UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20172020
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the transition period from________________to________________
Commission File Number: 001-34272



BRIDGEPOINT EDUCATION, INC.ZOVIO INC
(Exact name of registrant as specified in its charter)

Delaware
59-3551629
(State or other jurisdiction of
incorporation or organization)
59-3551629
(I.R.S. Employer
Identification No.)


8620 Spectrum Center Blvd.
San Diego, CA 921231811 E. Northrop Blvd, Chandler, AZ 85286
(Address, including zip code, of principal executive offices)


(858) 668-2586
(Registrant’s telephone number, including area code)



None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐☐Accelerated filer ☒
☒
Non-accelerated filer ☐
(Do not check if a
smaller reporting company)
☐Smaller reporting company ☐☒
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareZVOThe Nasdaq Stock Market LLC
The total number of shares of common stock outstanding as of October 20, 2017,July 24, 2020, was 29,176,487.32,138,856.






BRIDGEPOINT EDUCATION, INC.ZOVIO INC
FORM 10-Q
INDEX
34
34
34
45
Condensed Consolidated Statements of Comprehensive Income (Loss)
5
6
7
89
2531
3543
3644
3745
3745
3745
3848
3848
3848
3848
3949
4050



2


PART I—FINANCIAL INFORMATION
Item 1.  Financial Statements.
BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value)
As of
September 30, 2017		 As of
December 31, 2016		As of
June 30, 2020		As of
December 31, 2019
ASSETS   ASSETS  
Current assets:   Current assets:  
Cash and cash equivalents$165,176
 $307,802
Cash and cash equivalents$75,073  $69,280  
Restricted cash19,921
 24,533
Restricted cash25,904  23,257  
Investments26,965
 49,434
Investments1,251  2,502  
Accounts receivable, net34,303
 26,457
Accounts receivable, net of allowance for credit losses of $11.8 million and $13.7 million at June 30, 2020 and December 31, 2019, respectivelyAccounts receivable, net of allowance for credit losses of $11.8 million and $13.7 million at June 30, 2020 and December 31, 2019, respectively42,237  34,951  
Prepaid expenses and other current assets24,548
 23,467
Prepaid expenses and other current assets20,063  20,524  
Total current assets270,913
 431,693
Total current assets164,528  150,514  
Property and equipment, net10,894
 12,218
Property and equipment, net32,449  34,294  
Operating lease assetsOperating lease assets22,965  18,615  
Goodwill and intangibles, net15,237
 17,419
Goodwill and intangibles, net41,887  44,419  
Other long-term assets5,209
 2,046
Other long-term assets2,291  2,296  
Total assets$302,253
 $463,376
Total assets$264,120  $250,138  
LIABILITIES AND STOCKHOLDERS’ EQUITY   LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:   Current liabilities:  
Accounts payable and accrued liabilities$69,840
 $77,866
Accounts payable and accrued liabilities$58,558  $68,160  
Deferred revenue and student deposits61,715
 74,666
Deferred revenue and student deposits62,065  55,284  
Total current liabilities131,555
 152,532
Total current liabilities120,623  123,444  
Rent liability8,125
 16,508
Rent liability26,871  22,409  
Other long-term liabilities12,632
 13,630
Other long-term liabilities4,621  5,347  
Total liabilities152,312
 182,670
Total liabilities152,115  151,200  
Commitments and contingencies (see Note 13)
 
Commitments and contingencies (see Note 15)Commitments and contingencies (see Note 15)
Stockholders' equity:   Stockholders' equity:  
Preferred stock, $0.01 par value:   Preferred stock, $0.01 par value:  
20,000 shares authorized; zero shares issued and outstanding at both September 30, 2017, and December 31, 2016—
 —
20,000 shares authorized; 0 shares issued and outstanding at both June 30, 2020, and December 31, 201920,000 shares authorized; 0 shares issued and outstanding at both June 30, 2020, and December 31, 2019—  —  
Common stock, $0.01 par value:   Common stock, $0.01 par value:  
300,000 shares authorized; 64,794 issued and 29,165 outstanding at September 30, 2017; 64,035 issued and 46,478 outstanding at December 31, 2016648
 641
300,000 shares authorized; 66,326 and 65,695 issued, and 32,139 and 30,327 outstanding, at June 30, 2020 and December 31, 2019, respectively300,000 shares authorized; 66,326 and 65,695 issued, and 32,139 and 30,327 outstanding, at June 30, 2020 and December 31, 2019, respectively666  660  
Additional paid-in capital200,859
 195,854
Additional paid-in capital176,160  192,413  
Retained earnings437,503
 421,281
Retained earnings382,438  375,180  
Accumulated other comprehensive income (loss)—
 (1)
Treasury stock, 35,629 and 17,557 shares at cost at September 30, 2017, and December 31, 2016, respectively(489,069) (337,069)
Treasury stock, 34,187 and 35,368 shares at cost at June 30, 2020, and December 31, 2019, respectivelyTreasury stock, 34,187 and 35,368 shares at cost at June 30, 2020, and December 31, 2019, respectively(447,259) (469,315) 
Total stockholders' equity149,941
 280,706
Total stockholders' equity112,005  98,938  
Total liabilities and stockholders' equity$302,253
 $463,376
Total liabilities and stockholders' equity$264,120  $250,138  
The accompanying notes are an integral part of these condensed consolidated financial statements.


3


BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Condensed Consolidated Statements of Income (Loss)
(Unaudited)
(In thousands, except per share amounts)

Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended
June 30,		Six Months Ended
June 30,
2017 2016 2017 2016 2020201920202019
Revenue$119,367
 $136,583
 $373,438
 $407,555
Revenue$103,940  $107,495  $201,812  $217,259  
Costs and expenses:  
    Costs and expenses: 
Instructional costs and services57,756
 64,095
 181,943
 200,129
Instructional costs and services44,874  55,088  91,255  107,026  
Admissions advisory and marketing43,669
 52,590
 132,133
 156,798
Admissions advisory and marketing38,802  44,810  80,535  93,882  
General and administrative11,441
 11,604
 37,019
 36,709
General and administrative14,496  22,532  31,986  38,452  
Legal settlement expense—
 16,752
 —
 32,918
Restructuring and impairment charges8,004
 365
 8,004
 2,766
Restructuring and impairment expenseRestructuring and impairment expense483  5,394  3,246  5,423  
Total costs and expenses120,870
 145,406
 359,099
 429,320
Total costs and expenses98,655  127,824  207,022  244,783  
Operating income (loss)(1,503) (8,823) 14,339
 (21,765)Operating income (loss)5,285  (20,329) (5,210) (27,524) 
Other income, net381
 557
 1,165
 1,892
Other income (expense), netOther income (expense), net161  297  (101) 896  
Income (loss) before income taxes(1,122) (8,266) 15,504
 (19,873)Income (loss) before income taxes5,446  (20,032) (5,311) (26,628) 
Income tax expense (benefit)(1,161) 1,211
 (718) (3,622)Income tax expense (benefit)299  (2,435) (12,478) (2,389) 
Net income (loss)$39
 $(9,477) $16,222
 $(16,251)Net income (loss)$5,147  $(17,597) $7,167  $(24,239) 
Income (loss) per share:       Income (loss) per share:  
Basic$0.00
 $(0.20) $0.49
 $(0.35)Basic$0.16  $(0.58) $0.23  $(0.84) 
Diluted$0.00
 $(0.20) $0.47
 $(0.35)Diluted$0.16  $(0.58) $0.23  $(0.84) 
Weighted average number of common shares outstanding used in computing income (loss) per share:       Weighted average number of common shares outstanding used in computing income (loss) per share:  
Basic29,123
 46,315
 33,333
 46,180
Basic32,137  30,215  31,238  28,706  
Diluted29,671
 46,315
 34,193
 46,180
Diluted32,501  30,215  31,495  28,706  
The accompanying notes are an integral part of these condensed consolidated financial statements.


