fair value of indefinite-lived intangible assets is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are inherently uncertain and canmay include such items as growth rates used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and a determination of appropriate market comparables. Our
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We have three distinct reporting units including (i) Zovio, (ii) Fullstack and (iii) TutorMe. The Fullstack and TutorMe reporting units have goodwill associated with them. During the third quarter of 2021, our quantitative assessment of goodwill and indefinite-lived intangible assets noted no impairment indicators in either the Fullstack or the TutorMe reporting unit, and noted a material amount of fair value in excess of the carrying amount. There were no additional triggering events noted during the fourth quarter of fiscal 2017 did not result in any impairment. There have been2021 and therefore there was no impairment losses for indefinite-lived intangibles recognized by us for any periods presented.of our goodwill amounts.
We assess potential impairment to our long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important that could cause us to assess potential impairment include significant changes in the manner of our use of the acquired assets or the strategy for our overall business and significant negative industry or economic trends. An impairment loss is recorded whenif the carrying amount of the long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value, and is recorded as a reduction in the carrying value of the related asset and an expense to operating results.
Income taxes
We utilize the asset-liability method of accounting for income taxes. Significant judgments are required in determining the consolidated provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax settlement is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite our belief that our tax return positions are supportable, we believe that it is more-likely-than-not that those positions may not be fully sustained upon review by tax authorities. We believe that our accruals for tax liabilities are adequate for all open audit years based on our assessment of many factors, including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters differs from our expectations, such differences will impact income tax expense in the period in which such determination is made.
We evaluate and account for uncertain tax positions using a two-step approach. Recognition (step one) occurs when we conclude that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when we subsequently determine that a tax position no longer meets the more-likely-than-notmore-likely-than- not threshold of being sustained.
In addition to estimates inherent in the recognition of current taxes payable, we estimate the likelihood that we will be able to recover our deferred tax assets each reporting period. Realization of our deferred tax assets is dependent upon future taxable income. To the extent we believe it is more-likely-than-not that all or some portion of our net deferred tax assets will not be realized, we establish a valuation allowance against deferred tax assets. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies. Additionally, ASU 2016-09 requires that all income tax effects related to settlements of share-based payment awards be reported in earnings as an increase or decrease to income tax expense (benefit), net. Previously, income tax benefits at settlement of an award were reported as an increase (or decrease) to additional paid-in capital to the extent that those benefits were greater than (or less than) the income tax benefits reported in earnings during the award's vesting period.
Stock-based compensation
We have granted options to purchase our common stock, restricted stock units (“RSUs”) and performance stock units (“PSUs”) to eligible persons under our 2009 Stock Incentive Plan. We also awarded contingent shares of the Company’s common stock for future service during our acquisitions. The benefits provided by these grantsawards are share-based payments and are recorded in our consolidated statementstatements of income (loss) based upon their fair values.
Stock-based compensation cost is measured using the grant date fair value of the award and is expensed over the vesting period. The fair value of RSUs is the stock price on the date of grant multiplied by the number of units awarded. The fair value of PSUs was estimated based on our stock price as of the date of grant using a Monte Carlo simulation model. We estimate the fair value of stock options on the grant date using the Black-Scholes option pricing model. Determining the fair value of stock options and PSUs at the grant date under these models requires judgment, including estimating our volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock options and PSUs represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment.
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Stock options awarded under our 2009 Stock Incentive Plan have an exercise price that equals or exceeds the closing price of our common stock on the date of grant. The risk-free interest rate is based on the U.S. Treasury yield of those maturities that are consistent with the expected term of the stock option or PSUs in effect on the date of grant. Dividend rates are based upon historical dividend trends and expected future dividends. As we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future, a zero dividendzero-dividend rate is assumed in our calculation. We have sufficient historical stock option exercise information to compute an expected term for use as an assumption in the Black-Scholes option pricing and Monte Carlo simulation models, and as such, our computation of expected term was calculated using our own historical data. We also have sufficient historical data on the volatility of our stock to use as a direct assumption in the option pricing models.
The amount of stock-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest. We estimate stock option forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The effect of a 10% change in estimates to any of the individual inputs to the Black-Scholes option pricing model or the Monte Carlo simulation model would not have a material impact on our consolidated financial statements.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2, “Summary of Significant Accounting Policies” to our annual consolidated financial statements included elsewhere in this report.
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Results of Operations
On December 1, 2020, the Company and AU LLC finalized the Purchase Agreement, by and among the Company, AU LLC, the University of Arizona, and Global Campus. Accordingly, the results of operations discussed herein reflect both the Company’s operations prior to December 1, 2020, which was made up primarily of the operations of the University, as well as the Company’s operations commencing on December 1, 2020 as an education technology service provider.
The following table sets forth our consolidated statements of income (loss) data as a percentage of revenue for each of the periods indicated:
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Total revenue and other revenue | 100.0 | % | 100.0 | % | |||||||||||||
| Costs and expenses: | |||||||||||||||||
| Technology and academic services | 26.9 | % | 18.7 | % | |||||||||||||
| Counseling services and support | 34.0 | % | 24.4 | % | |||||||||||||
| Marketing and communication | 32.4 | % | 23.1 | % | |||||||||||||
| General and administrative | 16.4 | % | 12.0 | % | |||||||||||||
| University-related expense | — | % | 22.4 | % | |||||||||||||
| Legal expense | 5.4 | % | — | ||||||||||||||
| Restructuring and impairment charges | 1.0 | % | 1.2 | % | |||||||||||||
| Loss on transaction | — | % | 13.8 | % | |||||||||||||
| Total costs and expenses | 116.1 | % | 115.6 | % | |||||||||||||
| Operating loss | (16.1) | % | (15.6) | % | |||||||||||||
| Other income (loss), net | — | % | — | % | |||||||||||||
| Loss before income taxes | (16.1) | % | (15.6) | % | |||||||||||||
| Income tax expense (benefit) | — | % | (3.3) | % | |||||||||||||
| Net loss | (16.1) | % | (12.3) | % | |||||||||||||
| Year Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Revenue | 100.0 | % | 100.0 | % | 100.0 | % | ||
| Costs and expenses: | ||||||||
| Instructional costs and services | 49.6 | % | 50.1 | % | 50.1 | % | ||
| Admissions advisory and marketing | 36.7 | % | 38.4 | % | 35.2 | % | ||
| General and administrative | 9.9 | % | 9.3 | % | 10.1 | % | ||
| Legal settlement expense | 0.4 | % | 6.3 | % | — | % | ||
| Restructuring and impairment charges | 1.8 | % | 3.7 | % | 12.2 | % | ||
| Total costs and expenses | 98.4 | % | 107.8 | % | 107.6 | % | ||
| Operating income (loss) | 1.6 | % | (7.8 | )% | (7.6 | )% | ||
| Other income, net | 0.3 | % | 0.5 | % | 0.5 | % | ||
| Income (loss) before income taxes | 1.9 | % | (7.3 | )% | (7.1 | )% | ||
| Income tax expense (benefit) | (0.3 | )% | (1.6 | )% | 5.4 | % | ||
| Net income (loss) | 2.2 | % | (5.7 | )% | (12.5 | )% | ||
Year Ended December 31, 20172021 Compared to Year Ended December 31, 20162020
The decrease in revenue in the year ended December 31, 2016. The decreaseUniversity Partners segment of $143.4 million between periods was primarily due to the decrease in university-related revenue of $356.1 million, or 89.7%, as compared to the prior year. This decrease was due to the sale of Global Campus on December 1, 2020 (see also Note 1, “Nature of Business,” included in Part II, Item 8, for further information). This decrease was also due to a decrease of 16.0% in average weekly enrollment partially offset by the approximate 2.0% tuition increase on April 1, 2017. Additionally, revenue generated from course digital materials and related fees for the year ended December 31, 2017 was $17.7 million, a decrease of $1.8 million, or 9.2%,2021 as compared to $19.5 million for the year ended December 31, 2016. The2020. Partially offsetting the decrease in the University Partners segment was a $203.0 million increase of service revenue due to the Services Agreement entered into on December 1, 2020, as well as an increase in other revenue generated from the Transition Services Agreement of approximately $8.9 million.
The increase in revenue in the Zovio Growth segment between periods was also partiallyprimarily due to an increasethe growth in institutional scholarships. Institutional scholarships for the new customer contracts experienced this year ended December 31, 2017 was $100.3 million, an increase of $3.9 million, or 4.1%, as compared to $96.4 million for the year ended December 31, 2016.within our subsidiaries, Fullstack Academy and TutorMe.com.
Our instructional coststechnology and academic services, decreased as a percentage of revenue, to 49.6% for the year ended December 31, 20172021 and 2020, were 26.9% and 18.7%, as compared to 50.1% for the year ended December 31, 2016respectively, representing an increase of 8.2%. The decrease of 0.5% as a percentage of revenueThis increase primarily resulted from decreasesincluded increases in facilitiesemployee costs of 0.5%3.6%, corporate supportother technology and academic services expenses of 0.4%1.9%, license fees of 0.3%1.7%, instructor feesand instructional supplies of 0.2% and amortization of intangible assets of 0.2%,0.8%. These increases were partially offset by increasesa decrease in information technology costsconsulting and outside services of 0.6% and bad debt expense of
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0.5%. As a percentage of revenue, bad debt expense increaseddecreased to 6.7%0.5% for the year ended December 31, 2017,2021, compared to 6.2%3.6% for the year ended December 31, 2016. We continue to implement changes in our processes which we believe we help us reach our goal of reducing this expense as a percentage of revenue over time.2020.
Marketing and communication. Our marketing and communication expenses for the year ended December 31, 2016. The2021 and 2020, were $85.3 million and $91.6 million, respectively, representing a decrease of 1.7%$6.3 million, or 6.9%. Specific factors contributing to the overall decrease between periods were primarily due to decreases in advertising of $4.9 million, other marketing and communication expenses of $1.9 million and license fees of $1.2 million. The overall decrease was partially offset by increases in employee costs of $1.2 million and consulting and outside services of $0.7 million. Our marketing and communication expenses, as a percentage of revenue, wasfor the year ended December 31, 2021 and 2020, were 32.4% and 23.1%, respectively, representing an increase of 9.3%. This increase primarily due to decreasesincluded increases in compensation expenseadvertising of 2.0%7.1%, facilitiesemployee costs of 1.1%1.9%, and information technology costsconsulting and outside services of 0.4%, partially0.8%. The overall increase was offset by increases as a percentagedecrease in other marketing and communication expenses of revenue in corporate support services of 1.0%, and advertising costs of 0.3%0.4%.
General and administrative. Our general and administrative expenses for the year ended December 31, 20172021 and 2020, were $47.4$43.2 million, and $47.4 million, respectively, representing adecrease of $1.5$4.2 million,, or 3.0%, as compared to general and administrative expenses of $48.8 million for the year ended December 31, 20168.9%. The decrease between periods was primarily due to decreases in other administrativeemployee costs of $2.2$5.8 million, other general and administrative compensationexpenses of $2.0$3.8 million, professional fees of $3.0 million, consulting and outside services of $0.5 million, and facilities costslegal settlements of $1.6 million,$0.3 million. These decreases were partially offset by increases in professionalexecutive severance of $4.4 million, human resource costs of $1.6 million, non-recurring stock compensation of $1.3 million, insurance of $1.0 million, and legal fees of $4.3$0.9 million.
Our general and administrative expenses, increased as a percentage of revenue, to 9.9% for the year ended December 31, 2017 from 9.3%2021 and 2020, were 16.4% and 12.0%, respectively, representing an increase of 4.4%. This increase is mainly due to increases in other general and administrative expenses of 3.4%, legal fees of 1.2%, employee costs of 1.1%, insurance of 0.8%, and consulting and outside services of 0.4%, partially offset by decreases in executive severance of 1.7% and professional fees of 0.5%.
University-related expense. Our university-related expenses for the year ended December 31, 2016.2020 were $89.0 million. The increase of 0.6% as a percentage of revenue included increasesuniversity-related expenses represent those costs that were transferred to Global Campus in professional fees of 1.1%,the Sale Transaction and administrative compensation of 0.3%, partially offsetthat are no longer incurred by a decrease in corporate support services of 0.6% and net facilities costs of 0.3%.the Company.
Legal settlement expense.For Legal expense for the year ended December 31, 2017, we recorded a legal settlement expense of $1.82021 were $14.3 million, relatedwhich represents the additional amounts necessary to get to the costs$22.4 million in statutory penalties relating to settle a wage and hour dispute. Forthe California Attorney General’s lawsuit. There were no such legal expense for the year ended December 31, 2016. we recorded a legal settlement expense of $33.1 million, which includes the cost of resolution of the previously disclosed civil investigative demands from the CFPB, as well as an estimate of amounts to resolve the previously disclosed investigative subpoenas from the Attorney General of the State of California.2020.
Restructuring and impairment charges. Our restructuring and impairment charges for the year ended December 31, 20172021 were $8.7$2.6 million, as compared to $4.8 million for the year ended December 31, 2020, representing a decrease of $2.2 million. The charges for the year ended December 31, 2021 were comprised of $5.8 million of lease exit costs for properties in San Diego, $2.2$2.6 million relating to severance costs for wages and benefits resulting from a reduction in force and $0.8force.
Loss on transaction. The loss on transaction amount of $54.8 million for asset impairments. The costs were partially offset by a decrease in student transfer agreement costs $0.1 million. Our restructuring and impairment charges for the year ended December 31, 2016 were $19.3 million, comprised of $14.5 million of lease exit2020 represents the net assets transferred in the Sale Transaction, as well as other transaction-related expenses and costs for properties in San Diego, $2.7 million relating to severance costs for wages and benefits resulting from a reduction in force to help better align personnel resources with the decline in student enrollment and $2.2 million for asset impairments, partially offset by a decrease in student transfer agreement costs of $0.1 million.sell.
Other income (loss), net. Our The other income, net, for the year ended December 31, 20172021 was $1.5 million, adecrease of $0.8$0.1 million, as compared to other income,loss, net, of $2.3 million for the year ended December 31, 2016. The decrease between periods was primarily a result of decreased interest income due to changes in the levels of average cash and cash equivalents and investment balances.
Income tax expense (benefit).benefit. Income tax benefit for the year ended December 31, 20162021 was $7.9$0.1 million as compared to income tax expensebenefit of $30.3$13.1 million for the year ended December 31, 2015,2020, or a $38.2decrease of $12.9 million decrease in income tax expense.benefit. Income tax expense (benefit)benefit was recognized at effective tax rates of 20.8%0.3% and (75.3)%21.1% for the years ended December 31, 20162021 and 2015,2020, respectively. The change in income tax expense between periods was primarily duebenefit at December 31, 2021 is mainly attributable to certain federal and state tax refund true-ups related prior years, whereas the income tax benefit at December 31, 2020 is mainly attributable to the establishment of a valuation allowance against our net deferred tax assets during the year ended December 31, 2015.refunds and interest related to CARES Act and IRS audit examination.
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Net loss. Our net loss for the year ended December 31, 20162021 was $30.0$42.3 million compared to net loss of $70.5$49.0 million for the year ended December 31, 2015,2020, a $40.5$6.6 million decreaseincrease in net lossincome as a result of the factors discussed above.
Segment Operating Results
Segment profitability represents net income (loss), before net interest income (expense), taxes, depreciation and amortization expense (“EBITDA”).
University Partners segment operating results for the year ended December 31, 2021 was a loss of $26.6 million, or 11.4% of revenue, compared to a loss of $41.2 million, or 10.9% of revenue, for the year ended December 31, 2020. This represents a $14.6 million increase in operating results. However, the operating results for the prior year ended December 31, 2020 include the loss on sale transaction of $54.8 million. The resulting decrease, excluding the loss on sale, is primarily due to the decrease in revenue in this segment.
Zovio Growth segment operating results for the year ended December 31, 2021 was a loss of $7.7 million, or 25.5% of revenue, compared to a loss of $9.3 million, or 44.6% of revenue, for the year ended December 31, 2020. This represents a $1.6 million increase in operating results, which was primarily driven by the continued demand seen within the Fullstack and TutorMe businesses in 2021.
Liquidity and Capital Resources
We financed our operating activities and capital expenditures during the years ended December 31, 20172021 and 2016 either through cash provided by operating activities or2020 primarily through cash on hand. Our cash and cash equivalents were $185.1 million at December 31, 20172021 and $307.82020, were $28.3 million at December 31, 2016, and $35.5 million, respectively, which can be used for operating activities or capital expenditures. Additionally, at December 31, 20172021 and 2016,2020, we had restricted cash of $20.4$9.3 million and $24.5$20.0 million, respectively, as well as investments of $2.1$1.0 million and $49.4$1.5 million, respectively.
There was a slight decrease in the fair value of our investments at December 31, 2021 as compared to the prior year. We believe that any fluctuations we have experienced are temporary in nature and, while our securities are classified as available-for-sale, we have the ability and intent to hold them until maturity, if necessary, to recover their full value. Additionally, our income tax receivable decreased from December 31, 2020 to December 31, 2021 primarily due to tax refunds received from tax audit examinations.
On April 14, 2022, the Company entered into a Financing Agreement (the “Credit Facility”) among the Company, as borrower, each of its wholly-owned subsidiaries as subsidiary guarantors (the “Guarantors”), respectively.the lenders party thereto from time to time (the “Lenders”) and Blue Torch Finance LLC, as administrative agent and collateral agent for the Lenders (the “Agent”). The Credit Facility provides for, among other things, a term loan in the aggregate principal amount of $31.5 million (the “Term Loan”). The proceeds of the Term Loan will be used (i) to satisfy any final judgement in the California Attorney General lawsuit and (ii) to fund the working capital of the Company and the Guarantors. For additional information on financing obtained in April 2022, see Note 22, “Subsequent Events” to our consolidated financial statements included elsewhere in this report.
In March 2022, the Company received a court order to pay $22.4 million in statutory penalties relating to the California Attorney General’s lawsuit. We are currently considering all options available and have filed a motion for a new trial on the Court’s decision. Regardless of the ultimate outcome, this decision could have a material impact on our financial condition. For additional information regarding this lawsuit, see Note 22, “Subsequent Events” to our consolidated financial statements included elsewhere in this report.
We manage our excess cash pursuant to the quantitative and qualitative operational guidelines of our cash investment policy. Our cash investment policy, which is managed by our Chief Financial Officer, has the following primary objectives: (i) preserving principal, (ii) meeting our liquidity needs, (iii) minimizing market and credit risk, and (iv) providing after-tax returns. Under the policy'spolicy’s guidelines, we invest our excess cash exclusively in high-quality, U.S. dollar-denominated financial instruments. For a discussion of the measures we use to mitigate the exposure of our cash investments to market risk, credit risk and interest rate risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”
Net cash used in operating activities was $15.4 million for 2021, whereas the cash provided by operating activities was $25.3 million for 2020. The Company's boardprimary drivers of directors (the “board”) may authorize usthe decreased net cash provided by operations was the $51.9 million adjustment of the loss on transaction in 2020, as well as the net changes in operating assets and liabilities. These year over year changes include the accounts receivable of $14.0 million, deferred revenue of $5.1 million, a change in accounts payable and accrued
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liabilities of $19.5 million, and a change in operating lease liabilities of $1.5 million, partially offset by a change of $11.1 million in prepaid and other current assets and a change in other liabilities of $2.5 million.
Investing Activities
Net cash used in investing activities was $1.4 million and $64.7 million for 2021 and 2020, respectively. During 2021, we purchased $1.1 million of investments and had $0.7 million of capitalized costs for intangible assets, partially offset by $1.8 million sales of investments. In 2020, we had $62.3 million of cash transferred in connection with the sale to repurchase outstanding sharesGlobal Campus, as well as purchases of its common stock from timeinvestments of $0.7 million, and had $0.3 million of capitalized costs for intangible assets.
Capital expenditures were $1.4 million and $3.2 million for 2021 and 2020, respectively. For the year ending December 31, 2022, we expect our capital expenditures to timebe approximately $1.4 million, primarily in the open market through block trades or otherwise depending on market conditionsareas of computer and other considerations, pursuantsoftware upgrades, as well as leasehold improvements.
Financing Activities
Net cash used in financing activities was $1.1 million for 2021, whereas net cash provided by financing activities was $2.3 million for 2020. During 2021, net cash used in financing activities was primarily due to the applicable rulescash used for tax withholdings related to vesting of the SEC. The Company's policy isrestricted stock awards of $1.2 million. During 2020, net cash provided by financing activities was primarily due to retain these repurchased shares as treasury shares and not to retire them. The amount and timingborrowings from notes payable of future share repurchases, if any, will be made as market and business conditions warrant. The timing and extent of any repurchases will depend upon market conditions, the trading price of our shares and other factors, and subject to the restrictions relating to volume, price and timing under applicable law. We may commence or suspend share repurchases at any time or from time to time. For information regarding share repurchases, refer to Note 16, “Stock Repurchase Programs” to our consolidated financial statements included elsewhere in this report.
Our institutions derivelargest university partner, Global Campus, derives the substantial majority of theirits respective cash revenues from students who enroll and are eligible for various federal student financial assistance programs authorized under Title IV of the Higher Education Act. In the years ended December 31, 2017, Ashford University derived 80.8%, and University of the Rockies derived 86.1%, of their respective cash revenues from Title IV program funds, calculated in accordance with applicable Department regulations. Our institutions areAn institution is subject to significant regulatory scrutiny as a result of numerous standards that must be satisfied in order to participate in Title IV programs. For additional information regarding Title IV programs and the regulation thereof, see “Regulation”“Business—Regulation” included in Part I, Item 1, “Business”.1. The balance of revenues derived by our institutionsGlobal Campus is from government tuition assistance programs for military personnel, including veterans, payments made in cash by individuals, reimbursement from corporate partnerships and private loans from third parties. For additional information, see
The majority of our cash comes from our Services Agreement with Global Campus. The service fees in the section entitled “Student Financing”Services Agreement are subject to certain minimum residual liability adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in Item 1, “Business”.
We have future contractual obligations relating to operating lease obligations in the amount of $53.6 million, of which approximately $7.0 million is short-term in nature.
We also have contractual obligations in the amount of $16.3 million, of which $10.8 million is a short-term obligation. These obligations include agreements with vendors in the areas of software, facilities, telephony, licensing fees, consulting, marketing, among others.
Debt and Financing Arrangements
As part of our normal business operations, weDecember 31, 2021, the Company has a long-term notes payable valued at $2.7 million, including accrued interest. The counterparty advanced funds to the Company for certain program development costs, which the Company is obligated to repay out of future revenues from the developed program. The Company recognized these advances as a debt obligation, and expects to begin repayments from future program revenues four years from the contract start date.
The Company has issued letters of credit that are collateralized with cash, in the aggregate amount of $9.2 million as of December 31, 2021. The letters of credit relate primarily to the Company's leased facilities and insurance requirements. The collateralized cash is held in restricted cash on the Company's consolidated balance sheets.
39
The Company is required to provide surety bonds in certain states where we doin which it does business. In May 2009, weAs a result, the Company had previously entered into a surety bond facility with an insurance company to provide such bonds when required. As of December 31, 2017, our total available surety bond facility was $3.5 million andAlthough there are no remaining bonds on the surety had issued bonds totaling $3.2 million on ourCompany’s behalf under such facility.
| Payments Due by Period | |||||||||||||||||||||||||||
| Total | 2018 | 2019 | 2020 | 2021 | 2022 | Thereafter | |||||||||||||||||||||
| (In thousands) | |||||||||||||||||||||||||||
| Operating lease obligations | $ | 68,797 | $ | 31,400 | $ | 20,833 | $ | 9,504 | $ | 5,112 | $ | 1,558 | $ | 390 | |||||||||||||
| Other contractual obligations | 50,900 | 16,862 | 11,327 | 9,284 | 3,427 | 2,500 | 7,500 | ||||||||||||||||||||
| Uncertain tax positions | 8,893 | — | 8,893 | — | — | — | — | ||||||||||||||||||||
| Total | $ | 128,590 | $ | 48,262 | $ | 41,053 | $ | 18,788 | $ | 8,539 | $ | 4,058 | $ | 7,890 | |||||||||||||
40
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.Risk
Market and Credit Risk
Pursuant to our cash investment policy, we attempt to mitigate the exposure of our cash and investments to market and credit risk by (i) diversifying concentration to ensure we are not overly concentrated in a limited number of financial institutions, (ii) monitoring and managing the risks associated with the national banking and credit markets, (iii) investing in U.S. dollar-denominated assets and instruments only, (iv) diversifying account structures so that we maintain a decentralized account portfolio with numerous stable, highly rated and liquid financial institutions and (v) ensuring that our investment procedures maintain a defined and specific scope such that we will not invest in higher-risk investment accounts, including financial swaps or derivative and corporate equities. Accordingly, pursuant to the guidelines established by our cash investment policy, we invest our excess cash exclusively in high-quality, U.S. dollar-denominated financial instruments.
Despite the investment risk mitigation strategies we employ, we may incur investment losses as a result of unusual and unpredictable market developments, and we may experience reduced investment earnings if the yields on investments that are deemed to be low risk remain low or decline further in this time of economic uncertainty. Unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio.
We have no derivative financial instruments or derivative commodity instruments.
Interest Rate Risk
To the extent we borrow funds, we would be subject to fluctuations in interest rates. As of December 31, 2017,2021, we had no outstanding borrowings.$2.7 million in long-term notes payable.
Our future investment income may fall short of expectations due to changes in interest rates. At December 31, 2017,2021, a hypothetical 10% increase or decrease in interest rates would not have a material impact on our future earnings, fair value or cash flows related to interest earned on our cash, cash equivalents or investments.
41
Item 8. Financial Statements and Supplementary Data.Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
42
Report of Independent Registered Public Accounting Firm
To the shareholdersstockholders and the Board of Directors of Bridgepoint Education, Inc.Zovio Inc
We have audited the accompanying consolidated balance sheets of Bridgepoint Education, Inc.Zovio Inc and subsidiaries (the “Company”) as of December 31, 20172021 and 2016, and2020, the related consolidated statements of income (loss), comprehensive income (loss), stockholders'stockholders’ equity, and cash flows, for each of the two years in the period ended December 31, 20172021, and the related notes (collectively referred to as the “financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and 2016,2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2017,2021, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
Basis for OpinionsOpinion
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the auditsaudit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effectivefraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, was maintained in all material respects.but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures tothat respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.opinion.
Contra Revenue and Liability - Minimum Residual Liability - Refer to Notes 1, 2, and 8 to the financial statements
Critical Audit Matter Description
As the service period covers July 1 to June 30, six months of the minimum residual liability as of December 31, 2021, is based on actual data from July 2021 through December 2021 and six months is based on forecasted data from January 2022 through June 2022. The main inputs include the Company’s forecasts of its direct costs as well as the Company’s forecasts of Global
43
Campus’ revenues and operating expenses which directly impact the minimum profit level adjustments. We have identified the Company’s six months forecast of Global Campus revenues and operating expenses as a critical audit matter because of changes in conditions, or that the significant estimates and assumptions made by management. The estimates and assumptions include student enrollment forecasts and employee headcount forecasts (collectively, the “key assumptions”), which are the main drivers of revenue and operating expenses for Global Campus. This required a high degree of complianceauditor judgment and an increased extent of effort when performing audit procedures to evaluate the reasonableness of the Company’s six months' forecast of Global Campus revenue and operating expenses.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the minimum residual liability included the following, among others:
•We evaluated the appropriateness and consistency of the key assumptions used by management by comparing them to actual historical data and management’s long-term strategic plan, which was communicated to the Board of Directors, reading the Services Agreement for key terms, and evaluating any contradictory evidence identified.
•We evaluated management’s ability to accurately forecast future revenues and operating expenses of Global Campus by comparing actual results to management’s historical forecasts and inquiring with management to understand the policies or procedures may deteriorate.overall basis for these forecasts.
•We obtained and read meeting minutes for all Audit Committee meetings and Disclosure Committee meetings to identify any significant events discussed that would impact the assumptions used by management.
/s/ DELOITTE & TOUCHE LLP
April 15, 2022
We have served as the Company'sCompany’s auditor since 2016.