4


BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Condensed Consolidated Statements of Comprehensive Income (Loss)Stockholders’ Equity
(Unaudited)
(In thousands)


 Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
 
 SharesPar ValueTotal
Balance at December 31, 201865,289  $653  $205,157  $429,992  $(508,188) $127,614  
Stock-based compensation—  —  1,706  —  —  1,706  
Exercise of stock options6  1  59  —  —  60  
Stock issued under stock incentive plan, net of shares held for taxes284  2  (757) —  —  (755) 
Net loss—  —  —  (6,642) —  (6,642) 
Balance at March 31, 201965,579  $656  $206,165  $423,350  $(508,188) $121,983  
Stock-based compensation—  —  3,596  —  —  3,596  
Stock issued under employee stock purchase plan29  —  96  —  —  96  
Stock issued under stock incentive plan, net of shares held for taxes20  —  (51) —  —  (51) 
Stock issued under acquisition3  (24,513) 38,873  14,363  
Net loss—  —  —  (17,597) —  (17,597) 
Balance at June 30, 201965,628  $659  $185,293  $405,753  $(469,315) $122,390  
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Net income (loss)$39
 $(9,477) $16,222
 $(16,251)
Other comprehensive income, net of tax:       
     Unrealized gains (losses) on investments—
 (46) 1
 148
Comprehensive income (loss)$39
 $(9,523) $16,223
 $(16,103)

 Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Treasury
Stock
 
 SharesPar ValueTotal
Balance at December 31, 201965,695  $660  $192,413  $375,180  $(469,315) $98,938  
Adoption of accounting standards (Note 2)—  —  —  91  —  91  
Stock-based compensation—  —  4,138  —  —  4,138  
Stock issued under stock incentive plan, net of shares held for taxes338  3  (205) —  —  (202) 
Net income—  —  —  2,020  —  2,020  
Balance at March 31, 202066,033  $663  $196,346  $377,291  $(469,315) $104,985  
Stock-based compensation—  —  802  —  —  802  
Stock issued under employee stock purchase plan57  1  111  —  —  112  
Stock issued under stock incentive plan, net of shares held for taxes236  2  (182) —  —  (180) 
Contingent consideration—  —  1,245  —  —  1,245  
Stock issued for acquisition—  —  (22,162) —  22,162  —  
Repurchase of common stock—  —  —  —  (106) (106) 
Net income—  —  —  5,147  —  5,147  
Balance at June 30, 202066,326  $666  $176,160  $382,438  $(447,259) $112,005  
The accompanying notes are an integral part of these condensed consolidated financial statements.



5


BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Condensed Consolidated Statements of Stockholders’ EquityCash Flows
(Unaudited)
(In thousands)

 Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive (Loss) Income
 
Treasury
Stock
  
 Shares Par Value Total
Balance at December 31, 201563,407
 $634
 $188,863
 $451,321
 $(99) $(337,069) $303,650
Stock-based compensation—
 —
 5,679
 —
 —
 —
 5,679
Exercise of stock options185
 2
 140
 —
 —
 —
 142
Stock issued under employee stock purchase plan16
 1
 111
 —
 —
 —
 112
Stock issued under stock incentive plan, net of shares held for taxes275
 2
 (1,843) —
 —
 —
 (1,841)
Net loss—
 —
 —
 (16,251) —
 —
 (16,251)
Unrealized gains on investments, net of tax—
 —
 —
 —
 148
 —
 148
Balance at September 30, 201663,883
 $639
 $192,950
 $435,070
 $49
 $(337,069) $291,639

 Common Stock 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive (Loss) Income
 
Treasury
Stock
  
 Shares Par Value Total
Balance at December 31, 201664,035
 $641
 $195,854
 $421,281
 $(1) $(337,069) $280,706
Stock-based compensation—
 —
 2,834
 —
 —
 —
 2,834
Exercise of stock options479
 4
 3,795
 —
 —
 —
 3,799
Stock issued under employee stock purchase plan15
 —
 141
 —
 —
 —
 141
Stock issued under stock incentive plan, net of shares held for taxes265
 3
 (1,765) —
 —
 —
 (1,762)
Stock repurchase—
 —
 —
 —
 —
 (152,000) (152,000)
Net income—
 —
 —
 16,222
 —
 —
 16,222
Unrealized gains on investments, net of tax—
 —
 —
 —
 1
 —
 1
Balance at September 30, 201764,794
 $648
 $200,859
 $437,503
 $—
 $(489,069) $149,941
Six Months Ended
June 30,
 20202019
Cash flows from operating activities:  
Net income (loss)$7,167  $(24,239) 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:  
Provision for bad debts6,402  7,525  
Depreciation and amortization5,883  4,198  
Deferred income taxes(4) 75  
Stock-based compensation4,940  5,302  
Noncash lease expense6,427  9,345  
Net loss (gain) on marketable securities117  (203) 
Reassessment of lease charges—  558  
Changes in operating assets and liabilities:  
Accounts receivable(13,598) (8,579) 
Prepaid expenses and other current assets301  (1,355) 
Other long-term assets6  (684) 
Accounts payable and accrued liabilities(9,139) 7,086  
Deferred revenue and student deposits6,781  (7,000) 
Operating lease liabilities(6,409) (11,517) 
Other liabilities(2,158) (2,630) 
   Net cash provided by (used in) operating activities6,716  (22,118) 
Cash flows from investing activities:  
Capital expenditures(1,570) (17,767) 
Purchases of investments(684) (74) 
Capitalized costs for intangible assets(146) (293) 
Cash paid in acquisition, net of cash acquired—  (19,286) 
Sale of investments1,818  —  
   Net cash used in investing activities(582) (37,420) 
Cash flows from financing activities:  
Proceeds from exercise of stock options—  60  
Proceeds from the issuance of stock under employee stock purchase plan112  96  
Borrowings from long-term liabilities2,682  —  
Tax withholdings on issuance of stock awards(382) (806) 
Repurchase of common stock(106) —  
   Net cash provided by (used in) financing activities2,306  (650) 
Net increase (decrease) in cash, cash equivalents and restricted cash8,440  (60,188) 
Cash, cash equivalents and restricted cash at beginning of period92,537  190,584  
Cash, cash equivalents and restricted cash at end of period$100,977  $130,396  
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents$75,073  $104,617  
Restricted cash25,904  20,049  
Long-term restricted cash—  5,730  
Total cash, cash equivalents and restricted cash$100,977  $130,396  
The accompanying notes are an integral part of these condensed consolidated financial statements.



6


BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Condensed Consolidated Statements of Cash Flows (Continued)
(Unaudited)
(In thousands)
 Nine Months Ended September 30,
 2017 2016
Cash flows from operating activities:   
Net income (loss)$16,222
 $(16,251)
Adjustments to reconcile net income (loss) to net cash used in operating activities:   
Provision for bad debts24,440
 23,565
Depreciation and amortization6,821
 10,068
Amortization of premium/discount20
 38
Deferred income taxes25
 —
Stock-based compensation2,834
 5,679
Write-off or impairment of student loans receivable—
 7,542
Net gain on marketable securities(193) (103)
Loss on termination of leased space5,829
 —
Loss on disposal or impairment of fixed assets66
 809
Changes in operating assets and liabilities:   
Accounts receivable(32,286) (29,929)
Prepaid expenses and other current assets(1,081) (2,802)
Student loans receivable—
 876
Other long-term assets(3,164) 2,607
Accounts payable and accrued liabilities(13,920) 5,508
Deferred revenue and student deposits(12,952) (13,049)
Other liabilities(9,405) (7,490)
   Net cash used in operating activities(16,744) (12,932)
Cash flows from investing activities:   
Capital expenditures(2,876) (1,562)
Purchases of investments(83) (20,237)
Capitalized costs for intangible assets(438) (649)
Maturities of investments22,725
 14,714
   Net cash provided by (used in) investing activities19,328
 (7,734)
Cash flows from financing activities:   
Proceeds from exercise of stock options3,799
 142
Proceeds from the issuance of stock under employee stock purchase plan141
 112
Tax withholdings on issuance of stock awards(1,762) (1,841)
Repurchase of common stock(152,000) —
   Net cash used in financing activities(149,822) (1,587)
Net decrease in cash, cash equivalents and restricted cash(147,238) (22,253)
Cash, cash equivalents and restricted cash at beginning of period332,335
 306,830
Cash, cash equivalents and restricted cash at end of period$185,097
 $284,577
    