44
Consolidated Balance Sheets
(In thousands, except par value)
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| ASSETS | |||||||
| Current assets: | |||||||
| Cash and cash equivalents | $ | 185,098 | $ | 307,802 | |||
| Restricted cash | 20,428 | 24,533 | |||||
| Investments | 2,065 | 49,434 | |||||
| Accounts receivable, net | 27,077 | 26,457 | |||||
| Prepaid expenses and other current assets | 22,388 | 23,467 | |||||
| Total current assets | 257,056 | 431,693 | |||||
| Property and equipment, net | 10,434 | 12,218 | |||||
| Goodwill and intangibles, net | 14,593 | 17,419 | |||||
| Other long-term assets | 5,456 | 2,046 | |||||
| Total assets | $ | 287,539 | $ | 463,376 | |||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||
| Current liabilities: | |||||||
| Accounts payable and accrued liabilities | 71,165 | 77,866 | |||||
| Deferred revenue and student deposits | 68,207 | 74,666 | |||||
| Total current liabilities | 139,372 | 152,532 | |||||
| Rent liability | 7,001 | 16,508 | |||||
| Other long-term liabilities | 12,708 | 13,630 | |||||
| Total liabilities | 159,081 | 182,670 | |||||
| Commitments and contingencies (see Note 20) | |||||||
| Stockholders' equity: | |||||||
| Preferred stock, $0.01 par value: | |||||||
| 20,000 shares authorized; zero shares issued and outstanding at December 31, 2017 and 2016 | — | — | |||||
| Common stock, $0.01 par value: | |||||||
| 300,000 shares authorized; 64,887 and 64,035 issued, and 27,158 and 46,478 outstanding, at December 31, 2017 and 2016, respectively | 649 | 641 | |||||
| Additional paid-in capital | 201,755 | 195,854 | |||||
| Retained earnings | 431,818 | 421,281 | |||||
| Accumulated other comprehensive loss | — | (1 | ) | ||||
| Treasury stock, 37,729 and 17,557 shares at cost at December 31, 2017 and 2016, respectively | (505,764 | ) | (337,069 | ) | |||
| Total stockholders' equity | 128,458 | 280,706 | |||||
| Total liabilities and stockholders' equity | $ | 287,539 | $ | 463,376 | |||
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 28,265 | $ | 35,462 | |||||||
| Restricted cash | 9,288 | 20,035 | |||||||||
| Investments | 974 | 1,515 | |||||||||
| Accounts receivable, net of allowance for credit losses of $0.9 million and $1.2 million at December 31, 2021 and December 31, 2020, respectively | 9,631 | 7,204 | |||||||||
| Prepaid expenses and other current assets | 13,423 | 12,617 | |||||||||
| Total current assets | 61,581 | 76,833 | |||||||||
| Property and equipment, net | 26,382 | 30,575 | |||||||||
| Operating lease assets | 28,881 | 20,114 | |||||||||
| Goodwill and intangibles, net | 29,499 | 31,785 | |||||||||
| Other long-term assets | 2,691 | 1,999 | |||||||||
| Total assets | $ | 149,034 | $ | 161,306 | |||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable and accrued liabilities | $ | 74,769 | $ | 62,693 | |||||||
| Deferred revenue and student deposits | 14,939 | 8,090 | |||||||||
| Total current liabilities | 89,708 | 70,783 | |||||||||
| Rent liability | 34,205 | 24,125 | |||||||||
| Other long-term liabilities | 5,115 | 7,181 | |||||||||
| Total liabilities | 129,028 | 102,089 | |||||||||
| Commitments and contingencies (see Note 19) | 0 | 0 | |||||||||
| Stockholders' equity: | |||||||||||
| Preferred stock, $0.01 par value: | |||||||||||
| 20,000 shares authorized; zero shares issued and outstanding at December 31, 2021 and 2020 | — | — | |||||||||
| Common stock, $0.01 par value: | |||||||||||
| 300,000 shares authorized; 67,255 and 66,454 issued, and 33,546 and 32,267 outstanding, at December 31, 2021 and 2020, respectively | 676 | 668 | |||||||||
| Additional paid-in capital | 172,060 | 179,489 | |||||||||
| Retained earnings | 283,970 | 326,319 | |||||||||
| Treasury stock, 33,709 and 34,187 shares at cost at December 31, 2021 and 2020, respectively | (436,700) | (447,259) | |||||||||
| Total stockholders' equity | 20,006 | 59,217 | |||||||||
| Total liabilities and stockholders' equity | $ | 149,034 | $ | 161,306 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
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Consolidated Statements of Income (Loss)
(In thousands, except per share amounts)
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Revenue | $ | 478,397 | $ | 527,090 | $ | 561,729 | |||||
| Costs and expenses: | |||||||||||
| Instructional costs and services | 237,248 | 263,898 | 281,496 | ||||||||
| Admissions advisory and marketing | 175,389 | 202,206 | 197,584 | ||||||||
| General and administrative | 47,381 | 48,843 | 56,588 | ||||||||
| Legal settlement expense | 1,845 | 33,088 | — | ||||||||
| Restructuring and impairment charges | 8,682 | 19,276 | 68,356 | ||||||||
| Total costs and expenses | 470,545 | 567,311 | 604,024 | ||||||||
| Operating income (loss) | 7,852 | (40,221 | ) | (42,295 | ) | ||||||
| Other income, net | 1,511 | 2,306 | 2,106 | ||||||||
| Income (loss) before income taxes | 9,363 | (37,915 | ) | (40,189 | ) | ||||||
| Income tax expense (benefit) | (1,174 | ) | (7,875 | ) | 30,265 | ||||||
| Net income (loss) | $ | 10,537 | $ | (30,040 | ) | $ | (70,454 | ) | |||
| Income (loss) per share: | |||||||||||
| Basic | $ | 0.33 | $ | (0.65 | ) | $ | (1.54 | ) | |||
| Diluted | $ | 0.32 | $ | (0.65 | ) | $ | (1.54 | ) | |||
| Weighted average number of common shares outstanding used in computing income (loss) per share: | |||||||||||
| Basic | 32,058 | 46,228 | 45,665 | ||||||||
| Diluted | 32,794 | 46,228 | 45,665 | ||||||||
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Revenue | $ | 253,099 | $ | 40,053 | |||||||||||||
| University-related revenue | — | 356,084 | |||||||||||||||
| Other revenue | 9,934 | 984 | |||||||||||||||
| Revenue and other revenue | 263,033 | 397,121 | |||||||||||||||
| Costs and expenses: | |||||||||||||||||
| Technology and academic services | 70,663 | 74,412 | |||||||||||||||
| Counseling services and support | 89,514 | 96,996 | |||||||||||||||
| Marketing and communication | 85,328 | 91,620 | |||||||||||||||
| General and administrative | 43,160 | 47,352 | |||||||||||||||
| University-related expenses | — | 89,001 | |||||||||||||||
| Legal expense | 14,335 | — | |||||||||||||||
| Restructuring and impairment charges | 2,641 | 4,843 | |||||||||||||||
| Loss on transaction | — | 54,797 | |||||||||||||||
| Total costs and expenses | 305,641 | 459,021 | |||||||||||||||
| Operating loss | (42,608) | (61,900) | |||||||||||||||
| Other income (loss), net | 130 | (120) | |||||||||||||||
| Loss before income taxes | (42,478) | (62,020) | |||||||||||||||
| Income tax benefit | (129) | (13,068) | |||||||||||||||
| Net loss | $ | (42,349) | $ | (48,952) | |||||||||||||
| Loss per share: | |||||||||||||||||
| Basic | $ | (1.27) | $ | (1.53) | |||||||||||||
| Diluted | $ | (1.27) | $ | (1.53) | |||||||||||||
| Weighted average number of common shares outstanding used in computing loss per share: | |||||||||||||||||
| Basic | 33,256 | 31,959 | |||||||||||||||
| Diluted | 33,256 | 31,959 | |||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
46
Consolidated Statements of Comprehensive Income (Loss)Stockholders' Equity
(In thousands)
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Net income (loss) | $ | 10,537 | $ | (30,040 | ) | $ | (70,454 | ) | |||
| Other comprehensive gain, net of tax: | |||||||||||
| Unrealized gains on investments | 1 | 98 | 76 | ||||||||
| Comprehensive income (loss) | $ | 10,538 | $ | (29,942 | ) | $ | (70,378 | ) | |||
| Common Stock | Additional Paid-in Capital | Retained Earnings | Treasury Stock | ||||||||||||||||||||||||||||||||||||||
| Shares | Par Value | Total | |||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 65,695 | $ | 660 | $ | 192,413 | $ | 375,180 | $ | (469,315) | $ | 98,938 | ||||||||||||||||||||||||||||||
| Adoption of accounting standards (ASU 2016-13) | — | — | — | 91 | — | 91 | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 8,291 | — | — | 8,291 | |||||||||||||||||||||||||||||||||||
| Exercise of stock options | 22 | 1 | 7 | — | — | 8 | |||||||||||||||||||||||||||||||||||
| Stock issued under employee stock purchase plan | 89 | 1 | 208 | — | — | 209 | |||||||||||||||||||||||||||||||||||
| Stock issued under stock incentive plan, net of shares held for taxes | 648 | 6 | (513) | — | — | (507) | |||||||||||||||||||||||||||||||||||
| Contingent consideration | — | — | 1,245 | — | — | 1,245 | |||||||||||||||||||||||||||||||||||
| Issuance of shares in acquisition | — | — | (22,162) | — | 22,162 | — | |||||||||||||||||||||||||||||||||||
| Repurchase of common stock | — | — | — | — | (106) | (106) | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (48,952) | — | (48,952) | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2020 | 66,454 | 668 | 179,489 | 326,319 | (447,259) | 59,217 | |||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | 4,367 | — | — | 4,367 | |||||||||||||||||||||||||||||||||||
| Stock issued under employee stock purchase plan | 70 | 1 | 124 | — | — | 125 | |||||||||||||||||||||||||||||||||||
| Stock issued under stock incentive plan, net of shares held for taxes | 731 | 7 | (1,239) | — | — | (1,232) | |||||||||||||||||||||||||||||||||||
| Contingent consideration | — | — | (122) | — | — | (122) | |||||||||||||||||||||||||||||||||||
| Issuance of shares in acquisition | — | — | (10,559) | — | 10,559 | — | |||||||||||||||||||||||||||||||||||
| Net loss | — | — | — | (42,349) | — | (42,349) | |||||||||||||||||||||||||||||||||||
| Balance at December 31, 2021 | 67,255 | $ | 676 | $ | 172,060 | $ | 283,970 | $ | (436,700) | $ | 20,006 | ||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
47
Consolidated Statements of Stockholders' EquityCash Flows
(In thousands)
| Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Gain/(Loss) | Treasury Stock | ||||||||||||||||||||||
| Shares | Par Value | Total | ||||||||||||||||||||||||
| Balance at December 31, 2014 | 62,957 | $ | 630 | $ | 180,720 | $ | 521,775 | $ | (175 | ) | $ | (337,069 | ) | $ | 365,881 | |||||||||||
| Stock-based compensation | — | — | 9,710 | — | — | — | 9,710 | |||||||||||||||||||
| Exercise of stock options | 206 | 2 | 282 | — | — | — | 284 | |||||||||||||||||||
| Excess tax shortfalls of option exercises and restricted stock, net of tax benefit | — | — | (767 | ) | — | — | — | (767 | ) | |||||||||||||||||
| Stock issued under employee stock purchase plan | 33 | — | 261 | — | — | — | 261 | |||||||||||||||||||
| Stock issued under restricted stock plan, net of shares held for taxes | 211 | 2 | (1,343 | ) | — | — | — | (1,341 | ) | |||||||||||||||||
| Net loss | — | — | — | (70,454 | ) | — | — | (70,454 | ) | |||||||||||||||||
| Unrealized gains on investments, net of tax | — | — | — | — | 76 | — | 76 | |||||||||||||||||||
| Balance at December 31, 2015 | 63,407 | 634 | 188,863 | 451,321 | (99 | ) | (337,069 | ) | 303,650 | |||||||||||||||||
| Stock-based compensation | — | — | 7,317 | — | — | — | 7,317 | |||||||||||||||||||
| Exercise of stock options | 306 | 3 | 1,328 | — | — | — | 1,331 | |||||||||||||||||||
| Stock issued under employee stock purchase plan | 35 | 1 | 245 | — | — | — | 246 | |||||||||||||||||||
| Stock issued under restricted stock plan, net of shares held for taxes | 287 | 3 | (1,899 | ) | — | — | — | (1,896 | ) | |||||||||||||||||
| Net loss | — | — | — | (30,040 | ) | — | — | (30,040 | ) | |||||||||||||||||
| Unrealized gains on investments, net of tax | — | — | — | — | 98 | — | 98 | |||||||||||||||||||
| Balance at December 31, 2016 | 64,035 | 641 | 195,854 | 421,281 | (1 | ) | (337,069 | ) | 280,706 | |||||||||||||||||
| Stock-based compensation | — | — | 3,632 | — | — | — | 3,632 | |||||||||||||||||||
| Exercise of stock options | 537 | 5 | 3,843 | — | — | — | 3,848 | |||||||||||||||||||
| Stock issued under employee stock purchase plan | 34 | 1 | 288 | — | — | — | 289 | |||||||||||||||||||
| Stock issued under restricted stock plan, net of shares held for taxes | 281 | 2 | (1,862 | ) | — | — | — | (1,860 | ) | |||||||||||||||||
| Repurchase of common stock | — | — | — | — | — | (168,695 | ) | (168,695 | ) | |||||||||||||||||
| Net income | — | — | — | 10,537 | — | — | 10,537 | |||||||||||||||||||
| Unrealized gains on investments, net of tax | — | — | — | — | 1 | — | 1 | |||||||||||||||||||
| Balance at December 31, 2017 | 64,887 | $ | 649 | $ | 201,755 | $ | 431,818 | $ | — | $ | (505,764 | ) | $ | 128,458 | ||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Cash flows from operating activities | |||||||||||||||||
| Net loss | $ | (42,349) | $ | (48,952) | |||||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||||||||
| Provision for bad debts | 1,229 | 14,256 | |||||||||||||||
| Depreciation and amortization | 8,333 | 11,403 | |||||||||||||||
| Deferred income taxes | — | 119 | |||||||||||||||
| Stock-based compensation | 4,367 | 8,291 | |||||||||||||||
| Noncash lease expense | 8,240 | 10,644 | |||||||||||||||
| Net loss (gain) on marketable securities | (212) | (111) | |||||||||||||||
| Loss on disposal or impairment | 239 | 38 | |||||||||||||||
| Loss on transaction | — | 51,952 | |||||||||||||||
| Changes in operating assets and liabilities: | |||||||||||||||||
| Accounts receivable | (3,656) | (17,666) | |||||||||||||||
| Prepaid expenses and other current assets | (806) | 10,339 | |||||||||||||||
| Other long-term assets | (692) | (1,241) | |||||||||||||||
| Accounts payable and accrued liabilities | 14,495 | (4,978) | |||||||||||||||
| Deferred revenue and student deposits | 6,849 | 1,706 | |||||||||||||||
| Operating lease liabilities | (9,281) | (10,751) | |||||||||||||||
| Other liabilities | (2,189) | 277 | |||||||||||||||
| Net cash provided by (used in) operating activities | (15,433) | 25,326 | |||||||||||||||
| Cash flows from investing activities | |||||||||||||||||
| Capital expenditures | (1,436) | (3,153) | |||||||||||||||
| Purchases of investments | (1,080) | (720) | |||||||||||||||
| Cash transferred in connection with disposition | — | (62,325) | |||||||||||||||
| Capitalized costs for intangible assets | (721) | (272) | |||||||||||||||
| Sales of investments | 1,833 | 1,818 | |||||||||||||||
| Net cash used in investing activities | (1,404) | (64,652) | |||||||||||||||
| Cash flows from financing activities | |||||||||||||||||
| Proceeds from exercise of stock options | — | 8 | |||||||||||||||
| Proceeds from the issuance of stock under employee stock purchase plan | 125 | 209 | |||||||||||||||
| Borrowings from notes payable | — | 2,682 | |||||||||||||||
| Tax withholding on issuance of stock awards | (1,232) | (507) | |||||||||||||||
| Repurchase of common stock | — | (106) | |||||||||||||||
| Net cash provided by (used in) financing activities | (1,107) | 2,286 | |||||||||||||||
| Net decrease in cash, cash equivalents and restricted cash | (17,944) | (37,040) | |||||||||||||||
| Cash, cash equivalents and restricted cash at beginning of period | 55,497 | 92,537 | |||||||||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 37,553 | $ | 55,497 | |||||||||||||
| Supplemental disclosure of cash flow information: | |||||||||||||||||
| Cash paid for interest | $ | 71 | $ | 112 | |||||||||||||
| Cash received for income taxes, net | $ | (1,815) | $ | (12,907) | |||||||||||||
| Supplemental disclosure of non-cash transactions: | |||||||||||||||||
| Purchase of equipment included in accounts payable and accrued liabilities | $ | 4 | $ | 68 | |||||||||||||
| Issuance of common stock for vested restricted stock units | $ | 4,007 | $ | 1,687 | |||||||||||||
| Debt extinguishment | $ | 3,095 | $ | — | |||||||||||||
| Issuance of notes payable | $ | 2,809 | $ | — | |||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
48
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Cash flows from operating activities | |||||||||||
| Net income (loss) | $ | 10,537 | $ | (30,040 | ) | $ | (70,454 | ) | |||
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | |||||||||||
| Provision for bad debts | 32,151 | 32,583 | 29,863 | ||||||||
| Depreciation and amortization | 8,863 | 13,082 | 19,578 | ||||||||
| Amortization of premium/discount | 20 | 68 | 475 | ||||||||
| Deferred income taxes | (600 | ) | 28 | 40,944 | |||||||
| Stock-based compensation | 3,632 | 7,317 | 9,710 | ||||||||
| Excess tax benefit of option exercises | — | — | (460 | ) | |||||||
| Loss on impairment of student loans receivable | — | 7,542 | 1,328 | ||||||||
| Net loss (gain) on marketable securities | (274 | ) | (164 | ) | 91 | ||||||
| Loss on termination of leased space | 5,829 | 13,244 | 17,047 | ||||||||
| Loss on disposal or impairment of fixed assets | 864 | 3,024 | 44,949 | ||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Accounts receivable | (32,771 | ) | (34,790 | ) | (32,383 | ) | |||||
| Prepaid expenses and other current assets | 280 | 13,225 | (14,446 | ) | |||||||
| Student loans receivable | — | 876 | 1,139 | ||||||||
| Other long-term assets | (3,066 | ) | 3,274 | (2,845 | ) | ||||||
| Accounts payable and accrued liabilities | (12,908 | ) | 4,778 | 1,104 | |||||||
| Deferred revenue and student deposits | (6,460 | ) | (14,078 | ) | (19,170 | ) | |||||
| Other liabilities | (10,172 | ) | (8,886 | ) | (7,669 | ) | |||||
| Net cash (used in) provided by operating activities | (4,075 | ) | 11,083 | 18,801 | |||||||
| Cash flows from investing activities | |||||||||||
| Capital expenditures | (3,387 | ) | (1,925 | ) | (2,477 | ) | |||||
| Purchases of investments | (315 | ) | (20,260 | ) | (20,280 | ) | |||||
| Capitalized costs for intangible assets | (553 | ) | (830 | ) | (2,153 | ) | |||||
| Sales of investments | 214 | — | 10,101 | ||||||||
| Maturities of investments | 47,725 | 37,756 | 66,096 | ||||||||
| Net cash provided by investing activities | 43,684 | 14,741 | 51,287 | ||||||||
| Cash flows from financing activities | |||||||||||
| Proceeds from exercise of stock options | 3,848 | 1,331 | 284 | ||||||||
| Excess tax benefit of option exercises | — | — | 460 | ||||||||
| Proceeds from the issuance of stock under employee stock purchase plan | 289 | 246 | 261 | ||||||||
| Tax withholding on issuance of stock awards | (1,860 | ) | (1,896 | ) | (1,341 | ) | |||||
| Proceeds from failed sale-leaseback transaction | — | — | 4,141 | ||||||||
| Repurchase of common stock | (168,695 | ) | — | — | |||||||
| Net cash (used in) provided by financing activities | (166,418 | ) | (319 | ) | 3,805 | ||||||
| Net increase (decrease) in cash, cash equivalents and restricted cash | (126,809 | ) | 25,505 | 73,893 | |||||||
| Cash, cash equivalents and restricted cash at beginning of period | 332,335 | 306,830 | 232,937 | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | 205,526 | $ | 332,335 | $ | 306,830 | |||||
| Supplemental disclosure of cash flow information: | |||||||||||
| Cash paid for interest | $ | 65 | $ | 62 | $ | 198 | |||||
| Cash paid (received) for income taxes, net | $ | 387 | $ | (20,788 | ) | $ | 6,136 | ||||
| Supplemental disclosure of non-cash transactions: | |||||||||||
| Purchase of equipment included in accounts payable and accrued liabilities | $ | 379 | $ | — | $ | 4,160 | |||||
| Issuance of common stock for vested restricted stock units | $ | 4,779 | $ | 4,847 | $ | 3,285 | |||||
Notes to Annual Consolidated Financial Statements
1. Nature of Business
On December 1, 2020, the Company and AU LLC finalized a definitive Asset Purchase and Sale Agreement (the “Purchase Agreement”), by and among the Company, AU LLC, the Arizona Board of Regents, a body corporate, for and on behalf of the University of the RockiesSMArizona (the “University of Arizona”), are regionally accredited academic institutions, which deliver programs primarily online. Ashford University offers associate’s, bachelor’s and master’s programs, andthe University of Arizona Global Campus, a newly formed Arizona nonprofit corporation (“Global Campus”). Upon the Rockies offers master’sclosing of the Purchase Agreement (the “Sale Transaction”), the Company and doctoral programs.Ashford transferred to Global Campus the tangible and intangible academic and related operations and assets comprising the University to Global Campus. The resulting loss on transaction is recorded in the consolidated statements of income (loss).
Following the closing of the Sale Transaction, Global Campus owns and operates the University in affiliation with the University of Arizona and with a focus on expanding access to education for non-traditional adult learners, and the Company provides services to Global Campus under a long-term Strategic Services Agreement (the “Services Agreement”). The services that the Company provides to Global Campus under the Services Agreement include recruiting, admissions, marketing, student finance, financial aid processing, and financial aid advising, program advising, student retention advising, support services for academics, information technology and institutional support.
The majority of the Company's cash comes from the Services Agreement with Global Campus. The service fees in the Services Agreement are subject to certain minimum residual liability adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance, and to a certain extent the performance of Global Campus, during each service period.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Bridgepoint Education, Inc.the Company and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates.
Cash and cash equivalents is comprised of cash and other short-term highly liquid investments that are readily convertible into known amounts of cash. The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
The Company'sCompany’s restricted cash is primarily held in money market accounts, and is excluded from cash and cash equivalents on the Company'sCompany’s consolidated balance sheets. The majority of restrictedRestricted cash represents funds held for students from Title IV financial aid programs that result in credit balances on a student’s account or funds held for students to be refunded in connection with a legal settlement. To a lesser extent, restricted cash also represents amounts held as collateral for letters of credit.
49
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows.
| As of December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Cash and cash equivalents | $ | 185,098 | $ | 307,802 | $ | 282,145 | |||||
| Restricted cash | 20,428 | 24,533 | 24,685 | ||||||||
| Total cash, cash equivalents and restricted cash | $ | 205,526 | $ | 332,335 | $ | 306,830 | |||||
| As of December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Cash and cash equivalents | $ | 28,265 | $ | 35,462 | |||||||||||||
| Restricted cash, current | 9,288 | 20,035 | |||||||||||||||
| Total cash, cash equivalents and restricted cash | $ | 37,553 | $ | 55,497 | |||||||||||||
Investments
The Company has historically held investments that consisted of mutual funds, corporate notes and bonds, and certificates of deposit. As of December 31, 2017,2021, the Company held investments solely in mutual funds. The Company'sCompany’s investments are denominated in U.S. dollars, are investment grade and are readily marketable. The Company considers as current assets those investments which will mature or are likely to be sold in less than one year.
The Company classifies its investments as either trading, available-for-sale or held-to-maturity. Trading securities are those bought and held principally to sell in the short-term, with gains or losses from changes in fair value flowing through current earnings. Available-for-sale securities are carried at fair value as determined by quoted market prices, with unrealized gains and losses, net of tax, reported as a separate component of comprehensive income (loss) and stockholders’ equity. Held-to-maturity securities would be carried at amortized cost. Amortization of premiums, accretion of discounts, interest, and realized gains and losses are included in other income (loss), net in the consolidated statementstatements of income (loss).
The Company regularly monitors and evaluates the realizable value of its investments. If events and circumstances indicate that a decline in the value of these assets has occurred and is other-than-temporary, the Company would record a charge to other income (loss), net in the consolidated statements of income (loss).
Deferred Compensation
The Company has a deferred compensation plan, into which eligible participants can defer a maximum of 80% of their regular compensation and a maximum of 100% of their incentive compensation. The amounts deferred by the participant under this plan are credited with earnings or losses based upon changes in values of participant elected notional investments. Each participant is fully vested in the participant amounts deferred. The Company may make contributions that will generally vest according to a four-year vesting schedule. After four years of service, participants become fully vested in the employer contributions upon reaching normal retirement age, death, disability or a change in control. The Company'sCompany’s obligations under the deferred compensation plan totaled $1.4$0.8 million and $1.3$1.4 million as of December 31, 20172021 and 2016,2020, respectively, and are included in other long-term liabilities in the consolidated balance sheets. The Company'sCompany’s assets relating to the deferred compensation plan totaled $2.1$1.0 million and $1.7$1.5 million as of December 31, 20172021 and 2016,2020, respectively, and are included in investments in the consolidated balance sheets.
Fair Value Measurements
The Company uses the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: (i) Level 1, defined as observable inputs such as quoted prices in active markets; (ii) Level 2, defined as inputs other than quoted prices in active markets that are either observable directly or indirectly, through market corroboration, for substantially the full term of the financial instrument; and (iii) Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Accounts Receivable and Allowance for Doubtful AccountsCredit Losses
Accounts receivable consists of student accounts receivable, which represent amounts due for tuition, course digital materials, technology fees and other fees from currently enrolled and former students. Students generally fund their education through grants and/or loans under various Title IV programs, tuition assistance from military and corporate employers or personal funds. Generally, payments are due on the respective course start date and are considered past due dependent upon the student's payment terms. In general, an account is considered delinquent 120 days subsequent to the course start date.
The Company adjusts its accounts receivable for an allowance for doubtful accountscredit losses at each reporting period, as deemed necessary. The Company determines its allowance for credit losses using a loss-rate method combined with an aging schedule approach, which is estimated by managementappropriate given the short-term nature of a substantial majority of the Company’s receivables and is principallyas collections vary significantly based upon a receivable’s aging bucket. The Company calculates historical loss rates for receivables on the basis of the different risk profiles and historical collectionloss-rate experience with each type of customer.
50
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
Additionally, the Company monitors macroeconomic activity as well as (i) an assessment of individual accounts receivable over a specific agingother current conditions and amount, (ii) consideration oftheir potential impact on collections to ensure the nature of the receivable accountshistorical experience remains in line with current conditions and (iii) potential changes in the business or economic environment. future short-term expectations.
The provisionallowance for bad debtcredit losses is recorded within instructional coststechnology and academic services in the consolidated statements of income (loss). The Company writes off uncollectable accounts receivable when the studentan account is deemed uncollectable.
Property and Equipment
Property and equipment are recognized at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of the related assets as follows:
| Furniture and office equipment | 3 - 7 years | ||||
| Software | 3 - 5 years | ||||
| Vehicles | 5 years | ||||
Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation is removed and a gain or loss is recorded within the general and administrative expense in the consolidated statements of income (loss). Repairs and maintenance costs are expensed in the period incurred.
Leases
In accordance with Accounting Standard Update (“ASU”) 2016-02, Leases (ASC 842) (“ASC 842”), leases are evaluated and classified as either operating or capitalfinance leases. Leased propertyThe Company does not have any finance leases. The Company’s operating leases are included in operating lease assets, accounts payable and equipment meeting certain criteria would be capitalized,accrued liabilities, and the present value of the related lease payments is recognized as arent liability on the consolidated balance sheets. AmortizationOperating lease assets and operating lease liabilities are recognized based on the present value of capitalized leased assetsthe future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on information available at the date of adoption or lease commencement or modification date, as applicable, in calculating the present value of its lease payments. The incremental borrowing rate is computeddetermined using the U.S. Treasury rate adjusted to account for the Company’s credit rating and the collateralized nature of operating leases. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on thea straight-line method over the term of the lease or the life of the related asset, whichever is shorter.
Impairment of Long-Lived Assets
The Company assesses potential impairment to its long-lived assets under ASC 360, Property and Equipment. The Company makes this assessment when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded if the carrying amount of the long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results. For additional information, see Note 3, “Restructuring and Impairment Charges.”
The Company’s qualitative assessment indicated that no impairment in the Company’s long-lived assets was deemed necessary as of December 31, 2021.
Goodwill and OtherIndefinite-Lived Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment, testing annually in the fourththird quarter of each fiscal year, or more frequently if events and circumstances warrant.
To evaluate the impairment of the indefinite-lived intangible assets, the Company assessedassesses the fair value of the assets to determine whether they were greater or less than the carrying values. Determining the fair value of indefinite-lived intangible assetassets is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are inherently uncertain and may include such items as growth rates used to calculate
51
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and a determination of appropriate market comparables.
The Company'sCompany has three distinct reporting units including (i) Zovio, (ii) Fullstack and (iii) TutorMe. The Fullstack and TutorMe reporting units have goodwill associated with them. During the third quarter of 2021, the Company’s quantitative assessment of goodwill and indefinite-lived intangible assets noted no impairment indicators in either the Fullstack or the TutorMe reporting unit, and noted a material amount of fair value in excess of the carrying amount.. There were no additional triggering events noted during the fourth quarter of fiscal 2017 did not result in any impairment. There have been2021 and therefore there was no impairment losses for indefinite-lived intangibles recognized by the Company for any periods presented.of its goodwill amounts.
The Company also has definite-lived intangible assets, which primarily consist of purchased intangibles and capitalized curriculum development costs. The definite-lived intangible assets are recognized at cost less accumulated amortization. Amortization is computed using the straight-line method based on estimated useful lives of the related assets.
Notes Payable
The fair value of the Company’s outstanding notes payable was estimated using the net present value of the payments, discounted at an interest rate consistent with market interest rates. The Company, through Fullstack, had previously entered into a contract whereby its counterparty advanced funds to the Company for certain program development costs, which the Company was obligated to repay out of future revenues from the developed program. The Company recognized these advances as a debt obligation.
During 2021, the notes payable contract was amended and the amount was revalued. As such, included within the other income (loss), net, on the consolidated statements of income (loss) for the year ended December 31, 2021, is an offset of interest expense in the amount of $3.1 million, as well as a loss on extinguishment of debt of $2.8 million, the net impact of which is immaterial.
Revenue, Other Revenue and Deferred Revenue
Revenues are recognized when control of the promised goods or services are transferred, in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods or services. Determining whether a valid customer contract exists includes an assessment of whether amounts due under the contract are collectible. The Company recognizesperforms this assessment at the beginning of every contract and subsequently thereafter if new information indicates there has been a significant change in facts and circumstances.
On December 1, 2020, the Company entered into the Services Agreement with Global Campus whereby the Company will provide certain educational technology and support services, which has an initial term of just over fifteen years, subject to renewal options and certain early termination provisions. The amounts earned from the Services Agreement are within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”), and are denoted as revenue when persuasive evidenceon the consolidated statements of an arrangement exists,income (loss). On December 1, 2020, the Company also entered into a transition services have been rendered or deliveryagreement with Global Campus whereby the Company will provide certain temporary transition services (the “Transition Services Agreement”), which has occurred, its fees or price is fixed or determinable, and collectibility is reasonably assured.a term of three years. The Company'samounts earned from the Transition Services Agreement are denoted as other revenue consistson the consolidated statements of tuition, technology fees, course digital materials and other miscellaneous fees. Tuitionincome (loss).
The Services Agreement has a single performance obligation, as the promises to provide the identified services are not distinct within the context of these agreements. The single performance obligation constitutes a series of distinct services as the customer benefits as services are provided. Service revenue is deferredrecognized over time using the input method. The input method provides a faithful depiction of the performance toward complete satisfaction of the performance obligation and can be tied to the direct cost incurred. The service fees received over the term of the agreement are variable in nature in that they are dependent upon the number of students attending the university and revenues generated from those students during the service period. The service fees are subject to certain adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance during each service period. Such adjustments are presented as minimum residual liability within accounts payable and accrued liabilities in the consolidated financial statements. The minimum residual liability calculation at December 31, 2021 covers the period from July 1, 2021 to June 30, 2022. As such, the calculation includes actual financial information from July 1, 2021 through December 31, 2021 and forecasted financial information from January 1, 2022 through June 30, 2022. The main inputs include the Company’s forecasts of its direct costs as well as the Company’s forecasts of Global Campus’ revenues and operating expenses which directly impact the minimum residual liability. The Company’s six months
52
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
forecast of Global Campus revenues and operating expenses is a management estimate which requires significant judgment. In determining the forecast management utilizes the contractual budget prepared by Global Campus and then adjust budgeted revenue based on actual revenue from July 1, 2021 to December 31, 2021 as well as projected student enrollment. Budgeted Global Campus operating expenses are then adjusted based on actual expenses from July 1, 2021 to December 31, 2021 and expected Global Campus employee headcount. The $15.0 million recorded in accounts payable and accrued liabilities as of December 31, 2021 represents half of the expected minimum residual liability that will be due to Global Campus in June 2022. The amount owed could be materially different than the current estimate projected by management.
The Company allocates variable consideration to the distinct increments of service to which it relates, as the variability is directly related to the Company’s effort to satisfy the distinct increments of service provided. This is consistent with the allocation objective in ASC 606. The Company meets the criteria in the standard and exercises the practical expedient to not disclose the aggregate amount of the transaction price allocated to the single performance obligation that is unsatisfied as of the end of the reporting period. The Company does not disclose the value of unsatisfied performance obligations because the variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a service that forms part of a single performance obligation.
The Company, through Fullstack, offers both full-time and part-time technology bootcamps. The tuition fees for these programs are recognized on a straight-line basisas revenue as the services are provided to the student, which occurs over the applicable period of instruction. For most Fullstack programs, tuition is collected prior to the start of the cohort; however, for certain programs students can defer payment until completion of the program and for these students an accounts receivable balance is recorded.
The Company, through TutorMe, provides online on-demand tutoring services through hourly and access license contracts. Revenue for these contracts are recognized based on hours used or ratably over the contract period depending on the type of contract. For most TutorMe contracts, cash is collected at or near the onset of the contract. The collected cash is recognized as deferred revenue until recognized into revenue.
Prior to December 1, 2020, the majority of the amounts earned by the Company were from tuition, technology fees, and digital materials related to students whose primary funding source is governmental funding. The amounts earned from these streams are denoted as university-related revenue on the consolidated statements of income (loss). Tuition represents amounts charged for course instruction, netand technology fees represent amounts charged for the students’ use of scholarshipsthe technology platform on which course instruction is delivered. Digital materials fees represent amounts charged for the digital textbooks that accompany the majority of courses taught at the Company’s institution. The majority of tuition and expected refunds, withtechnology fees are recognized as revenue as control of the exceptionservices is transferred to the student, which occurs over the applicable period of an online student'sinstruction. Similarly, the majority of digital materials fees are recognized as revenue when control of the product has been transferred to the student, which occurs when the student is granted unrestricted access to the digital textbook, generally, on the first course per degree level at Ashford University. An online student's first course per degree level at Ashford University falls under a three-weekday of the course. Revenue generated from students within the conditional admission period in which the revenue is deferred untiland recognized when the student matriculates into the institution, which occurs in the fourth week of the course.
The Company records a gross liability for estimated workersworkers’ compensation claims, incurred but not yet reported, as of each balance sheet date. The Company also records the gross insurance recoverable due for individual claim amounts. This is recorded as an other asset and as an equal accrued liability. The stop-loss premium is determined annually, but invoiced and paid on a quarterly basis. The related insurance premiums are expensed ratably over the coverage period.
Income Taxes
The Company accounts for its income taxes using the asset-liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the bases used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates expected to be in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more-likely-than-not that
53
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
the Company will not realize those tax assets through future operations.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the vesting period. The fair value of the Company’s restricted stock units (“RSUs”) is based on the market price of the Company’s common stock on the date of grant. The Company estimates the fair value of stock options on the grant date using the Black-Scholes option pricing model. The Company estimates the fair value of its performance stock units (“PSUs”) on the grant date using a Monte Carlo simulation model. Determining the fair value of stock-based awards at the grant date under these models requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company'sCompany’s best estimates, but these estimates involve inherent uncertainties and the application of management judgment. The fair value of the Company's restricted stock units (“RSUs”) is based on the market price of the Company's common stock on the date of grant.
The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates award forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company'sCompany’s equity incentive plans require that stock option awards have an exercise price that equals or exceeds the closing price of the Company'sCompany’s common stock on the date of grant.
Stock-based compensation expense for stock-based awards is recorded in the consolidated statementstatements of income (loss), net of estimated forfeitures, using the graded-vesting method over the requisite service periods of the respective stock awards. The requisite service period is generally the period over which an employee is required to provide service to the Company in exchange for the award.
Marketing and communication costs a subset of admissions advisory and marketing costs, consistsconsist primarily of lead acquisition, digital communication strategies, brand identity advertising, media planning and strategy, video, data science and analysis, marketing to potential students and other promotional and communication services. This expense category includes salaries, benefits and share-based compensation for marketing and communication personnel, brand advertising, marketing leads and other brandingpromotional and promotional activities. These advertising activitiescommunication expenses. This category also includes an allocation of depreciation, amortization, human resources, rent, and occupancy costs
54
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
attributable to the provision of these services. Advertising costs are expensed as incurred, or the first time the advertising takes place, depending on the type of advertising activity.incurred. Advertising costs were $75.7 million, $83.0$65.2 million and $68.4$70.2 million for the years ended December 31, 2017, 20162021 and 2015,2020, respectively.
General and Administrative
General and administrative expenses includecosts consist primarily of compensation ofand benefit costs, including related stock-based compensation, for employees engaged in corporate management, finance, human resources, legal and compliance, and other corporate functions. General and administrative expensesThis category also include professional services fees, travel and entertainment expenses andincludes an allocation of information technology, facility, depreciation, amortization, human resources, rent, and amortizationoccupancy costs attributable to the provision of these services.
University-Related Expenses
University-related expenses represent those costs that were transferred to Global Campus in the Sale Transaction and that are no longer incurred by the Company. These costs previously included instructor fees and other employee costs, student related bad debt expense, license fees for licenses transferred to Global Campus and other costs.
Legal Settlement Expense
Legal settlement expense is primarily comprised of (i) the cost to settle a wage and hour dispute, (ii) charges related to the cost of resolution of the previously disclosed civil investigative demands and (iii) the estimate ofestimated amounts to resolve the previously disclosed investigative subpoenas.investigation for California Attorney General.
Restructuring and Impairment Charges
Restructuring and impairment chargesexpenses are primarily comprised of i) charges related to the write off of certain fixed assets and assets abandoned, ii) student transfer agreement costs relating to the closure of the Iowa residential campus, iii)(i) severance costs related to headcount reductions made in connection with restructuring plans and iv)(ii) estimated lease losses related to facilities vacated or consolidated under restructuring plans.
Loss on Transaction
Loss on transaction amount represents the net assets transferred in the Sale Transaction, as well as other transaction-related expenses and costs to sell. The loss on transaction is recorded in the consolidated statements of income (loss). The Company recorded a loss on transaction of $54.8 million at closing, which is comprised of $50.4 million of net assets loss, as well as $4.5 million of other transaction-related expenses and costs to sell. The net asset loss includes $62.3 million of cash and cash equivalents transferred to Global Campus on the date of the transaction. All assets transferred to Global Campus were previously included in the University Partners segment. The following are the components of the loss on transaction recorded in 2020:
| Cash and cash equivalents | $ | 62,325 | |||
| Accounts receivable, net of allowance for credit losses | 31,247 | ||||
| Prepaid expenses and other current assets | 1,014 | ||||
| Property and equipment, net | 15 | ||||
| Intangibles, net | 7,669 | ||||
| Other long-term assets | 1,539 | ||||
| Total assets transferred | 103,809 | ||||
| Accounts payable and accrued liabilities | 1,051 | ||||
| Deferred revenue and student deposits | 48,901 | ||||
| Less: total liabilities transferred | 49,952 | ||||
| Plus: other transaction-related expenses and costs to sell | 4,546 | ||||
| Less: net asset adjustment | 3,606 | ||||
| Loss on transaction | $ | 54,797 | |||
55
Notes to Annual Consolidated Financial Statements (Continued)
Income (Loss) Per Share
Basic income per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per common share is calculated by dividing net income available to common stockholders by the sum of (i) the weighted average number of common shares outstanding during the period and (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive common shares consist of incremental shares of common stock issuable upon the exercise of the stock options and upon the settlement of RSUs and PSUs.
Segment Information
| Unrealized gains (losses) on investments | |||||||||||
| Year ended: | Before-Tax Amount | Tax Effect | Net-of-Tax Amount | ||||||||
| December 31, 2017 | $ | 1 | $ | — | $ | 1 | |||||
| December 31, 2016 | $ | 157 | $ | (59 | ) | $ | 98 | ||||
| December 31, 2015 | $ | 125 | $ | (49 | ) | $ | 76 | ||||
Recent Accounting Pronouncements
In May 2014,October 2021, the Financial Accounting Standards Board (the “FASB”(“FASB”) issued ASU 2014-09, Revenue2021-08, Business Combinations (Topic 805) Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 606),. The amendments in this update require that an entity recognize and measure contract assets and liabilities acquired in a business combination in accordance with Topic 606. An acquirer may assess the process in which supersedes the acquiree applied Topic 606 to its revenue recognition requirementscontracts. This update will provide a level of review to prove contract assets and liabilities are recorded in Accounting Standards Codification (“ASC”) Topic 605, accordance with GAAP and consistent with the acquirer’s policies. The amendment in this update will be effective for fiscal years beginning after December 15, 2022 and would be applicable to the Company if business acquisitions are made after the effective date.
3. Revenue, Recognition. ASU 2014-09 isOther Revenue and Deferred Revenue
The following table presents the Company’s net revenue disaggregated based on the principle that revenue is recognized to depict the transfersource (in thousands):
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Strategic services revenue | $ | 222,657 | $ | 18,881 | |||||||
| Tuition revenue, net | 30,016 | 344,804 | |||||||||
| Transition services income | 9,934 | 984 | |||||||||
| Digital materials revenue, net | — | 21,258 | |||||||||
| Technology fee revenue, net | — | 9,424 | |||||||||
Other revenue, net (1) | 426 | 1,770 | |||||||||
| Revenue and other revenue | $ | 263,033 | $ | 397,121 | |||||||
(1) Primarily consists of goods orrevenues generated from various services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting guidance also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.
miscellaneous fees.
56
Notes to Annual Consolidated Financial Statements (Continued)
| Year Ended December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Over time, over period of service | $ | 262,736 | $ | 326,302 | |||||||
Over time, full tuition grant (1) | — | 50,769 | |||||||||
Point in time (2) | 297 | 20,050 | |||||||||
| Revenue and other revenue | $ | 263,033 | $ | 397,121 | |||||||
(1)Represents revenue generated from the corporate FTG program.
(2)Represents revenue generated from digital textbooks and other miscellaneous fees.
The Company operates under 2 reportable segments and has no significant foreign operations or assets located outside of the United States. For additional information, see Note 21, “Segment Information.”
Deferred Revenue
Deferredrevenueand studentdeposits consists ofthe following(inthousands):
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Deferred revenue | $ | 14,469 | $ | 7,477 | |||||||
| Student deposits | 470 | 613 | |||||||||
| Total deferred revenue and student deposits | $ | 14,939 | $ | 8,090 | |||||||
Below are the opening and closing balances of deferred revenue from the Company’s contracts with customers (in thousands):
| 2021 | 2020 | ||||||||||
| Opening balance, January 1 | $ | 7,477 | $ | 23,356 | |||||||
| Closing balance, December 31 | 14,469 | 7,477 | |||||||||
| Increase (Decrease) | $ | 6,992 | $ | (15,879) | |||||||
For further information on receivables, refer to Note 6, “Accounts Receivable, Net” within the consolidated financial statements.
Deferred revenue consists of cash payments that are received or due in advance of the Company’s performance. As of December 31, 2021, the deferred revenue balance relates entirely to the Zovio Growth segment. For the majority of the Company’s customers, payment for FTGservices is due prior to services being provided and is included in current deferred revenue. However, there are contracts which include deferred revenue that include a material right under ASU 2014-09. This material right is deferred until the earlier of redemption or expiration under the new standard.
The difference between the opening and closing balances of cash, which may occur subsequent to a contract. As a result,deferred revenue is accelerated asprimarily results from the expected value to be collected, net of any applicable price concessionstiming difference between the Company’s performance and is recorded as the revenue is earned.
The Company has written off certain assets and has implemented various restructuring plans to better align its resources with its business strategy. These related charges are recorded in the restructuring and impairment charges line item on the Company’s consolidated statements of income (loss).
57
ZOVIO INC
Notes to the write-off of certain fixed assets. The charges in the years ended December 31, 2015 and 2016 related to the decision to close Ashford University’s residential campus in Clinton, Iowa during 2015, and the subsequent vacating of leased property throughout 2016. The charges in the year ended December 31, 2017 related to the discontinuation of certain software.Annual Consolidated Financial Statements (Continued)
The Company has also implemented various reductions in force to help better align personnel resources with the decline in enrollment. During the years ended December 31, 2017, 20162021 and 2015,2020, the Company recognized $2.2 million, $2.7$2.6 million and $4.7$3.0 million, respectively, as restructuring charges related to severance costs for wages and benefits resulting from the reductions in force. The Company anticipates the remainder of these costs will be paid out by the end of the firstsecond quarter of 20182022 from existing cash on hand.
The following table summarizes the amounts recorded in the restructuring and impairment charges line item on the Company'sCompany’s consolidated statements of income (loss) for each of the periods presented (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Severance costs | $ | 2,641 | $ | 3,004 | |||||||||||||
| Lease exit and other costs | — | 1,839 | |||||||||||||||
| Total restructuring and impairment charges | $ | 2,641 | $ | 4,843 | |||||||||||||
The following table summarizes the changes in the Company’s restructuring liability by type during the following periods indicated (in thousands):
| Student Transfer Costs | Severance Costs | Lease Exit and Other Costs | Total | ||||||||||||||||||||||||||
| Balance at December 31, 2019 | $ | 1,296 | $ | 8,001 | $ | 976 | $ | 10,273 | |||||||||||||||||||||
| Restructuring and impairment charges | — | 3,004 | 1,839 | 4,843 | |||||||||||||||||||||||||
| Payments | (14) | (10,263) | (841) | (11,118) | |||||||||||||||||||||||||
| Balance at December 31, 2020 | 1,282 | 742 | 1,974 | 3,998 | |||||||||||||||||||||||||
| Restructuring and impairment charges | — | 2,641 | — | 2,641 | |||||||||||||||||||||||||
| Payments | — | (2,853) | (1,576) | (4,429) | |||||||||||||||||||||||||
| Non-cash transaction | — | (10) | — | (10) | |||||||||||||||||||||||||
| Balance at December 31, 2021 | $ | 1,282 | $ | 520 | $ | 398 | $ | 2,200 | |||||||||||||||||||||
The restructuring liability amounts are recorded within either the accounts payable and accrued liabilities account or the rent liability account on the consolidated balance sheets.
5. Fair Value Measurements
The following tables summarize the fair value information as of December 31, 2021 and 2020, respectively (in thousands):
| December 31, 2021 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Mutual funds | $ | 974 | $ | — | $ | — | $ | 974 | |||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||
| Mutual funds | $ | 1,515 | $ | — | $ | — | $ | 1,515 | |||||||||||||||
The mutual funds in the tables above, represent the deferred compensation asset balances, which are considered to be trading securities. There were no transfers between level categories for investments during the periods presented. The Company’s deferred compensation asset balances are recorded in the investments line item on the Company’s consolidated
58
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Asset impairment | $ | 798 | $ | 2,215 | $ | 43,328 | |||||
| Student transfer agreement costs | (120 | ) | (142 | ) | 3,264 | ||||||
| Severance costs | 2,175 | 2,668 | 4,717 | ||||||||
| Lease exit and other costs | 5,829 | 14,535 | 17,047 | ||||||||
| Total restructuring and impairment charges | $ | 8,682 | $ | 19,276 | $ | 68,356 | |||||
Notes to Annual Consolidated Financial Statements (Continued)
| Asset Impairment | Student Transfer Agreement Costs | Severance Costs | Lease Exit and Other Costs | Total | |||||||||||||||
| Balance at December 31, 2014 | $ | — | $ | — | $ | 860 | $ | 6,580 | $ | 7,440 | |||||||||
| Restructuring and impairment charges | 43,328 | 3,264 | 4,717 | 17,047 | 68,356 | ||||||||||||||
| Payments | — | (40 | ) | (3,833 | ) | (9,706 | ) | (13,579 | ) | ||||||||||
| Non-cash transaction | (43,328 | ) | — | — | — | (43,328 | ) | ||||||||||||
| Balance at December 31, 2015 | — | 3,224 | 1,744 | 13,921 | 18,889 | ||||||||||||||
| Restructuring and impairment charges | 2,215 | (142 | ) | 2,668 | 14,535 | 19,276 | |||||||||||||
| Payments | — | (1,490 | ) | (3,845 | ) | (9,999 | ) | (15,334 | ) | ||||||||||
| Non-cash transaction | (2,215 | ) | — | — | — | (2,215 | ) | ||||||||||||
| Balance at December 31, 2016 | — | 1,592 | 567 | 18,457 | 20,616 | ||||||||||||||
| Restructuring and impairment charges | 798 | (120 | ) | 2,175 | 5,829 | 8,682 | |||||||||||||
| Payments | — | (878 | ) | (2,547 | ) | (13,643 | ) | (17,068 | ) | ||||||||||
| Non-cash transaction | (798 | ) | — | — | — | (798 | ) | ||||||||||||
| Balance at December 31, 2017 | $ | — | $ | 594 | $ | 195 | $ | 10,643 | $ | 11,432 | |||||||||
| December 31, 2017 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Mutual funds | $ | 2,065 | $ | — | $ | — | $ | 2,065 | |||||||
| Total | $ | 2,065 | $ | — | $ | — | $ | 2,065 | |||||||
| December 31, 2016 | |||||||||||||||
| Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| Mutual funds | $ | 1,688 | $ | — | $ | — | $ | 1,688 | |||||||
| Corporate notes and bonds | — | 22,746 | — | 22,746 | |||||||||||
| Certificates of deposit | — | 25,000 | — | 25,000 | |||||||||||
| Total | $ | 1,688 | $ | 47,746 | $ | — | $ | 49,434 | |||||||
| December 31, 2016 | |||||||||||||||||
| Gross unrealized | |||||||||||||||||
| Maturities | Amortized Cost | Gain | Loss | Fair Value | |||||||||||||
| Short-term | |||||||||||||||||
| Corporate notes and bonds | 1 year or less | $ | 22,747 | $ | 2 | $ | (3 | ) | $ | 22,746 | |||||||
| Certificate of deposit | 1 year or less | 25,000 | — | — | 25,000 | ||||||||||||
| Total | $ | 47,747 | $ | 2 | $ | (3 | ) | $ | 47,746 | ||||||||
6. Accounts Receivable, Net
Accounts receivable, net, consists of the following (in thousands):
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Accounts receivable | $ | 10,562 | $ | 8,420 | |||||||
| Less allowance for credit losses | 931 | 1,216 | |||||||||
| Accounts receivable, net | $ | 9,631 | $ | 7,204 | |||||||
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Accounts receivable | $ | 44,656 | $ | 42,611 | |||
| Less allowance for doubtful accounts | 17,579 | 16,154 | |||||
| Accounts receivable, net | $ | 27,077 | $ | 26,457 | |||
The following table presents the changes in the allowance for doubtful accounts for accounts receivablecredit losses for the periods indicated (in thousands):
| For the year ended December 31, 2021 | Beginning Balance | Charged to Expense | Write-offs | Amounts disposed of by Sale Transaction | Recoveries of amounts | Ending Balance | |||||||||||||||||||||||||||||
| Non-FTG-related allowance | $ | 1,216 | $ | 1,229 | $ | (1,514) | $ | — | $ | — | $ | 931 | |||||||||||||||||||||||
| Total allowance for credit losses | $ | 1,216 | $ | 1,229 | $ | (1,514) | $ | — | $ | — | $ | 931 | |||||||||||||||||||||||
| For the year ended December 31, 2020 | Beginning Balance | Charged to Expense | Write-offs | Amounts disposed of by Sale Transaction | Recoveries of amounts | Ending Balance | |||||||||||||||||||||||||||||
| FTG-related allowance | $ | 1,749 | $ | 2,176 | $ | (2,485) | $ | (1,865) | $ | 425 | $ | — | |||||||||||||||||||||||
| Non-FTG-related allowance | 11,963 | 12,080 | (16,236) | (11,747) | 5,156 | 1,216 | |||||||||||||||||||||||||||||
| Total allowance for credit losses | $ | 13,712 | $ | 14,256 | $ | (18,721) | $ | (13,612) | $ | 5,581 | $ | 1,216 | |||||||||||||||||||||||
Beginning Balance | Charged to Expense | Deductions(1) | Ending Balance | ||||||||||||
| Allowance for doubtful accounts receivable: | |||||||||||||||
| For the year ended December 31, 2017 | $ | 16,154 | $ | 32,151 | $ | (30,726 | ) | $ | 17,579 | ||||||
| For the year ended December 31, 2016 | $ | 10,114 | $ | 32,423 | $ | (26,383 | ) | $ | 16,154 | ||||||
| For the year ended December 31, 2015 | $ | 27,567 | $ | 29,782 | $ | (47,235 | ) | $ | 10,114 | ||||||
Prepaid expenses and other current assets consists of the following (in thousands):
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Prepaid expenses | $ | 2,664 | $ | 3,027 | |||||||
| Prepaid licenses | 1,233 | 1,371 | |||||||||
| Prepaid income taxes | — | 48 | |||||||||
| Income tax receivable | — | 1,644 | |||||||||
| Prepaid insurance | 2,254 | 1,127 | |||||||||
| Insurance recoverable | 496 | 404 | |||||||||
Other current assets (1) | 6,776 | 4,996 | |||||||||
| Total prepaid expenses and other current assets | $ | 13,423 | $ | 12,617 | |||||||
(1) Other current assets includes payment of net asset adjustment due from Global Campus related to the Sale Transaction, which is currently in mediation.
59
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Prepaid expenses | $ | 6,195 | $ | 7,160 | |||
| Prepaid licenses | 4,882 | 5,183 | |||||
| Income tax receivable | 8,889 | 7,432 | |||||
| Prepaid insurance | 1,215 | 1,291 | |||||
| Insurance recoverable | 665 | 702 | |||||
| Legal insurance recoverable | 527 | 325 | |||||
| Interest receivable | — | 142 | |||||
| Other current assets | 15 | 1,232 | |||||
| Total prepaid expenses and other current assets | $ | 22,388 | $ | 23,467 | |||
Property and equipment, net, consists of the following (in thousands):
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Furniture and office equipment | $ | 22,032 | $ | 36,146 | |||||||
| Software | 4,493 | 7,512 | |||||||||
| Leasehold improvements | 15,921 | 16,325 | |||||||||
| Vehicles | 22 | 22 | |||||||||
| Total property and equipment | 42,468 | 60,005 | |||||||||
| Less accumulated depreciation and amortization | (16,086) | (29,430) | |||||||||
| Total property and equipment, net | $ | 26,382 | $ | 30,575 | |||||||
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Furniture and office equipment | $ | 43,330 | $ | 41,528 | |||
| Software | 12,313 | 11,979 | |||||
| Leasehold improvements | 5,445 | 4,332 | |||||
| Vehicles | 22 | 22 | |||||
| Total property and equipment | 61,110 | 57,861 | |||||
| Less accumulated depreciation and amortization | (50,676 | ) | (45,643 | ) | |||
| Total property and equipment, net | $ | 10,434 | $ | 12,218 | |||
Depreciation and amortization expense associated with property and equipment totaled $5.5$5.3 million, $8.4 and $6.2 million and $13.9 million for the years ended December 31, 2017, 20162021 and 2015,2020, respectively.
Goodwill and intangibles, net, consists of the following (in thousands):
| December 31, 2021 | |||||||||||||||||
| Definite-lived intangible assets: | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||
| Capitalized curriculum costs | $ | 13,982 | $ | (12,796) | $ | 1,186 | |||||||||||
| Purchased intangible assets | 14,185 | (9,048) | 5,137 | ||||||||||||||
| Total definite-lived intangible assets | $ | 28,167 | $ | (21,844) | $ | 6,323 | |||||||||||
| Goodwill | 23,176 | ||||||||||||||||
| Total goodwill and intangibles, net | $ | 29,499 | |||||||||||||||
| December 31, 2020 | |||||||||||||||||
| Definite-lived intangible assets: | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||||
| Capitalized curriculum costs | $ | 13,745 | $ | (12,644) | $ | 1,101 | |||||||||||
| Purchased intangible assets | 14,185 | (6,677) | 7,508 | ||||||||||||||
| Total definite-lived intangible assets | $ | 27,930 | $ | (19,321) | $ | 8,609 | |||||||||||
| Goodwill | 23,176 | ||||||||||||||||
| Total goodwill and intangibles, net | $ | 31,785 | |||||||||||||||
| December 31, 2017 | |||||||||||
| Definite-lived intangible assets: | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||
| Capitalized curriculum costs | $ | 21,463 | $ | (19,300 | ) | $ | 2,163 | ||||
| Purchased intangible assets | 15,850 | (5,987 | ) | 9,863 | |||||||
| Total definite-lived intangible assets | $ | 37,313 | $ | (25,287 | ) | $ | 12,026 | ||||
| Goodwill and indefinite-lived intangibles | 2,567 | ||||||||||
| Total goodwill and intangibles, net | $ | 14,593 | |||||||||
| December 31, 2016 | |||||||||||
| Definite-lived intangible assets: | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||
| Capitalized curriculum costs | $ | 21,153 | $ | (17,397 | ) | $ | 3,756 | ||||
| Purchased intangible assets | 15,850 | (4,754 | ) | 11,096 | |||||||
| Total definite-lived intangible assets | $ | 37,003 | $ | (22,151 | ) | $ | 14,852 | ||||
| Goodwill and indefinite-lived intangibles | 2,567 | ||||||||||
| Total goodwill and intangibles, net | $ | 17,419 | |||||||||
Goodwill as of December 31, 2021 and indefinite-lived intangibles2020, includes the goodwill resulting from prior period acquisitionsthe Fullstack and the indefinite-lived intangibles attributableTutorMe acquisitions.
60
ZOVIO INC
Notes to the accreditation of the Company's institutions. Definite-lived intangibles include trademark agreements and digital course materials.Annual Consolidated Financial Statements (Continued)
For the years ended December 31, 2017, 20162021 and 2015,2020, amortization expense was $3.4$3.0 million, $4.7 and $5.2 million, and $5.7 million, respectively. The following table summarizes the estimated remaining amortization expense as of each fiscal year ended below (in thousands):
| Year Ended December 31, | ||||||||
| 2022 | $ | 2,524 | ||||||
| 2023 | 2,411 | |||||||
| 2024 | 835 | |||||||
| 2025 | 192 | |||||||
| 2026 | 127 | |||||||
| Thereafter | 234 | |||||||
| Total future amortization expense | $ | 6,323 | ||||||
| Year Ended December 31, | ||||
| 2018 | $ | 2,497 | ||
| 2019 | 1,793 | |||
| 2020 | 1,497 | |||
| 2021 | 1,299 | |||
| 2022 | 1,236 | |||
| Thereafter | 3,704 | |||
| Total future amortization expense | $ | 12,026 | ||
Accounts payable and accrued liabilities consists of the following (in thousands):
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Accounts payable | $ | 5,967 | $ | 11,246 | |||||||
| Accrued salaries and wages | 5,434 | 6,149 | |||||||||
| Accrued bonus | 3,625 | 11,428 | |||||||||
| Accrued vacation | 3,037 | 3,369 | |||||||||
| Accrued litigation and fees | 22,376 | 8,341 | |||||||||
Minimum residual liability (1) | 14,987 | 1,216 | |||||||||
| Accrued expenses | 13,400 | 12,473 | |||||||||
| Current leases payable | 4,492 | 6,934 | |||||||||
| Accrued insurance liability | 1,404 | 1,537 | |||||||||
| Accrued income taxes payable | 47 | — | |||||||||
| Total accounts payable and accrued liabilities | $ | 74,769 | $ | 62,693 | |||||||
(1) Amount represents approximately 50% of the total amount anticipated to be remitted to Global Campus in June 2022. The amount owed could be materially different than the current estimate projected by management.
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Accounts payable | $ | 5,619 | $ | 4,519 | |||
| Accrued salaries and wages | 8,573 | 8,967 | |||||
| Accrued bonus | 6,924 | 5,087 | |||||
| Accrued vacation | 8,237 | 9,313 | |||||
| Accrued litigation and fees | 9,886 | 13,946 | |||||
| Accrued expenses | 16,024 | 15,793 | |||||
| Rent liability | 12,971 | 17,232 | |||||
| Accrued insurance liability | 2,931 | 3,009 | |||||
| Total accrued liabilities | $ | 71,165 | $ | 77,866 | |||
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Deferred revenue | $ | 19,135 | $ | 21,733 | |||
| Student deposits | 49,072 | 52,933 | |||||
| Total deferred revenue and student deposits | $ | 68,207 | $ | 74,666 | |||
11. Other Long-Term Liabilities
Other long-term liabilities consists ofthe following(inthousands):
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Uncertain tax positions | $ | — | $ | 28 | |||||||
| Notes payable | 2,723 | 2,981 | |||||||||
| Deferred revenue | 807 | — | |||||||||
| Other long-term liabilities | 1,585 | 4,172 | |||||||||
| Total other long-term liabilities | $ | 5,115 | $ | 7,181 | |||||||
61
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Uncertain tax positions | $ | 8,893 | $ | 8,216 | |||
| Other long-term liabilities | 3,815 | 5,414 | |||||
| Total other long term liabilities | $ | 12,708 | $ | 13,630 | |||
The Company has issued letters of credit that are collateralized with cash, in the aggregate amount of $8.3$9.2 million which is included as restricted cash as of December 31, 2017.2021. The letters of credit relate primarily to the Company's leased facilities and insurance requirements. The collateralized cash is held in restricted cash on the Company's consolidated balance sheets.
13. Lease Obligations
Operating leases
The Company leases certainvarious office and classroom facilities and office equipment under non-cancelable lease arrangements thatwhich expire at various dates through 2023. 2033. These facilities are used for academic operations, corporate functions, enrollment services and student support services. All of the leases were classified as operating leases for the period ended December 31, 2021, and the Company does not have any finance leases. All of the leases, other than those that may qualify for the short-term scope exception of 12 months or less, are recorded on the Company’s consolidated balance sheets.
In the first half of 2021, the Company entered into a new lease in New York for classrooms and office space and recorded a right-of-use asset of $14.6 million in exchange for lease obligations. However, in the fourth quarter of 2021, the Company began to market this space for sublease. There is no guarantee that the Company will be able to sublease the space at rates materially similar to that of the current lease.
The Company leases approximately 131,000 square feet of office leasesspace located in Chandler, Arizona, with the lease extending through 2030.
As of December 31, 2021, the lease amounts on the consolidated balance sheets do not include any options to extend, nor any options for early termination. The Company’s lease agreements do not include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain certain renewal options. Rent expense under non-cancelable operatingany residual value guarantees or restrictive covenants. Other than a sublease to Global Campus, the Company is not a party to any related party arrangements with respect to its lease arrangements is accounted for on a straight-line basis and totaled $15.0 million, $23.3 million and $38.5 million fortransactions.
For the years ended December 31, 2017, 20162021 and 2015, respectively.2020, rent expense totaled $9.8 million and $13.2 million, respectively, calculated in accordance with ASC 842, Leases. Rent expense in certain periods also includes the restructuring and impairment charges recorded and therefore, may differ significantly from cash payments. For additional information, see Note 3,4, “Restructuring and Impairment Charges.”
| Year Ended December 31, | ||||
| 2018 | $ | 31,400 | ||
| 2019 | 20,833 | |||
| 2020 | 9,504 | |||
| 2021 | 5,112 | |||
| 2022 | 1,558 | |||
| Thereafter | 390 | |||
| Total minimum payments | $ | 68,797 | ||
The Company has agreementsan agreement to sublease certain portions of its office facilities, with three1 active subleasessublease as of December 31, 2017.2021. The Company’s sublease does not include any options to extend, nor any options for early termination. The Company’s sublease does not contain any residual value guarantees or restrictive covenants. The sublease was classified as an operating lease for the period ended December 31, 2021. The Company is subleasing office space of approximately 28,30021,000 square feet of office space in San Diego, California with a commitment to lease for 28 months and a net sublease value of $1.7 million. In addition, the Company is subleasing approximately 72,000 square feet of office space in Denver, Colorado with a remaining commitment to lease for 44of 14 months and net lease payments of $0.8 million. Sublease income for the years ended December 31, 2021 and 2020 was $2.3 million, and $1.9 million, respectively, and is recorded as an offset to facility costs within general and administrative expenses on the consolidated statements of income (loss).
The following table represents the classification and amounts allocated to the various expense line items on the consolidated statements of income (loss) for the year ended December 31, 2021 (in thousands):
| Operating lease costs | $ | 8,239 | ||||||
| Short-term lease cost | 389 | |||||||
Variable lease costs (1) | 1,193 | |||||||
| Less: Sub-lease income | (2,264) | |||||||
| Total net lease costs | $ | 7,557 | ||||||
(1)Variable components of the lease payments such as utilities, taxes and insurance, parking and maintenance costs.
62
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
The following table represents the maturities of lease liabilities, a net sublease valueportion of $4.7 million.which is recorded in accounts payable and accrued liabilities, as well as rent liability on the consolidated balance sheet as of December 31, 2021, (in thousands):
| 2022 | $ | 7,009 | ||||||
| 2023 | 5,316 | |||||||
| 2024 | 5,022 | |||||||
| 2025 | 4,759 | |||||||
| 2026 | 4,763 | |||||||
| Thereafter | 26,736 | |||||||
| Total minimum payments | 53,605 | |||||||
Less: Interest (1) | (14,907) | |||||||
| Total net lease liabilities | $ | 38,698 | ||||||
(1)Calculated using an appropriate interest rate for each individual lease. See the weighted-average discount rate noted below.
Some of the more significant assumptions and judgments in determining the amounts to capitalize include the determination of the discount rate. The following table represents the lease term and discount rate used in the calculations as of December 31, 2021:
| Weighted-average remaining lease term (in years): | ||||||||
| Operating leases | 9.6 years | |||||||
| Weighted-average discount rate: | ||||||||
| Operating leases | 6.9 | % | ||||||
The following table represents the cash flow information of operating leases for the year ended December 31, 2021 (in thousands):
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | 9,281 | ||||||
63
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
14. Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding for the period.
Diluted income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the sum of (i) the weighted average number of common shares outstanding during the period, plus (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive securities for the periods presented include incremental stock options, unvested restricted stock units (“RSUs”)RSUs and unvested performance stock units (“PSUs”).PSUs.
The following table sets forth the computation of basic and diluted income (loss)loss per share for the periods indicated (in thousands, except per share data):
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Numerator: | |||||||||||||||||
| Net loss | $ | (42,349) | $ | (48,952) | |||||||||||||
| Denominator: | |||||||||||||||||
| Weighted average number of common shares outstanding | 33,256 | 31,959 | |||||||||||||||
| Effect of dilutive options and stock units | — | — | |||||||||||||||
| Diluted weighted average number of common shares outstanding | 33,256 | 31,959 | |||||||||||||||
| Loss per share: | |||||||||||||||||
| Basic | $ | (1.27) | $ | (1.53) | |||||||||||||
| Diluted | $ | (1.27) | $ | (1.53) | |||||||||||||
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Numerator: | |||||||||||
| Net income (loss) | $ | 10,537 | $ | (30,040 | ) | $ | (70,454 | ) | |||
| Denominator: | |||||||||||
| Weighted average number of common shares outstanding | 32,058 | 46,228 | 45,665 | ||||||||
| Effect of dilutive options and restricted stock units | 736 | — | — | ||||||||
| Diluted weighted average number of common shares outstanding | 32,794 | 46,228 | 45,665 | ||||||||
| Income (loss) per share: | |||||||||||
| Basic | $ | 0.33 | $ | (0.65 | ) | $ | (1.54 | ) | |||
| Diluted | $ | 0.32 | $ | (0.65 | ) | $ | (1.54 | ) | |||
The following table sets forth the number of stock options, RSUs and PSUs excluded from the computation of diluted loss per share for the periods indicated because their effect was anti-dilutive (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Stock options | 1,341 | 1,757 | |||||||||||||||
| Stock units and contingent consideration | 1,133 | 1,112 | |||||||||||||||
| Year Ended December 31, | ||||||||
| 2017 | 2016 | 2015 | ||||||
| Options | 1,850 | 4,359 | 5,063 | |||||
| RSUs and PSUs | 6 | 730 | 762 | |||||
The Company recorded $3.6$4.4 million, $7.3 and $8.3 million and $9.7 million of stock-based compensation expense related to equity awards for the years ended December 31, 2017, 20162021 and 2015,2020 respectively. The related income tax benefit was $1.4$1.1 million, $2.7 and $2.1 million and $3.6 million for the years ended December 31, 2017, 20162021 and 2015,2020, respectively. However, there was no net tax benefit recorded for the equity awards, as the Company was in a full valuation allowance position for the years ended December 31, 2017, 20162021 and 2015.2020. The Company has stock-based compensation expense related to stock options, RSUs, PSUs and contingent shares related to acquisitions. The Company records stock-based compensation expense over the vesting term using the graded-vesting method.
Stock Options
The Company grants stock options from either its 2009 Stock Incentive Plan (the “2009 Plan”). or its Tutorme.com, Inc. 2015 Equity Incentive Plan. The compensation committee of the Company's board of directors, or the full board of directors (the “board”), determines eligibility, vesting schedules and exercise prices for stock options granted under the 2009 Plan. Stock options granted under the 2009 Plan typically have a maximum contractual term of 10 years,, subject to the option holder's continuing service with the Company. Stock options are generally granted with a four-yearfour-year vesting requirement, pursuant to which the option holder must continue providing service to the Company at the applicable vesting date. AllThere were no stock options granted during the yearsyear ended December 31, 2017, 2016 and 2015 were awarded pursuant to the 2009 Plan. Under the 2009 Plan, the number of authorized shares is subject to automatic increase each January 1 through and including January 1, 2019, pursuant to a formula contained in the 2009 Plan, without the need for further approval by the Company's board of directors2021 or stockholders.
2020.
64
Notes to Annual Consolidated Financial Statements (Continued)
The following table presents a summary of stock option activity during the years ended December 31, 2017, 2016 and 2015periods indicated (in thousands, except for exercise prices and contractual terms):
| Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | ||||||||||||||||||||
| December 31, 2019 | 2,008 | $ | 13.42 | 4.16 | $ | 393 | |||||||||||||||||
| Granted | — | $ | — | ||||||||||||||||||||
| Exercised | (22) | $ | 0.36 | ||||||||||||||||||||
| Forfeitures and expired | (361) | $ | 17.54 | ||||||||||||||||||||
| December 31, 2020 | 1,625 | $ | 12.68 | 3.63 | $ | 918 | |||||||||||||||||
| Granted | — | $ | — | ||||||||||||||||||||
| Exercised | — | $ | — | ||||||||||||||||||||
| Forfeitures and expired | (402) | $ | 16.52 | ||||||||||||||||||||
| December 31, 2021 | 1,223 | $ | 11.42 | 2.56 | $ | 191 | |||||||||||||||||
| Vested and expected to vest at December 31, 2021 | 1,223 | $ | 11.42 | 2.56 | $ | 191 | |||||||||||||||||
| Exercisable at December 31, 2021 | 1,223 | $ | 11.42 | 2.56 | $ | 191 | |||||||||||||||||
Options Outstanding | Weighted- Average Exercise Price | Weighted- Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||
| December 31, 2014 | 5,168 | $ | 14.26 | 5.73 | $ | 7,732 | ||||||
| Granted | 455 | $ | 9.44 | |||||||||
| Exercised | (206 | ) | $ | 1.38 | ||||||||
| Forfeitures and expired | (764 | ) | $ | 18.15 | ||||||||
| December 31, 2015 | 4,653 | $ | 13.72 | 4.84 | $ | 2,556 | ||||||
| Granted | 375 | $ | 10.44 | |||||||||
| Exercised | (306 | ) | $ | 4.35 | ||||||||
| Forfeitures and expired | (1,115 | ) | $ | 15.41 | ||||||||
| December 31, 2016 | 3,607 | $ | 13.64 | 4.80 | $ | 2,025 | ||||||
| Granted | 332 | $ | 10.44 | |||||||||
| Exercised | (537 | ) | $ | 7.17 | ||||||||
| Forfeitures and expired | (502 | ) | $ | 15.51 | ||||||||
| December 31, 2017 | 2,900 | $ | 14.15 | 4.23 | $ | — | ||||||
| Vested and expected to vest at December 31, 2017 | 2,848 | $ | 14.22 | 4.15 | $ | — | ||||||
| Exercisable at December 31, 2017 | 2,467 | $ | 14.79 | 3.46 | $ | — | ||||||
As of December 31, 2017,2021, the Company had 4.310.1 million shares of common stock reserved for issuance upon the exercise of outstanding stock options and settlement of outstanding stock awards under the Company'sCompany’s equity incentive plans. Shares issued upon stock option exercises and settlements of stock awards are drawn from the authorized but unissued shares of common stock.
Approximately 0.4 million stock options exercised with an intrinsic value of $1.6 million. The windfall tax benefit realized from these exercises was $0.5 million. The Company also realized a total tax benefit shortfall of $1.0 million.
The fair value of each stock option award granted during the yearsyear ended December 31, 2017, 2016 and 20152020 was estimated on the date of grant using the Black-Scholes option pricing model. The Company'sCompany’s determination of the fair value of share-based awards is affected by the Company'sCompany’s common stock price as well as assumptions regarding a number ofseveral complex and subjective variables.
| 2017 | 2016 | 2015 | |||||||||
| Weighted average exercise price per share | $ | 10.44 | $ | 10.44 | $ | 9.44 | |||||
| Risk-free interest rate | 2.1 | % | 1.4 | % | 1.6 | % | |||||
| Expected dividend yield | — | — | — | ||||||||
| Expected volatility | 47.2 | % | 49.8 | % | 50.7 | % | |||||
| Expected life (in years) | 5.75 | 5.75 | 5.75 | ||||||||
| Forfeiture rate | 11.0 | % | 9.0 | % | 7.0 | % | |||||
| Weighted average grant date fair value per share | $ | 4.76 | $ | 4.91 | $ | 4.52 | |||||
The risk-free interest rate is based on the currently available rate on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the stock option converted into a continuously compounded rate. The Company has never declared or paid any cash dividends on its common stock and does not currently anticipate paying cash dividends in the future. The Company has enough historical option exercise information to compute an expected term for use as an assumption in the Black-Scholes option pricing model, and as such, its computation of expected term was calculated using its own historical data. The volatility of the Company'sCompany’s common stock is also based upon its own historical volatility.
There were no unrecognized compensation costs related to unvested stock options as of December 31, 2021. As of December 31, 2017, 2016 and 2015,2020, there was $0.9 million, $1.4 million and $1.7 million, respectively,$4 thousand of unrecognized compensation costs related to unvested stock options. At December 31, 2017, the unrecognized compensation costs of stock options were expected to be recognized over a weighted average period of 1.1 years.
Stock Awards
The Company has also grantsgranted RSUs to its employees either under the 2009 Plan or the 2021 CEO Inducement Equity Incentive Plan. Each RSU represents the future issuance of one1 share of the Company'sCompany’s common stock contingent upon the recipient'srecipient’s continued service with the Company through the applicable vesting date. Upon the vesting date, RSUs are automatically settled for shares of the Company'sCompany’s common stock unless the applicable award agreement provides for delayed settlement. If prior to the vesting date the employee'semployee’s status as a full-time employee is terminated, the unvested RSUs are automatically canceled on the employment termination date, unless otherwise specified in an employee'semployee’s individual
65
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
employment agreement. The fair value of an RSU is calculated based on the market value of the common stock on the grant date and is amortized over the applicable vesting period using the graded-vesting method.
With respect to each award of PSUs, vesting is based upon the achievement of the applicable performance target, and subject to the employee'semployee’s continued service with the Company through the applicable vesting date. If prior to the vesting date the employee'semployee’s status as a full-time employee is terminated, the unvested PSUs are automatically canceled on the employment termination date, unless otherwise specified in an employee'semployee’s individual employment agreement. PSUs are amortized over the applicable vesting period using the graded-vesting method. The fair value of the portion of the PSU awards subject to earning based on the achievement of a performance-based measure was based on the Company'sCompany’s stock price as of the date the applicable performance target was approved by the Company's board of directors.board. Compensation cost for the portion of the PSU awards subject to earning based on the achievement of a performance-based measure is recorded based on the probable outcome of the performance conditions associated with the shares, as determined by management. The fair value of the portion of the PSU awards subject to earning based on the achievement of a market-based measure was estimated based on the Company'sCompany’s stock price as of the date of grant using a Monte Carlo simulation model.
The weighted-average assumptions for the portion ofPSU awards during the PSU awardsyear ended December 31, 2021, subject to earning based on the achievement of a market-based measure are noted in the following table:
| 2021 | |||||||||||
| Grant price per share | $ | 2.35 | |||||||||
| Risk-free interest rate | 0.2 | % | |||||||||
| Expected dividend yield | — | ||||||||||
| Historical volatility | 108.4 | % | |||||||||
| Expected life (in years) | 2.57 | ||||||||||
| Forfeiture rate | 13.0 | % | |||||||||
| Weighted average grant date fair value per share | $ | 2.50 | |||||||||
| 2015 | |||
| Grant price per share | $ | 9.46 | |
| Risk-free interest rate | 0.7 | % | |
| Expected dividend yield | — | ||
| Historical volatility | 50.0 | % | |
| Expected life (in years) | 4.0 | ||
| Forfeiture rate | 7.0 | % | |
| Weighted average grant date fair value per share | $ | 4.04 | |
A summary of the RSU and PSU activity and related information is as follows (in thousands, except for exercise prices and contractual terms):
| Restricted Stock Units and Performance Stock Units | |||||||||||||||||||||||||||||||||||
| Time-Based RSU | Performance-Based PSU | Market-Based PSU | |||||||||||||||||||||||||||||||||
| Number of Shares | Weighted Average Purchase Price | Number of Shares | Weighted Average Purchase Price | Number of Shares | Weighted Average Purchase Price | ||||||||||||||||||||||||||||||
| Balance at December 31, 2019 | 2,305 | $ | 5.04 | — | $ | — | 1,070 | $ | 6.76 | ||||||||||||||||||||||||||
| Awarded | 1,470 | $ | 2.27 | 1,059 | 2.19 | — | $ | — | |||||||||||||||||||||||||||
| Vested | (911) | $ | 9.67 | — | — | — | — | ||||||||||||||||||||||||||||
| Canceled | (570) | $ | 5.14 | (43) | $ | 2.18 | (337) | $ | 7.79 | ||||||||||||||||||||||||||
| Balance at December 31, 2020 | 2,295 | $ | 1.4 | 1,017 | $ | 2.19 | 733 | $ | 6.28 | ||||||||||||||||||||||||||
| Awarded | 1,680 | $ | 2.63 | 195 | $ | 3.81 | 1,870 | $ | 0.90 | ||||||||||||||||||||||||||
| Vested | (1,056) | $ | 3.83 | — | — | — | — | ||||||||||||||||||||||||||||
| Canceled | (697) | $ | 3.59 | (566) | $ | 2.18 | (659) | $ | 5.68 | ||||||||||||||||||||||||||
| Balance at December 31, 2021 | 2,222 | $ | 2.64 | 645 | $ | 2.69 | 1,944 | $ | 1.30 | ||||||||||||||||||||||||||
| Restricted Stock Units and Performance Stock Units | ||||||||||||||||||||
| Time-Based RSU | Performance-Based PSU | Market-Based PSU | ||||||||||||||||||
| Number of Shares | Weighted Average Purchase Price | Number of Shares | Weighted Average Purchase Price | Number of Shares | Weighted Average Purchase Price | |||||||||||||||
| Balance at December 31, 2014 | 1,279 | $ | 12.63 | — | — | 975 | $ | 5.39 | ||||||||||||
| Awarded | 983 | $ | 9.33 | 456 | $ | 9.86 | 229 | $ | 4.04 | |||||||||||
| Vested | (353 | ) | $ | 12.34 | — | — | — | — | ||||||||||||
| Canceled | (519 | ) | $ | 11.51 | (97 | ) | $ | 9.86 | (238 | ) | $ | 5.21 | ||||||||
| Balance at December 31, 2015 | 1,390 | $ | 10.78 | 359 | $ | 9.86 | 966 | $ | 5.11 | |||||||||||
| Awarded | 505 | $ | 10.18 | — | — | — | — | |||||||||||||
| Vested | (472 | ) | $ | 10.84 | — | — | — | — | ||||||||||||
| Canceled | (289 | ) | $ | 10.69 | (92 | ) | $ | 9.86 | (231 | ) | $ | 5.19 | ||||||||
| Balance at December 31, 2016 | 1,134 | $ | 10.52 | 267 | $ | 9.86 | 735 | $ | 5.09 | |||||||||||
| Awarded | 473 | $ | 10.45 | — | — | — | — | |||||||||||||
| Vested | (461 | ) | $ | 10.58 | — | — | — | — | ||||||||||||
| Canceled | (302 | ) | $ | 10.51 | (103 | ) | $ | 9.86 | (300 | ) | $ | 5.04 | ||||||||
| Balance at December 31, 2017 | 844 | $ | 10.45 | 164 | $ | 9.86 | 435 | $ | 5.13 | |||||||||||
As of December 31, 20172021 and 2016,2020 there was $3.6$3.0 million and $4.7$3.4 million,, respectively, of unrecognized compensation costs related to unvested RSUs. At December 31, 2017,2021, the unrecognized compensation costs of RSUs were expected to be recognized over a weighted average period of 1.21.4 years.