Supplemental disclosure of non-cash transactions:   
Purchase of equipment included in accounts payable and accrued liabilities$67
 $—
Issuance of common stock for vested restricted stock units$4,520
 $4,696
Six Months Ended
June 30,
20202019
Supplemental disclosure of non-cash transactions:
Purchase of equipment included in accounts payable and accrued liabilities$513  $4,637  
Issuance of common stock for vested restricted stock units$1,270  $2,628  
Consideration for acquisition in accounts payable and accrued liabilities$—  $483  
Issuance of common stock for acquisitions$—  $14,363  
The accompanying notes are an integral part of these condensed consolidated financial statements.


7




BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)



1. Nature of Business
Bridgepoint Education, Inc. (together with its subsidiaries, theZovio Inc (the “Company”), incorporated in 1999,a Delaware corporation, is a provideran education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions to help learners and leaders achieve their aspirations. One of postsecondary education services. Its wholly-ownedits wholly owned subsidiaries, Ashford University® and University of the RockiesSM(“Ashford”), areis a regionally accredited academic institutions,institution, which deliverdelivers programs primarily online. Ashford University offers associate’s, bachelor’s, and master’s programs, and University of the Rockies offers master’s and doctoral programs.
In April 2019, the Company acquired both Fullstack Academy, Inc (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”), both of which became wholly-owned subsidiaries of the Company. The operating results of Fullstack and TutorMe subsequent to the acquisition dates have been included in the Company's condensed consolidated results of operations. For further information regarding these acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Bridgepoint Education, Inc.the Company and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016,2019, which was filed with the Securities and Exchange Commission (the “SEC”(“SEC”) on March 7, 2017.February 20, 2020. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.
Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP for complete annual consolidated financial statements.
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. Actual results could differ from those estimates.
ReclassificationsComprehensive Income (Loss)
Certain reclassifications have been madeThe Company has no components of other comprehensive income (loss), and therefore, comprehensive income (loss) equals net income (loss).
Accounts Receivable and Allowance for Credit Losses
Accounts receivable represent the Company’s unconditional right to consideration arising from the prior financial statements to conform totransfer of tuition, digital materials, and technology and other fees under contracts with customers. Students generally fund their education costs through grants and/or loans under various Title IV programs, tuition assistance from military and corporate employers, and/or personal funds. With the current year presentation. During 2016,exception of students enrolled under the Company adopted Accounting Standards UpdateFull Tuition Grant (“ASU”FTG”) 2016-18, Statement of Cash Flows (Topic 230)program, payments are due on the respective course start date and reclassified certain restricted cash amounts for the period ended September 30, 2016 within the condensed consolidated statements of cash flows. These reclassifications had no effect on previously reported results of operations or retained earnings. The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the condensed consolidated balance sheets to the amounts shown in the condensed consolidated statements of cash flows.are generally considered delinquent 120 days after that date.
 As of
September 30, 2017		 As of
December 31, 2016
Cash and cash equivalents$165,176
 $307,802
Restricted cash19,921
 24,533
Total cash, cash equivalents and restricted cash$185,097
 $332,335


8




BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Accounts receivable are initially recorded at the amount management expects to collect under each customer contract and are adjusted for an allowance for credit losses at each reporting period. The Company determines its allowance for credit losses using a loss-rate method combined with an aging schedule approach, which is appropriate given the short-term nature of a substantial majority of the Company’s receivables and as collections vary significantly based upon a receivable’s aging bucket. Also, historical loss information is a reasonable basis on which to determine current expected credit losses for accounts receivable held at the reporting date because the risk characteristics of the Company’s customers and its credit practices have not changed significantly over time. The Company calculates separate historical loss rates for receivables under the FTG program and receivables from all other customers, on the basis of the different risk profiles and historical loss-rate experience with each type of customer. Additionally, the Company continuously monitors macroeconomic activity as well as other current conditions (e.g., internal Title IV processing times, economic downturns, cohort default rates, etc.) and their potential impact on collections to ensure the historical experience remains in line with current conditions and future short-term expectations.
The allowance for credit losses is recorded within instructional costs and services in the consolidated statements of income (loss). The Company writes off accounts receivable when the student account is deemed uncollectible, which typically occurs when the Company has exhausted all collection efforts.
Goodwill and Indefinite-Lived Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment annually, or more frequently if events and circumstances warrant. Historically, this testing has been performed as of October 1st of each fiscal year, however the Company determined that the testing date should be moved up to August 31st of each fiscal year. The Company does not consider this change to be material. The Company believes the timing of assessment is preferable as it better aligns with the Company’s planning and forecasting process and also provides additional time to complete the annual assessment in advance of quarterly reporting deadlines. The change in assessment date did not delay, accelerate, or avoid a potential impairment charge.
The Company has three distinct reporting units including (i) Zovio (which includes Ashford), (ii) Fullstack and (iii) TutorMe. To evaluate the impairment of goodwill, the Company first assesses 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, the Company assesses the fair value of the assets to determine whether they are 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 may 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.
The Company's assessment through the second quarter of 2020 has not resulted in any impairment of its goodwill or indefinite-lived intangibles.
Notes Payable
The fair value of the Company’s outstanding notes payable is estimated using the net present value of the payments, discounted at an interest rate that is consistent with market interest rates. The Company entered into a contract whereby its 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 five years from the contract start date of June 1, 2019.
Recent Accounting Pronouncements
In May 2014,June 2016, the Financial Accounting Standards Board (the “FASB”)FASB issued ASU 2014-09, Revenue2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The new standard is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. ASU 2016-13 requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The new standard also requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These
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ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. ASU 2016-03 is effective for SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company applied the new standard, including all applicable updates, effective January 1, 2020, using a loss-rate method combined with an aging schedule approach. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”). This ASU modifies the disclosure requirements on fair value measurements in Topic 820 and removed, updated and added certain disclosure requirements. Some of these changes include, removing the amount and reason for transfers between Level 1 and Level 2 of the fair value hierarchy, clarification of measurement uncertainty disclosure, and changes in realized gains and losses for the period included in other comprehensive income for recurring level 3 fair value measurements held as the end of the reporting period, among others. The amendments in this ASU are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. The adoption of ASU 2018-13 did not have a material impact on the Company’s consolidated financial statements.
3. Business Combinations
Acquisition of Fullstack Academy, Inc.
On April 1, 2019, the Company acquired Fullstack, a coding academy headquartered in New York, by acquiring all of its outstanding shares, pursuant to an Agreement and Plan of Reorganization (the “Fullstack Merger Agreement”). As of March 31, 2019, Fullstack had a carrying value of approximately $7.1 million of assets, excluding goodwill. At the closing of the Fullstack acquisition, the equityholders of Fullstack received consideration consisting of $17.7 million in cash (less purchase price adjustments of $1.8 million, plus third-party expenses of $2.0 million), and an aggregate of 2,443,260 shares of the Company’s common stock, subject to escrow adjustments. Additionally, under the Fullstack Merger Agreement, the equityholders of Fullstack will be entitled to receive up to 2,250,000 contingent shares of the Company’s common stock (the “Fullstack Contingent Consideration”). The Fullstack Merger Agreement contains an employee incentive retention pool of up to $5.0 million in cash, payable at specified times over a two-year period.
The assets and liabilities of Fullstack were recorded on the Company’s condensed consolidated balance sheets at their estimated fair values as of April 1, 2019, the acquisition date. Fullstack’s results of operations are included in the Company’s condensed consolidated statements of income (loss) from Contractsthat date. Fullstack recognized revenue of $9.2 million, had an operating loss of $10.6 million, and net loss of $10.6 million for the period from acquisition through December 31, 2019. See additional supplemental pro forma financial information below. For the twelve months ended December 31, 2019, the Company recorded acquisition-related expenses of $4.7 million, in general and administrative on the consolidated statements of income (loss), associated with Customers (Topic 606), which supersedes the Fullstack acquisition. The Company accounts for business combinations using the acquisition method of accounting.
The following table summarizes the purchase price, as well as the final allocation of the purchase price relating to the assets and liabilities purchased (in thousands):
Cash consideration for acquired assets$17,743 
Fair value of equity12,336 
Fair value of contingent consideration payable3,250 
Total purchase price$33,329 