66
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
During the year ended December 31, 2016, 0.52021, 1.1 million RSUs vested and were released with a market value of $4.8$4.0 million. The relatedApproximately $0.3 million of windfall tax benefit was realized from these awards, and the related tax benefit shortfall realized was $0.1$0.3 million. During the year ended December 31, 2020, 0.9 million RSUs vested and were released with a market value of $1.7 million. Approximately $44.7 thousand of windfall tax benefit was realized from these awards, and the related tax benefit shortfall realized from the RSUs released was $0.2$1.3 million. During the year ended December 31, 2015, 0.4 million RSUs vested and were released with a market value of $3.3 million. There was no related windfall tax benefit realized, and the related tax benefit shortfall realized from the RSUs released was $0.4 million.
As of December 31, 2017,2021, there was $0.3$3.0 million of unrecognized compensation costs related to unvested PSUs. At December 31, 2017,2021, the unrecognized compensation costs of PSUs were expected to be recognized over a weighted average
period of 0.72.2 years, to the extent the applicable performance criteria are met. No PSUs vested during the years ended December 31, 2017, 2016 or 2015.2021, and 2020.
16. Stock Repurchase Programs
The Company uses the asset-liability method to account for taxes. Under this method, deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in income and deductions in future years.
The components of income tax expense (benefit) are as follows (in thousands):
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Current: | |||||||||||
| Federal | $ | (1,091 | ) | $ | (8,433 | ) | $ | (10,370 | ) | ||
| State | 517 | 530 | (309 | ) | |||||||
| (574 | ) | (7,903 | ) | (10,679 | ) | ||||||
| Deferred: | |||||||||||
| Federal | (605 | ) | 25 | 33,482 | |||||||
| State | 5 | 3 | 7,462 | ||||||||
| (600 | ) | 28 | 40,944 | ||||||||
| Total | $ | (1,174 | ) | $ | (7,875 | ) | $ | 30,265 | |||
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (270) | $ | (13,238) | |||||||||||||
| State | 131 | 284 | |||||||||||||||
| Foreign | 10 | 5 | |||||||||||||||
| (129) | (12,949) | ||||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | — | (56) | |||||||||||||||
| State | — | (63) | |||||||||||||||
| — | (119) | ||||||||||||||||
| Total | $ | (129) | $ | (13,068) | |||||||||||||
On December 22, 2017, President Donald TrumpMarch 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES Act”) was signed into law H.R.1, formerly known aslaw. The CARES Act is a relief package intended to assist many aspects of the Tax Cuts and JobsCountry’s economy of which certain components of the Act (the “Tax Legislation”). The Tax Legislation significantly revisedimpacted the U.S. tax code that will affect the Company's year ending December 31, 2018, including, but not limited to, lowering the U.S. federal corporateCompany’s 2020 income tax rate from 35% to 21%; bonus depreciation that will allowprovision. Specifically, the CARES Act temporarily reinstated a five-year carryback period for full expensing of qualified property; limitations onall NOLs generated in the deductibility of certain executive compensation and other deductions; and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.2018, 2019 and 2020. Therefore, the Company’s NOLs from 2018 and 2019 were carried back to 2013 and 2014, respectively, and a tax benefit of approximately $12.8 million was recorded for the tax year 2020. The enactment of the Tax Legislation resulted in a one-time remeasurement of the Company's U.S. federal deferred tax assets and liabilities from 35% to the lower enacted corporate tax rate or 21%. The provisional remeasurement of the Company's deferred tax balance was primarily offset by a corresponding changeentire NOL carryback refund in the valuation allowance.
amount of $12.8 million was received by the Company in 2020.
Each reporting period, the Company assesses the likelihood that it will be able to recover its deferred tax assets, which represent timing differences in the recognition of certain tax deductions for accounting and tax purposes. The realization of deferred tax assets is dependent, in part, upon future taxable income. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income given current business conditions affecting the Company, and the feasibility of ongoing tax planning strategies.
As of December 31, 2017,2021, the Company continues to record a full valuation allowance against all net deferred tax assets, as was the case at December 31, 2016.2020. The Company intends to maintain a valuation allowance against its deferred tax assets until sufficient positive evidence exists to support its reversal.
Deferred income tax balances reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are paid or recovered.
67
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
Significant components of the Company’s deferred tax assets and liabilities and balance sheet classifications are as follows (in thousands):
| As of December 31, | |||||||
| 2017 | 2016 | ||||||
| Deferred tax assets: | |||||||
| Net operating loss | $ | 2,414 | $ | 1,052 | |||
| Fixed assets | (291 | ) | (1,241 | ) | |||
| Bad debt | 1,506 | 1,979 | |||||
| Vacation accrual | 1,880 | 3,249 | |||||
| Stock-based compensation | 6,435 | 12,827 | |||||
| Deferred rent | 4,818 | 12,687 | |||||
| State tax | 1,520 | 2,534 | |||||
| Bonus accrual | 1,372 | 1,873 | |||||
| Accrued expenses | 3,711 | 5,994 | |||||
| Revenue reserves | 104 | 135 | |||||
| Other | 766 | 760 | |||||
| Total deferred tax assets | 24,235 | 41,849 | |||||
| Valuation allowance | (23,891 | ) | (41,849 | ) | |||
| Net deferred tax assets | 344 | — | |||||
| Deferred tax liabilities: | |||||||
| Indefinite-lived intangibles | (517 | ) | (773 | ) | |||
| Total deferred tax liabilities | (517 | ) | (773 | ) | |||
| Total net deferred tax assets (liabilities) | $ | (173 | ) | $ | (773 | ) | |
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| Deferred tax assets: | |||||||||||
| Net operating loss | $ | 31,841 | $ | 22,662 | |||||||
| Fixed assets | 365 | — | |||||||||
| Bad debt | 239 | 303 | |||||||||
| Vacation accrual | 618 | 673 | |||||||||
| Stock-based compensation | 3,222 | 3,869 | |||||||||
| Operating lease liabilities | 9,945 | 7,746 | |||||||||
| Bonus accrual | 846 | 2,476 | |||||||||
| Accrued expenses | 1,329 | 4,333 | |||||||||
| Other | 1,154 | 1,258 | |||||||||
| Total deferred tax assets | 49,559 | 43,320 | |||||||||
| Valuation allowance | (42,119) | (37,375) | |||||||||
| Net deferred tax assets | 7,440 | 5,945 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Fixed assets and intangibles | — | (704) | |||||||||
| Indefinite-lived intangibles | — | — | |||||||||
| Operating lease assets | (7,440) | (5,045) | |||||||||
| Other | — | (196) | |||||||||
| Total deferred tax liabilities | (7,440) | (5,945) | |||||||||
| Total net deferred tax assets (liabilities) | $ | — | $ | — | |||||||
At December 31, 2017,2021, the Company had federal and state net operating loss carryforwards of $5.5$117.0 million and $137.3 million, respectively, which are available to offset future taxable income. TheApproximately $112.0 million of the federal net operating loss can be carried forward indefinitely. The federal and state net operating loss carryforwards will beginbegan to expire in 2021. The Company’s utilization of net operating loss carryforwards may be subject to annual limitations due to ownership change provisions of Section 382 of Internal Revenue Code of 1986, as amended.
68
Notes to Annual Consolidated Financial Statements (Continued)
The following table presents a reconciliation of the income tax expense (benefit)benefit computed using the federal statutory tax rate of 35%21% and the Company'sCompany’s provision for income taxes (in thousands):
| Year Ended December 31, | ||||||||||||||||||||||||||
| 2021 | 2020 | |||||||||||||||||||||||||
| Computed expected federal tax expense | $ | (8,920) | 21.0 | % | $ | (13,024) | 21.0 | % | ||||||||||||||||||
| State taxes, net of federal benefit | (885) | 2.1 | (2,476) | 4.0 | ||||||||||||||||||||||
| Permanent differences | 5,606 | (13.2) | 436 | (0.7) | ||||||||||||||||||||||
| Uncertain tax positions | (349) | 0.8 | (618) | 1.0 | ||||||||||||||||||||||
| Stock compensation | 696 | (1.6) | 1,388 | (2.2) | ||||||||||||||||||||||
| Federal tax rate change on NOL carryback | — | — | (4,908) | 7.9 | ||||||||||||||||||||||
| Domestic production activities | — | — | — | — | ||||||||||||||||||||||
| Valuation allowance | 3,981 | (9.4) | 5,698 | (9.2) | ||||||||||||||||||||||
| Other | (258) | 0.6 | 436 | (0.7) | ||||||||||||||||||||||
| Income tax benefit | $ | (129) | 0.3 | % | $ | (13,068) | 21.1 | % | ||||||||||||||||||
| Year Ended December 31, | |||||||||||||||||
| 2017 | 2016 | 2015 | |||||||||||||||
| Computed expected federal tax expense | $ | 3,277 | 35.0 | % | $ | (13,270 | ) | 35.0 | % | $ | (14,066 | ) | 35.0 | % | |||
| State taxes, net of federal benefit | 321 | 3.4 | (551 | ) | 1.5 | (655 | ) | 1.6 | |||||||||
| Permanent differences | (362 | ) | (3.8 | ) | 341 | (0.9 | ) | 1,033 | (2.6 | ) | |||||||
| Penalty | — | — | 2,800 | (7.4 | ) | — | — | ||||||||||
| Uncertain tax positions | 677 | 7.2 | 346 | (1.0 | ) | 480 | (1.2 | ) | |||||||||
| Credits | (466 | ) | (4.9 | ) | (402 | ) | 1.1 | (206 | ) | 0.5 | |||||||
| Stock compensation | 1,277 | 13.6 | 116 | (0.3 | ) | 1,246 | (3.1 | ) | |||||||||
| Federal tax rate change | 11,974 | 127.9 | — | — | — | — | |||||||||||
| Valuation allowance | (17,958 | ) | (191.8 | ) | 2,708 | (7.1 | ) | 42,419 | (105.5 | ) | |||||||
| Other | 86 | 0.9 | 37 | (0.1 | ) | 14 | — | ||||||||||
| Income tax expense (benefit) | $ | (1,174 | ) | (12.5 | )% | $ | (7,875 | ) | 20.8 | % | $ | 30,265 | (75.3 | )% | |||
The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits (in thousands):
| Year Ended December 31, | |||||||||||
| 2017 | 2016 | 2015 | |||||||||
| Unrecognized tax benefits at beginning of period | $ | 20,248 | $ | 20,589 | $ | 20,877 | |||||
| Gross increases-tax positions in prior period | 427 | 176 | 169 | ||||||||
| Gross decreases-tax positions in prior period | (1,354 | ) | (517 | ) | (2 | ) | |||||
| Gross increases-current period tax positions | — | — | — | ||||||||
| Settlements | — | — | (455 | ) | |||||||
| Lapse of statute of limitations | (452 | ) | — | — | |||||||
| Unrecognized tax benefits at end of period | $ | 18,869 | $ | 20,248 | $ | 20,589 | |||||
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Unrecognized tax benefits at beginning of period | $ | 18 | $ | 2,128 | |||||||||||||
| Gross increases - tax positions in prior period | — | — | |||||||||||||||
| Gross decreases - tax positions in prior period | — | (1,661) | |||||||||||||||
| Gross increases - current period tax positions | — | — | |||||||||||||||
| Settlements | — | (400) | |||||||||||||||
| Lapse of statute of limitations | (18) | (49) | |||||||||||||||
| Unrecognized tax benefits at end of period | $ | — | $ | 18 | |||||||||||||
Included in the amount of unrecognized tax benefits at December 31, 2017 and 20162020 is $14.8 million and $13.2 million, respectively,$18 thousand of tax benefits that, if recognized, would affect the Company'sCompany’s effective tax rate. Also included in the balance of unrecognized tax benefits at December 31, 2017 and 20162020 is $3.9 million and $7.1 million, respectively,less than $4 thousand of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets. Itassets which was offset by a full valuation allowance.
The Company is reasonably possiblerequired to file income tax returns in the United States that includes various state and local tax jurisdictions. The preparation of these income tax returns requires the totalCompany to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by the unrecognizedCompany. The income tax benefit will change duringreturns are subject to audits by the next 12 months; however,applicable federal and state taxing authorities. As part of these audits, the taxing authorities may disagree with our tax positions. The ultimate resolution of these tax positions is often uncertain until the audit is complete and any disagreements are resolved. The Company does not expecttherefore records an amount for its estimate of the potential changeadditional tax liability, including interest and penalties, for any uncertain tax positions taken or expected to have a material effect onbe taken in an income tax return. The Company reviews and updates the resultsaccrual for uncertain tax positions as more definitive information becomes available from taxing authorities, and upon completion of operations or financial position in the next year.tax audits and expiration of statutes of limitations.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. At December 31, 2017 and 2016,2020, the Company had approximately $2.7 million and $2.4 million, respectively,$10 thousand of accrued interest and penalties, before any tax benefit, related to uncertain tax positions.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The 2017 tax years 2001 through 2016year are forward are open to examination by major taxing jurisdictionsfor federal income tax purposes, and the 2015 tax year and forward are open to which the Company is subject.examination for state income tax purposes.
The Company is currently under Internal Revenue ServiceIRS audit examinations of the Company’s income and payroll tax returns for the years 2013 through 2016.
2016 was completed during the quarter ended June 30, 2020. The Company obtained the Joint Committee on Taxation approval of the net operating loss
69
Notes to Annual Consolidated Financial Statements (Continued)
The FTB audit examinations of the Company’s income tax returns are being audited by the Oregon Department of Revenue for the years 20122013 through 2014. In January 2017,2015 was completed during the Oregon Department of Revenue issued Notices of Deficiencies, which were appealed byquarter ended December 31, 2020. The audit closing agreement was finalized during the Company. The Company does not expect any significant adjustments to amounts already reserved.quarter ended March 31, 2021 with no adverse material impact on the Company’s overall financial results as at December 31, 2021.
The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act of 1965, as amended (the “Higher(“Higher Education Act”), and the regulations promulgated thereunder by the U.S. Department of Education (the “Department”(“Department”) subject the Company and its university partners to significant regulatory scrutiny on the basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”). After the sale of the University to Global Campus, the Company remains responsible for liabilities resulting from any violation of these regulatory requirements during the time it owned and operated the University, either directly or by an obligation to indemnify Global Campus.
Department of Education On-Site Program Review of former Ashford University
In December 2016, the Department informed the University that it intended to continue the on-site program review, which commenced in January 2017 and initially covered the 2015-2016 and 2016-2017 award years, but may be expanded if the Department deems such expansion appropriate. To date, the Company has not received a draft report from the Department.
Department of Education Close Out Audit of University of the Rockies
The Company previously recorded an expense of $1.5 million during the fiscal year 2018, in relation to the close out audit of University of the Rockies resulting from its merger with the University in October 2018. The expense was recorded in relation to borrower defense to repayment regulations. On September 26, 2019, the Department sent the University a Final Audit Determination letter for the University of the Rockies. This letter confirmed that with the exception of the borrower defense to repayment regulations, none of the other audit findings resulted in financial liability. The Department also stated that additional liabilities could accrue in the future. On December 19, 2019, the Company filed an administrative appeal with the Department appealing the alleged liability on the basis that the University of Rockies did not close but rather merged with the University. The briefing on the appeal is complete and the Company is awaiting a decision by the administrative law judge.
WSCUC Accreditation of Global Campus (formerly Ashford University)
Global Campus is regionally accredited by WASC Senior College and University Commission (“WSCUC”). In July 2019, WSCUC acted to reaffirm accreditation through Spring 2025.
In connection with the Purchase Agreement by and among the Company and the University of Arizona, the Rockies is regionally accreditedCompany submitted to WSCUC, in July 2020, a substantive change application for a change in ownership from the University to Global Campus which required review and approval by the Higher Learning Commission (“HLC”).
effect.
70
Notes to Annual Consolidated Financial Statements (Continued)
Department of Education Regulation
On December 1, 2020, the parties to the Purchase Agreement entered into Amendment No. 1 to the Purchase Agreement (“Amendment”) pursuant to which, among other things, the University of Arizona and Global Campus waived the closing condition regarding issuance of a pre-acquisition review notice by the Department of Education. Under the Higher Education Act,terms of the Purchase Agreement, as amended, the Closing was subject to customary closing conditions for transactions in this sector. The Department is expected to conduct a proprietary institution loses eligibilitypost-closing review of Global Campus following the Sale Transaction, consistent with the Department’s procedures during which the Department makes a determination on the institution’s request for recertification from the Department following the change of control, including whether to impose or place other conditions or restrictions. To be eligible to participate in Title IV programs, if the institution derives more than 90% of its revenues from Title IV program funds for two consecutive fiscal years, as calculated in accordance with Department regulations. This rule is commonly referred to as the “90/10 rule.” Any institution that violates the 90/10 rule for two consecutive fiscal years becomes ineligible to participate in Title IV programs for at least two fiscal years. In addition, an institution whose rate exceeds 90% for any single fiscal year is placed on provisional certificationmust comply with the Higher Education Act and may be subjectthe regulations thereunder that are administered by the Department.
Borrower Defense to other enforcement measures. In SeptemberRepayment
On October 28, 2016, the Department issued new audit standards, for financial statement auditspublished borrower defense to repayment regulations to change processes that assist students in gaining relief under certain provisions of proprietary institutions for fiscal years ending June 30, 2017 or later, which includethe Direct Loan Program regulations. These defense to repayment regulations allow a requirement that institutions must determine Title IV and non-Title IV revenueborrower to assert a defense to repayment on a student by student basis. On the basis of this calculation, duringa substantial misrepresentation, any other misrepresentation in cases where certain other factors are present, a breach of contract or a favorable nondefault contested judgment against a school for its act or omission relating to the fiscal year ended December 31, 2017, Ashford University derived 80.8%, and Universitymaking of the Rockies derived 86.1%,borrower’s loan or the provision of their respective cash revenues from Title IV program funds. As previously reported,educational services for fiscal years ended December 31, 2016 and 2015, Ashford University derived 81.2% and 80.9%, respectively, and University ofwhich the Rockies derived 86.5% and 86.6%, respectively, of their respective cash revenues from Title IV program funds.
On March 15, 2019, the Department issued guidance for the implementation of parts of the Departmentregulations. The guidance covers an institution’s responsibility in regard to reporting mandatory and possibly accepting other conditions on its participation in the Title IV programs.
On August 30, 2019, the Department finalized the regulations derived from the 2017-2018 negotiated rulemaking process and subsequent public comments. This version of the borrower defense regulations applies to all federal student loans made on or after July 1, 2020, and, among other things: grants borrowers the right to assert borrower defense to repayment claims against institutions, must satisfyregardless of whether the loan is in orderdefault or in collection proceedings; allows borrowers to participatefile defense to repayment claims three years from either the student’s date of graduation or withdrawal from the institution; and gives students the ability to allege a specific amount of financial harm and to obtain relief in Title IV programs. For the fiscal year ended December 31, 2017, the Company expects the consolidated composite score to be 2.5. However, the consolidated calculation is subject to determinationan amount determined by the Department, once it receiveswhich may be greater or lesser than their original claim amount. It also includes financial triggers and reviews the Company's auditedother factors for recalculating an institution’s financial statements for the year ended December 31, 2017. Additionally, for the year ended December 31, 2017, theresponsibility composite score at each ofthat differ from those in the Company's institutions is higher than the consolidated score.2016 regulations.
In July 2020, the Department notified the Company that they would be initiating a preliminary review of borrower defense applications from borrowers who made claims regarding the University. As part of the initial fact-finding process, the Department will send individual student withdrew. If an institution's annual financial aid compliance audit in eitherclaims to the University and allow the institution the opportunity to submit a response to the borrower’s allegations. In 2020, the Company received and timely responded to the submitted claims. The Company has responded to everything received and cannot predict the outcome of its two most recently completed fiscal years determines that 5% or more of such returns were not
this the Department's review at this time.
71
Notes to Annual Consolidated Financial Statements (Continued)
The Company maintains an employee savings plan (the “401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended. Under the 401(k) Plan, participating employees may contribute a portion of their pre-tax earnings up to the Internal Revenue Service annual contribution limit. Additionally, the Company may elect to make matching contributions into the 401(k) Plan in its sole discretion. The Company'sCompany’s total expense related to the 401(k) Plan was $2.9 million, $3.1$1.8 million and $3.4$2.3 million for the years ended December 31, 2017, 20162021 and 2015,2020, respectively.
Litigation
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with GAAP, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated, the best estimate within that range should be accrued. If no estimate is better than another, the Company records the minimum estimated liability in the range. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. Other than the specific liabilities assumed by Global Campus, the Company and AU LLC will generally remain responsible for liabilities of the University relating to periods prior to the closing of the Sale Transaction. Below is a list of material legal proceedings to which the Company or its subsidiaries is a party.
California Attorney General Investigation of For-Profit Educational Institutions
In January 2013, the Company received from the Attorney General of the State of California (the “CA Attorney General”) an Investigative Subpoena relating to the CA Attorney General’s investigation of for-profit educational institutions. Pursuant to the Investigative Subpoena, the CA Attorney General requested documents and detailed information for the time period March 1, 2009 to present. On July 24, 2013, the CA Attorney General filed a petition to enforce certain categories of the Investigative Subpoena related to recorded calls and electronic marketing data. On September 25, 2013, the Company reached an agreement with the CA Attorney General to produce certain categories of the documents requested in the petition and stipulated to continue the hearing on the petition to enforce from October 3, 2013 to January 9, 2014. On January 13, 2014 and June 19, 2014, the Company received additional Investigative Subpoenas from the CA Attorney General each requesting additional documents and information for the time period March 1, 2009 through the currenteach such date.
Representatives from the Company met with representatives from the CA Attorney General’s office on several occasions to discuss the status of the investigation, additional information requests, and specific concerns related to possible unfair business practices in connection with the Company’s recruitment of students and debt collection practices.
The parties also discussed a potential resolution involving injunctive relief, other non-monetary remedies and a payment to the CA Attorney General and in the third quarter of 2016, the Company recorded an expense of $8.0 million related to the cost of resolution ofresolving this matter.
The parties did not reach a resolution and on November 29, 2017, the CA Attorney General filed suit against Ashford University and Bridgepoint Education.the Company. The Company intends to vigorously defend this case and emphatically denies the allegations made by the CA Attorney General that it ever deliberately misled its students, falsely advertised its programs, or in any way were not fully accurate in its statements to investors. However,A trial took place from November 2021 through December 2021. On March 7, 2022, the outcome of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise. At, present, the Company cannot reasonably estimate any updated range of loss for this action based on currently available information and as such, the prior accrual remains.
72
Notes to Annual Consolidated Financial Statements (Continued)
Concentration of Revenue
Title IV programs are subject to political and budgetary considerations and are subject to extensive and complex regulations. The Company's administration
Subsequent to December 1, 2020, the majority of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potentially adverse actions including a suspension, limitation or termination proceeding, which could have a material adverse effect on the Company's enrollments, revenues and results of operations. Students obtain accessrevenue is attributable to federal student financial aid through a Department-prescribed application and eligibility certification process. Student financial aid funds are generally made available to students at prescribed intervals throughout their expected length of study. Students typically apply the funds received from the federal financial aid programs first to pay their tuition and fees. Any remaining funds are distributed directly to the student, if requested.
its contractual relationship with Global Campus.
Concentration of Credit Risk
The Company maintains its cash and cash equivalents accounts in financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000.$250,000. The Company performs ongoing evaluations of these institutions to limit its concentration risk exposure.
Concentration of Sources of Supply
The Company is dependent on a third-party provider for its online platform, which includes a learning management system that stores, manages and delivers course content, enables assignment uploading, provides interactive communication between students and faculty, and supplies online assessment tools. The partial or complete loss of this source may have an adverse effect on enrollments,the Company’s revenues and results of operations.
21. Segment Information
Prior to December 1, 2020, the Company operated in one segment for reporting purposes. Following the Sale Transaction, the Company now operates in 2 reportable segments: University Partners and Zovio Growth. These segments were recast based upon the Company’s respective offerings.
On December 1, 2020, the Company consummated the Sale Transaction. For additional information and description of Operations (Unaudited)the Sale Transaction, see Note 1, “Nature of Business.” The Company reports segment information based upon the management approach, and the Sale Transaction resulted in a change in how the chief operating decision maker viewed the operations moving forward. This change included the creation of three operating segments: Fullstack, TutorMe, and Zovio, and two reportable segments: University Partners and Zovio Growth.
The Company’s operating segments are determined based on (i) financial information reviewed by the chief operating decision maker, the CEO, (ii) internal management and related reporting structure, and (iii) the basis upon which the CEO makes resource allocation decisions. The Fullstack and TutorMe operating segments are aggregated into a single reportable segment called Zovio Growth. The aggregation of the Fullstack and TutorMe operating segments is based on their uniform customer bases and methods of services provided, as well as evaluation of quantitative thresholds as required by ASC 280-10-50-12. Based on these same quantitative tests, the Zovio operating segment is a separate reportable segment, University Partners. This change in segment reporting did not have any impact on the determination of reporting units used to assess impairment under ASC 350, Intangibles - Goodwill and Other.
The Company’s University Partners segment includes the technology and services provided to colleges and universities to enable the online delivery of degree programs and the related goods and services. University Partners also includes the tuition revenue related to the University prior to the Sale Transaction on December 1, 2020.
73
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
Segment Performance
The following tables set forth unauditedtable summarizes financial information regarding each reportable segment’s results of operations and certain operating results for each quarter duringthe periods presented (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Revenue by segment | |||||||||||||||||
| University Partners | $ | 232,793 | $ | 376,220 | |||||||||||||
| Zovio Growth | 30,240 | 20,901 | |||||||||||||||
| Total revenue and other revenue | $ | 263,033 | $ | 397,121 | |||||||||||||
| Segment profitability | |||||||||||||||||
| University Partners | $ | (26,551) | $ | (41,182) | |||||||||||||
| Zovio Growth | (7,724) | (9,315) | |||||||||||||||
| Total segment profitability(1) | $ | (34,275) | $ | (50,497) | |||||||||||||
(1) Segment profitability represents EBITDA. The following table reconciles total loss before income taxes to total segment profitability (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2021 | 2020 | ||||||||||||||||
| Loss before income taxes | $ | (42,478) | $ | (62,020) | |||||||||||||
| Adjustments: | |||||||||||||||||
| Interest expense (income), net | (130) | 120 | |||||||||||||||
| Depreciation and amortization expense | 8,333 | 11,403 | |||||||||||||||
| Total segment profitability | $ | (34,275) | $ | (50,497) | |||||||||||||
For the years ended December 31, 2017 and 2016. The Company believes2020, the information reflects all adjustments necessary to present fairlylegacy University accounted for $356.1 million of the information below. Basic and diluted income (loss) per share are computed independently forUniversity Partners segment revenue.
For each of the quarters presented. Therefore,years ended December 31, 2021 and 2020, there were no customers or individual university clients which accounted for 10% or more of the sumZovio Growth segment revenue.
The Company’s total assets by segment are as follows (in thousands):
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| University Partners | $ | 86,628 | $ | 111,830 | |||||||
| Zovio Growth | 62,406 | 49,476 | |||||||||
| Total assets | $ | 149,034 | $ | 161,306 | |||||||
As of December 31, 2021, approximately $36.2 million of the assets in University Partners were considered to be entity-wide assets.
74
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
The Company’s accounts receivable and deferred revenue in each segment are as follows (in thousands):
| As of December 31, | |||||||||||
| 2021 | 2020 | ||||||||||
| University Partners | $ | 78 | $ | 45 | |||||||
| Zovio Growth | 9,553 | 7,159 | |||||||||
| Total accounts receivable | $ | 9,631 | $ | 7,204 | |||||||
| University Partners | $ | — | $ | 10 | |||||||
| Zovio Growth | 14,939 | 8,080 | |||||||||
| Total deferred revenue and student deposits, current | $ | 14,939 | $ | 8,090 | |||||||
As of December 31, 2021 and 2020, respectively, the University Partners segment net accounts receivable balance was immaterial. As of each December 31, 2021 and 2020, respectively, there were no individual partners or customers which accounted for 10% or more of the Zovio Growth segment net accounts receivable balance, as customers are individual students, or third parties, paying on their behalf, rather than university clients.
The Company’s goodwill amounts as of each December 31, 2021 and 2020 are fully attributable to the Zovio Growth Segment. For additional information on goodwill, see Note 9, “Goodwill and Intangibles, Net.”
22. Subsequent Events
The Company performed an evaluation of events occurring between the end of our most recent fiscal year and the date of filing these consolidated financial statements. On March 7, 2022, the Superior Court of the State of California, County of San Diego (the “Court”), issued a Statement of Decision regarding the lawsuit in favor of the CA Attorney General. In the Statement of Decision, the Court ordered the Company to pay $22.4 million in statutory penalties. The Company has accrued for the $22.4 million within accounts payable and accrued liabilities, see also Note 10, “Accounts Payable and Accrued Liabilities” and recorded $14.3 million of additional legal expense as of and for the year ended December 31, 2021, respectively. We are currently considering all options available and have filed a motion for a new trial on the Court’s decision. Regardless of the ultimate outcome, this decision could have a material impact on our financial condition. See Note 19, “Commitments and Contingencies,” for further information.
The majority of our cash comes from our Services Agreement with our largest customer. The service fees in the Services Agreement are subject to certain minimum residual liability adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance, and to a certain extent the performance of our customer, during each service period. On April 11, 2022 the Company and their largest customer modified the payment terms from monthly to bi-monthly for the months of July, August and September 2022.
On April 14, 2022, the Company entered into a Financing Agreement (the “Credit Facility”) among the Company, as borrower, each of its wholly-owned subsidiaries as subsidiary guarantors (the “Guarantors”), the lenders party thereto from time to time (the “Lenders”) and Blue Torch Finance LLC, as administrative agent and collateral agent for the Lenders (the “Agent”). The Credit Facility provides for, among other things, a term loan in the aggregate principal amount of $31.5 million (the “Term Loan”). The proceeds of the Term Loan will be used (i) if necessary, to satisfy any final judgement in the CA Attorney General lawsuit, and (ii) thereafter, to fund the working capital of the Company and the Guarantors.
Subject to the terms of Credit Facility, the Term Loan bears interest at a rate per annum equal to LIBOR plus 9.0%, payable monthly. The principal amount of the Term Loan will be repayable in equal quarterly basicinstallments of $393,750 beginning June 30, 2023 and diluted income (loss)through March 31, 2025, with the remaining unpaid principal amount of the Term Loan, and all accrued and unpaid interest thereon, due and payable on the maturity date of April 14, 2025.
The Credit Facility contains customary representations, warranties, affirmative and negative covenants (including financial covenants), and indemnification provisions in favor of the Agent and the Lenders. The financial covenants include a minimum cash flow covenant that takes effect six months following the Effective Date and that is to be tested on a monthly basis for the trailing twelve month period, a minimum liquidity covenant that requires the Company to maintain unrestricted
75
ZOVIO INC
Notes to Annual Consolidated Financial Statements (Continued)
cash on hand at all times of at least $7.5 million (inclusive of any proceeds of the Term Loan in excess of the amounts used to satisfy any final judgment in the CA Attorney General lawsuit, and minimum revenue covenants applicable to each of the Company’s Fullstack Academy, LLC and TutorMe, LLC subsidiaries and that are to be tested on a monthly basis beginning June 30, 2022 for the trailing twelve month period.
In connection with the Credit Facility, the Company issued warrants (the “Warrants”) to the Lenders to purchase at any time or from time to time on or after the date that is six months from the Effective Date, at an exercise price of $0.01 per share, information may not equal annual basic and diluted income (loss) per share.such number of shares of common stock of the Company as equals 5.0% of the outstanding fully-diluted shares of common stock of the Company as of the issuance date.
76
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| (In thousands, except per share data) | |||||||||||||||
| 2017 | |||||||||||||||
| Revenue | $ | 129,490 | $ | 124,581 | $ | 119,367 | $ | 104,959 | |||||||
| Operating income (loss) | 9,662 | 6,180 | (1,503 | ) | (6,487 | ) | |||||||||
| Net income (loss) | 9,869 | 6,314 | 39 | (5,685 | ) | ||||||||||
| Income (loss) per share: | |||||||||||||||
| Basic | $ | 0.23 | $ | 0.22 | $ | 0.00 | $ | (0.20 | ) | ||||||
| Diluted | $ | 0.23 | $ | 0.21 | $ | 0.00 | $ | (0.20 | ) | ||||||
First Quarter | Second Quarter | Third Quarter | Fourth Quarter | ||||||||||||
| (In thousands, except per share data) | |||||||||||||||
| 2016 | |||||||||||||||
| Revenue | $ | 133,002 | $ | 137,970 | $ | 136,583 | $ | 119,535 | |||||||
| Operating income (loss) | (16,299 | ) | 3,357 | (8,823 | ) | (18,456 | ) | ||||||||
| Net income (loss) | (10,112 | ) | 3,338 | (9,477 | ) | (13,789 | ) | ||||||||
| Income (loss) per share: | |||||||||||||||
| Basic | $ | (0.22 | ) | $ | 0.07 | $ | (0.20 | ) | $ | (0.30 | ) | ||||
| Diluted | $ | (0.22 | ) | $ | 0.07 | $ | (0.20 | ) | $ | (0.30 | ) | ||||
Item 9. Changes in and Disagreements withWith Accountants on Accounting and Financial Disclosure.Disclosure
None.
Item 9A. Controls and Procedures.Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our chief executive officerChief Executive Officer and our principal financial officer,Principal Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act. Based on this evaluation, our chief executive officerChief Executive Officer and our principal financial officerPrincipal Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2017.2021.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f) under the Exchange Act.. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets,assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors,directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management has assessed the effectiveness of our internal control over financial reporting as of December 31, 20172021, based on the framework set forth in Internal Control-Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Our management has concluded that our internal control over financial reporting was effective as of December 31, 2017.
Changes in Internal Control Over Financial Reporting
We continually assess the adequacy of our internal control over financial reporting and make improvements as deemed appropriate. There have been no changes to ourin internal control over financial reporting, during the three months ended December 31, 20172021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Item 9B. Other Information.Information
Entry into Material Definitive Agreement (Information Required Under Item 1.01 of Form 8-K):
On February 21, 2018,April 14, 2022 (the “Effective Date”), the California State Approving Agency for Veterans Education (“CSAAVE”Company entered into a Financing Agreement (the “Credit Facility”), provided notice among the Company, as borrower, each of its intention notwholly-owned subsidiaries as subsidiary guarantors (the “Guarantors”), the lenders party thereto from time to act on Ashford University’s initial application for approvaltime (the “Lenders”) and Blue Torch Finance LLC, as administrative agent and collateral agent for the trainingLenders (the “Agent”). The Credit Facility provides for, among other things, a term loan in the aggregate principal amount of veterans$31.5 million (the “Term Loan”). The proceeds of the Term Loan will be used (i) if necessary, to satisfy any final judgement in the CA Attorney General lawsuit, and other eligible persons.(ii) thereafter, to fund the working capital of the Company and the Guarantors.
Subject to the terms of Credit Facility, the Term Loan bears interest at a rate per annum equal to LIBOR plus 9.0%, payable monthly. The notice directs Ashford to request approvalprincipal amount of its applicationthe Term Loan will be repayable in equal quarterly installments of $393,750 beginning June 30, 2023 and through March 31, 2025, with the remaining unpaid principal amount of the Term Loan, and all accrued and unpaid interest thereon, due and payable on the maturity date of April 14, 2025.
The Credit Facility provides for a guaranty by the U.S. DepartmentGuarantors of Veterans Affairs. Ashford intendsall of the obligations of the Company, including the payment when due of all principal, interest, fees, expense reimbursements, indemnifications and all other obligations under the Credit Facility (collectively, the “Obligations”). In connection with the Credit Facility, the Company and the Guarantors entered into a Security Agreement with the Agent (the “Security Agreement”), pursuant to respondwhich they each granted to Agent, for the benefit of the Agent and the Lenders, a first priority security interest in, and lien upon, substantially all of the assets and properties now owned or hereinafter acquired by the Company and the Guarantors to secure the Obligations.
The Credit Facility contains customary representations, warranties, affirmative and negative covenants (including financial covenants), and indemnification provisions in favor of the Agent and the Lenders. The financial covenants include a minimum cash flow covenant that takes effect six months following the Effective Date and that is to be tested on a monthly basis for the trailing twelve month period, a minimum liquidity covenant that requires the Company to maintain unrestricted cash on hand at all times of at least $7.5 million (inclusive of any proceeds of the Term Loan in excess of the amounts used to satisfy any final judgment in the CA Attorney General lawsuit, and minimum revenue covenants applicable to each of the Company’s Fullstack Academy, LLC and TutorMe, LLC subsidiaries and that are to be tested on a monthly basis beginning June 30, 2022 for the trailing twelve month period. The negative covenants include restrictions on the ability to, among other things, incur liens and indebtedness, sell assets, make dividends or other distributions, enter into transactions with affiliates, or make loans or investments, in each case, subject to certain exceptions. The Credit Facility also includes certain customary events of default, including, without limitation, payment defaults, representation or warranty inaccuracies, covenant violations, cross-defaults to other agreements evidencing indebtedness for borrowed money, invalidity of certain loan documents relating to the notice by providing the additional informationCredit Facility, certain judgments, bankruptcy and continuing to work in good faith with CSAAVEinsolvency events and the Departmentoccurrence of Veterans Affairs. Forevents constituting a copychange of control. The Company will be required to make mandatory prepayments under certain circumstances, and will have the option to make prepayments under the Credit Facility, in each case subject to a prepayment premium equal to (i) if such prepayment occurs on or prior to the first anniversary of the notice, see Exhibit 99.2.Effective Date, zero, (ii) if such prepayment occurs after the first anniversary and on or prior to the second anniversary of the Effective Date, 103% of the aggregate principal amount of the Term Loan then outstanding, and (iii) if such prepayment occurs after the second anniversary, 106% of the aggregate principal amount of the Term Loan then outstanding. The Lenders are entitled to accelerate repayment of all or any portion of the Term Loan then outstanding upon the occurrence, and in certain instances the continuance, of any events of default under the Credit Facility.
In connection with the execution of the Credit Facility, the Company paid fees and expenses to the Agent and the Lenders, including a closing fee equal to 5.0% of the aggregate principal amount of the Term Loan on the Effective Date. In addition, the Company is required to pay (i) a non-refundable loan servicing fee of $250,000, payable on the Effective Date and on each anniversary thereof that occurs prior to the date on which all of the Obligations are paid in full in cash and the commitments of the Lenders are terminated (the “Termination Date”), and (ii) a non-refundable anniversary fee in an amount equal to 1.5% of the aggregate principal amount of the Term Loan on the Effective Date payable on each of (i) the Termination Date, (ii) the first anniversary of the Effective Date provided that the Termination Date has not occurred prior to such date, and (iii) on the second anniversary of the Effective Date provided that the Termination Date has not occurred prior to such date
The foregoing description of the Credit Facility and the Security Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Credit Facility and the Security Agreement, copies of which will be timely filed as an exhibit to an upcoming periodic report in accordance with applicable rules and regulations of the Securities and Exchange Commission.
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Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant (Information Required Under Item 2.03 of Form 8-K)
See disclosure provided under “Entry into a Material Definitive Agreement” above.
Unregistered Sale of Equity Securities (Information Required Under Item 3.02 of Form 8-K).
In connection with the Credit Facility, the Company issued warrants (the “Warrants”) to the Lenders to purchase at any time or from time to time on or after the date that is six months from the Effective Date, at an exercise price of $0.01 per share, such number of shares of common stock of the Company as equals 5.0% of the outstanding fully-diluted shares of common stock of the Company as of the issuance date. The number of shares issuable upon exercise of each Warrant is subject to increase if the Company issues or sells any shares of common stock, common stock equivalents, options or convertible securities for a consideration per share (including upon exercise, exchange or conversion) of less than the exercise price. The Warrants will expire ten years after the issuance date and will be exercisable on a cash basis or, at the election of the holder, on a cashless basis. Notwithstanding the foregoing, in the event that all of the Obligations are paid in full in cash before the Effective Date, each Warrant will be canceled and terminated in its entirety and be of no further force or effect.
The issuance of the Warrants is being made in reliance on the exemption from the registration requirements of the Securities Act provided by Section 4(a)(2) of the Securities Act in that the transaction was by an issuer not involving any public offering. At issuance, the recipients of the Warrants represented that they are “accredited investors” and represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof. The shares of the Company’s common stock issuable upon exercise of the Warrants have not been registered under the Securities Act or the securities laws of any state or other jurisdiction, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act and such other jurisdictions.
The Company did not pay or give, directly or indirectly, any commission or other remuneration, including underwriting discounts and commissions, in connection with the issuance of the Warrants.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.Governance
Information about our Executive Officers
Our executive officers are appointed by, and serve at the discretion of, the Board. Each executive officer is a full-time employee of Zovio. The names of our current executive officers, their ages as of December 31, 2021, titles and biographies are set forth below:
| Name | Age | Position | ||||||||||||
| Randy J. Hendricks | 65 | Chief Executive Officer | ||||||||||||
| Kevin S. Royal | 57 | Executive Vice President/Chief Financial Officer | ||||||||||||
| Steven R. Burkholder | 43 | Vice President, Chief Accounting Officer and Corporate Controller | ||||||||||||
| Vickie L. Schray | 61 | Executive Vice President and Chief External Affairs Officer | ||||||||||||
| John W. Semel | 51 | Executive Vice President/Chief Strategy Officer | ||||||||||||
| Christopher L. Spohn | 61 | Executive Vice President of Operations | ||||||||||||
Randy J. Hendricks has served as the Chief Executive Officer and a director of our company since December 2021. Mr. Hendricks has over 30 years of executive experience and a proven track record leading enterprise-wide transformation through focused execution, in challenging and highly competitive market segments with companies looking to re-establish growth. Mr. Hendricks brings a global perspective and a keen knowledge of different markets and cultures, through previous operating roles when based in London, Tokyo, and Madrid. Mr. Hendricks' experience includes over 20 years working with clients in higher education institutions assisting them to advance their academic and research missions. Prior to joining Zovio, Mr. Hendricks was a Senior Executive at the Huron Consulting Group. Before joining Huron, Mr. Hendricks served as President of Education & Government at Workday. Mr. Hendricks held multiple senior leadership roles in IBM’s Global Business Services unit, both in the U.S. and internationally. Mr. Hendricks also serves as a board member for several technology companies. Mr. Hendricks holds a B.S. in Industrial Administration with a minor in Computer Science from Iowa State University. Mr. Hendricks obtained his CPA after taking advanced accounting courses at the University of Illinois.
Kevin S. Royal joined us in October 2015 and serves as our Executive Vice President/Chief Financial Officer. Mr. Royal resigned from his position from October 2017 to April 2018 for personal reasons unrelated to the Company. Prior to joining us, Mr. Royal was Senior Vice President, Chief Financial Officer, Treasurer and Secretary of Maxwell Technologies, Inc., a developer, manufacturer and marketer of energy storage and power delivery solutions from April 2009 to May 2015. From May 2005 until April 2009, Mr. Royal was Senior Vice President and Chief Financial Officer of Blue Coat Systems, Inc., a previously Nasdaq-listed developer and provider of application delivery network technology. From December 1996 until May 2005, Mr. Royal held a series of senior finance positions, culminating with his appointment as vice president and chief financial officer of Novellus Systems, Inc., an S&P 500 company that manufactures, markets and services semiconductor capital equipment. Before Mr. Royal joined Novellus, he spent 10 years with Ernst & Young LLP, where he became a certified public accountant. Mr. Royal received his Bachelor of Business Administration from Harding University.
Steven R. Burkholder has served as our Vice President, Chief Accounting Officer and Corporate Controller since June 2017. Mr. Burkholder previously served as our Associate Vice President, Assistant Controller from September 2012. Prior to joining us, Mr. Burkholder served in various roles at PricewaterhouseCoopers LLP, a public accounting firm, from September 2001 to September 2012, culminating in his appointment as Senior Manager in June 2011. As Senior Manager, he led engagement teams including audit, information technology, valuation and tax professionals. Mr. Burkholder received his Bachelor of Science in Business Accounting with honors from the University of Minnesota - Carlson School of Management and his Masters in Business Administration from Ashford University, and is a certified public accountant.
Vickie L. Schray joined us in January 2011 and currently serves as our Executive Vice President, Chief External Affairs Officer. Prior to Ms. Schray’s current appointment in September 2018, Ms. Schray also served as Executive Vice President, Regulatory Affairs and Public Policy since October 2016, as well as our Senior Vice President, Regulatory Affairs and Public Policy and also as our Vice President Regulatory Affairs. Ms. Schray has over 20 years of experience in postsecondary education and has worked at the federal, state and institutional level. From 1998 to 2010, Ms. Schray served in various leadership positions with the U.S. Department of Education, including Acting Deputy Assistant Secretary in the Office of Postsecondary Education, Senior Policy Analyst in the Office of the Under Secretary, and as the Deputy Director for the Secretary of Education’s Commission on the Future of Higher Education. Before her work with the Department of Education,
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Ms. Schray consulted for the National School-to-Work Opportunities Office and was Deputy Director of the National Skill Standards Board. Ms. Schray earned an M.S. at Portland State University and a B.S. at Oregon State University.
John W. Semel joined us in March 2019 and has served as our Executive Vice President, Chief Strategy Officer since that time. Mr. Semel was interim Chief Strategy Officer of Mood Media, an international in-store customer engagement company, from 2018 to 2019. At Mood Media, Mr. Semel drove strategic planning, strategic partnerships, and product development for new revenue sources. Prior to joining Mood Media, Mr. Semel served as the Chief Strategy Officer of John Wiley and Sons, a global leader in research and education, focusing on publishing, platforms and services for researchers, learners, universities, and corporations, from 2009 to 2017. At John Wiley and Sons, Mr. Semel helped build Wiley Solutions, its online education business. Over his career, Mr. Semel has held senior strategy and principal investment roles at MTV Networks, The Hearst Corporation, Everger Investment Associates, and PRIMEDIA. Mr. Semel began his career at J.P. Morgan and Company as an analyst and then an associate in Equity Capital Markets and Syndicate before moving on to High Yield Capital Markets and Syndicate. Mr. Semel received his B.A. from Brown University and his M.B.S. from Harvard Business School.
Christopher L. Spohn has served as our Executive Vice President of Operations since April 2020. From March 2021 to December 2021, Mr. Spohn also served on an interim basis as a member of the Office of the CEO. Mr. Spohn has over 20 years of leadership and operations experience in the online higher education and technology services industries. Mr. Spohn was most recently the President of Rocky Mountain College of Art & Design, a for-profit art and design school, since 2017. At Rocky Mountain, Mr. Spohn drove the re-engineering of all operations related to the institution, while planning and directing all programs and services of the institution. From 2015 to 2016, Mr. Spohn served as Chief Executive Officer (Acting Campus Director) of Gnomon School for Visual Effects, Animation & Game Design, overseeing all school operations. Mr. Spohn also served as a member of the board of directors for Gnomon School from 2013 to 2016. From 2012 to 2015, Mr. Spohn served as President of WebWise Education, LLC, an online tutoring company, facilitating all business operations for the company. From 2011 to 2012, Mr. Spohn served as Chief Executive Officer of Higher Education Online, a United Kingdom-based education company, overseeing the start-up operations for the company. From 2004 to 2010, Mr. Spohn served as our Chief Admissions Officer, focusing on all operations related to recruiting, business development, and quality assurance. Mr. Spohn received his Bachelor of Arts from Azusa Pacific University and has completed the CORO Public Affairs Executive Leadership Program.
None of our executive officers has any family relationships with any of our other executive officers or directors. There currently are no legal proceedings, and during the past ten years there have been no legal proceedings, that are material to the evaluation of the ability or integrity of any of our executive officers.
Information about our Board of Directors
The names, ages as of December 31, 2021, and certain information requiredregarding each member of the Board, are set forth below. The following information has been furnished to us by the directors.
Teresa S. Carroll, age 56, has served as a director of our company since March 2018. Ms. Carroll is a former President for Kelly Services, Inc. and Oasis, a Paychex Company. Ms. Carroll is also a board member for Bayada, a home healthcare company and ProUnlimited, a contingent workforce management company. Ms. Carroll earned a B.S. from the G.M.I. Engineering and Management Institute (now Kettering) and an M.B.A. from the University of Michigan. Ms. Carroll brings to the Board deep understanding of operational and talent challenges in various industries gained through her experience driving strategy, operations, sales, marketing and human resources for large public companies.
Michael P. Cole, age 49, has served as a director of our company since January 2020. Mr. Cole currently serves as Chief Executive Officer of SevenSaoi Capital (pronounced “7C”), an investment management since March 2016, and Chief Financial Officer of eMed LLC, a digital healthcare company since December 2021. Previously, Mr. Cole served as President of MAEVA Group, a turnaround-oriented merchant bank and was also with Madison Dearborn Partners, a Chicago-based private equity firm that manages $23 billion in equity capital, for nearly 17 years, retiring as Managing Director. Mr. Cole does not currently serve on any other public boards, but has previously served on the boards of Univision Communications, Inc., Merge Healthcare Inc., MetroPCS Communications and The Topps Company, among others. Mr. Cole also worked in a senior-level role on Madison Dearborn’s investments in technology-enabled service companies such as Intelsat, Ltd. and X.M. Satellite Radio. Mr. Cole received his A.B. degree from Harvard College. Mr. Cole brings to the Board a deep knowledge of business and strategic planning, as well as expertise in the areas of finance and accounting, corporate governance and risk management.
Ryan D. Craig, age 49, has served as a director of our company since November 2003. Mr. Craig is a founding partner of Achieve Partners, a private equity firm focused on investing at the intersection of education and employment. Prior to that, he was the founding partner of University Ventures, a private equity firm focused on innovation from within higher education. From 2004 to 2010, he was the founder and President of Wellspring, an organization providing treatment programs for overweight and obese adolescents. From 2001 to 2004, Mr. Craig was an Associate at Warburg Pincus in the education sector. From 1999 to 2001, Mr. Craig served as Vice President Business Development for Fathom, a consortium of universities,
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museums and libraries. From 1994 to 1996, he worked as a consultant with McKinsey & Company. Mr. Craig earned a B.A. from Yale University and a J.D. from Yale Law School. Mr. Craig currently serves on the boards of seven privately held companies. Mr. Craig brings to the Board extensive expertise in the postsecondary education sector and a long history with our business, which enables him to provide key strategic vision.
Randy J. Hendricks, age 65, has served as the Chief Executive Officer and a director of our company since December 2021. Mr. Hendricks has over 30 years of executive experience and a proven track record leading enterprise-wide transformation through focused execution, in challenging and highly competitive market segments with companies looking to re-establish growth. Mr. Hendricks brings a global perspective and a keen knowledge of different markets and cultures, through previous operating roles when based in London, Tokyo, and Madrid. Mr. Hendricks' experience includes over 20 years working with clients in higher education institutions assisting them to advance their academic and research missions. Prior to joining Zovio, Mr. Hendricks was a Senior Executive at the Huron Consulting Group. Before joining Huron, Mr. Hendricks served as President of Education & Government at Workday. Mr. Hendricks held multiple senior leadership roles in IBM’s Global Business Services unit, both in the U.S. and internationally. Mr. Hendricks also serves as a board member for several technology companies. Mr. Hendricks holds a B.S. in Industrial Administration with a minor in Computer Science from Iowa State University. Mr. Hendricks obtained his CPA after taking advanced accounting courses at the University of Illinois.
Michael B. Horn, age 42, has served as a director of our company since August 2017. Mr. Horn currently serves as the owner of Horn-Ed LLC, serving as Board Member, advisor, and consultant to a portfolio of education companies. Mr. Horn has also been a Venture Partner for Nextgen Venture Partners since 2017. Mr. Horn served as the Chief Strategy Officer and Senior Partner at The Entangled Group and Entangled Solutions from October 2015 to May 2020, and as Co-Founder, Distinguished Fellow, and Board Member of Clayton Christensen Institute for Disruptive Innovation since October 2015. The Entangled Group was acquired in May 2020 by Guild Education, where Mr. Horn now serves as a senior strategist. Previously, Mr. Horn served as Co-Founder and Executive Director, Education, of the Clayton Christensen Institute for Disruptive Innovation from 2007 through October 2015. Mr. Horn earned a B.A. in History from Yale University and an M.B.A. from Harvard Business School. Mr. Horn brings to the Board significant expertise in innovation across sectors with a deep focus on innovation and quality assurance in higher education and its strategic and organizational implications.
Ron Huberman, age 50, has served as a director of our company since March 2021. Mr. Huberman currently serves as the Chief Executive Officer of Benchmark Analytics, a provider of enterprise human capital management software and learning management. Mr. Huberman was a Senior Advisor for PeopleAdmin, a human capital software company, from 2016 to 2018. Mr. Huberman was also the Founder and Executive Board Chair for TeacherMatch from 2012 to 2016, which provides online predictive hiring tools for the K-12 market. Mr. Huberman has also held executive roles at Prairie Capital as well as within the Chicago Public Schools, Chicago Transit Authority, Chicago Office of the Mayor and Chicago Police Department. Mr. Huberman earned his B.A. from the University of Wisconsin and both his M.A. and M.B.A. from the University of Chicago. Mr. Huberman currently serves on the boards of Benchmark Analytics, Learner's Edge and Right-at-School. Mr. Huberman brings to the Board a deep knowledge of business and a special focus on human capital management.
John J. Kiely, age 63, has served as a director of our company since July 2019. Mr. Kiely currently serves as a director for Amneal Pharmaceutical and Covis Group Pharmaceutical. Mr. Kiely retired from PricewaterhouseCoopers LLP in 2019. During his 39-year career, he had significant leadership roles, including Assurance Chief Quality Officer, Assurance Leader of the Private Equity Sector, and Leader of the U.S. Pharmaceutical Industry. Additionally, he had extensive experience working with Fortune 500 companies and Private Equity portfolio companies. Mr. Kiely earned a B.A. from St. Francis University (Pa) and is a certified public accountant. Mr. Kiely brings to the Board a deep knowledge of business, as well as expertise in the areas of finance and accounting, corporate governance and strategic planning.
Kirsten M. Marriner, age 49, has served as a director of our company since March 2018. Ms. Marriner is the Executive Vice President - Chief People and Corporate Affairs Officer of the Clorox Company, a position she has held since March 2016. Prior to joining the Clorox Company, she served as senior vice president and chief human resources officer at Omnicare, from 2013 to 2015. She served in various leadership roles, including as senior vice president, director of talent management and development at Fifth Third Bank, from 2004 to 2013. She has held human resources leadership roles at KeyCorp and worked in the human capital consulting practices at Deloitte and KPMG. Ms. Marriner earned a B.S. in Industrial/Organizational Psychology from John Carroll University and an M.B.A. from Cleveland State University. Ms. Marriner brings to the Board her executive leadership experience with Fortune 500 companies across various industries and expertise on culture, talent and succession, and environmental, social and governance leadership.
Victor K. Nichols, age 65, has served as a director of our company since September 2014. Mr. Nichols was an independent advisor to Harland Clarke Holdings, a portfolio of companies optimizing customer relationships through a broad variety of omni-channel solutions, from June 2019 to December 2019, and was previously the Chairman of Harland Clarke Holdings. Mr. Nichols also served as the Chief Executive Officer of Harland Clarke Holdings from January 2017 until December 2018. Prior
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to this itemrole, Mr. Nichols served as the Chief Executive Officer of Valassis, a wholly-owned subsidiary of Harland Clarke Holdings. He has also served as Chief Executive Officer for North America at Experian, a global leader in data and analytics based information systems, and the Managing Director U.K. and EMEA at Experian. In addition, Mr. Nichols has held strategic roles as Chief Information Officer for Wells Fargo & Company, and Chief Executive Officer of Vicor, a company delivering advanced corporate receivables management solutions. His experience also includes serving as the President of Safeguard Business Systems, and various senior leadership positions at Bank of America, managing the consumer lending business and retail operations. Mr. Nichols currently serves on the boards of Bank of Hawaii Corporation, Revlon Inc. and Make-A-Wish, International, and previously served on the board of Harland Clarke Holdings. Mr. Nichols holds a B.A. in Economics from the University of California, San Diego, and an M.B.A. from the University of California, Berkeley. Mr. Nichols brings to the Board extensive business and leadership experience across multiple industries, including finance, marketing, technology and data analytics, which enables him to provide key operational and management perspective.
George P. Pernsteiner, age 73, has served as a director of our company since August 2017. Mr. Pernsteiner has over 28 years of experience serving in several leadership posts in the post-secondary education system. From September 2013 through August 2017, he served as President of the State Higher Education Executive Officers Association, which represents chancellors and commissioners of higher education from every state. Mr. Pernsteiner also served as Chancellor of the Oregon University System from July 2004 through May 2013. Mr. Pernsteiner has a B.A. in Political Science from Seattle University and an M.P.A. from the University of Washington in Public Administration. Mr. Pernsteiner brings to the Board his broad experience in managing universities and in developing and advancing education policies and practices.
John S. Wilson, age 64, has served as a director of our company since March 2021. Mr. Wilson is incorporated by referencea visiting scholar at the Harvard Business School, and is currently on leave from the Board of Overseers at Harvard University. Mr. Wilson was previously a Senior Advisor to the President of Harvard from April 2018 to September 2020, and the President in Residence to the Harvard School of Education from August 2017 to April 2018. Prior to that, Mr. Wilson also served as the President of Morehouse College from 2013 to 2017. Additionally, Mr. Wilson served as the Executive Director of the White House initiative on Historically Black Colleges and Universities (HBCUs) from 2009 to 2013. Mr. Wilson has also held Executive Dean and Associate Professor roles at the George Washington University, as well as Director positions at the Massachusetts Institute of Technology (MIT). Mr. Wilson earned his B.A. from Morehouse College and a Masters in Education and Masters in Theological Studies from Harvard. Mr. Wilson also earned his Doctorate in Education from Harvard Graduate School of Education. Mr. Wilson brings to the Board his vast experience in the higher education industry and governmental policy.
Leadership Structure of the Board of Directors
Pursuant to our definitive proxy statementbylaws and Corporate Governance Guidelines, the Board has the following general leadership structure:
•The positions of Chief Executive Officer and Chairman of the Board are separate, but may be held by the same individual. The position of Chief Executive Officer is currently held by Mr. Hendricks. The position of Chairman of the Board is currently held by Mr. Pernsteiner. From March 31, 2021 through December 6, 2021, Mr. Pernsteiner, was deemed not to be filedindependent due to his interim service as a member of the Office of the CEO.
•The Chairman of the Board presides at meetings of the Board and, so long as the Chairman of the Board is an independent director, also presides at executive sessions of the non-management and/or independent directors. The Company’s current Chairman of the Board.
•The Chief Executive Officer and the Chairman of the Board jointly establish the agenda for each meeting of the Board, though any director may request the inclusion of items on the agenda.
•If the Chairman of the Board is not an independent director, the independent directors will appoint one independent director to serve as “lead independent director.” In that scenario, the lead independent director will preside at executive sessions of the non-management and/or independent directors, preside at meetings of the Board in the absence of the Chairman of the Board, review agendas for meetings of the Board with the SECChief Executive Officer and Chairman of the Board, and assume such other functions as the Board may deem appropriate.
The Board has determined that this leadership structure, specifically the separation of the Chief Executive Officer and Chairman of the Board positions, is appropriate for our company because, in connectionthe judgment of the Board, an independent Chairman of the Board (or lead independent director, if the Chairman of the Board is not an independent director) is best positioned to express to management the views of the Board (and, particularly, the independent directors) and to provide constructive feedback to the Chief Executive Officer regarding management’s performance. Mr. Nichols was the lead independent director from March 31, 2021 through December 6, 2021. Mr. Pernsteiner is the lead independent director following the hiring of Mr. Hendricks in December 2021.
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Our Corporate Governance Guidelines are available on our website at http://www.zovio.com under “Investors - Governance.”
Board Committees
The Board has an Audit Committee, a Compensation Committee, a Nominating and Governance Committee and an M&A Oversight Committee. These committees operate under written charters, which are available on our website at http://www.zovio.com under “Investors - Governance.” The Board has determined that all members of these committees satisfy the applicable independence requirements under Nasdaq rules. The members of the committees are identified in the table below.
| Director | Audit Committee | Compensation Committee | Nominating and Governance Committee | M&A Oversight Committee | ||||||||||||||||||||||
| Teresa Carroll | Member | — | — | — | ||||||||||||||||||||||
| Michael Cole | — | Member | — | Member | ||||||||||||||||||||||
| Ryan Craig | Member | — | Chair | Chair | ||||||||||||||||||||||
| Michael Horn | — | — | Member | — | ||||||||||||||||||||||
| Ron Huberman | Member | — | — | — | ||||||||||||||||||||||
| John Kiely | Chair | — | Member | — | ||||||||||||||||||||||
| Kirsten Marriner | — | Member | — | — | ||||||||||||||||||||||
| Victor Nichols | Member | Chair | — | Member | ||||||||||||||||||||||
| George Pernsteiner | — | Member (1) | — | Member | ||||||||||||||||||||||
| John Wilson | — | — | Member | — | ||||||||||||||||||||||
(1) Mr. Pernsteiner did not serve on the Compensation Committee during his service in the Office of the CEO.
The Audit Committee is responsible primarily for overseeing (i) the services provided by our independent registered public accounting firm, (ii) the integrity of our financial statements and internal control over financial reporting, and (iii) risk management, internal audit and our compliance with legal and regulatory requirements. Mr. Kiely, the Chair of the Audit Committee, has been determined by the Board to be an audit committee financial expert. The Audit Committee held eight meetings in 2021.
The Compensation Committee is responsible primarily for evaluating and approving all compensation plans, policies and programs as they affect our 2017executive officers, administering our equity compensation plans, and reviewing the compensation of the Board. The Compensation Committee held fifteen meetings in 2021.
The Nominating and Governance Committee is responsible primarily for identifying, evaluating and recommending to the Board, nominees for election or appointment to the Board and committees of the Board, evaluating the performance and independence of the Board and of individual directors, and evaluating the adequacy of our corporate governance practices. The Nominating and Governance Committee held five meetings in 2021.
The M&A Oversight Committee is responsible primarily for evaluating strategies for near-term and long term value and considering other strategic transactions involving the Company, including but not limited to a business combination transaction, a sale of an entity, or recapitalization or similar transaction. The M&A Oversight Committee held seven meetings in 2021.
Meetings of the Board of Directors and Board Committees
The Board has regularly scheduled meetings quarterly, and holds additional meetings as needed. The committees of the Boardmeet quarterly and hold additional meetings as needed. Our independent directors hold executive sessions without management present at least once per quarter. During 2021, the Board held thirteen meetings.
Each director who served during 2021 attended at least 75% of the aggregate number of meetings held by the Board and all applicable committees of the Board during the period that he or she served. Members of the Board of Directors traditionally attend our annual meetings of stockholders. In 2021, all directors who served during 2021 attended the Annual Meeting of Stockholders, or an amendmentheld virtually.
Role of the Board of Directors in Risk Oversight
Management is responsible for day-to-day risk management at our company. The role of the Board is to provide oversight of the processes designed to identify, assess and monitor key risks and risk mitigation activities. The Board fulfills its risk oversight responsibilities through (i) a robust Enterprise Risk Management process that incorporates the views on risk of
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employees of all levels in their areas and culminates in a board presentation on key risks and mitigation strategies each quarter, (ii) the receipt of reports directly from managers responsible for the management of particular business risks and (iii) the receipt of reports from each committee chair regarding such committee’s oversight of specific risk topics.
Delegation of Risk Oversight
The Board has delegated oversight of specific risk areas to its committees. For example, the Audit Committee is tasked with overseeing risk management at our company with respect to financial matters and the adequacy of our internal control over financial reporting. Pursuant to its charter, the Audit Committee is required, among other things, to discuss with management our policies with respect to risk assessment and risk management, including guidelines and procedures to govern the process by which risk assessment and risk management are handled, and to review our major risk exposures and the steps management has taken to monitor, control and report such exposures. The Audit Committee typically has these discussions with management at least once per quarter, and the Chair of the Audit Committee subsequently reports on these discussions to the full Board. Similarly, the Compensation Committee assists the Board in overseeing risks arising from our compensation policies and practices, and the Nominating and Governance Committee assists the Board in overseeing risks associated with corporate governance, director and executive officer succession planning, board membership and board structure. The Board then discusses significant risk management issues with the Chief Executive Officer and other members of the management team and recommends appropriate action.
Code of Ethics
We have adopted a written Code of Ethics applicable to the Board and our officers and employees, including our principal executive officer, principal financial officer and principal accounting officer, in accordance with the rules of Nasdaq and the SEC. The Code of Ethics is available on our website at http://www.zovio.com under “Investors - Governance.”
Director Compensation
The following table presents compensation information for our non-employee directors for 2021. Compensation for each Messrs. Hendricks, Pernsteiner and Clark is presented in the Summary Compensation Table below and the related explanatory tables. Mr. Clark, prior to his separation from our company, did not receive any additional compensation for his services as a director.
| Name | Fees Earned or Paid in Cash ($) | Stock Awards ($)(1) | Total ($) | ||||||||||||||||||||||||||||||||
| Teresa Carroll | 60,000 | 69,743 | 129,743 | ||||||||||||||||||||||||||||||||
| Michael Cole | 90,000 | 69,743 | 159,743 | ||||||||||||||||||||||||||||||||
| Ryan Craig | 95,000 | 69,743 | 164,743 | ||||||||||||||||||||||||||||||||
| Michael Horn | 55,000 | 69,743 | 124,743 | ||||||||||||||||||||||||||||||||
| Ron Huberman | 45,000 | 76,590 | 121,590 | ||||||||||||||||||||||||||||||||
| John Kiely | 90,500 | 69,743 | 160,243 | ||||||||||||||||||||||||||||||||
| Kirsten Marriner | 65,000 | 69,743 | 134,743 | ||||||||||||||||||||||||||||||||
| Victor Nichols | 102,500 | 69,743 | 172,243 | ||||||||||||||||||||||||||||||||
| George Pernsteiner | 126,875 | 140,704 | 267,579 | ||||||||||||||||||||||||||||||||
| John Wilson | 41,250 | 76,590 | 117,840 | ||||||||||||||||||||||||||||||||
(1) Represents the grant date fair value of the restricted stock unit award, computed in accordance with FASB ASC Topic 718. The valuation methodology used to calculate this amount is discussed in Note 17, “Stock-Based Compensation,” to our annual consolidated financial statements for the year ended December 31, 2021, which are included in Item 8 of this Annual Report on Form 10-K for the year ended December 31, 2021.
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The following table presents the total number of shares subject either to unreleased RSUs or to vested exercisable options, for each non-employee director as of December 31, 2021.
| Director | Number of Unreleased RSUs | Number of Vested Exercisable Options | |||||||||||||||
| Teresa Carroll | 19,472 | — | |||||||||||||||
| Michael Cole | 30,577 | — | |||||||||||||||
| Ryan Craig | 16,410 | 32,714 | |||||||||||||||
| Michael Horn | 16,410 | — | |||||||||||||||
| Ron Huberman | 31,370 | — | |||||||||||||||
| John Kiely | 34,120 | — | |||||||||||||||
| Kirsten Marriner | 19,472 | — | |||||||||||||||
| Victor Nichols | 16,410 | 28,034 | |||||||||||||||
| George Pernsteiner | 36,860 | — | |||||||||||||||
| John Wilson | 31,370 | — | |||||||||||||||
The following table presents our non-employee director compensation program. The Compensation Committee reviews director compensation annually, including fees, retainers and equity compensation, as well as total compensation, and makes recommendations to the Board regarding the compensation program. In 2021, the Compensation Committee worked with Pay Governance, LLC (“Pay Governance”) compensation consultants, in determining appropriate changes to director compensation.
| Position | Annual Cash Retainer ($) | Annual Equity Award ($) | ||||||||||||||||||||||||
| Continuing Director | 50,000 | 85,000 | (3) | |||||||||||||||||||||||
| Board of Directors Chair | 50,000 | (1) | — | |||||||||||||||||||||||
| Audit Committee Chair | 15,000 | (2) | — | |||||||||||||||||||||||
| Compensation Committee Chair | 10,000 | (2) | — | |||||||||||||||||||||||
| Nominating and Governance Committee Chair | 5,000 | (2) | — | |||||||||||||||||||||||
| CEO Search Committee Chair | 3,000 | (2) | — | |||||||||||||||||||||||
| Audit Committee Member | 10,000 | — | ||||||||||||||||||||||||
| Compensation Committee Member | 7,500 | — | ||||||||||||||||||||||||
| Nominating and Governance Committee Member | 5,000 | — | ||||||||||||||||||||||||
| CEO Search Committee Member | 7,500 | — | ||||||||||||||||||||||||
| M&A Oversight Committee Member | 25,000 | — | ||||||||||||||||||||||||
(1) The annual cash retainer for serving as board chair is to be filedpaid in addition to the annual cash retainer for board membership.
(2) The annual cash retainer for serving as committee chair is to be paid in addition to the annual cash retainer for committee membership.
(3) The annual equity award was comprised of restricted stock unit awards. The annual restricted stock units vest in full on the first anniversary of the date of grant, subject to the continuing service of the director. Upon initial election to the Board, directors receive an initial grant of $85,000 of restricted stock units that vest over four years on the anniversary date of the grant, subject to the continuing service of the director.
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Item 11. Executive Compensation
| SUMMARY COMPENSATION TABLE | ||
The following table summarizes the total compensation earned by each of our named executive officers (“NEOs”) for 2021, 2020 and 2019.
| Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(1) | Option Awards ($)(2) | Non-Equity Incentive Plan Compensation ($)(3) | Changes in Pension Value and Nonqualified Deferred Compensation Earnings ($)(4) | All Other Compensation ($)(5)(6) | Total ($) | ||||||||||||||||||||||||||||||||||||||||||||
| Randy Hendricks | 2021 | 31,731 | 300,000 | 2,517,241 | — | — | — | 1,957 | 2,850,929 | ||||||||||||||||||||||||||||||||||||||||||||
| Chief Executive Officer | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| George Pernsteiner | 2021 | 392,829 | 100,000 | 140,705 | — | — | — | — | 633,534 | ||||||||||||||||||||||||||||||||||||||||||||
| Chairman of the Board | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Office of the CEO | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Christopher Spohn | 2021 | 657,892 | — | 750,140 | — | — | — | 59,698 | 1,467,730 | ||||||||||||||||||||||||||||||||||||||||||||
| EVP of Operations | 2020 | 347,308 | — | 900,508 | — | 342,279 | — | 51,624 | 1,641,719 | ||||||||||||||||||||||||||||||||||||||||||||
| Office of the CEO | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Andrew Clark | 2021 | 203,116 | — | — | — | — | — | 3,182,622 | 3,385,738 | ||||||||||||||||||||||||||||||||||||||||||||
| Former President and CEO (7) | 2020 | 806,490 | — | 1,222,762 | — | 655,056 | — | 91,456 | 2,775,764 | ||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 776,620 | — | 2,486,860 | — | — | — | 1,064,969 | 4,328,449 | |||||||||||||||||||||||||||||||||||||||||||||
| Kevin Royal | 2021 | 395,000 | — | 391,176 | — | — | — | 64,688 | 850,864 | ||||||||||||||||||||||||||||||||||||||||||||
| EVP, Chief Financial Officer | 2020 | 410,192 | — | 382,699 | — | 183,244 | — | 69,027 | 1,045,162 | ||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 395,000 | — | 778,361 | — | — | — | 79,208 | 1,252,569 | |||||||||||||||||||||||||||||||||||||||||||||
| John Semel | 2021 | 500,000 | — | 222,663 | — | 187,500 | — | 72,688 | 982,851 | ||||||||||||||||||||||||||||||||||||||||||||
| EVP, Chief Strategy Officer | 2020 | 503,846 | — | 218,000 | — | 316,301 | — | 75,853 | 1,114,000 | ||||||||||||||||||||||||||||||||||||||||||||
| Diane Thompson | 2021 | 526,683 | — | 221,419 | — | — | — | 72,881 | 820,983 | ||||||||||||||||||||||||||||||||||||||||||||
| Former General Counsel | 2020 | 438,542 | — | 182,074 | — | 178,099 | — | 125,287 | 924,002 | ||||||||||||||||||||||||||||||||||||||||||||
| Office of the CEO | 2019 | 422,300 | — | 370,347 | — | — | — | 110,712 | 903,359 | ||||||||||||||||||||||||||||||||||||||||||||
| Marc Brown | 2021 | 160,000 | — | 173,665 | — | — | — | 431,796 | 765,461 | ||||||||||||||||||||||||||||||||||||||||||||
| Former Chief HR Officer | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Matthew Hillman | 2021 | 350,000 | — | 128,663 | — | — | — | 69,578 | 548,241 | ||||||||||||||||||||||||||||||||||||||||||||
| SVP, University Partnerships | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Matt Mitchell | 2021 | 294,200 | — | 162,282 | — | — | — | 28,603 | 485,085 | ||||||||||||||||||||||||||||||||||||||||||||
| General Counsel and Secretary | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(1)Represents the grant date fair market value of any RSUs, PSUs and MSUs awarded to the NEOs in each fiscal year, computed in accordance with FASB ASC Topic 718. For the PSU and MSU awards, the grant date fair value of such awards at the time of grant was based upon the probable outcome at the time of grant. The RSUs, PSUs and MSUs are further described under the “Grants of Plan-Based Awards” and “Outstanding Equity Awards at Fiscal Year End” tables below. Assumptions used to calculate these amounts are described in Note 17, “Stock-Based Compensation,” to our annual consolidated financial statements for the year ended December 31, 2021, which are included elsewhere in this Annual Report on Form 10-K.