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ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Purchase Price Allocation:
Cash and cash equivalents$585 
Accounts receivable5,604 
Prepaid and other assets665 
Property and equipment167 
Operating lease assets1,297 
Intangible assets11,605 
Other long-term assets20 
Accounts payable and accrued liabilities(496)
Deferred revenue(2,350)
Long-term liabilities(1,297)
Total identifiable net assets acquired$15,800 
Deferred tax liability(2,166)
Goodwill19,695 
Total purchase consideration$33,329 
The fair values assigned to assets acquired and liabilities assumed for Fullstack were based on management's best estimates and assumptions as of the reporting date. The fair value of the consideration to be paid exceeded the fair value of the net assets acquired and liabilities assumed, resulting in goodwill being recorded. Goodwill arising from the acquisition consists largely of future performance expected to be generated from new university and student relationships. None of the goodwill recognized is expected to be deductible for income tax purposes. The acquired intangible assets primarily relate to developed curriculum and trademarks, as well as university and student relationships, and have useful lives that range from 2 to 10 years.
The fair value of the common shares issued as part of the consideration paid was determined on the basis of the closing market price of the Company’s shares on the acquisition date, and also incorporated a discount for lack of marketability rates for various holding periods.
The Fullstack Contingent Consideration are issuable, subject to the terms and conditions of the Fullstack Merger Agreement. Of the total contingent 2,250,000 shares, (i) 1,250,000 were based upon final determination of the achievement of certain employee retention requirements and was expensed over the retention period, (ii) 500,000 shares are based upon 2020 revenue recognition requirementsperformance, earned on a sliding scale, in Accounting Standards Codification (“ASC”) Topic 605, Revenue Recognition. This literature isthe event that revenues for Fullstack are between $25.0 million and $35.0 million, and (iii) 500,000 shares are based on contract performance milestones in 2019 and 2020, earned on a sliding scale, in the event Fullstack obtains between 4 and 8 new university contracts. The retention-based shares were achieved and paid out as of April 1, 2020. The fair value of the remaining performance-based Fullstack Contingent Consideration arrangements was estimated by applying a Monte Carlo simulation, based on the principleresult of forecast information. These measures are based on significant inputs that are not observable by the market, and are therefore deemed to be Level 3 inputs. At each subsequent reporting date, the Company will remeasure the contingent consideration and recognize any changes in value, if necessary. If the probability of achieving the performance target significantly changes from what was initially anticipated, the change could have a significant impact on the Company’s financial statements in the period recognized. Fullstack obtained 8 new university contracts by June 30, 2020. As such, the valuation of the related 500,000 shares related to contract performance milestones was reclassified to equity as of that date. For further information regarding fair valuation, refer to Note 6, “Fair Value Measurements” to the condensed consolidated financial statements.
Acquisition of TutorMe.com, Inc.
On April 3, 2019, the Company acquired TutorMe, a provider of on-demand tutoring and online courses, headquartered in California, by acquiring all of its outstanding shares, pursuant to an Agreement and Plan of Reorganization (the “TutorMe Merger Agreement”). As of March 31, 2019, TutorMe had a carrying value of $0.6 million of assets, excluding goodwill. At the closing of the TutorMe acquisition, in exchange for all outstanding shares of TutorMe capital stock and other rights to acquire or receive capital stock of TutorMe, the Company (i) paid a total of $3.0 million in cash, subject to certain purchase price
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ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
adjustments, (ii) issued a total of 309,852 shares of the Company’s common stock, and (iii) assumed all issued and outstanding options of TutorMe (the “Assumed Options”), of which a total of 231,406 shares of the Company’s common stock are underlying the Assumed Options that are subject to certain time-based vesting requirements and a total of 79,199 shares of the Company’s common stock are underlying the Assumed Options that are subject to certain performance-based vesting requirements.
Separately, the Company (x) paid a total of approximately $1.2 million in cash to certain service providers of TutorMe as a transaction bonus and (y) issued a total of 293,621 Performance Stock Units (“PSUs”) to certain continuing service providers of TutorMe pursuant to the Company’s 2009 Stock Incentive Plan (as amended) and a restricted stock unit agreement.
The assets and liabilities of TutorMe were recorded on the Company’s condensed consolidated balance sheets at their estimated fair values as of April 3, 2019, the acquisition date. TutorMe’s results of operations are included in the Company’s condensed consolidated statements of income (loss) from that date. TutorMe recognized revenue of $0.9 million, had an operating loss of $3.2 million, and net loss of $3.2 million for the period from acquisition through December 31, 2019. See additional supplemental pro forma financial information below. For the twelve months ended December 31, 2019, the Company recorded acquisition-related expenses of $1.9 million, in general and administrative on the consolidated statements of income (loss), associated with the TutorMe acquisition. The Company accounts for business combinations using the acquisition method of accounting.
The following table summarizes the purchase price, as well as the final allocation of the purchase price relating to the assets and liabilities purchased (in thousands):
Cash consideration for acquired assets$3,028 
Fair value of equity2,026 
Total purchase price$5,054 