(2)Represents the aggregate grant date fair value of stock option awards granted to the NEOs in each fiscal year, computed in each case in accordance with FASB ASC Topic 718.
(3)Represents the performance-based cash awards earned in each fiscal year under the Company's Short Term Incentive Plan.
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(4)There are no nonqualified deferred compensation earnings reflected in this column because no NEO received above-market or preferential earnings on such compensation.
(5)Represents (i) payments for health, life and disability insurance premiums, (ii) medical expense reimbursements received under the Senior Management Benefit Plan, (iii) 401(k) retirement savings plan (the “401(k) Plan”) matching contributions, (iv) reimbursement for housing expenses and (v) nonqualified deferred compensation plan contributions (only to contribute the matching contributions we would have made to the 401(k) Plan on the NEO’s behalf because the NEO’s contributions to the 401(k) Plan were required to be reduced pursuant to applicable plan contribution limitations). Payments for health insurance premiums reflect the full amount paid on behalf of the NEOs rather than the portion in excess of that paid for non-executives. For a breakdown of the amounts comprising the “All Other Compensation” column, see the All Other Compensation Detail table below.
(6)For Mr. Clark, our former CEO, the “All Other Compensation” column for 2019 includes certain relocation allowances.
(7)As previously discussed, Mr. Clark separated from the Company effective March 31, 2021.
| ALL OTHER COMPENSATION DETAIL | ||
| Name | Year | Qualified Retirement Plan Employer Match ($) | Employer Deferred Compensation Plan Contributions ($) | Health, Life and Disability Insurance Premiums and Medical Reimbursements ($) | Severance, Legal Reimbursement, Housing or Vacation Pay Out ($) | All Other Compensation Total ($) | ||||||||||||||||||||||||||||||||
| Randy Hendricks | 2021 | 635 | — | 1,307 | 15 | 1,957 | ||||||||||||||||||||||||||||||||
| George Pernsteiner | 2021 | — | — | — | — | — | ||||||||||||||||||||||||||||||||
| Christopher Spohn | 2021 | — | — | 44,456 | 15,242 | 59,698 | ||||||||||||||||||||||||||||||||
| 2020 | — | — | 28,800 | 22,824 | 51,624 | |||||||||||||||||||||||||||||||||
| Andrew Clark | 2021 | 4,182 | — | 65,932 | 3,112,508 | 3,182,622 | ||||||||||||||||||||||||||||||||
| 2020 | 8,550 | — | 66,497 | 16,409 | 91,456 | |||||||||||||||||||||||||||||||||
| 2019 | 8,400 | — | 59,564 | 997,005 | 1,064,969 | |||||||||||||||||||||||||||||||||
| Kevin Royal | 2021 | — | — | 64,488 | 200 | 64,688 | ||||||||||||||||||||||||||||||||
| 2020 | — | — | 66,497 | 2,530 | 69,027 | |||||||||||||||||||||||||||||||||
| 2019 | — | — | 59,564 | 19,644 | 79,208 | |||||||||||||||||||||||||||||||||
| John Semel | 2021 | 8,000 | — | 64,488 | 200 | 72,688 | ||||||||||||||||||||||||||||||||
| 2020 | 7,923 | — | 66,497 | 1,433 | 75,853 | |||||||||||||||||||||||||||||||||
| Diane Thompson | 2021 | 8,700 | — | 40,447 | 23,734 | 72,881 | ||||||||||||||||||||||||||||||||
| 2020 | 8,550 | — | 41,605 | 75,132 | 125,287 | |||||||||||||||||||||||||||||||||
| 2019 | 8,769 | — | 37,471 | 64,472 | 110,712 | |||||||||||||||||||||||||||||||||
| Marc Brown | 2021 | 4,433 | — | 64,712 | 362,651 | 431,796 | ||||||||||||||||||||||||||||||||
| Matthew Hillman | 2021 | 4,890 | — | 64,488 | 200 | 69,578 | ||||||||||||||||||||||||||||||||
| Matt Mitchell | 2021 | 8,700 | — | 19,703 | 200 | 28,603 | ||||||||||||||||||||||||||||||||
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| GRANTS OF PLAN-BASED AWARDS | ||
The following table provides information regarding grants of plan-based awards to each of our NEOs during 2021.
| Name | Grant Date | Approval Date | Estimated Future Payouts Under Non-Equity Incentive Plan Awards (1) | Estimated Future Payouts Under Equity Incentive Plan Awards (2) | All Other Stock Awards: Number of Shares of Stock or Units (#) | Grant Date Fair Value of Stock Awards (3)($) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Threshold ($) | Target ($) | Maximum ($) | Threshold (#) | Target (#) | Maximum (#) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hendricks | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 12/6/21 | 12/1/21 | — | — | — | — | — | — | 574,138 | 838,241 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 12/6/21 | 12/1/21 | — | — | — | 690,000 | 1,150,000 | 2,300,000 | — | 1,518,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pernsteiner | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 3/29/21 | 3/15/21 | — | — | — | — | — | — | 16,410 | 69,743 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/7/21 | 4/7/21 | — | — | — | — | — | — | 20,450 | 70,962 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Spohn | — | — | 301,875 | 603,750 | 1,207,500 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/7/21 | 4/7/21 | — | — | — | — | — | — | 10,220 | 35,463 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | — | — | — | 111,490 | 262,002 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | 115,500 | 192,500 | 385,000 | — | 481,250 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Clark | — | — | 388,310 | 776,620 | 1,553,240 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Royal | — | — | 108,625 | 217,250 | 434,500 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | — | — | — | 61,000 | 143,350 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | 63,198 | 105,330 | 210,660 | — | 263,325 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Semel | — | — | 187,500 | 375,000 | 750,000 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | — | — | — | 34,750 | 81,663 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | 36,000 | 60,000 | 120,000 | — | 150,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Thompson | — | — | 105,575 | 211,150 | 422,300 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 4/7/21 | 4/7/21 | — | — | — | — | — | — | 10,220 | 35,463 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | — | — | — | 29,020 | 68,197 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | 30,066 | 50,110 | 100,220 | — | 125,275 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Brown | — | — | 85,800 | 171,600 | 343,200 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | — | — | — | 27,100 | 63,685 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | 28,080 | 46,800 | 93,600 | — | 117,000 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Hillman | — | — | 113,750 | 227,500 | 455,000 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | — | — | — | 20,080 | 47,188 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | 20,802 | 34,670 | 69,340 | — | 86,675 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Mitchell | — | — | 57,680 | 115,360 | 230,720 | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | — | — | — | 12,920 | 30,362 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8/31/21 | 8/25/21 | — | — | — | — | — | — | 12,330 | 31,811 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 5/31/21 | 5/27/31 | — | — | — | 13,380 | 22,300 | 44,600 | — | 55,750 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| 8/31/21 | 8/25/21 | — | — | — | 11,094 | 18,490 | 36,980 | — | 50,663 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
(1) The threshold, target and maximum amounts shown correspond to potential performance-based cash bonuses pursuant to the 2021 STI Plan based upon the achievement of certain performance goals. The threshold, target and maximum amounts shown above assume threshold, target and maximum achievement, respectively, for each of the weighted performance goals. For additional information regarding the STI Plan, including the performance-based cash bonuses, performance targets and methodology for determining bonus amounts, see “2021 Short Term Incentive Plan” below. Actual payouts to the NEOs under the 2021 STI Plan for achievement of the 2021 performance goals are reflected in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table above.
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(2) The target amount represents the PSU shares that the Compensation Committee awarded the NEOs. These PSUs also have minimum and maximum amounts that each NEO could receive for achieving certain performance targets.
(3) Represents the grant date fair value of the respective RSU and PSU awards. The RSUs are calculated using closing market price on the date of grant. The PSUs are calculated using the Monte Carlo value on the date of grant. As the PSUs are subject to a three-year cumulative EBITDA target, with the SECtotal payout subject to an rTSR modifier, the amount included for future awards represent the service inception date fair value multiplied by the target number of shares. The Monte Carlo fair value applied to the PSU awards granted on May 31, 2021, August 31, 2021 and December 6, 2021, were $2.50, $2.74 and $1.32, respectively. Assumptions used to calculate these amounts are further described in Note 17, “Stock-Based Compensation,” to our annual consolidated financial statements for the year ended December 31, 2021, which are included elsewhere in this Annual Report on Form 10-K.
| OUTSTANDING EQUITY AWARDS | ||
The following table shows the number of shares of our common stock subject to outstanding stock options, RSUs, PSUs and MSUs held by our NEOs as of December 31, 2021.
| Outstanding Equity Awards at Fiscal Year End | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Option Awards | Stock Unit Awards | |||||||||||||||||||||||||||||||||||||||||||||||||
| Name | Securities underlying unexercised options (#) exercisable | Securities underlying unexercised options (#) unexercisable | Option exercise price ($) | Option expiration date | Number of stock units that have not vested (#) | Market value of all stock units that have not vested ($)(1) | Equity Incentive Plan Awards: Number of Unearned Shares that have not vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares that have not vested (1) | ||||||||||||||||||||||||||||||||||||||||||
| Mr. Hendricks | — | — | — | — | 574,138 | 729,155 | (2) | — | — | |||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 1,150,000 | 1,460,500 | (3) | ||||||||||||||||||||||||||||||||||||||||||
| Mr Pernsteiner | — | — | — | — | 16,410 | 20,841 | (4) | — | — | |||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 20,450 | 25,972 | (5) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Mr. Spohn | — | — | — | — | 82,417 | 104,670 | (6) | — | — | |||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 85,553 | 108,652 | (7) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 111,490 | 141,592 | (8) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 192,500 | 244,475 | (9) | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 192,500 | 244,475 | (10) | ||||||||||||||||||||||||||||||||||||||||||
| Mr. Clark | 122,750 | — | 24.75 | 3/30/22 | (11)(12) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| 125,900 | — | 10.23 | 3/29/23 | (11)(13) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 114,230 | — | 14.50 | 3/29/24 | (11)(14) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 105,952 | — | 9.43 | 3/29/25 | (11)(15) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 100,270 | — | 10.59 | 3/29/26 | (11)(16) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 104,070 | — | 10.44 | 3/29/27 | (11)(17) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 150,870 | 191,605 | (20) | ||||||||||||||||||||||||||||||||||||||||||
| Mr. Royal | — | — | — | — | 10,020 | 12,725 | (21) | — | — | |||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 31,854 | 40,455 | (19) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 46,813 | 59,453 | (7) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 61,000 | 77,470 | (8) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 47,220 | 59,969 | (20) | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 105,330 | 133,769 | (9) | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 105,330 | 133,769 | (10) | ||||||||||||||||||||||||||||||||||||||||||
| Mr. Semel | — | — | — | — | 18,144 | 23,043 | (19) | — | — | |||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 26,666 | 33,866 | (7) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 34,750 | 44,133 | (8) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 26,900 | 34,163 | (20) | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 60,000 | 76,200 | (9) | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 60,000 | 76,200 | (10) | ||||||||||||||||||||||||||||||||||||||||||
| Ms. Thompson | 38,870 | — | 24.75 | 44,650 | (11)(12) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| 31,470 | — | 10.23 | 45,014 | (11)(13) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 26,110 | — | 14.50 | 45,380 | (11)(14) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 25,198 | — | 9.43 | 45,745 | (11)(15) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 23,830 | — | 10.59 | 46,110 | (11)(16) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| 24,730 | — | 10.44 | 46,475 | (11)(17) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 6,772 | 8,600 | (18) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 15,154 | 19,246 | (19) | — | — | ||||||||||||||||||||||||||||||||||||||||||
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| — | — | — | — | 22,273 | 28,287 | (7) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 29,020 | 36,855 | (8) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Mr. Hillman | — | — | — | — | 3,853 | 4,893 | (22) | — | — | |||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 20,080 | 25,502 | (8) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 8,670 | 11,011 | (23) | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 34,670 | 44,031 | (10) | ||||||||||||||||||||||||||||||||||||||||||
| Mr. Mitchell | 3,719 | — | 9.43 | 3/29/25 | (11)(15) | — | — | — | — | |||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 2,287 | 2,904 | (18) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 6,744 | 8,565 | (19) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 9,913 | 12,590 | (7) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 12,920 | 16,408 | (8) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | 12,330 | 15,659 | (24) | — | — | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 10,000 | 12,700 | (20) | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 22,300 | 28,321 | (9) | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 22,300 | 28,321 | (10) | ||||||||||||||||||||||||||||||||||||||||||
| — | — | — | — | — | — | 18,490 | 23,482 | (25) | ||||||||||||||||||||||||||||||||||||||||||
(1) The calculated value is based on the closing price of our common stock of $1.27 as reported by the Nasdaq on December 31, 2021.
(2) These RSUs were granted under the 2021 CEO Inducement Equity Incentive Plan on December 6, 2021 to Mr. Hendricks, and 33% of the RSUs will vest and be delivered to Mr. Hendricks on each anniversary of the grant date, subject to Mr. Hendrick’s continuing service with us through each such date.
(3) These PSUs were granted under the 2021 CEO Inducement Equity Incentive Plan on December 6, 2021 to Mr. Hendricks, and will be eligible to vest and be delivered to Mr. Hendricks on the third anniversary of the grant date, subject to certain performance and market criteria, and subject to Mr. Hendrick’s continuing service with us through each such date.
(4) These RSUs were granted under the 2009 Plan on April 7, 2021 to Mr. Pernsteiner, and 100% of the RSUs will vest and be delivered to Mr. Pernsteiner on the one year anniversary of the grant date.
(5) These RSUs were granted under the 2009 Plan on March 31, 2021 to Mr. Pernsteiner, and 100% of the RSUs will vest and be delivered to Mr. Pernsteiner on the one year anniversary of the grant date.
(6) These RSUs were granted under the 2009 Plan on May 7, 2020 to Mr. Spohn, and 25% of the RSUs will vest and be delivered to Mr. Spohn on each anniversary of the grant date, subject to Mr. Spohn’s continuing service with us through each such date.
(7) These RSUs were granted under the 2009 Plan on May 12, 2020, and 33% of the RSUs will vest and be delivered to the NEO on each anniversary of the grant date, subject to the NEO’s continuing service with us through each such date.
(8) These RSUs were granted under the 2009 Plan on May 31, 2021, and 33% of the RSUs will vest and be delivered to the NEO on each anniversary of the grant date, subject to the NEO’s continuing service with us through each such date.
(9) These PSUs were granted under the 2009 Plan on May 12, 2020, and vesting is predicated on multiple factors, including a free cash flow metric.
(10) These PSUs were granted under the 2009 Plan on May 31, 2021, and vesting is predicated on multiple factors, including a EBITDA target and a relative TSR metric.
(11) These stock options vest as follows, subject to the NEO’s continued service with us: (i) 25% of the option vests on the first anniversary of the vesting commencement date, (ii) an additional 2% of the option vests on each monthly anniversary of the vesting commencement date for the 33 months following the first anniversary of the vesting commencement date and (iii) an additional 3% of the option vests on each of the 46th, 47th and 48th monthly anniversaries of the vesting commencement date.
(12) These options were granted under the 2009 Plan on March 30, 2012, with an exercise price equal to the regular session closing price of our common stock on the date of grant. The vesting commencement date was March 30, 2012.
(13) These options were granted under the 2009 Plan on March 29, 2013, with an exercise price equal to the regular session closing price of our common stock on the date of grant. The vesting commencement date was March 29, 2013.
(14) These options were granted under the 2009 Plan on March 29, 2014, with an exercise price equal to the regular session closing price of our common stock on the date of grant. The vesting commencement date was March 29, 2014.
(15) These options were granted under the 2009 Plan on March 29, 2015, with an exercise price equal to the regular session closing price of our common stock on the date of grant. The vesting commencement date was March 29, 2015.
(16) These options were granted under the 2009 Plan on March 29, 2016, with an exercise price equal to the regular session closing price of our common stock on the date of grant. The vesting commencement date was March 29, 2016.
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(17) These options were granted under the 2009 Plan on March 29, 2017, with an exercise price equal to the regular session closing price of our common stock on the date of grant. The vesting commencement date was March 29, 2017.
(18) These RSUs were granted under the 2009 Plan on March 29, 2018, and 25% of the RSUs will vest and be delivered to the NEO on each anniversary of the grant date, subject to the NEO’s continuing service with us through each such date.
(19) These RSUs were granted under the 2009 Plan on March 29, 2019, and 25% of the RSUs will vest and be delivered to the NEO on each anniversary of the grant date, subject to the NEO’s continuing service with us through each such date.
(20) These PSUs were granted under the 2009 Plan on March 29, 2019, and vesting is predicated on multiple factors, including: (i) the obtaining of a new client within 120 daysthree years, (ii) a share price decline by 40% or more would result in no MSUs vesting, and (iii) more or less MSUs at more or less than grant price can vest based on the share price at the date of vesting.
(21) These RSUs were granted under the 2009 Plan on May 31, 2018 to Mr. Royal, and 25% of the RSUs will vest and be delivered to Mr. Royal on each anniversary of the grant date, subject to Mr. Royal's continuing service with us through each such date.
(22) These RSUs were granted under the 2009 Plan on November 30, 2020, and 33% of the RSUs will vest and be delivered to the NEO on each anniversary of the grant date, subject to the NEO’s continuing service with us through each such date.
(23) These PSUs were granted under the 2009 Plan on November 30, 2020, and vesting is predicated on multiple factors, including a free cash flow metric.
(24) These RSUs were granted under the 2009 Plan on August 31, 2021, and 33% of the RSUs will vest and be delivered to the NEO on each anniversary of the grant date, subject to the NEO’s continuing service with us through each such date.
(25) These PSUs were granted under the 2009 Plan on August 31, 2021, and vesting is predicated on multiple factors, including a EBITDA target and a relative TSR metric.
| OPTION EXERCISES AND STOCK VESTED | ||
The following table provides information for the NEOs regarding (i) any stock options exercised during 2021, including the total number of shares acquired upon exercise and the aggregate value realized before payment of any applicable withholding tax and broker commissions, and (ii) any RSUs vested during 2021.
| Option Awards | Stock Awards | |||||||||||||||||||||||||
| Name | Number of shares acquired on exercise (#) | Value realized on exercise ($)(1) | Number of shares acquired on vesting (#) | Value realized on vesting ($)(2) | ||||||||||||||||||||||
| Randy Hendricks | — | — | — | — | ||||||||||||||||||||||
| George Pernsteiner | — | — | 21,252 | 86,376 | ||||||||||||||||||||||
| Christopher Spohn | — | — | 80,470 | 225,344 | ||||||||||||||||||||||
| Andrew Clark | — | — | 326,389 | 1,357,297 | ||||||||||||||||||||||
| Kevin Royal | — | — | 49,355 | 190,721 | ||||||||||||||||||||||
| John Semel | — | — | 22,407 | 95,230 | ||||||||||||||||||||||
| Diane Thompson | — | — | 38,584 | 143,440 | ||||||||||||||||||||||
| Marc Brown | — | — | 23,324 | 99,127 | ||||||||||||||||||||||
| Matthew Hillman | — | — | 1,927 | 2,640 | ||||||||||||||||||||||
| Matt Mitchell | — | — | 12,072 | 51,306 | ||||||||||||||||||||||
(1) The value realized for a stock option exercise is determined by multiplying (i) the number of shares acquired upon exercise by (ii) the difference between the market price of the shares at exercise and the exercise price of the stock option.
(2) The value realized upon vesting of RSUs is determined by multiplying (i) the number of shares vested by (ii) the market price of the shares at vesting.
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| EMPLOYMENT AGREEMENTS | ||
The following table and accompanying footnotes summarize the material terms contained in the employment agreement we entered into with Mr. Clark in March 2015 and the employment agreement we entered into with Mr. Spohn in April 2020. Once the employment agreement for Mr. Spohn expires in April 2022, we will not have employment agreements. We do not have any employment agreements with any of our other NEO's, who are instead a participant in, and may receive severance benefits pursuant to, the Amended and Restated Executive Severance Plan and any Severance Agreement executed thereunder, as described under “Potential Payments upon Termination and Change of Control” below. Pursuant to the terms of their employment, each of our NEOs is entitled to participate in health, insurance, retirement and other benefits that are provided to our senior executives.
| Name | Position | Effective Date of Agreement | Initial Term of Agreement (1) | Base Salary ($)(2) | Annual Target Bonus, as Percentage of Salary (3) | Potential Payments upon Termination or Change of Control | ||||||||||||||||||||||||||||||||||||||
| Christopher Spohn | Executive Vice President of Operations | April 30, 2020 | 2 years | 525,000 | 115 | % | (4) | |||||||||||||||||||||||||||||||||||||
| Andrew Clark | Former President and Chief Executive Officer | March 9, 2015 | 3 years | 725,000 | 100 | % | (4) | |||||||||||||||||||||||||||||||||||||
(1) The term of the employment agreement for Mr. Spohn will not be extended upon the end of the initial term. As previously discussed, Mr. Clark separated from the Company effective March 31, 2021.
(2) This column shows the initial annual base salary set forth in the related employment agreement, which salary may be periodically reviewed and increased by the Board in its discretion, or decreased with such executive’s written consent.
(3) The employment agreement for Mr. Clark provided that he would have been eligible for an annual discretionary incentive bonus based on the attainment of certain performance criteria. The employment agreement provided for a target bonus amount as a percentage of annual salary, which target percentage is reflected in this column. The actual bonus paid may have been more or less than the target amount, as determined by the Board or the Compensation Committee. Upon his separation from the Company, Mr. Clark was eligible to receive his annual cash bonus for the prior fiscal year to the extent such bonus had not yet been paid. In addition, upon his separation from the Company, Mr. Clark was eligible to be paid a pro-rata portion of his annual cash bonus for the fiscal year of termination based on the percentage of time he was employed in fiscal year 2021.
(4) For information regarding severance and other payments that Messrs. Spohn and Clark would have received, under their employment agreement in the event of a termination of employment and/or a change of control, see “Potential Payments upon Termination and Change of Control” below.
| POTENTIAL PAYMENTS UPON TERMINATION AND CHANGE OF CONTROL | ||
The table below provides estimates for compensation payable to the NEOs in hypothetical termination of employment and change of control scenarios under our compensatory arrangements with such executives, other than nondiscriminatory arrangements generally available to salaried employees. The table below does not include Mr. Pernsteiner or Ms. Thompson, as these individuals are no longer an employee by the company and a triggering event did not occur.
The amounts shown in the table below are estimates and assume the hypothetical termination, resignation, death, disability or change of control, as applicable, occurred on December 31, 2021, applying the provisions of the agreements that are in effect as of the date of this report. If any such executive resigns without “Good Reason” or is terminated by us for “Cause” (each as defined below), such executive will be entitled only to any accrued and unpaid salary and vested benefits and no severance benefits. Due to the number of factors and assumptions that can affect the nature and amount of any benefits provided upon the events discussed below, any amounts paid or distributed upon an actual event may differ.
For purposes of the hypothetical payment estimates shown in the below table, some of the important assumptions that were made are as follows: (i) the NEO’s base salary as in effect as of December 31, 2021; (ii) severance benefits as provided under the NEO’s employment agreement or the Amended and Restated Executive Severance Plan and related Severance Agreement; (iii) value for payment of health insurance continuation, including dental, at an assumed value of $3,500 per month; (iv) no discretionary acceleration of vesting of RSUs held by the NEO in the event of a “Change of Control” (as defined below) and (v) a price per share of our common stock of $1.27, based on the closing price of our common stock as reported by Nasdaq on December 31, 2021.
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| Name | Change of Control (1) | Termination of Employee Without Cause, or Resignation by Employee for Good Reason (2)(3) | Termination of Employee without Cause, or Resignation by Employee for Good Reason, within 24 Months of Change of Control (1)(2)(3) | Termination of Employee for Death | Termination of Employee for Disability (4) | ||||||||||||||||||||||||||||||||||||||||||
| Randy Hendricks | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance Payment | $ | — | $ | 550,000 | (6) | $ | 550,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan Compensation | $ | — | $ | 632,500 | (6) | $ | 632,500 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Continuation of Health Insurance Benefits | $ | — | $ | 84,000 | (6) | $ | 84,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Acceleration of Vesting of Stock Awards | $ | — | $ | 243,053 | (6) | $ | 2,189,655 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 1,509,553 | $ | 3,456,155 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
| Christopher Spohn | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance Payment | $ | — | $ | 1,693,125 | (7) | $ | 1,693,125 | (9) | $ | 262,500 | (10) | $ | 262,500 | (10) | |||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan Compensation | $ | — | $ | 603,750 | (7) | $ | 603,750 | (9) | $ | — | (10) | $ | — | (10) | |||||||||||||||||||||||||||||||||
| Continuation of Health Insurance Benefits | $ | — | $ | 63,000 | (7) | $ | 63,000 | (9) | $ | 21,000 | (10) | $ | 21,000 | (10) | |||||||||||||||||||||||||||||||||
| Acceleration of Vesting of Stock Awards | $ | — | (5) | $ | 136,416 | (7) | $ | 843,864 | (9) | $ | 136,416 | (10) | $ | 136,416 | (10) | ||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 2,496,291 | $ | 3,203,739 | $ | 419,916 | $ | 419,916 | |||||||||||||||||||||||||||||||||||||
| Andrew Clark | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance Payment | $ | — | $ | 3,106,480 | (11) | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||
| Continuation of Health Insurance Benefits | $ | — | $ | 102,834 | (11) | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||
| Acceleration of Vesting of Stock Options | $ | — | $ | 471,744 | (11) | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 3,681,058 | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
| Kevin Royal | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance Payment | $ | — | $ | 395,000 | (6) | $ | 395,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan Compensation | $ | — | $ | 217,250 | (6) | $ | 217,250 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Continuation of Health Insurance Benefits | $ | — | $ | 21,000 | (6) | $ | 21,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Acceleration of Vesting of Stock Awards | $ | — | (5) | $ | 88,504 | (6) | $ | 517,610 | (8) | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 721,754 | $ | 1,150,860 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
| John Semel | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance Payment | $ | — | $ | 500,000 | (6) | $ | 500,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan Compensation | $ | — | $ | 375,000 | (6) | $ | 375,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Continuation of Health Insurance Benefits | $ | — | $ | 21,000 | (6) | $ | 21,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Acceleration of Vesting of Stock Awards | $ | — | (5) | $ | 43,166 | (6) | $ | 287,604 | (8) | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 939,166 | $ | 1,183,604 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
| Matthew Hillman | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance Payment | $ | — | $ | 350,000 | (6) | $ | 350,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan Compensation | $ | — | $ | 227,500 | (6) | $ | 227,500 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Continuation of Health Insurance Benefits | $ | — | $ | 21,000 | (6) | $ | 21,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Acceleration of Vesting of Stock Awards | $ | — | (5) | $ | 10,949 | (6) | $ | 85,437 | (8) | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 609,449 | $ | 683,937 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
| Marc Brown | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance Payment | $ | — | $ | 325,000 | (12) | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||
| Continuation of Health Insurance Benefits | $ | — | $ | 51,243 | (12) | $ | — | $ | — | $ | — | ||||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 376,243 | $ | — | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
| Matt Mitchell | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash Severance Payment | $ | — | $ | 144,000 | (6) | $ | 144,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Non-Equity Incentive Plan Compensation | $ | — | $ | 57,600 | (6) | $ | 57,600 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Continuation of Health Insurance Benefits | $ | — | $ | 21,000 | (6) | $ | 21,000 | (8) | $ | — | $ | — | |||||||||||||||||||||||||||||||||||
| Acceleration of Vesting of Stock Awards | $ | — | (5) | $ | 24,172 | (6) | $ | 148,951 | (8) | $ | — | $ | — | ||||||||||||||||||||||||||||||||||
| Total | $ | — | $ | 246,772 | $ | 371,551 | $ | — | $ | — | |||||||||||||||||||||||||||||||||||||
(1) “Change of Control” generally means any of the following events: (i) the acquisition by an individual, entity or group (other than us or any of our employee benefit plans) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of securities representing more than 50% of the voting securities of the company entitled to vote generally in the election of directors,
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determined on a fully-diluted basis (unless a majority of the holders of company voting securities immediately prior to such acquisition retain directly or through ownership of one or more holding companies, immediately following such acquisition, a majority of the voting securities entitled to vote generally in the election of directors of the successor entity); (ii) the sale, transfer or other disposition of 50% or more of our assets to one or more unaffiliated individual(s), entities or groups; or (iii) when a majority of the members of the Board are not “company directors,” which term means: (a) individuals who, as of a specified date, were directors of the company; (b) individuals elected as directors of the company after such date for whose election proxies were solicited by the Board, or (c) individuals appointed to the Board after such date to fill vacancies caused by death or resignation (but not by removal) or to fill newly created directorships. A transaction does not constitute a Change of Control if its sole purpose is to change the state of the company’s incorporation or to create a holding company that will be owned in substantially the same proportions by the persons who held the company’s securities immediately before such transaction.
(2) For Mr. Spohn, “Cause” generally means the occurrence of one or more of the following: (i) conviction of, or a plea of guilty or nolo contendere to, a felony or other crime (except for misdemeanors which are not materially injurious to our business or reputation or the business or reputation of our affiliates); (ii) willful refusal to perform in any material respect such executive’s duties and responsibilities for us or our affiliates or failure to comply in any material respect with the terms of such executive’s agreements with us and our policies and procedures if such refusal or failure causes or reasonably expects to cause injury to us or our affiliates; (iii) fraud or other illegal conduct in such executive’s performance of duties for us or our affiliates; or (iv) any conduct by such executive which is materially injurious to us, our affiliates, our business reputation or the business reputation of our affiliates. For Mr. Royal, “Cause” has the same meaning except that subsection (ii) does not require that the willful refusal to perform cause or be reasonably expected to cause injury to us or our affiliates in order to find “Cause.”
(3) For Mr. Spohn, “Good Reason” generally means any of the following events: (a) a material diminution in his annual base salary; (b) a material diminution in his authorities, duties, responsibilities or reporting structure; or (c) our material breach of his employment agreement. For Mr. Royal, “Good Reason” generally means any of the following events: (a) a material diminution in their annual base salary; (b) a material diminution in his authorities, duties, responsibilities or reporting structure; (c) notification of a material change in his geographic work location; or (d) our material breach of his Severance Agreement.
(4) For Mr. Spohn, “Disability” generally means he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
(5) The Compensation Committee has discretion as to whether to approve the acceleration of the RSUs and PSUs that would accelerate based on a Change of Control.
(6) If the NEO’s employment is terminated by us without Cause or by employee for Good Reason (and other than for death or Disability), then the NEO will receive, pursuant to the Amended and Restated Executive Severance Plan and the Severance Agreement executed by the NEO thereunder, (i) cash payments equal in the aggregate to one times his annual base salary, payable in equal bi-weekly installments over the 12-month period following termination date; (ii) medical, dental and life insurance premiums for up to 12 months following termination, provided that such benefit will terminate immediately if he is offered comparable coverage in connection with new employment, paid by the company at the same cost as if the NEO continued as an active employee of the company; and (iii) a lump sum cash payment equal to the pro-rata portion of his annual cash bonus for the fiscal year of termination based on the percentage of time he was employed in such fiscal year, payable at the same time the company pays annual cash bonuses to other members of senior management.
(7) If Mr. Spohn’s employment is terminated by us without Cause or by Mr. Spohn for Good Reason (and other than for death or Disability), then Mr. Spohn will receive, pursuant to his employment agreement, (i) continued payment of base salary for a period of 18 months; (ii) if his termination occurs following the end of our fiscal year ended Decemberbut before the date annual bonuses are paid for that year, payment of his annual bonus for the prior fiscal year based on actual achievement of the relevant performance objectives; and (iii) reimbursement by the Company for up to 18 months of that portion of the premiums the Company previously paid for health insurance coverage for him and his eligible dependents of his COBRA premiums to continue such health insurance coverage, or a taxable lump sum payment for the equivalent period in the event payment of such subsidy for COBRA premiums would violate applicable law. Mr. Spohn’s receipt of such severance benefits is conditioned upon him providing us with a release of claims against us, our affiliates and related parties, and his compliance with certain non-disparagement, non-solicitation and confidentiality requirements set forth in his employment agreement.
(8) If the NEO’s employment is terminated by us without Cause or by the NEO for Good Reason within 24 months after a Change of Control (and other than for death or Disability), then pursuant to the Amended and Restated Executive Severance Plan and the Severance Agreement executed by the NEO thereunder, in addition to the severance benefits described above, the NEO will receive full vesting acceleration of all outstanding time-based equity awards as of their termination date.
(9) If Mr. Spohn’s employment is terminated by us without Cause or by Mr. Spohn for Good Reason within 24 months after a Change of Control (and other than for death or Disability), then pursuant to his employment agreement Mr. Spohn will receive the severance benefits described above, except that he will receive full vesting acceleration of all outstanding time-based equity awards as of his termination date.
(10) If Mr. Spohn’s employment is terminated due to his death or Disability, then pursuant to his employment agreement (i) his outstanding time-based equity awards will vest as if his termination date had occurred one year later; (ii) he or his dependents, as applicable, will be
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entitled to receive his Accrued Pay (as defined in his employment agreement); (iii) he or his estate, as applicable, will receive six monthly installments of his base salary; and (iv) he or his dependents, as applicable, will receive company-paid medical benefits for a period of six months following the date of his termination. No amount is included for Mr. Spohn’s PSUs because they remain subject to performance requirements even after the triggering event occurs.
(11) Mr. Clark’s employment was terminated by us without Cause effective March 31, 2017.
(12) Mr. Brown’s employment was terminated by us without Cause effective June 25, 2021, and he provided us with a release of claims against the company. Mr. Brown therefore received, pursuant to the Amended and Restated Executive Severance Plan and the Severance Agreement, (i) cash payments equal in the aggregate to one year of his annual base salary, payable in equal bi-weekly installments over the 12-month period following his termination date; and (ii) continuation coverage under a company-sponsored group medical plan for up to 12 months following termination. There was no non-equity incentive compensation paid out for 2021.
| NONQUALIFIED DEFERRED COMPENSATION | ||
The following table shows certain information for 2021 for the NEOs under the Zovio Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”). The Deferred Compensation Plan was eliminated effective December 31, 2021, and any related distributions will occur for participants in January 2023.
| Non-Qualified Deferred Compensation (1) | ||||||||||||||||||||||||||||||||
| Name | Executive Contributions in Last FY ($) | Registrant Contributions in Last FY ($) | Aggregate Earnings in Last FY ($) | Aggregate Withdrawals/Distributions ($) | Aggregate Balance at Last FYE ($) | |||||||||||||||||||||||||||
| Diane Thompson | 32,947 | — | 90,872 | — | 691,227 | |||||||||||||||||||||||||||
| Marc Brown | 14,700 | — | 44,591 | 430,670 | — | |||||||||||||||||||||||||||
(1) There are no non-qualified deferred compensation earnings reflected in the Summary Compensation Table above because no NEO received above-market or preferential earnings on such compensation.
| CEO PAY RATIO | ||
The Compensation Committee monitors the relationship between the pay our executive officers receive and the pay that all other employees receive. The Compensation Committee believes executive pay must be equitable to motivate our employees and to create stockholder value. The Compensation Committee reviewed a comparison of CEO pay, to the pay of all other employees as of December 31, 2021.
Our CEO to median employee pay ratio is calculated in compliance with Item 402(u) of Regulation S-K, as promulgated under the Dodd-Frank Wall Street Reform and Consumer Protection Act. Using this methodology, our CEO's compensation in 2021 was approximately 40 times the pay of our median employee.
As allowed by Item 402(u) of Regulation S-K, for fiscal year 2021, we used the fiscal year 2020 calculations and did not recalculate the median employee. As a result, our median employee for fiscal year 2021 did not change from fiscal year 2020. Outlined below is the process we applied for identifying the median employee for fiscal year 2020:
•We identified the median employee using our workforce population (excluding our former CEO) as of December 31, 2020, which included 1,522 full-time, temporary or seasonal employed on that date;
•We consistently applied the 2020 W-2 earnings as a compensation measure for the median employee;
•We did not make any assumptions, adjustments, or estimates with respect to total cash compensation;
•We annualized the compensation for any full-time employees that were not employed by us for all of 2021 or who were on leave of absence during 2021.
•We did not annualize pay for those employees who worked less than full-time;
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•We believe the use of total W-2 compensation for all employees is the most accurate and consistently applied compensation measure.