Purchase Price Allocation:
Cash and cash equivalents$214 
Accounts receivable46 
Intangible assets1,730 
Accounts payable and accrued liabilities(35)
Deferred revenue(200)
Long-term liabilities(3)
Total identifiable net assets acquired$1,752 
Deferred tax liability(260)
Goodwill3,562 
Total purchase consideration$5,054 
The fair value assigned to assets acquired and liabilities assumed for TutorMe are based on management's best estimates and assumptions as of the reporting date. The fair value of the consideration to be paid exceeded the fair value of the net assets acquired and liabilities assumed, resulting in goodwill being recorded. Goodwill arising from the acquisition consists largely of future performance expected to be generated from new university and student relationships, as well as the developed technology. None of the goodwill recognized is expected to be deductible for income tax purposes. The acquired intangible assets primarily relate to developed technology, as well as university and student relationships, and have useful lives that range from 2 to 10 years.
The fair value of equity includes the common shares issued as part of the consideration paid was determined on the basis of the closing market price of the Company’s shares on the acquisition date, which also incorporated a discount for lack of marketability rates for various holding periods.
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ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Supplemental Pro Forma Information (Unaudited)
The following table presents unaudited pro forma financial information, as if all acquisitions had been included in the company’s results as of January 1, 2018 (in thousands, except per share amounts):
Year Ended December 31,
20192018
Revenue$421,390  $457,208  
Net income (loss)$(56,661) $4,311  
Basic income (loss) per share$(1.92) $0.16  
Diluted income (loss) per share$(1.92) $0.16  
The unaudited supplemental pro forma financial data has been calculated after applying our accounting policies and adjusting the historical results of Fullstack and TutorMe with pro forma adjustments, net of tax, that assume the acquisition occurred on January 1, 2018.
The unaudited supplemental pro forma financial data does not reflect the potential realization of revenue synergies or cost savings, nor does it reflect other costs relating to the integration of the acquired companies. This pro forma financial information should not be considered indicative of the results that would have actually occurred if the acquisition had been consummated on January 1, 2018, nor are they indicative of future results.
4. Revenue Recognition
Revenues are recognized to depictwhen control of the transfer ofpromised goods or services are transferred to the Company’s customers in an amount that reflects the consideration to which the entityCompany expects to be entitled in exchange for those goods or services. The accounting guidance also requires additional disclosure regardingDetermining whether a valid customer contract exists includes an assessment of whether amounts due under 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. ASU 2014-09 can be adopted using one of two retrospective application methods. In August 2015, the FASB issued ASU 2015-14, Deferral of the Effective Date, which deferred the effective date of ASU 2014-09 by one year, to fiscal years beginning after December 15, 2017. The FASB subsequently issued various updates affecting the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The effective dates and transition requirements for each of the following updatescontract are the same as those described for ASU 2014-09 noted above.collectible. The Company plans to adopt ASU 2014-09 and all its related topics in the first quarter of 2018 and currently expects to use the modified retrospective application method. During the first three quarters of 2017, the Company continued to progress in its evaluation of the impact on accounting policies and internal processes and controls the new standard may have on its revenue streams. During the current quarter, the Company neared completion of its technical accounting analysis for all contracts. Further, it commenced efforts in quantifying the impact of anticipated model changes, drafting enhanced disclosures, and designing the related changes in processes and internal controls. Under Topic 605, tuition revenues are recognized pro-rata over the applicable period of instruction, which the Company believes is consistent with the revenue recognition method required by the new standard. Also under Topic 605, the Company recognizes revenue upon the receipt of cash in situations where collectibility is not reasonably assured. This accounting treatment is not allowed under Topic 606 and will require changes to be made. Further, the Company will be required to expand its current disclosures to be in compliance with Topic 606. As the Company completes its evaluation, additional impacts may be identified. The Company has not finalized its quantification efforts, however, the transition to Topic 606 could have a material impact on the Company’s condensed consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases)performs this assessment at the lease commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. The new lease guidance simplifies the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public companies should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presentedevery contract and subsequently thereafter if new information indicates there has been a significant change in facts and circumstances.
The Company’s contracts with customers generally include multiple performance obligations, which it identifies by assessing whether each good and service promised in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired beforecontract is distinct. For each performance obligation, the earliest comparative period presented. LesseesCompany allocates the transaction price, including fixed and lessors may not apply a full retrospective transition approach. The Company continues to evaluate the impact the adoption of ASU 2016-02 will havevariable consideration, on the Company’s condensed consolidated financial statements.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The update includes multiple provisions intended to simplify various aspectsbasis of the accounting for share-based payments. relative standalone selling prices of each good and service in the contract, which is determined using observable prices.
The update was aimed at reducingfollowing table presents the cost and complexity of the accounting for share-based payments. ASU 2016-09 became effective for public companies for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The Company adopted this update as of January 1, 2017. The adoption of ASU 2016-09 did not have a material impactCompany’s net revenue disaggregated based on the Company’s condensed consolidated financial statements.revenue source (in thousands):
In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
Tuition revenue, net$95,316  $97,729  $184,350  $196,686  
Digital materials revenue, net5,634  6,201  11,606  13,058  
Technology fee revenue, net2,514  3,094  5,000  6,525  
Other revenue, net (1)
476  471  856  990  
Total revenue, net$103,940  $107,495  $201,812  $217,259  
(1) Primarily consists of revenues generated from services such as graduation fees, transcript fees, and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The update simplifies the measurement of goodwill by eliminating Step 2 from the goodwill impairment test. The annual or interim goodwill impairment test is performed by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the

other miscellaneous services.

13
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BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)


reporting unit’s fair value. The update also eliminatesfollowing table presents the requirementsCompany’s net revenue disaggregated based on the timing of revenue recognition (in thousands):
 Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
Over time, over period of instruction$84,083  $88,732  $162,213  $179,446  
Over time, full tuition grant (1)
14,642  12,888  28,843  25,310  
Point in time (2)
5,215  5,875  10,756  12,503  
Total revenue, net$103,940  $107,495  $201,812  $217,259  
(1)Represents revenue generated from the FTG program.
(2)Represents revenue generated from digital textbooks and other miscellaneous fees.

The Company operates under one reportable segment and generates the majority of its revenue from tuition, technology fees, and digital materials related to students whose primary funding source is governmental funding. Tuition represents amounts charged for any reporting unitcourse instruction, and technology fees represent amounts charged for the students’ use of the technology platform on which course instruction is delivered. Digital materials fees represent amounts charged for digital textbooks that accompany the majority of courses taught at Ashford. With the exception of students attending courses within the three-week conditional admission, the majority of tuition and technology fees are recognized as revenue as control of the services is transferred to the student, which occurs over the applicable period of instruction. 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 day of the course. Revenue generated from students within the conditional admission period is deferred and recognized when the student matriculates into Ashford, which occurs in the fourth week of the course.
Ashford’s online students generally enroll in a program that encompasses a series of five to six-week courses that are taken consecutively over the length of the program. With the exception of those students under conditional admission and students enrolled under the FTG program, online students are billed on a payment period basis on the first day of a course. Students under conditional admission are billed for the payment period upon matriculation.
If a student's attendance in a class precedes the receipt of cash from the student's source of funding, the Company establishes an account receivable and corresponding deferred revenue in the amount of the tuition due for that payment period. Cash received either directly from the student or from the student's source of funding reduces the balance of accounts receivable due from the student. Financial aid from sources such as the federal government's Title IV programs pertains to the online student's award year and is generally divided into two disbursement periods. As such, each disbursement period may contain funding for up to four courses. Financial aid disbursements are typically received during the online student's attendance in the first or second course. Since the majority of disbursements cover more courses than for which a student is currently enrolled, the amount received in excess effectively represents a prepayment from the online student for up to four courses. At the end of each accounting period, the deferred revenue and related account receivable balances are reduced to present amounts attributable to the current course.
In certain cases, Ashford provides scholarships to students who qualify under various programs. These scholarships are recognized as direct reductions of revenue consistent with the timing of recognition associated with the related performance obligations. Also, for some customers, the Company does not expect to collect 100% of the consideration to which we are contractually entitled and, as a result, those customers may receive discounts or price adjustments that, based on historical Company practice, represent implied price concessions and are accounted for as variable consideration. The majority of these price concessions relate to amounts charged to students for goods and services, which management has determined will not be covered by the student’s primary funding source (generally, government aid) and, as a result, the student will become directly financially responsible for them. The reduction in the transaction price that results from this estimate of variable consideration reflects the amount the Company does not expect to be entitled to in exchange for the goods and services it will transfer to the students, as determined using historical experience and current factors, and includes performing a constraint analysis. These
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ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
estimates of variable consideration are recorded as direct reductions of revenue consistent with the timing of recognition associated with the related performance obligation.
A portion of tuition revenue, technology fee revenue, and digital materials revenue is generated from contracts with students enrolled under the FTG program, which is a 12-month grant that, when combined with a zerocorporate partner’s annual tuition assistance program, enables eligible students to earn their degree without incurring student loan debt. Students enrolled under this program are eligible to take up to ten undergraduate or negative carrying amount to perform a qualitative assessmenteight graduate courses per 12-month grant period and if it fails that qualitative test, to perform Step 2must first utilize 100% of the goodwill impairment test. An entity still hasfunds awarded under their employer’s annual tuition assistance program before they can be awarded the option to performFTG grant. The grants awarded by Ashford under the qualitative assessmentFTG program are considered a material right, and, as such, the Company records a contract liability for a reporting unit to determine ifportion of the quantitative impairment testconsideration received or due under these contracts. The contract liability is necessary. The update should be applied on a prospective basis. For public companies, the update is effective for any annual or interim goodwill impairment testsrecorded in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted ASU 2017-04 as of January 1, 2017,deferred revenue and there was no impactstudent deposits on the Company’s condensed consolidated financial statements.
In May 2017,balance sheets, and further discussed in the FASB issued ASU 2017-09, Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting.deferred revenue section below. The update provides clarity and reduces diversity in practice regarding the modificationstandalone selling price of the termsmaterial right is determined based on the observable standalone selling price of the courses. The transaction price in each FTG contract is allocated to this material right on a relative standalone selling price basis. The contract liability is recognized as revenue at the earlier of satisfaction of the future obligation or its expiration. Billing of products and conditionsservices transferred under an FTG student contract generally occurs after the conclusion of a share-basedcourse. There are no material differences between the timing of the products and services transferred and the payment award. The amendmentsterms.
Deferred Revenue
Deferred revenue consists of cash payments that are received or due in ASU 2017-09advance of the Company’s performance as well as deferrals associated with certain contracts that include guidance on determining which changes to the terms and conditions of share-based payment awards require an entity to apply modification accounting under Topic 718. The amendments are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Company does not believe that the adoption of ASU 2017-09 will have a material impactright.
Below are the opening and closing balances of deferred revenue from the Company’s contracts with customers (in thousands):
20202019
Deferred revenue opening balance, January 1$23,356  $21,768  
Deferred revenue closing balance, June 3032,101  24,009  
Increase$8,745  $2,241  
For further information on deferred revenue and student deposits, refer to Note 8, “Other Significant Balance Sheet Accounts - Deferred Revenue and Student Deposits” and for further information on receivables, refer to Note 7, “Accounts Receivable, Net” within the Company’s condensed consolidated financial statements.
For the majority of the Company’s customers, payment for products and services is due at the beginning of each course. Under special circumstances, some customers may be offered non-interest bearing payment plan arrangements that can extend for up to three years. These payment plan arrangements give rise to significant financing components. However, since the Company historically collects substantially all of the consideration to which it expects to be entitled under such payment plans within one year or less, the impact of these significant financing components is not material to any period presented.
3.The difference between the opening and closing balances of deferred revenue primarily results from the timing difference between the Company’s performance and the customer’s payment. For the six months ended June 30, 2020, the Company recognized $22.6 million of revenue that was included in the deferred revenue balance as of January 1, 2020. For the six months ended June 30, 2019, the Company recognized $21.3 million of revenue that was included in the deferred revenue balance as of January 1, 2019. Amounts reported in the closing balance of deferred revenue are expected to be recognized as revenue within the next 12 months.
5. Restructuring and Impairment Charges
The Company has implemented various restructuring plans to better align its resources with its business strategy and the related charges are recorded in the restructuring and impairment charges line item on the Company’s condensed consolidated statements of income (loss). During each of the three and nine months ended September 30, 2017, the Company recognized $8.0 million, respectively, as restructuring charges, whereas for the three and nine months ended September 30, 2016 these charges were $0.4 million and $2.8 million, respectively.Expense
During the third quarter of 2017, the Company executed a strategic reorganization resulting in reductions in force. The reorganization event was part of the Company’s overall reassessment of resources based upon benchmarking activities with competitors in the Company’s industry. As a result, for the three and nine months ended September 30, 2017, the Company recognized $2.2 million as restructuring charges relating to severance costs for wages and benefits. There were no such charges during the three months ended SeptemberJune 30, 2016. During the nine months ended September 30, 2016,2020 and 2019, the Company recognized $2.2$0.5 million asand $5.4 million, respectively, of restructuring charges relating to severance costs for wages and benefits. Theimpairment expense. During the six months ended June 30, 2020 and 2019, the Company anticipates these costs will be paid out by the endrecognized $3.2 million and $5.4 million, respectively, of restructuring and impairment expense. These expenses were comprised of the fourth quarter of 2017 from existing cash on hand.components described below.
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ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company had previously vacated or consolidated properties in San Diego and Denver, and subsequently reassessed its obligations on non-cancelable leases. The fair value estimate of these non-cancelable leases is based on the contractual lease costs over the remaining term, partially offset by estimated future sublease rental income. The estimated rental income considers subleasesIn addition, the Company has executed or expects to execute, current commercial real estate market data and conditions, and comparable transaction data and qualitative factors specific to the related facilities. As of September 30, 2017, the Company was unable to secure subleases for certain ofrelocated its headquarters from San Diego, properties. As such, the Company concluded that the amount of expected future cash flows from sublease income associated with pre-existing restructuring liabilities have changed.California to Chandler, Arizona. As a result of these lease reassessments and relocation, during the three months ended June 30, 2020 and 2019, the Company recorded an incrementalrecognized expense of $0.2 million and $0.5 million, respectively, and during the six months ended June 30, 2020 and 2019, the Company recognized $0.3 million and $0.6 million, respectively.
For the three months ended June 30, 2020 and 2019, the Company recognized $0.3 million and $5.0 million, respectfully, of restructuring charge. During eachand impairment expense relating to severance costs for wages and benefits. For the six months ended June 30, 2020 and 2019, the Company recognized $3.0 million and $5.0 million, respectively. The reorganization was part of the Company’s overall reassessment of resources.
For the three and ninesix months ended SeptemberJune 30, 2017,2019, the Company recognized $5.8 million as restructuring charges relating to lease exit costs. During the three and nine months ended September 30, 2016, the Company recorded $0.5 million and $0.7a credit of $0.1 million, respectively, as a reversal to restructuring charges relating to lease exit and other costs, due to the reassessment of estimatesimpairment, relating to the closure of a component of the Ashford Clinton Campus.
The Company closed Ashford University’s residential campus in Clinton, Iowa during the second half of 2016. With this closure, ground-based Ashford University students were provided opportunities to continue to pursue their degrees as reflected in their respective student transfer agreements. The Company previouslyCompany's business. No such credit or expense was recorded restructuring charges relating to future cash expenditures for student transfer agreements. For the three and ninesix months ended SeptemberJune 30, 2017, no2020.
The following table summarizes the amounts were added torecorded in the amount previously recorded.restructuring and impairment expense line item on the Company’s condensed consolidated statements of income (loss) for each of the periods presented (in thousands):


10


BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

 Three Months Ended
June 30,		Six Months Ended
June 30,
 2020201920202019
Student transfer agreement costs (credit)$—  $(139) $—  $(139) 
Severance costs250  5,011  2,972  5,011  
Lease exit and other costs233  522  274  551  
Total restructuring and impairment expense$483  $5,394  $3,246  $5,423  
The following table summarizes the changes in the Company's restructuring and impairment liability by type during the ninesix months ended SeptemberJune 30, 20172020 (in thousands):
 Student Transfer Agreement Costs Severance Costs Lease Exit and Other Costs Total
Balance at December 31, 2016$1,592
 $567
 $18,457
 $20,616
Restructuring and impairment charges—
 2,175
 5,829
 8,004
Payments(867) (1,457) (9,856) (12,180)
Balance at September 30, 2017$725
 $1,285
 $14,430
 $16,440
Student Transfer Agreement CostsSeverance CostsLease Exit and Other CostsTotal
Balance at December 31, 2019$1,296  $8,001  $976  $10,273  
Restructuring and impairment expense—  2,972  274  3,246  
Payments and adjustments(14) (9,789) (328) (10,131) 
Balance at June 30, 2020$1,282  $1,184  $922  $3,388  
The restructuring liability amounts are recorded within either the (i) accounts payable and accrued liabilities account, (ii) rentlease liability account or (iii) other long-term liabilities account on the condensed consolidated balance sheets.
4. Investments6. Fair Value Measurements
The following tables summarize the fair value information for investments as of SeptemberJune 30, 20172020 and December 31, 2016,2019, respectively (in thousands):
As of June 30, 2020
Level 1Level 2Level 3Total
Mutual funds$1,251  $—  $—  $1,251  