After identifying the median employee based on total W-2 compensation, we calculated annual total compensation for such employee for 2021 using the same methodology we use for our named executive officers as set forth in the 2021 Summary Compensation Table above. This calculation is illustrated in the table below:
| CEO | Median Employee | |||||||||||||||||||
| Total | $ | 2,850,929 | $ | 70,489 | ||||||||||||||||
| COMPENSATION DISCUSSION AND ANALYSIS | ||
This section explains how the Compensation Committee (“Compensation Committee”) of the Board of Directors oversees our executive compensation programs and discusses the compensation earned by Zovio’s named executive officers (“NEOs”), as presented in the tables under “Executive Compensation.”
Zovio is going through one of the most significant transformations in our company history. This Compensation Discussion & Analysis contains a retrospective review of our compensation practices up through December 31, 2021 under our previous business model and prospectively comments on highlights of our compensation plans for 2022 as we move forward.In April 2019, we changed our name to Zovio Inc as part of our strategy to transform from providing postsecondary education through one institution to being an education technology services provider to many university partners. In 2019, we also acquired Fullstack Academy, Inc., an immersive coding boot camp, and TutorMe.com, Inc., a provider of instant online tutoring services.
In December 2020, the Company finalized a definitive Asset Purchase and Sale Agreement with the Arizona Board of Regents on behalf of the University of Arizona and the University of Arizona Global Campus (“Global Campus”), a newly formed Arizona nonprofit corporation. Global Campus now owns and operates Ashford University in affiliation with the University of Arizona, focusing on expanding access to education for non-traditional adult learners. Zovio will provide services to Global Campus under a long-term Strategic Services Agreement.
In March 2021, the Company commenced a search for a new Chief Executive Officer (“CEO”) to lead its continuing transition in becoming an education technology services company. From March 2021 to December 2021, the Company was led by the Office of the CEO, comprised of George Pernsteiner, Chairman of the Board and Christopher Spohn, Executive Vice President of Operations, with Diane Thompson, Executive Vice President in an advisory capacity. Under the guidance of the Board, the Office of the CEO helped advance the Company’s strategic plan and ensure continued operations and provision of quality services. In December 2021, the Company hired its current CEO, Randy Hendricks.
| COMPENSATION PROGRAM HIGHLIGHTS | ||
The Compensation Committee is dedicated to maintaining a structured and balanced compensation program designed to attract, motivate and retain highly skilled and talented executives to redefine the education services industry and drive Company performance. Our compensation programs’ continued evolution is a testament to the Compensation Committee’s determination to align with market best practices, shareholders’ interests, and our business model’s ongoing transformation.
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The chart below outlines key features of our executive compensation program:
| Compensation Program Highlights | |||||
| Incentive Plans | Our incentive plans are split between short-term incentives (“STI”) and long-term incentives (“LTI”) to balance short-term and long-term value creation. | ||||
| Equity Awards | We offer our executive officers a combination of performance stock units (“PSUs”) and time-based restricted stock units (“RSUs”) to align our executives’ interests with those of shareholders and reward the attainment of specific performance objectives. | ||||
| Vesting Periods | All performance-based equity vests on the third anniversary of the grant date. This vesting period was selected to align with the achievement of specific performance-based metrics. Our time-based equity awards vest annually in one-third increments over three years. | ||||
| Performance Measures | For executive officers, at least 60% of their LTI awards are performance-based and tied to performance metrics that support our strategic objectives that we believe will drive shareholder value over the long-term. | ||||
| Stock Ownership Guidelines | We require our CEO, Executive Vice Presidents and Senior Vice Presidents to maintain minimum stock ownership levels (6x, 3x and 2x of base salary, respectively). These requirements reinforce our belief in the importance of aligning our executives’ interests with the interests of our shareholders. | ||||
| Market-based Compensation | We regularly perform market-based compensation analysis to ensure that our executive officers’ total compensation packages remain competitive. | ||||
| Peer Group | We leverage a peer group that reflects the size, scope, and complexity of our transforming business to stay informed of market trends and understand how our compensation programs and practices compare to similar companies. | ||||
| Recoupment Policy | We have adopted a recoupment policy (clawback policy) that covers all performance-based compensation. | ||||
| COMPENSATION FRAMEWORK | ||
Compensation Philosophy and Design Principles
Our executive compensation programs support our philosophy of attracting, motivating, and retaining talented executives required to redefine a fragmented, highly competitive and continuously evolving education industry while delivering strong results and long-term shareholder value. We aim to provide externally competitive and internally equitable compensation programs that support our transformation and align with our pay-for-performance philosophy. Our compensation program is anchored in four design principles:
◦Attract, motivate, and retain executive talent required to redefine and create industry-leading products and services;
◦Directly align the financial interests of our executives with those of our shareholders by providing a significant portion of total compensation in the form of performance-based equity awards;
◦Establish a clear link between compensation outcomes and the achievement of our financial and operational objectives; and
◦Ensure fairness among our executives by recognizing each individual’s contributions, prior experience, and unique skills and abilities.
Key Program Design Components
Our balanced and structured compensation programs reflect the Compensation Committee’s belief that robust corporate governance is imperative for prudent compensation decision-making. Below are key elements of our compensation programs. We also identify certain pay practices that are not followed because we believe they do not serve our shareholders’ long-term interests.
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| WHAT WE DO | WHAT WE DON’T DO | ||||
ü Adhere to a disciplined pay-for-performance philosophy that informs our compensation design and target pay levels ü Maintain an independent Compensation Committee that has oversight of executive pay design ü Utilize an independent compensation consultant who is hired by and reports directly to the Compensation Committee ü Require minimum levels of stock ownership for our executives and directors ü Maintain a formal clawback policy applicable to all performance-based compensation that covers both financial restatements and certain detrimental conduct ü Deploy a multi-year vesting approach on equity ü Conduct an annual compensation risk assessment ü Utilize a rigorous target-setting process for our incentive plan metrics ü Impose limits on maximum incentive payouts | û No guaranteed salary increases û No credit for unvested performance shares or vested stock options when determining compliance with stock ownership guidelines û No hedging or pledging of Zovio stock û No repricing underwater stock options û No excessive perquisites for senior leaders; all perquisites require specific business rationale û No perquisite-related tax gross-ups for executive officers (except for company-wide benefits such as relocation) û No special retirement plans exclusively for executive officers û No excise tax gross-ups related to change of control | ||||
Our strong governance practices extend beyond our executive compensation programs to compensation plans for all employees. For our company-wide compensation and human capital management practices, we focus on building an inclusive culture and advancing fair pay. Annually, we assess the gap in average pay between employees of different genders in the same or similar roles after accounting for legitimate business factors that can explain differences, such as performance, time in position, and tenure. Finally, we perform an annual review of our compensation programs to assess whether the programs’ provisions and operations create undesired or unintentional material risk.
Overview of Compensation Elements
The material components of our executive compensation program are base salary, short-term cash incentives, and long-term equity incentives. We believe that a combination of pay elements competitive with the market, emphasizing incentive-driven pay coupled with goals appropriately aligned with the business strategy, provides strong incentives to our NEOs to take actions that result in positive outcomes for our Company and shareholders.
| Pay Element | Purpose | Performance Period | Performance Metric | ||||||||
| Base Salary | Market competitive fixed compensation reflecting executive’s scope of responsibility | Annual | — | ||||||||
| Short-Term Cash Incentive | Cash-based incentive compensation to reward achievement of Zovio’s short-term financial and operational objectives | One-Year Period | ◦Revenue ◦Net Income ◦EBITDA ◦Operational Goals | ||||||||
| Restricted Stock Units | Facilitates stock ownership, executive retention, and shareholder alignment | Three-Year Period with Annual Vesting | ◦Value of RSUs is tied to our stock price | ||||||||
| Performance Stock Units | Reward long-term profitability, long-term performance, and alignment with shareholders | Three-Year Performance Period | ◦EBITDA ◦rTSR (relative total shareholder return) | ||||||||
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CEO and NEO Pay Mix
In 2021, the majority of our executive compensation consisted of variable, at-risk compensation for the NEOs. As illustrated below, 58% of NEO compensation was at-risk pay, and 29% of the NEO’s overall compensation was delivered in equity with multi-year vesting. The CEO pay opportunity reflects the overall compensation for our new CEO. As described under the 2021 Long-Term Incentive (LTI) Plan, the Compensation Committee, the equity value for 2021 was granted using a higher stock price than the stock price on the date of grant to convert the award into shares. Equity value was converted using the 20-day trading average stock price prior to the date of grant which resulted in 16% reduction in the grant value.
2021 CEO Pay Opportunity (1)(2) | 2021 NEOs Pay Opportunity (1)(2)(3) | ||||
(1) Does not include Non-Qualified Deferred Compensation Earnings or All Other Compensation as reported in the 2021 Summary Compensation Table.
(2) Calculation reflects the accounting value of the equity awards. See details on 2021 equity awards under Long-Term Incentives.
(3) The average across the NEOs excluding the CEO.
Total Realized Compensation
When evaluating our executive compensation program, the Compensation Committee compares NEO target total compensation for a year with realizable pay, as illustrated by the Total Realized Compensation figures below.
| CEO | Other NEOs (Average) | ||||||||||||||||||||||
| Target | ___________________ | 100% | Target | ___________________ | 100% | ||||||||||||||||||
For 2021, our CEO realized total compensation equal to 9% of his 2021 target compensation level, while total realized compensation for our NEOs ranged from 47% to 58%. This is driven by the zero dollar bonus payout for 2021 performance and the realized value from LTI vestings in 2021. This outcome demonstrates our ongoing commitment to compensating our leadership based on the Company’s performance and placing a significant portion of executive compensation “at risk.”
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| 2021 Pay Opportunity Comparison to Total Realized Compensation | ||||||||||||||
| Named Executive Officer | 2021 Pay Opportunity | 2021 Total Realized Compensation | % of Pay Opportunity Realized | |||||||||||
| Randy Hendricks | $3,699,741 | $331,731 | ò | 9% | ||||||||||
| Christopher Spohn | $1,878,590 | $883,236 | ò | 47% | ||||||||||
| Kevin Royal | $1,003,126 | $585,721 | ò | 58% | ||||||||||
| John Semel | $1,097,663 | $595,230 | ò | 54% | ||||||||||
| Matthew Hillman | $706,163 | $352,640 | ò | 50% | ||||||||||
| Matt Mitchell | $612,283 | $345,506 | ò | 56% | ||||||||||
Pay Opportunity is calculated as follows:
| Base Salary | + | Target Bonus Opportunity | + | Grant date fair value of equity awards | ||||||||||
Total Realized Compensation is calculated as follows:
| Base Salary | + | Actual Bonus Earned | + | Value realized from shares vested during the year | ||||||||||
Our executive compensation philosophy and practices reflect our strong commitment to pay for performance—both short-term and long-term. We design our executive compensation program to attract and retain top management talent, reward financial and operational performance and recognize effective strategic leadership, key elements of driving shareholder value and sustainable growth. Zovio’s Chief Executive Officer’s compensation is anchored in our compensation philosophy and design principles, providing a well-balanced total rewards package that encourages decisions and behaviors that aligns executives’ interests with shareholders’ interests.
Inputs into Compensation Decisions
For 2021, the Compensation Committee received input from several sources and reference points to guide its design of the Company’s executive compensation programs and individual pay decisions. The Compensation Committee views this multi-perspective approach critical as it evaluates peer companies’ practices, investor viewpoints, changes in external market practices and input into each executive’s evolving role and performance.
The Compensation Committee regularly reviews input and data provided by its independent compensation consultant, our shareholders, external market practice surveys, and individual performance to make informed compensation decisions. Also, the Compensation Committee reviews tally sheets that provide a comprehensive look at total compensation for each NEO. The chart below further describes the process:
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| Independent Compensation Consultant / Market Data | Shareholder Say-on- Pay | Peer Group | Management | ||||||||
–Evaluates comparative market data against peer group and survey data –Advises the Compensation Committee on compensation plan design, targets and pay mix –Provides the Compensation Committee with research on trends and best practices | –Engage with shareholders to understand their viewpoints and focus –Results of the advisory Say-on-Pay vote | –Our peer group is reviewed annually and comprised of companies that are of similar revenue, market capitalization, and complexity where we may recruit talent –Provides a reference point to inform executive compensation decisions | –CEO provides input regarding the various roles and responsibilities of his direct reports and their overall performance –CEO provides recommendations to the Compensation Committee for the compensation of his direct reports and the rationale for those decisions | ||||||||
Independent Compensation Consultant
For 2021, the independent compensation consultants for the Committee were Pay Governance. The compensation consultant reports directly to the Compensation Committee and interacts with Zovio management when necessary and appropriate. For all regularly scheduled Compensation Committee meetings, a representative from Pay Governance attended at the invitation of the Compensation Committee.
In accordance with the Compensation Committee’s Charter, the Compensation Committee has the sole authority to retain and terminate any compensation consultant to be used to assist it in the evaluation of CEO, executive officer, and non-employee director compensation. Compensation consultants provide services to the Compensation Committee as an independent consultant and do not have any other consulting engagements or provide any other services to Zovio. The independence of the compensation consultants has been assessed according to factors stipulated by the SEC. The Compensation Committee concluded that no conflict of interest exists that would prevent them from independently advising the Compensation Committee.
While the Compensation Committee considers its compensation consultant’s recommendations in making decisions regarding executive compensation, the Compensation Committee is not obligated to follow its compensation consultant’s advice. It may instead determine to pay amounts and/or forms of compensation other than as recommended by its compensation consultant. The Compensation Committee intends to review its relationship with its compensation consultant periodically.
Peer Group
The Compensation Committee reviews our peer group and comparative market data annually to help determine our NEOs and other executive officers’ compensation. These references help determine base salary ranges, short-term incentive and long-term incentive awards, and the overall competitiveness of the total compensation package.
In collaboration with its independent compensation consultant, the Compensation Committee uses the framework below to select a broad group of potential peers. This framework yields multiple perspectives that enrich our understanding of competitive pay practices while also ensuring that our peer group is comprised of companies with whom we may compete for talent, whose revenues and market capitalization and business focus are similar to our own. We believe it is vital to maintain peer-group stability, limiting changes only when warranted and improving market comparability or better aligning with selection criteria.
| Industry | Strategic Focus | Talent | Size / Growth | Customers | ||||||||||
| Operates in a similar education or technology sector | Similar interests in education or technology | Compete for executive talent and experience | Similar revenue and market capitalization | Similar types of customers and/or product offerings | ||||||||||
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The peer group that was used to inform our 2021 pay decisions was:
| Benefitfocus, Inc. | K12 Inc. | Synacor, Inc. | ||||||
| Ebix, Inc. | Perdoceo Education Corporation | Syncronoss Technologies, Inc. | ||||||
| GreenSky, Inc. | QAD Inc. | Telenav, Inc. | ||||||
| Houghton Mifflin Harcourt Comp | RealNetworks, Inc. | 2U, Inc. | ||||||
| i3 Verticals, Inc. | Rimini Street, Inc. | Universal Technical Institute, Inc. | ||||||
In August 2021 and November 2021, Pay Governance reviewed market data from the peer group and data from national compensation surveys, providing a written report summarizing its findings to the Compensation Committee regarding executive and board compensation considerations for the Company’s transition to an education technology services company. This data was not used to make any pay changes to base salary, annual incentive targets or long-term incentive targets in 2021, but may be used going forward as we transition to an education technology services company.
In late 2021, the Compensation Committee worked with Pay Governance to modify the peer group to account for mergers and acquisitions or other significant changes in the companies and that better reflected the company’s business model, revenues, market capitalization, revenue growth and EBITDA margins. This peer group, which was used for 2022 compensation decisions, consists of the following companies:
| ALJ Regional Holdings, Inc. | Kaspien Holdings Inc. | RealNetworks, Inc. | ||||||
| Aspen Group, Inc. | Limelight Networks, Inc. | Rimini Street, Inc. | ||||||
| Benefitfocus, Inc. | Lincoln Educational Services Corp. | Stride, Inc. | ||||||
| Ebix, Inc. | Net Element, Inc. | Synchronoss Technologies, Inc. | ||||||
| GreenSky, Inc. | Perdoceo Education Corporation | 2U, Inc. | ||||||
| Houghton Mifflin Harcourt Comp | QAD Inc. | Universal Technical Institute, Inc. | ||||||
| i3 Verticals, Inc. | ||||||||
| PLAN DESIGN AND AWARD DECISIONS | ||
2021 Base Salaries
On an annual basis, the Compensation Committee, in consultation with its independent compensation consultant, reviews the market data and current base salaries for our executive officers, considering adjustments where deemed appropriate. Salary increases, if any, must receive advance approval from the Compensation Committee.
The table below presents the base salaries for 2020 and 2021:
| Named Executive Officer | Position | 2020 Base Salary | 2021 Base Salary | % Change 2021 vs. 2020 | ||||||||||
| Randy Hendricks | CEO | N/A | $550,000 | N/A | ||||||||||
| George Pernsteiner | Chairman of the Board and Office of the CEO | N/A | N/A | N/A | ||||||||||
| Christopher Spohn | EVP, Operations and Office of the CEO | $525,000 | $525,000 | —% | ||||||||||
| Andrew Clark | Former President and CEO | $777,000 | $777,000 | —% | ||||||||||
| Kevin Royal | EVP, Chief Financial Officer | $395,000 | $395,000 | —% | ||||||||||
| John Semel | EVP, Chief Strategy Officer | $500,000 | $500,000 | —% | ||||||||||
| Diane Thompson | Former EVP, General Counsel | $422,300 | $422,300 | —% | ||||||||||
| Marc Brown | Former Chief Human Resource Officer | $312,000 | $325,000 | 4% | ||||||||||
| Matthew Hillman | SVP, University Partnerships | $350,000 | $350,000 | —% | ||||||||||
| Matt Mitchell | SVP, Secretary and General Counsel | $288,000 | $300,000 | 4% | ||||||||||
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2021 Short-Term Incentive Plan
In May 2021, the Compensation Committee adopted the 2021 Short Term Incentive (“STI”) Plan in consultation with its independent compensation consultant. The 2021 STI Plan was designed to ensure alignment with our strategy and external market practices, and to maintain an appropriate balance of risk and reward to motivate, retain, and engage our executive officers. The evaluation included considerations of the following elements:
◦Align with creating near-term shareholder value and consistent use of metrics;
◦Balance financial targets with operational goals that are leading indicators of high performance;
◦Adopt practices used by top-performing companies in our peer group; and
◦Establish targets that demonstrate year-over-year improvement with over-performance resulting in additional payout opportunity.
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Under the 2021 STI Plan, the payment of annual performance-based cash bonuses to our NEOs and other executive officers was based on the achievement of key financial and operational objectives:
| For this purpose, Non-GAAP Net Income is defined as net income plus other income (expense), including interest, income tax benefit, depreciation, and amortization plus certain other expenses as more fully described below. | ||
| For the Revenue metric, a payout is earned between the target and maximum based on the attainment of performance goals. Similarly, reduced payouts are earned between the minimum threshold and target based on the achievement of performance goals. | ||
| For Non-GAAP Net Income metric, a payout is earned for every dollar in positive net income growth above threshold. | ||
| A threshold of positive EBITDA performance exists in order for the plan to fund any of the two metrics. In addition, Operational Goals in Student Net Promoter Score ("NPS"), Employee Engagement, New University Clients, and Client Satisfaction were included, requiring 2 of the 4 metrics to be met in order to fund the plan. | ||
2021 Short-Term Incentive (STI) Plan Results
| Annual STI Payout Percentage | ||||||||||||||
| Named Executive Officers | Below Threshold | Threshold | Target | Maximum | ||||||||||
| 0% | 50% | 100% | 200% | |||||||||||
Award payouts were calculated using the following formula:
| Base Salary for Year | x | Target Annual STI Percentage | x | Performance Attainment (0% - 200%) | = | Annual STI Payout | ||||||||||||||
For 2021, based on our performance, the Compensation Committee approved a payout of 0.0% of target for the NEOs and other executive officers as follows:
Performance Targets (in millions) | Weighting | Threshold (50%) | Target (100%) | Maximum (200%) | Performance Attainment | Total Payout1 | ||||||||||||||
| Revenue | 10% | $247.5 | $275.0 | $302.5 | $263.0 | 8.0% | ||||||||||||||
| Non-GAAP Net Income | 90% | $(6.7) | $(5.6) | $(4.4) | $(15.7) | 0.0% | ||||||||||||||
| EBITDA | Gateopener | n/a | $(9.7) | n/a | ||||||||||||||||
| Operational Metrics | Gateopener | n/a | Met 3 of 4 | n/a | ||||||||||||||||
| Total | 0.0% | |||||||||||||||||||
(1) Revenue performance exceeded threshold and would have resulted in a payout of 8%, however EBITDA was negative which negates any funding that may have been earned on either metric.
Interpolation is used to determine the payout percentages that fall between threshold and target and between target and maximum.
The Operational Metrics for 2021 included average Student NPS, Employee Engagement, the number of New University Clients, and Client Satisfaction. The student NPS of 58.5 exceeded the goal of 51.8 and slightly exceeded the maximum performance target of 58.0, a strong indicator that the Company positively impacted students’ perception of their academic
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experience. The company added two new university clients in 2021, meeting goal and deployed a new client satisfaction survey in December, meeting the goal of developing and deploying a new survey.
| Named Executive Officer | 2021 Base Pay | 2021 STI Target | Payout | Actual Payout | ||||||||||
| Randy Hendricks | $550,000 | 115% | —% | $— | ||||||||||
| George Pernsteiner | N/A | N/A | $— | |||||||||||
| Christopher Spohn | $525,000 | 115% | $— | |||||||||||
| Andrew Clark | $777,000 | 100% | $— | |||||||||||
| Kevin Royal | $395,000 | 55% | $— | |||||||||||
John Semel 1 | $500,000 | 75% | $187,500 | |||||||||||
| Diane Thompson | $422,300 | 50% | $— | |||||||||||
| Marc Brown | $325,000 | 55% | $— | |||||||||||
| Matthew Hillman | $350,000 | 65% | $— | |||||||||||
| Matt Mitchell | $300,000 | 50% | $— | |||||||||||
(1)Mr. Semel received a guaranteed bonus payout as part of a contractual obligation
Any amount of performance-based cash bonus that each NEO earned is shown in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table above.
2021 Long-Term Incentive (LTI) Plan
Long-term incentives provide a critical link between long-term shareholder value and the financial rewards provided to our executive officers. In May 2021, the Compensation Committee approved the following mix of long-term incentive awards for our NEOs and other executive officers.
The Compensation Committee approved an award of RSUs and PSUs to our NEOs and other executive officers under the 2009 Stock Plan. The percentage of performance shares was 60% in 2021.
| The RSUs vest annually over three years and align the executive officers’ interests with shareholders by emphasizing long-term value creation and retaining top talent through our transition to an education technology services provider. | ||
| At the end of the three years, the PSUs vest, based on EBITDA performance vs. a three-year cumulative goal. The number of shares vesting at the end of the performance can further be modified based upon the attainment of a rTSR (relative total shareholder return) performance against the Russell 200 index.. | ||
| Given the volatility in our stock price during 2021, the Compensation Committee determined to use a premium stock price when converting target LTI values into a number of RSUs and PSUs granted. The premium value applied to the annual grant for executives and was 220% of the FMV of the stock on grant date. | ||
The Compensation Committee believes that the combination of RSUs and PSUs in 2021, with the majority being performance shares, is consistent with best practices and the feedback we received during our shareholder outreach, aligning our executives and shareholders’ interests.
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The Compensation Committee, in consultation with its independent compensation consultant, determined the 2021 aggregate amounts and terms of equity compensation awards for each NEO and executive officer. The Compensation Committee reviewed the equity programs, peer companies’ practices, and the outstanding equity information for each executive officer.
The 2021 approved equity awards for the NEOs are:
| Named Executive Officer | PSUs 60% | RSUs 40% | Total 2021 LTI Award | Total 2020 LTI Award | % Change 2021 vs. 2020 | ||||||||||||
| Randy Hendricks | $1,518,000 | $838,241 | $2,356,241 | $— | N/A | ||||||||||||
| George Pernsteiner | $— | $185,000 | $185,000 | $85,000 | 118% | ||||||||||||
| Christopher Spohn | $866,250 | $627,500 | $1,493,750 | $1,643,750 | (9)% | ||||||||||||
| Kevin Royal | $474,000 | $316,000 | $790,000 | $790,000 | —% | ||||||||||||
| John Semel | $270,000 | $180,000 | $450,000 | $450,000 | —% | ||||||||||||
| Diane Thompson | $225,508 | $200,339 | $425,847 | $375,847 | 13% | ||||||||||||
| Marc Brown | $210,600 | $140,400 | $351,000 | $336,960 | 4% | ||||||||||||
| Matthew Hillman | $156,000 | $104,000 | $260,000 | $65,000 | 300% | ||||||||||||
| Matt Mitchell | $144,000 | $96,000 | $240,000 | $167,272 | 43% | ||||||||||||
The number of shares underlying the RSUs and PSUs, as well as the vesting and other terms of the equity awards, are summarized under “Outstanding Equity Awards at Fiscal Year End.”
2021 Long-Term Incentive (LTI) Plan Results
PSUs granted in 2021 had a three-year performance period. For 2021, PSU awards are modified by a three-year Russell 2000 relative TSR metric to determine the total PSU payout at the time of vesting (no upward adjustment if Zovio outperforms the Russell 2000 relative TSR but absolute TSR is negative). This award will vest based on for the cumulative performance from 2021 through 2023.
Other Benefits and Perquisites
We operate in a highly competitive, complex and consolidating industry and offer certain benefits that we believe are critical to attract and retain talent. These benefits, which are generally offered to all eligible employees, include medical, dental and life insurance benefits, short-term disability pay, long-term disability insurance and flexible spending accounts for medical expense reimbursements. We also have a Senior Management Benefit Plan (the “Benefit Plan”) in which our NEOs and other executive officers are eligible to participate. The Benefit Plan is a fully insured plan and provides an annual benefit of up to $100,000 per participant (including the participant’s eligible dependents) for unreimbursed medical expenses during a calendar year that are not covered by our major medical plan. Additionally, the Benefit Plan provides worldwide medical assistance services, including locating the nearest medical facility, finding an attorney and making arrangements for emergency medical evacuation.
We also offer our employees, including our NEOs, a 401(k)-retirement savings plan (the “401(k) Plan”). The 401(k) Plan is a defined contribution plan established in accordance with Section 401(a) of the Code. Employees may make contributions (pre-tax or after-tax) into the 401(k) Plan up to annual limits prescribed by the Internal Revenue Service. We also make matching contributions under the 401(k) Plan up to certain limits, including for our NEOs who participate in the 401(k) Plan.
Our NEOs and other executive officers were also eligible to participate in the Zovio Non-Qualified Deferred Compensation Plan (the “Deferred Compensation Plan”), pursuant to which certain of our highly compensated employees were permitted to defer up to 80% of their annual base salary and up to 100% of their annual performance bonus and any performance-based compensation into such plan. We do not make any contributions to the Deferred Compensation Plan on behalf of any participant, including any NEO, other than to contribute the matching contributions we would have made to the 401(k) Plan on such participant’s behalf in the event the participant’s contributions to the 401(k) Plan are required to be reduced pursuant to applicable 401(k) Plan contribution limitations. To the extent our NEOs elected to participate in the Deferred Compensation Plan, they may have elected to receive distributions while they are still working for us or they may have elected to receive distributions (i) at termination of employment or retirement, (ii) in the event of disability, death or financial hardship, or (iii) in the event we undergo a change of control. Investment gains or losses credited to a participant’s account in the Deferred Compensation Plan are based on investment elections made by the participant from prescribed mutual fund investment options. Each participant in the Deferred Compensation Plan made his or her own individual investment elections and could change any such investment election at any time.
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The Zovio Non-Qualified Deferred Compensation Plan was eliminated effective December 31, 2021 and distributions will occur for participants in January 2023.
Change of Control Arrangements
The Compensation Committee provides change of control benefits to our NEOs because it recognizes that, as is the case with many publicly held corporations, the possibility of a change of control exists and the uncertainty and questions that a potential change of control may raise could result in the departure or distraction of our executives to the detriment of the Company and our shareholders. The details of the potential payments and benefits to be received by our NEOs upon the consummation of a change of control are discussed under “Potential Payments upon Termination and Change of Control.”
Our current severance benefits in connection with a change in control are “double-trigger” benefits, that is they require both a change in control and termination of employment within a limited period of time after the change of control. The only exception is the immediate vesting of company matching contributions under our Deferred Compensation Plan.
The Compensation Committee believes change of control benefits are appropriate because (i) it helps retain key employees during change of control discussions, especially senior executive officers for whom long-term incentive plan awards represent a significant portion of their total compensation package, (ii) it is difficult to replicate underlying performance goals, where applicable to long-term incentive plan awards, after a change of control, and (iii) the possibility that the Company that made the original long-term incentive plan award will no longer exist after a change of control (and employees should not necessarily be required to have the fate of their outstanding long-term incentive plan awards tied to the new Company’s future success). Additionally, the “double trigger” treatment is appropriate because it prevents an unintended windfall to the executives in the event of a friendly change of control while still providing them with appropriate incentives to cooperate in negotiating any change of control in which they believe they may lose their employment.
The Deferred Compensation Plan provides that the matching contributions that we make to that Plan will fully vest upon the consummation of a change of control.
Our Executive Severance Plan and the related Severance Agreements provide Messrs. Hendricks, Royal and Semel with certain benefits and payments if the executives are terminated without cause or terminate employment for good reason. The Executive Severance Plan and the related Severance Agreements provide Messrs. Hendricks, Royal and Semel with some additional benefits if they incur a termination without cause or termination for good reason during the 24-month period following the consummation of a change of control. The benefits and payments that could be made to the executives under the Executive Severance Plan and the Severance Agreement are described under “Potential Payments upon Termination and Change of Control.”
The 2009 Plan also provides that, unless otherwise provided in an award agreement: (i) upon a change of control where outstanding awards are assumed or continued, no accelerated vesting shall occur; and (ii) upon a change of control where outstanding awards are not assumed or continued, all awards shall vest and become exercisable immediately before such change of control. In this regard, the MSUs that were granted to Messrs. Clark, Royal and Semel, and Ms. Thompson in March 2019 provide the treatment upon a change of control that if the price of one share as reflected in a corporate transaction equals or exceeds 200% of the base stock price, the Compensation Committee shall take all action necessary to provide for the immediate vesting of all of the MSUs subject to such award.
Mr. Clark’s employment agreement provided that upon a change of control, 50% of each of Mr. Clark’s unvested equity awards that vest based solely on the passage of time would have vested upon the change of control. In addition, the employment agreement provided that if Mr. Clark incurred a termination without cause or a termination for good reason during the 24 months following the consummation of a change of control, he would have been entitled to the additional severance benefits, including cash severance, discussed under “Potential Payments upon Termination and Change of Control.”
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Termination of Employment
The Compensation Committee believes that reasonable severance benefits for our NEOs are necessary to attract and retain qualified executives and limit the ability of our competitors to hire away our best talent. These benefits are also important because it may be difficult for such executives to find comparable employment within a short period of time following certain qualifying terminations. For Mr. Spohn, severance benefits are set forth in his employment agreement; for Messrs. Hendricks, Royal and Semel these benefits are set forth in our Executive Severance Plan and the Severance Agreements executed by Messrs. Hendricks, Royal and Semel. The payments and benefits to be received by our NEOs in the event of a termination without cause, resignation for good reason, termination for death or termination for disability are discussed under “Potential Payments upon Termination and Change of Control.” Our NEOs may be eligible for additional severance benefits if there is a termination of employment or resignation for good reason within two years following the consummation of a change of control, as discussed under “Change of Control Arrangements” above.
On March 21, 2021, the Company and Mr. Clark entered into the Separation Agreement pursuant to which Mr. Clark would separate from service with the Company, resigning as Chief Executive Officer and all other offices of the Company, effective as of March 31, 2021. Mr. Clark’s separation from service with the Company is considered to be “without cause” as that term is defined in his employment agreement. Mr. Clark’s separation was not made in connection with a disagreement between Mr. Clark and the Company on any matter relating to the Company’s operations, policies or practices. Pursuant to the terms of his employment agreement, Mr. Clark is eligible to receive certain severance payments and benefits as described in his Employment Agreement, contingent upon his release of claims against the Company. In addition, the Separation Agreement provides that, in consideration of, among other things, Mr. Clark’s entry into certain restrictive covenants regarding non-competition and non-solicitation and agreement to provide support and cooperation with certain matters, Mr. Clark vested in certain equity awards based on the effective date of his separation and received an extension of the exercise period of his option awards from one year to three years and reimbursement of certain legal expenses in connection with the Separation Agreement.
| COMPENSATION RISK MANAGEMENT, POLICIES, AND PRACTICES | ||
Policy Regarding Deductibility of Compensation
On December 22, 2017, Annual Meetingthe Tax Cuts and Jobs Act (the “Act”) was signed into law, which significantly changed the executive compensation deduction rules in Section 162(m) of Stockholdersthe Internal Revenue Code of 1986, as amended (the “Code”).
Prior to the Act, Section 162(m) of the Code limited the amount of compensation the Company could deduct in any one year for federal income tax purposes to $1 million for compensation paid to certain officers, unless the compensation qualified as “performance-based compensation” for purposes of Section 162(m). The Act repeals the “performance-based compensation” exception and, as a result, starting with tax years beginning after December 31, 2017, compensation paid to any individual serving as a named executive officer at any time during the year in excess of $1 million will not be deductible unless it qualifies for the Act’s transition relief applicable to binding written agreements that were in effect on November 2, 2017 and not materially modified thereafter.
The Compensation Committee will continue to monitor the impact that the Act will have on the Company’s compensation programs and contracts. However, the Compensation Committee continues to believe that, in certain circumstances, factors other than tax deductibility take precedence when determining the forms and levels of executive compensation most appropriate and in the best interests of our Company and our stockholders. Given the difficult regulatory and legislative environment we face and the competitive market for outstanding executive talent, the Compensation Committee believes it is important to retain the flexibility to design compensation programs consistent with its overall executive compensation philosophy even if some executive compensation is not fully tax deductible to us. Accordingly, the Compensation Committee may from time to time deem it appropriate to approve elements of compensation for certain executive officers that are not fully tax deductible which might include the approval of amendments to agreements that were initially intended to qualify as “performance-based compensation” if the Compensation Committee determines such amendments are in the best interests of our Company and our stockholders.
Recoupment Policy
The Company has a Recoupment Policy that provides for the clawback or cancellation of performance-based compensation from any NEO or executive officer in the following two situations:
◦Misconduct
◦Financial Restatements Outside of Misconduct
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The table outlines our policies:
| Misconduct | Financial Restatements Outside of Misconduct | |||||||
| WHO | ◦NEOs and other executive officers | ◦NEOs and other executive officers | ||||||
| WHEN | ◦Intentional misconduct, gross negligence or failure to report intentional misconduct or gross negligence ◦Contributing factor in having to restate our financial statements ◦Fraud, bribery or any other illegal act | ◦Restatement of any of our financial statements (excluding changes due to account principles) ◦Restated financial results would have resulted in a lesser amount of paid performance-based compensation | ||||||
| WHAT | ◦Company may seek to recover incentive compensation ◦Cancel outstanding equity awards ◦Reimbursement of realized equity gains ◦Possible adjustment of future compensation ◦Disciplinary actions, up to and including termination | |||||||
We believe the Recoupment Policy is appropriate given the types and amounts of performance-based compensation we pay our NEOs and other executive officers, and that our policy incentivizes them to only take those risks that they determine are calculated to reward our shareholders without material adverse risk to our Company.
Stock Ownership Guidelines
We maintain the following robust stock ownership guidelines for our executive officers, including the NEOs. These guidelines are designed to further link these executives’ interests with the interests of shareholders:
| Chief Executive Officer | 6x Annual Base Salary | ||||||||||||||||||||||||||||||||||||||||
| Executive Vice Presidents | 3x Annual Base Salary | ||||||||||||||||||||||||||||||||||||||||
| Senior Vice Presidents | 2x Annual Base Salary | ||||||||||||||||||||||||||||||||||||||||
| Non-Employee Directors | 3x Annual Cash Retainer | ||||||||||||||||||||||||||||||||||||||||
Within five years of becoming subject to the Stock Ownership Guidelines, our executives must achieve their requisite stock ownership level.
The applicable date of calculation is the date of grant of annual equity awards or the date of a contemplated sale by the executive or director, whichever is later. The covered executives and directors may not sell shares of our common stock unless they satisfy the applicable ownership guidelines following the sale.
The Company does not consider the value of vested stock options, or unvested MSUs or PSUs in determining whether the required level of equity ownership meets the guidelines. As of December 31, 2021, all NEOs exceeded our stock ownership guidelines except those within the five years of becoming subject to the guidelines.