16


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
 As of September 30, 2017
 Level 1 Level 2 Level 3 Total
Mutual funds$1,965
 $—
 $—
 $1,965
Certificates of deposit—
 25,000
 —
 25,000
Total$1,965
 $25,000
 $—
 $26,965
 As of 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
As of December 31, 2019
Level 1Level 2Level 3Total
Mutual funds$2,502  $—  $—  $2,502  
Contingent consideration$—  $—  $3,150  $3,150  
The mutual funds in the tables above, include mutual funds,represent the deferred compensation asset balances, which are considered Level 1 investments and consist of investments relating to thebe trading securities. The Company’s deferred compensation plan. The tables above also include amounts related to investments classified as other investments, such as certificates of deposit, which are carried at amortized cost. The amortized cost of such other investments approximated fair value at each balance sheet date. The assumptions used in these fair value estimates are considered other observable inputs and therefore these investments are categorized as Level 2 investments under the accounting guidance. The Company’s Level 2 investments are valued using readily available pricing sources that utilize market observable inputs, including the current interest rate for similar types of instruments. There were no transfers between level categories for our investments during the periods presented. The Company also holds money market securities, whichasset balances are recorded in the cash and cash equivalentsinvestments line item on the Company’s condensed consolidated balance sheets, thatand are classified as Level 1 securities. There were no transfers between any level categories for investments during the periods presented.


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BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The following tables summarize if there are anyThere were no differences between amortized cost and fair value of investments as of SeptemberJune 30, 2017 and2020 or December 31, 2016, respectively (in thousands):
 September 30, 2017
     Gross unrealized  
 Maturities Amortized Cost Gain Loss Fair Value
Short-term         
Certificates of deposit1 year or less $25,000
 $—
 $—
 $25,000
Total  $25,000
 $—
 $—
 $25,000
The above table does not include the $2.0 million2019, and 0 reclassifications out of mutual funds as of September 30, 2017, which are recorded as trading securities.
 December 31, 2016
     Gross unrealized  
 Maturities Amortized Cost Gain Loss Fair Value
Short-term         
Corporate notes and bonds1 year or less $22,747
 $2
 $(3) $22,746
Certificates of deposit1 year or less 25,000
 —
 —
 25,000
Total  $47,747
 $2
 $(3) $47,746
The above table does not include the $1.7 million of mutual funds as of December 31, 2016, which are recorded as trading securities.
The Company records changes in unrealized gains and losses on its investments during the period in the accumulated other comprehensive income (loss)during either the six months ended June 30, 2020 or 2019.
The contingent consideration represents the fair value of shares to be issued as part of the Fullstack acquisition. As of December 31, 2019, the contingent consideration is classified as Level 3 and was determined by use of a Monte Carlo simulation, which models 100,000 scenarios of the future revenue and university contracts over the measurement period, which were then present-valued using a risk-free rate. As of December 31, 2019, the contingent consideration is recorded in the other long-term liabilities line item on the Company’s condensed consolidated balance sheets. There were no net unrealized gains forThe fair value of the threeaccrued contingent consideration is remeasured each reporting period and may result in a higher or lower fair value measurement. The fair value increases or decreases relative to the changes in stock price, as well as due to the probabilities of achieving the forecast results. Changes in fair value resulting from changes in the likelihood of contingent payments are included in the general and administrative expenses in the condensed consolidated statements of income (loss). During the six months ended SeptemberJune 30, 2017.2020, there was a decrease in fair value, and therefore a reversal of expense of $1.6 million. However, as of June 30, 2020, the new university contract contingency was met, and therefore the valuation of the related 500,000 shares related to contract performance milestones was reclassified to equity as of that date. For further information regarding acquisitions, refer to Note 3, “Business Combinations” to the three months ended September 30, 2016, the Company recorded net unrealized losses of $46,000 in accumulated other comprehensive income (loss). For the nine months ended September 30, 2017 and 2016, the Company recorded net unrealized gains of $1,000 and $148,000, respectively, in accumulated other comprehensive income (loss).condensed consolidated financial statements.
There were no reclassifications out of accumulated other comprehensive income (loss) during either the nine months ended September 30, 2017 and 2016.
5.7. Accounts Receivable, Net
Accounts receivable, net, consistsconsisted of the following (in thousands):
As of
September 30, 2017		 As of
December 31, 2016		As of
June 30, 2020		As of
December 31, 2019
Accounts receivable$52,356
 $42,611
Accounts receivable$54,002  $48,663  
Less allowance for doubtful accounts(18,053) (16,154)
Less allowance for credit lossesLess allowance for credit losses11,765  13,712  
Accounts receivable, net$34,303
 $26,457
Accounts receivable, net$42,237  $34,951  
As of September 30, 2017 and December 31, 2016, there was an immaterial amount of accounts receivable with a payment due date of greater than one year.


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BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

The following table presents the changes in the allowance for doubtful accounts for accounts receivablecredit losses for the periods indicatedsix months ended June 30, 2020 (in thousands):
Beginning
Balance
Charged to
Expense
Write-offsRecoveries of amounts
Ending
Balance
FTG-related allowance$1,749  $1,193  $(983) $234  $2,193  
Non-FTG related allowance11,963  5,209  (10,833) 3,233  9,572  
  Total allowance for credit losses$13,712  $6,402  $(11,816) $3,467  $11,765  

17


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
 
Beginning
Balance
 
Charged to
Expense
 Deductions(1) 
Ending
Balance
Allowance for doubtful accounts receivable:       
For the nine months ended September 30, 2017$(16,154) $24,440
 $(22,541) $(18,053)
For the nine months ended September 30, 2016$(10,114) $23,406
 $(19,395) $(14,125)
(1)Deductions represent accounts written off, net of recoveries.
The following table presents the changes in the allowance for credit losses for the six months ended June 30, 2019 (in thousands):
6.
Beginning
Balance
Charged to
Expense
Write-offsRecoveries of amounts
Ending
Balance
FTG-related allowance$1,505  $974  $(1,158) $247  $1,568  
Non-FTG related allowance10,675  6,551  (12,140) 3,189  8,275  
   Total allowance for credit losses$12,180  $7,525  $(13,298) $3,436  $9,843  

8. Other Significant Balance Sheet Accounts
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consistsconsisted of the following (in thousands):
As of
June 30, 2020		As of
December 31, 2019
Prepaid expenses$4,917  $4,593  
Prepaid licenses4,805  2,794  
Prepaid income taxes21  18  
Income tax receivable (1)
8,246  1,695  
Prepaid insurance493  995  
Insurance recoverable370  670  
Other current assets1,211  9,759  
Total prepaid expenses and other current assets$20,063  $20,524  
 As of
September 30, 2017		 As of
December 31, 2016
Prepaid expenses$6,225
 $7,160
Prepaid licenses5,764
 5,183
Income tax receivable8,448
 7,432
Prepaid insurance1,420
 1,291
Insurance recoverable1,159
 1,027
Other current assets1,532
 1,374
Total prepaid expenses and other current assets$24,548
 $23,467
(1) For the six months ended June 30, 2020, the increase in income tax receivable was primarily attributable to the changes in tax law as a result of the CARES Act. For further information regarding the CARES Act, refer to Note 13, “Income Taxes” to the condensed consolidated financial statements.
Property and Equipment, Net
Property and equipment, net, consistsconsisted of the following (in thousands):
As of
June 30, 2020		As of
December 31, 2019
Furniture and office equipment$44,140  $43,579  
Software7,416  7,381  
Leasehold improvements18,031  19,973  
Vehicles22  22  
Total property and equipment69,609  70,955  
Less accumulated depreciation and amortization(37,160) (36,661) 
Total property and equipment, net$32,449  $34,294  
 As of
September 30, 2017		 As of
December 31, 2016
Furniture and office equipment$42,977
 $41,528
Software12,049
 11,979
Leasehold improvements5,238
 4,332
Vehicles22
 22
Total property and equipment60,286
 57,861
Less accumulated depreciation(49,392) (45,643)
Total property and equipment, net$10,894
 $12,218
For the three months ended September June 30, 20172020 and 2016,2019, depreciation and amortization expense related to property and equipment was $1.3$1.6 million and $2.0$1.3 million, respectively. For the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, depreciation and amortization expense related to property and equipment was $4.2$3.2 million and $6.5$2.3 million, respectively.