Trading in Company Securities
We have a policy that prohibits directors, executive officers, and employees from:
◦Using financial instruments (including prepaid variable forward contracts, equity swaps, collars, and exchange funds) that are designed to hedge or offset any decreases in the market value of our securities;
◦Holding our securities in margin accounts or pledging our securities as collateral for a loan; and
◦Executing short sales of our securities and derivative or speculative transactions in our securities.
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Process for Granting Equity Awards
We do not grant any equity compensation, in anticipation of the release of material non-public information. Similarly, we do not time the release of material non-public information based on equity award grant dates. Any options granted to our NEOs and other executive officers are granted with an amendmentexercise price equal to or above the fair market value of the underlying stock on the date of grant.
Any equity awards approved by the Compensation Committee are granted as of the date of a quarterly meeting, unless a future effective date of grant is specifically authorized. Typically, equity awards are granted by the Compensation Committee pursuant to either a live or telephonic meeting. However, the Compensation Committee may also authorize the grant of equity awards pursuant to a unanimous written consent. If equity awards are authorized by unanimous written consent, the effective date of the grant is the date on which our Secretary has received all signatures to the unanimous written consent, unless a future effective date of grant is specifically authorized.
Tax and Accounting Considerations
While the Compensation Committee generally considered the financial accounting and tax implications of its executive compensation decisions, neither element was a material consideration in the compensation awarded to our NEOs and other executive officers during 2021.
Compensation Committee Interlocks and Insider Participation
During 2021, no executive officer of our company (i) served as a member of the Compensation Committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served on our Compensation Committee, (ii) served as a director of another entity, one of whose executive officers served on our Compensation Committee, or (iii) served as a member of the Compensation Committee (or other board committee performing equivalent functions or, in the absence of any such committee, the entire board of directors) of another entity, one of whose executive officers served as a director of our company.
| COMPENSATION COMMITTEE REPORT | ||
The Compensation Committee, which is composed solely of independent directors of the Board of Directors, assists the Board in fulfilling its responsibilities regarding compensation matters, and is responsible under its charter for determining the compensation of Zovio’s executive officers. The Committee has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on this review and discussion, the Committee recommended to the Board of Directors that the section entitled “Compensation Discussion and Analysis” be included in this Annual Report on Form 10-K to be filed withfor the SEC within 120 days after the end of our fiscal year endedending December 31, 2017.2021.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.Matters
| BENEFICIAL OWNERSHIP TABLE | ||
The following table presents certain information requiredwith respect to the beneficial ownership of our common stock as of March 31, 2022 by this item is incorporated by reference to our definitive proxy statement(i) each person we know to be the beneficial owner of 5% or more of our outstanding shares of common stock, (ii) each named executive officer and director and (iii) all executive officers and directors as a group. Information with respect to beneficial ownership is based on a review of our stock transfer records and on the Schedules 13D and 13G that have been filed with the SEC by or on behalf of the stockholders listed below. Except as indicated by the footnotes below, we believe, based on the information available to us, that the persons named in connectionthe table below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
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Percentage of beneficial ownership is calculated based on 34,054,879 shares of common stock outstanding on March 31, 2022. We have determined beneficial ownership in accordance with SEC rules. In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed as outstanding shares of common stock subject to stock options held by that person that are currently exercisable or exercisable within 60 days of March 31, 2022. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person. Except otherwise indicated in the footnotes below, the address of each beneficial owner listed in the table is Zovio Inc, 1811 E. Northrop Blvd, Chandler, AZ 85286.
| Number of Shares Held | Number of Shares Subject to Options Exercisable within 60 Days | Total Shares Beneficially Owned | ||||||||||||||||||||||||
| Name of Beneficial Owner | Number | % | ||||||||||||||||||||||||
| Principal Stockholders | ||||||||||||||||||||||||||
| Nantahala Capital Management, LLC (1) | 2,980,767 | — | 2,980,767 | 8.8 | % | |||||||||||||||||||||
| Royce & Associates (2) | 2,397,476 | — | 2,397,476 | 7.0 | % | |||||||||||||||||||||
| SevenSaoi Capital Partners, LLC (3) | 2,069,761 | — | 2,069,761 | 6.1 | % | |||||||||||||||||||||
| Heartland Advisors, Inc. (4) | 1,804,102 | — | 1,804,102 | 5.3 | % | |||||||||||||||||||||
| Directors and Executive Officers | ||||||||||||||||||||||||||
| Marc Brown | 50,555 | — | 50,555 | * | ||||||||||||||||||||||
| Teresa Carroll | 61,260 | — | 61,260 | * | ||||||||||||||||||||||
| Andrew Clark (5) | 1,222,044 | 550,422 | 1,772,466 | 5.2 | % | |||||||||||||||||||||
| Michael Cole (6) | 25,856 | — | 25,856 | * | ||||||||||||||||||||||
| Ryan Craig | 35,300 | 27,804 | 63,104 | * | ||||||||||||||||||||||
| Randy Hendricks | — | — | — | * | ||||||||||||||||||||||
| Matthew Hillman | 5,810 | — | 5,810 | * | ||||||||||||||||||||||
| Michael Horn | 70,710 | — | 70,710 | * | ||||||||||||||||||||||
| Ron Huberman | — | — | — | * | ||||||||||||||||||||||
| John Kiely | 63,010 | — | 63,010 | * | ||||||||||||||||||||||
| Kirsten Marriner | 61,260 | — | 61,260 | * | ||||||||||||||||||||||
| Matt Mitchell | 26,772 | 3,719 | 30,491 | * | ||||||||||||||||||||||
| Victor Nichols | 71,801 | 28,034 | 99,835 | * | ||||||||||||||||||||||
| George Pernsteiner | 71,709 | — | 71,709 | * | ||||||||||||||||||||||
| Kevin Royal | 138,591 | — | 138,591 | * | ||||||||||||||||||||||
| John Semel | 39,206 | — | 39,206 | * | ||||||||||||||||||||||
| Christopher Spohn | 102,101 | — | 102,101 | * | ||||||||||||||||||||||
| Diane Thompson | 152,067 | — | 152,067 | * | ||||||||||||||||||||||
| John Wilson | — | — | — | * | ||||||||||||||||||||||
| All Directors and Executive Officers as a Group (16 Persons) | 830,524 | 126,368 | 956,892 | 2.8 | % | |||||||||||||||||||||
* Less than one percent.
(1) Based on the Schedule 13G, the address for Nantahala Capital Management, LLC is 130 Main St. 2nd Floor, New Canaan, CT 06840.
(2) Based on the Schedule 13G, the address for Royce & Associates, LP. is 745 Fifth Avenue, New York, NY 10151.
(3) Based on the Schedule 13D, the address for SevenSaoi Capital, LLC is 1165 North Clark Street, 4th Floor, Chicago, IL 60610. Mr. Cole is the Chief Executive Officer of SevenSaoi Capital, LLC. See also footnote (6) noted below.
(4) Based on the Schedule 13G, the address for Heartland Advisors, Inc. is 790 North Water Street, Suite 1200, Milwaukee, WI 53202.
(5) Mr. Clark was the Company’s Chief Executive Officer and an employee until March 31, 2021, and was a director of the Company until March 22, 2021. Includes 513,444 shares of common stock held by the Clark Family Trust, dated July 8, 1998.
(6) Mr. Cole is the Chief Executive Officer of SevenSaoi Capital, LLC. See also footnote (3) noted above.
| SECTION 16(a) REPORTING COMPLIANCE | ||
Section 16(a) of the Exchange Act requires our 2017 Annual Meetingofficers, directors and beneficial owners of Stockholders or an amendmentmore than 10% of our common stock to this Annual Report on Form 10-K to be filedtimely file with the SEC within 120 days aftercertain reports regarding ownership of and transactions in our securities. Copies of the endrequired filings must also be furnished to us. Based solely on the Company’s review of our fiscalthe copies of Forms 3, 4 and 5 received by the Company from such reporting persons, and representations made by them, the Company believes that during the year
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ended December 31, 2017.2021, all Section 16(a) filing requirements applicable to its executive officers, directors, and greater than ten percent beneficial stockholders were satisfied.
| EQUITY COMPENSATION PLAN INFORMATION | ||
The following table summarizes the number of outstanding options and rights granted to our employees, consultants and directors, as well as the number of shares of common stock remaining available for future issuance, under our equity compensation plans as of December 31, 2021:
| Plan Category | Number of securities to be issued upon exercise of outstanding options and rights (a) | Weighted-average exercise price of outstanding options and rights (b) | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) | |||||||||||||||||||||||
| Equity compensation plans approved by security holders (1) (2) (3) | 4,379,123 | (4) | $ | 7.67 | (5) | 6,921,689 | ||||||||||||||||||||
| Equity compensation plans not approved by security holders | 1,724,138 | — | — | |||||||||||||||||||||||
| Total | 6,103,261 | $ | 7.67 | 6,921,689 | ||||||||||||||||||||||
(1)Consists of the 2009 Plan and our Employee Stock Purchase Plan.
(2)The 2009 Plan provides for an annual increase in the number of shares available for issuance thereunder on each subsequent January 1 through and including January 1, 2027, in an amount equal to the least of (i) two percent (2%) of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year, (ii) 1,300,000 shares of our common stock or (iii) such lesser amount as the Board may determine.
(3)The Employee Stock Purchase Plan provides for an annual increase in the number of shares available for issuance thereunder on each subsequent January 1 through and including January 1, 2027, in an amount equal to the least of (a) one percent (1%) of the outstanding shares of our common stock on the last day of the immediately preceding fiscal year, (b) 400,000 shares of our common stock or (c) such lesser amount as the Board or Compensation Committee may determine.
(4)Includes 4,879,868 shares of common stock issuable upon the vesting of outstanding RSUs, PSUs and MSUs.
(5)Calculated taking into account the 4,879,868 shares of common stock issuable upon the vesting of outstanding RSUs, PSUs and MSUs without the payment of any exercise price.
Item 13. Certain Relationships and Related Transactions, and Director Independence.Independence
Related Party Transactions
The information requiredCharter of the Audit Committee provides that any related party transaction (or series of transactions) that may require disclosure under the rules of the SEC must be reviewed and approved by this item is incorporatedthe Audit Committee. When evaluating such transactions, the Audit Committee focuses on whether the terms of such transactions are at least as favorable to us as terms we would receive on an arm’s-length basis from an unaffiliated third party.
There have been no related party transactions since the beginning of our last fiscal year, including any currently proposed transactions, to which we have been or will be a party, in which the amount involved exceeds $120,000 and in which any of our directors, executive officers, holders of more than five percent of our common stock or any member of the immediate family of any of the foregoing persons has had or will have a direct or indirect material interest. This description does not cover (i) compensation arrangements with our executive officers and directors that are described elsewhere under the sections entitled “Executive Compensation” and “Corporate Governance — Director Compensation” or (ii) compensation arrangements with our executive officers other than our NEOs that have been approved, or recommended to the Board for approval, by referenceour Compensation Committee.
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Indemnification Agreements
Our certificate of incorporation and bylaws require us to indemnify our definitive proxy statementdirectors and executive officers to the fullest extent permitted by Delaware law. Additionally, as permitted by Delaware law, we have entered into indemnification agreements with each of our directors and executive officers pursuant to which we agree to indemnify those individuals to the fullest extent permitted by Delaware law against all expenses, judgments, fines, settlements and other amounts actually and reasonably incurred by such individual in connection with the investigation, defense, settlement or appeal of any pending, threatened or completed action, hearing, suit or other proceeding to which they are or may be made a party or threatened to be filedmade a party by reason of their position as a director, officer or other agent of ours, and otherwise to the fullest extent permitted under Delaware law and our certificate of incorporate and bylaws. We also have an insurance policy covering our directors and executive officers with respect to certain liabilities, including liabilities arising under the SECSecurities Act of 1933, as amended, or otherwise.
Director Independence
The Board has affirmatively determined that Mmes. Carroll and Marriner and Messrs. Cole, Craig, Horn, Huberman, Kiely, Nichols and Wilson have no material relationships with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us) and, accordingly, each of the foregoing members of the Board were determined to be independent under the rules of The Nasdaq Stock Exchange (“Nasdaq”). Mr. Pernsteiner was not independent during the time he served as a member of the Office of the CEO from March 31, 2021 through December 6, 2021. Mr. Hendricks is not independent under Nasdaq rules because he is also currently serving as the Chief Executive Officer.
In determining whether directors were independent under Nasdaq rules, the Board considered the matters discussed in the section entitled “Certain Relationships and Related Transactions” above. There are no family relationships between any of our directors and executive officers. There are currently no legal proceedings, and during the past ten years there have been no legal proceedings, that are material to the evaluation of the ability or integrity of any of our directors.
Item 14. Principal Accountant Fees and Services
Our independent registered public accounting firm is Deloitte & Touche, LLP in Phoenix, Arizona. PCAOB Auditor Firm ID No. 34
Independent Registered Public Accounting Firm Fees and Services
The following table presents fees for professional audit and other services rendered by Deloitte for the years ended December 31, 2021 and 2020.
| 2021 | 2020 | ||||||||||
| Audit Fees (1) | $ | 1,315,818 | $ | 2,257,624 | |||||||
| Audit‑Related Fees (2) | — | 265,745 | |||||||||
| Tax Fees (3) | 19,626 | 157,236 | |||||||||
| All Other Fees (4) | 3,790 | 3,790 | |||||||||
| Total | $ | 1,339,234 | $ | 2,684,395 | |||||||
(1) Audit Fees consist of the aggregate fees billed for 2021 and 2020 for professional services rendered for the audit of our annual consolidated financial statements and the review of consolidated financial statements included in our quarterly reports, or professional services rendered in connection with our 2017 Annual Meetingfiling of Stockholdersvarious registration statements or otherwise normally provided in connection with statutory and regulatory filings or engagements.
(2) Audit-Related Fees consist of the aggregate fees billed in 2021 and 2020 for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under Audit Fees. Such fees primarily related to auditing unusual transactions and compliance advice regarding Section 404 of the Sarbanes-Oxley Act of 2002.
(3) Tax Fees consist of the aggregate fees billed in 2021 and 2020 for professional services rendered for tax compliance, responses to tax audits, tax advice and tax planning. Such fees primarily related to federal and state tax compliance, planning and consulting.
(4) All Other Fees consist of the aggregate fees billed in 2021 and 2020 for products and services other than the services reported under Audit Fees, Audit-Related Fees or Tax Fees. Such fees related to a subscription for accounting software.
114
Audit Committee Pre-Approval Policy
Our Audit Committee has adopted a Pre-Approval Policy pursuant to which the Audit Committee must pre-approve the audit and non-audit services performed by our independent registered public accounting firm to assure that the provision of such services does not impair the firm’s independence. Before we may engage the independent registered public accounting firm to render a service, the engagement must be either specifically approved by the Audit Committee or entered into pursuant to the Pre-Approval Policy. The Audit Committee may consider the amount or range of estimated fees as a factor in determining whether a proposed service would impair the independence of our independent registered public accounting firm. Under the Pre-Approval Policy, the Audit Committee may delegate pre-approval authority to one or more of its members, and has delegated pre-approval authority to Mr. Kiely as Chair of the Audit Committee. The member or members to whom such authority is delegated are required to report any pre-approval decisions to the Audit Committee at its next scheduled meeting. The Audit Committee may not delegate to management the Audit Committee’s responsibilities to pre-approve services to be performed by our independent registered public accounting firm.
All services provided by Deloitte during fiscal years 2021 and 2020 were pre-approved by the Audit Committee.
| REPORT OF THE AUDIT COMMITTEE TO THE BOARD OF DIRECTORS | ||
The following Audit Committee Report shall not be deemed to be “soliciting material” or to otherwise be considered “filed” with the SEC, nor shall such information be deemed incorporated by reference into any filing of ours under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent we specifically incorporate it by reference into such filing.
The Audit Committee oversees our financial reporting process on behalf of the Board of Directors. Management is responsible for the preparation, presentation and integrity of the financial statements, including establishing accounting and financial reporting principles and designing systems of internal control over financial reporting. Our independent registered public accounting firm is responsible for expressing an amendmentopinion as to thisthe conformity of our consolidated financial statements with generally accepted accounting principles. The Audit Committee operates pursuant to a charter that is available on our website at http://www.zovio.com under “Investors - Governance.”
In performing its responsibilities, the Audit Committee has reviewed and discussed with management and Deloitte & Touche LLP (“Deloitte & Touche”), our independent registered public accounting firm, the audited consolidated financial statements in our Annual Report on Form 10-K to be filed withfor the SEC within 120 days after the end of our fiscal year ended December 31, 2017.
The informationAudit Committee has received written disclosures and the letter from Deloitte & Touche required by this item is incorporated by reference to our definitive proxy statement to be filedthe applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte & Touche’s communications with the SECAudit Committee concerning independence, and has discussed with Deloitte & Touche its independence.
Based upon the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that our audited consolidated financial statements be included in connection with our 2017 Annual Meeting of Stockholders or an amendment to this Annual Report on Form 10-K to be filed withfor the SEC within 120 days after the end of our fiscal year ended December 31, 2017.2021.
| Dated: April 15, 2022 | Audit Committee: | ||||
John J. Kiely, Chairman Teresa S. Carroll Ryan D. Craig Victor K. Nichols | |||||
115
PART IV
Item 15. Exhibits, Financial Statement Schedules.Schedules
(a) The following documents are included as part of this Annual Report on Form 10-K:
(1) Financial Statements.
(2) Financial Statement Schedules.
All financial statement schedules have been omitted as they are not required, not applicable, or the required information is otherwise included.
(3) Exhibits.
| Exhibit | Description of Document | Filed Herewith | Incorporated by Reference | Form | Exhibit No. | Date Filed | ||||||||||||||||||||||||||||||||
| Charter Documents and Instruments Defining Rights of Security Holders | ||||||||||||||||||||||||||||||||||||||
| 3.1 | X | 10-Q | 3.1 | May 9, 2019 | ||||||||||||||||||||||||||||||||||
| 3.2 | X | 8-K | 3.2 | April 2, 2019 | ||||||||||||||||||||||||||||||||||
| 3.3 | X | 8-K | 3.1 | January 28, 2021 | ||||||||||||||||||||||||||||||||||
| 4.1 | X | S-1 | 4.1 | March 30, 2009 | ||||||||||||||||||||||||||||||||||
| 4.2 | X | S-1 | 4.4 | September 4, 2009 | ||||||||||||||||||||||||||||||||||
| 4.3 | X | |||||||||||||||||||||||||||||||||||||
| Employee Benefit Plans | ||||||||||||||||||||||||||||||||||||||
| 10.1 | * | X | 10-K | 10.1 | March 12, 2019 | |||||||||||||||||||||||||||||||||
| 10.2 | * | X | S-8 | 99.2 | January 17, 2017 | |||||||||||||||||||||||||||||||||
| 10.3 | * | X | S-8 | 99.4 | May 13, 2009 | |||||||||||||||||||||||||||||||||
| 10.4 | * | X | 10-Q | 10.3 | May 3, 2011 | |||||||||||||||||||||||||||||||||
| 10.5 | * | X | S-8 | 99.5 | May 13, 2009 | |||||||||||||||||||||||||||||||||
| 10.6 | * | X | 8-K | 99.1 | June 27, 2011 | |||||||||||||||||||||||||||||||||
| 10.7 | * | X | 8-K | 99.2 | June 27, 2011 | |||||||||||||||||||||||||||||||||
| 10.8 | * | X | 8-K | 10.1 | December 23, 2014 | |||||||||||||||||||||||||||||||||
| 10.9 | * | X | 10-K | 10.16 | March 10, 2015 | |||||||||||||||||||||||||||||||||
| 10.10 | * | X | 10-Q | 10.1 | August 2, 2016 | |||||||||||||||||||||||||||||||||
| 10.11 | * | X | 10-Q | 10.2 | August 2, 2016 | |||||||||||||||||||||||||||||||||
| 10.12 | * | X | S-8 | 99.6 | May 13, 2009 | |||||||||||||||||||||||||||||||||
| 10.13 | * | X | S-1 | 4.10 | March 20, 2009 | |||||||||||||||||||||||||||||||||
116
| Exhibit | Description of Document | Filed Herewith | Incorporated by Reference | Form | Exhibit No. | Date Filed | ||||||||
| Acquisition Agreements | ||||||||||||||
| 2.1 | X | S-1 | 2.1 | February 17, 2009 | ||||||||||
| 2.2 | X | S-1 | 2.2 | February 17, 2009 | ||||||||||
| Charter Documents and Instruments Defining Rights of Security Holders | ||||||||||||||
| 3.1 | X | 10-Q | 3.1 | May 21, 2009 | ||||||||||
| 3.2 | X | S-1 | 3.4 | March 20, 2009 | ||||||||||
| 4.1 | X | S-1 | 4.1 | March 30, 2009 | ||||||||||
| 4.2 | X | S-1 | 4.4 | September 4, 2009 | ||||||||||
| Employee Benefit Plans | ||||||||||||||
| 10.1 | * | X | S-1 | 10.1 | December 22, 2008 | |||||||||
| 10.2 | * | X | S-1 | 10.2 | February 17, 2009 | |||||||||
| 10.3 | * | X | S-1 | 10.3 | February 17, 2009 | |||||||||
| 10.4 | * | X | S-1 | 10.4 | February 17, 2009 | |||||||||
| 10.5 | * | X | S-1 | 10.12 | February 17, 2009 | |||||||||
| 10.6 | * | X | 8-K | 10.13 | January 12, 2010 | |||||||||
| 10.7 | * | X | 8-K | 10.14 | January 12, 2010 | |||||||||
| Exhibit | Description of Document | Filed Herewith | Incorporated by Reference | Form | Exhibit No. | Date Filed | ||||||||||||||||||||||||||||||||
| 10.14 | * | X | 8-K | 99.1 | March 22, 2010 | |||||||||||||||||||||||||||||||||
| 10.15 | * | X | 10-Q | 10.7 | May 3, 2010 | |||||||||||||||||||||||||||||||||
| 10.16 | X | 10-K | 10.16 | March 12, 2019 | ||||||||||||||||||||||||||||||||||
| 10.17 | X | 10-Q | 10.1 | August 7, 2019 | ||||||||||||||||||||||||||||||||||
| 10.18 | X | S-8 | 99.1 | January 5, 2022 | ||||||||||||||||||||||||||||||||||
| 10.19 | * | X | ||||||||||||||||||||||||||||||||||||
| Agreements with Executive Officers and Directors | ||||||||||||||||||||||||||||||||||||||
| 10.20 | * | X | 10-K | 10.2 | March 10, 2015 | |||||||||||||||||||||||||||||||||
| 10.21 | * | X | S-1 | 10.28 | March 20, 2009 | |||||||||||||||||||||||||||||||||
| 10.22 | * | X | 10-Q | 10.1 | August 4, 2015 | |||||||||||||||||||||||||||||||||
| 10.23 | * | X | ||||||||||||||||||||||||||||||||||||
| 10.24 | * | X | 10-K | 10.33 | March 8, 2016 | |||||||||||||||||||||||||||||||||
| 10.25 | * | X | 10-K | 10.33 | March 17, 2014 | |||||||||||||||||||||||||||||||||
| 10.26 | * | X | 10-Q | 10.1 | May 1, 2018 | |||||||||||||||||||||||||||||||||
| 10.27 | * | X | 10-K | 10.28 | March 12, 2019 | |||||||||||||||||||||||||||||||||
| 10.28 | * | X | 10-Q | 10.1 | April 29, 2020 | |||||||||||||||||||||||||||||||||
| 10.29 | * | X | ||||||||||||||||||||||||||||||||||||
| Material Real Estate Agreements | ||||||||||||||||||||||||||||||||||||||
| 10.30 | † | X | S-1 | 10.17 | March 2, 2009 | |||||||||||||||||||||||||||||||||
| 10.31 | † | X | 10-Q | 10.4 | December 16, 2011 | |||||||||||||||||||||||||||||||||
| 10.32 | † | X | 10-Q | 10.1 | May 3, 2011 | |||||||||||||||||||||||||||||||||
| 10.33 | † | X | 10-K | 10.55 | March 7, 2012 | |||||||||||||||||||||||||||||||||
| 10.34 | † | X | 10-Q | 10.3 | November 1, 2011 | |||||||||||||||||||||||||||||||||
| 10.35 | † | X | 10-Q | 10.2 | August 7, 2012 | |||||||||||||||||||||||||||||||||
| 10.36 | X | 10-Q | 10.1 | November 8, 2018 | ||||||||||||||||||||||||||||||||||
| Material Strategic Agreements | ||||||||||||||||||||||||||||||||||||||
| 10.37 | † | X | 10-Q | 10.1 | November 8, 2016 | |||||||||||||||||||||||||||||||||
| 10.38 | X | 10-Q | 10.1 | May 9, 2019 | ||||||||||||||||||||||||||||||||||
| 10.39 | X | 10-Q | 10.2 | May 9, 2019 | ||||||||||||||||||||||||||||||||||
| 10.40 | X | 8-K | 10.1 | February 5, 2020 | ||||||||||||||||||||||||||||||||||
| 10.41 | † | X | 8-K | 10.1 | December 1, 2020 | |||||||||||||||||||||||||||||||||
| 10.42 | † | X | 8-K | 2.1 | September 3, 2020 | |||||||||||||||||||||||||||||||||
117
| Exhibit | Description of Document | Filed Herewith | Incorporated by Reference | Form | Exhibit No. | Date Filed | ||||||||
| 10.8 | * | X | S-1 | 10.33 | March 30, 2009 | |||||||||
| 10.9 | * | X | 8-K | 10.1 | May 16, 2013 | |||||||||
| 10.10 | * | X | S-8 | 99.2 | January 17, 2017 | |||||||||
| 10.11 | * | X | S-8 | 99.4 | May 13, 2009 | |||||||||
| 10.12 | * | X | 10-Q | 10.3 | May 3, 2011 | |||||||||
| 10.13 | * | X | S-8 | 99.5 | May 13, 2009 | |||||||||
| 10.14 | * | X | 8-K | 99.1 | June 27, 2011 | |||||||||
| 10.15 | * | X | 8-K | 99.2 | June 27, 2011 | |||||||||
| 10.16 | * | X | 8-K | 10.1 | December 23, 2014 | |||||||||
| 10.17 | * | X | 10-K | 10.16 | March 10, 2015 | |||||||||
| 10.18 | * | X | 10-Q | 10.1 | August 2, 2016 | |||||||||
| 10.19 | * | X | 10-Q | 10.2 | August 2, 2016 | |||||||||
| 10.20 | * | X | S-8 | 99.6 | May 13, 2009 | |||||||||
| 10.21 | * | X | S-1 | 4.10 | March 20, 2009 | |||||||||
| 10.22 | * | X | 8-K | 99.1 | March 22, 2010 | |||||||||
| 10.23 | * | X | 10-Q | 10.7 | May 3, 2010 | |||||||||
| Agreements with Executive Officers, Directors and Warburg Pincus | ||||||||||||||
| 10.24 | * | X | 10-K | 10.20 | March 10, 2015 | |||||||||
| 10.25 | * | X | S-1 | 10.28 | March 20, 2009 | |||||||||
| 10.26 | * | X | 10-K | 10.33 | March 7, 2017 | |||||||||
| 10.27 | * | X | 10-K | 10.34 | March 7, 2017 | |||||||||
| 10.28 | * | X | 10-Q | 10.1 | August 4, 2015 | |||||||||
| 10.29 | * | X | 10-K | 10.36 | March 7, 2017 | |||||||||
| 10.30 | * | X | S-1 | 10.30 | March 20, 2009 | |||||||||
| 10.31 | * | X | 10-K | 10.33 | March 8, 2016 | |||||||||
| 10.32 | * | X | 10-K | 10.33 | March 17, 2014 | |||||||||
| 10.33 | X | S-1 | 10.11 | February 17, 2009 | ||||||||||
| Material Real Estate Agreements | ||||||||||||||
| 10.34 | † | X | S-1 | 10.17 | March 2, 2009 | |||||||||
| 10.35 | † | X | 10-Q | 10.4 | December 16, 2011 | |||||||||
| 10.36 | † | X | 10-Q | 10.1 | May 3, 2011 | |||||||||
| 10.37 | † | X | 10-K | 10.55 | March 7, 2012 | |||||||||
| Exhibit | Description of Document | Filed Herewith | Incorporated by Reference | Form | Exhibit No. | Date Filed | ||||||||
| 10.38 | † | X | 10-Q | 10.3 | November 1, 2011 | |||||||||
| 10.39 | † | X | 10-Q | 10.2 | August 7, 2012 | |||||||||
| 10.40 | X | 10-K | 10.58 | March 8, 2016 | ||||||||||
| 10.41 | X | 10-K | 10.59 | March 8, 2016 | ||||||||||
| Material Strategic Agreements | ||||||||||||||
| 10.42 | † | X | 8-K | 99.1 | October 1, 2009 | |||||||||
| 10.43 | † | X | 10-K | 10.45 | March 2, 2010 | |||||||||
| 10.44 | † | X | 10-K | 10.46 | March 2, 2010 | |||||||||
| 10.45 | † | X | 10-K | 10.47 | March 2, 2010 | |||||||||
| 10.46 | † | X | 10-K | 10.54 | March 2, 2011 | |||||||||
| 10.47 | † | X | 8-K | 10.1 | February 3, 2015 | |||||||||
| 10.48 | † | X | S-1 | 10.21 | March 30, 2009 | |||||||||
| 10.49 | † | X | 10-Q | 10.5 | August 11, 2009 | |||||||||
| 10.50 | † | X | 10-Q | 10.2 | May 3, 2011 | |||||||||
| 10.51 | † | X | 10-K | 10.67 | March 7, 2012 | |||||||||
| 10.52 | † | X | 10-K | 10.72 | March 12, 2013 | |||||||||
| 10.53 | † | X | 10-K | 10.73 | March 12, 2013 | |||||||||
| 10.54 | † | X | 10-K | 10.68 | March 17, 2014 | |||||||||
| 10.55 | † | X | 10-K | 10.69 | March 17, 2014 | |||||||||
| 10.56 | † | X | 10-Q | 10.1 | August 7, 2014 | |||||||||
| 10.57 | † | X | 10-Q | 10.2 | August 7, 2014 | |||||||||
| 10.58 | † | X | 10-K | 10.76 | March 8, 2016 | |||||||||
| 10.59 | † | X | 10-Q | 10.4 | August 2, 2016 | |||||||||
| 10.60 | † | X | 10-Q | 10.5 | August 2, 2016 | |||||||||
| 10.61 | † | X | 10-Q | 10.6 | August 2, 2016 | |||||||||
| 10.62 | X | 10-K | 10.68 | March 7, 2012 | ||||||||||
| 10.63 | X | 10-Q | 10.4 | August 2, 2011 | ||||||||||
| 10.64 | † | X | 10-K | 10.70 | March 7, 2012 | |||||||||
| 10.65 | X | 10-K | 10.71 | March 7, 2012 | ||||||||||
| Exhibit | Description of Document | Filed Herewith | Incorporated by Reference | Form | Exhibit No. | Date Filed | ||||||||||||||||||||||||||||||||
| 10.43 | † | X | 8-K | 10.2 | December 1, 2020 | |||||||||||||||||||||||||||||||||
| Code of Ethics | ||||||||||||||||||||||||||||||||||||||
| 14.1 | X | 8-K | 14.1 | December 1, 2009 | ||||||||||||||||||||||||||||||||||
| Subsidiaries | ||||||||||||||||||||||||||||||||||||||
| 21.1 | X | |||||||||||||||||||||||||||||||||||||
| Consent and Power of Attorney | ||||||||||||||||||||||||||||||||||||||
| 23.1 | X | |||||||||||||||||||||||||||||||||||||
| 24.1 | X | |||||||||||||||||||||||||||||||||||||
| Certifications Required by Sarbanes-Oxley Act of 2002 | ||||||||||||||||||||||||||||||||||||||
| 31.1 | X | |||||||||||||||||||||||||||||||||||||
| 31.2 | X | |||||||||||||||||||||||||||||||||||||
| 32.1 | X | |||||||||||||||||||||||||||||||||||||
| Inline Interactive Data | ||||||||||||||||||||||||||||||||||||||
| 101 | The following financial information from our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the SEC on April 15, 2022, formatted in Extensible Business Reporting Language (“XBRL”): (i) the Consolidated Balance Sheets as of December 31, 2021 and 2020; (ii) the Consolidated Statements of Income (Loss) for the years ended December 31, 2021 and 2020; (iii) the Consolidated Statements of Stockholder's Equity for the two years ended December 31, 2021; (iv) the Consolidated Statements of Cash Flows for the years ended December 31, 2021 and 2020; and (v) the Notes to Annual Consolidated Financial Statements. | X | ||||||||||||||||||||||||||||||||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | X | ||||||||||||||||||||||||||||||||||||
* Indicates management contract or compensatory plan or arrangement.
† Portions of this exhibit have been omitted pursuant to a request for confidential treatment and the non-public information has been filed separately with the SEC.
| Exhibit | Description of Document | Filed Herewith | Incorporated by Reference | Form | Exhibit No. | Date Filed | ||||||||
| 10.66 | X | 10-Q | 10.5 | August 2, 2011 | ||||||||||
| 10.67 | † | X | 10-K | 10.73 | March 7, 2012 | |||||||||
| 10.68 | † | X | 10-K | 10.76 | March 17, 2014 | |||||||||
| 10.69 | X | 10-Q | 10.2 | November 8, 2016 | ||||||||||
| 10.70 | X | 10-K | 10.84 | March 8, 2016 | ||||||||||
| 10.71 | † | X | 10-Q | 10.3 | August 2, 2016 | |||||||||
| 10.72 | † | X | 10-Q | 10.1 | November 8, 2016 | |||||||||
| Code of Ethics | ||||||||||||||
| 14.1 | X | 8-K | 14.1 | December 1, 2009 | ||||||||||
| Subsidiaries | ||||||||||||||
| 21.1 | X | |||||||||||||
| Consent and Power of Attorney | ||||||||||||||
| 23.1 | X | |||||||||||||
| 23.2 | X | |||||||||||||
| 24.1 | X | |||||||||||||
| Certifications Required by Sarbanes-Oxley Act of 2002 | ||||||||||||||
| 31.1 | X | |||||||||||||
| 31.2 | X | |||||||||||||
| 32.1 | X | |||||||||||||
| 99.1 | X | |||||||||||||
| 99.2 | X | |||||||||||||
| Interactive Data | ||||||||||||||
| 101 | ‡ | The following financial information from our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, filed with the SEC on February 21, 2018, formatted in Extensible Business Reporting Language (“XBRL”): (i) the Consolidated Balance Sheets as of December 31, 2017 and 2016; (ii) the Consolidated Statements of Income (Loss) for the years ended December 31, 2017, 2016 and 2015; (iii) the Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2017, 2016 and 2015; (iv) the Consolidated Statements of Stockholder's Equity for the three years ended December 31, 2017; (v) the Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015; and (vi) the Notes to Annual Consolidated Financial Statements. | X | |||||||||||
Item 16. Form 10-K Summary
None.
118
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ZOVIO INC | |||||
( | |||||
Dated: February 21, 2018April 15, 2022
119
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrew S. ClarkRandy J. Hendricks and Joseph L. D'Amico,Kevin Royal, jointly and severally, as his attorney-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Annual Report on Form 10-K and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Name | Title | Date | ||||||||||||
| /s/ RANDY J. HENDRICKS | Chief Executive Officer (Principal Executive Officer) and a Director | April 15, 2022 | ||||||||||||
| Randy J. Hendricks | ||||||||||||||
| /s/ | ||||||||||||||
| /s/ STEVEN BURKHOLDER | Vice President, Chief Accounting Officer and Corporate Controller (Principal Accounting Officer) | |||||||||||||
| Steven Burkholder | ||||||||||||||
| /s/ TERESA S. CARROLL | Director | April 13, 2022 | ||||||||||||
| Teresa S. Carroll | ||||||||||||||
| /s/ MICHAEL P. COLE | Director | April 14, 2022 | ||||||||||||
| Michael P. Cole | ||||||||||||||
| /s/ RYAN D. CRAIG | Director | |||||||||||||
| Ryan D. Craig | ||||||||||||||
| /s/ MICHAEL B. HORN | Director | |||||||||||||
| Michael B. Horn | ||||||||||||||
| /s/ RON HUBERMAN | Director | April 13, 2022 | ||||||||||||
| Ron Huberman | ||||||||||||||
| /s/ JOHN J. KIELY | Director | April 13, 2022 | ||||||||||||
| John J. Kiely | ||||||||||||||
| /s/ KIRSTEN M. MARRINER | Director | April 13, 2022 | ||||||||||||
| Kirsten M. Marriner | ||||||||||||||
| /s/ VICTOR K. NICHOLS | Director | |||||||||||||
| Victor K. Nichols | ||||||||||||||
| /s/ GEORGE P. PERNSTEINER | Director | |||||||||||||
| George P. Pernsteiner | ||||||||||||||
| /s/ JOHN S. WILSON JR. | Director | April 13, 2022 | ||||||||||||
| John S. Wilson Jr. | ||||||||||||||