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13




BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Goodwill and Intangibles, Net
Goodwill and intangibles, net, consistsconsisted of the following (in thousands):
September 30, 2017June 30, 2020
Definite-lived intangible assets:Gross Carrying Amount Accumulated Amortization Net Carrying AmountDefinite-lived intangible assets:Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Capitalized curriculum costs$21,348
 $(18,849) $2,499
Capitalized curriculum costs$13,733  $(12,378) $1,355  
Purchased intangible assets15,850
 (5,679) 10,171
Purchased intangible assets29,185  (13,231) 15,954  
Total definite-lived intangible assets$37,198
 $(24,528) $12,670
 Total definite-lived intangible assets$42,918  $(25,609) $17,309  
Goodwill and indefinite-lived intangibles    2,567
Goodwill and indefinite-lived intangibles24,578  
Total goodwill and intangibles, net    $15,237
Total goodwill and intangibles, net$41,887  
     
December 31, 2016December 31, 2019
Definite-lived intangible assets:Gross Carrying Amount Accumulated Amortization Net Carrying AmountDefinite-lived intangible assets:Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Capitalized curriculum costs$21,153
 $(17,397) $3,756
Capitalized curriculum costs$21,273  $(19,667) $1,606  
Purchased intangible assets15,850
 (4,754) 11,096
Purchased intangible assets29,185  (10,950) 18,235  
Total definite-lived intangible assets$37,003
 $(22,151) $14,852
 Total definite-lived intangible assets$50,458  $(30,617) $19,841  
Goodwill and indefinite-lived intangibles    2,567
Goodwill and indefinite-lived intangibles24,578  
Total goodwill and intangibles, net    $17,419
Total goodwill and intangibles, net$44,419  
For the three months endedSeptember June 30, 20172020 and 2016,2019, amortization expense was $0.8$1.3 million and $1.1$1.4 million,, respectively. For the ninesix months ended SeptemberJune 30, 20172020 and September 30, 2016,2019, amortization expense was $2.6$2.7 million and $3.6$1.9 million, respectively.
The following table summarizes the estimated remaining amortization expense as of each fiscal year ended below (in thousands):
Year Ended December 31,  
Remainder of 2017$758
20182,481
20191,758
20201,461
20211,277
Thereafter4,935
Total future amortization expense$12,670

Year Ended December 31,
Remainder of 2020$2,658  
20214,172  
20223,547  
20233,384  
20241,863  
2025 and thereafter1,685  
Total future amortization expense$17,309  

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BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consistsconsisted of the following (in thousands):
As of
September 30, 2017		 As of
December 31, 2016		As of
June 30, 2020		As of
December 31, 2019
Accounts payable$1,496
 $4,519
Accounts payable$8,587  $6,603  
Accrued salaries and wages6,738
 8,967
Accrued salaries and wages4,846  11,872  
Accrued bonus6,507
 5,087
Accrued bonus6,805  6,560  
Accrued vacation9,546
 9,313
Accrued vacation4,814  5,123  
Accrued litigation and fees8,041
 13,946
Accrued litigation and fees8,041  8,041  
Accrued expenses17,737
 15,793
Accrued expenses16,368  20,140  
Rent liability16,766
 17,232
Current leases payableCurrent leases payable7,576  7,875  
Accrued insurance liability3,009
 3,009
Accrued insurance liability1,521  1,946  
Total accounts payable and accrued liabilities$69,840
 $77,866
Total accounts payable and accrued liabilities$58,558  $68,160  
Deferred Revenue and Student Deposits
Deferredrevenueand studentdeposits consistsconsisted ofthe following(inthousands):
As of
September 30, 2017		 As of
December 31, 2016		As of
June 30, 2020		As of
December 31, 2019
Deferred revenue$22,143
 $21,733
Deferred revenue$32,101  $23,356  
Student deposits39,572
 52,933
Student deposits29,964  31,928  
Total deferred revenue and student deposits$61,715
 $74,666
Total deferred revenue and student deposits$62,065  $55,284  
Other Long-Term Liabilities
Other long-term liabilities consistsconsisted ofthe following(inthousands):
As of
June 30, 2020		As of
December 31, 2019
Uncertain tax positions$104  $102  
Notes payable2,763  —  
Contingent consideration—  3,150  
Other long-term liabilities1,754  2,095  
Total other long-term liabilities$4,621  $5,347  

 As of
September 30, 2017		 As of
December 31, 2016
Uncertain tax positions$8,290
 $8,216
Student transfer agreement costs81
 630
Other long-term liabilities4,261
 4,784
Total other long-term liabilities$12,632
 $13,630
7.9. Credit Facilities
The Company has issued letters of credit that are collateralized with cash (held in restricted cash) in the aggregate amount of $8.3$18.1 million which is included in restricted cash as of SeptemberJune 30, 2017.2020.
As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. The Company has entered into a surety bond facility with an insurance company to provide such bonds when required. As of SeptemberJune 30, 2017, the Company’s total available surety bond facility was $3.5 million and2020, the surety had issued $8.6 million in bonds totaling $3.3 million on the Company’s behalf under suchthis facility.


20
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BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

8.10. Lease Obligations
Operating Leases
The Company leases certainvarious office facilities and office equipment under non-cancelable lease arrangementswith terms that expire at various dates through 2023. These facilities are used for academic operations, corporate functions, enrollment services and student support services. The Company does not have any leases other than its office facilities. All of the leases were classified as operating leases for the period ended June 30, 2020, 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 condensed consolidated balance sheets.
The Company has agreements to sublease certain portions of its office facilities, with 2 active subleases as of June 30, 2020. The Company’s subleases do not include any options to extend or for early termination and do not contain certain renewal options. Rent expense under non-cancelableany residual value guarantees or restrictive covenants. All of the subleases were classified as operating leases for the period ended June 30, 2020. The Company is subleasing approximately 37,000 square feet of office space in Denver, Colorado with a remaining commitment to lease arrangementsof 14 months and net lease payments of $1.1 million. The Company is accountedsubleasing additional office space of approximately 21,000 square feet in Denver, Colorado with a remaining commitment to lease of 32 months and net lease payments of $1.6 million. Sublease income for on a straight-line basisthe six months ended June 30, 2020 and totaled $11.32019 was $1.0 million and $17.4$1.6 million, for the nine months ended September 30, 2017 and 2016, respectively. Rent expense in certain periods also includes the restructuring and impairment charges recorded and therefore, may differ significantly from cash payments. For additional information, refer to Note 3, “Restructuring and Impairment Charges.”
The following table summarizes the future minimum rental payments under non-cancelable operating lease arrangements in effect at September 30, 2017 (in thousands):
Year Ended December 31,  
Remainder of 2017$9,080
201831,400
201920,833
20209,504
20215,112
Thereafter1,949
Total minimum payments$77,878
9.11. 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 for the period, plus (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive securities for the periods presented include stock options, unvested restricted stock units (“RSUs”) and unvested performance stock units (“PSUs”).
The following table sets forth the computation of basic and diluted income (loss) per share for the periods indicated (in thousands, except per share data):
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended
June 30,		Six Months Ended
June 30,
2017 2016 2017 2016 2020201920202019
Numerator:       Numerator:  
Net income (loss)$39
 $(9,477) $16,222
 $(16,251)Net income (loss)$5,147  $(17,597) $7,167  $(24,239) 
Denominator:       Denominator:  
Weighted average number of common shares outstanding29,123
 46,315
 33,333
 46,180
Weighted average number of common shares outstanding32,137  30,215  31,238  28,706  
Effect of dilutive options and stock units548
 —
 860
 —
Effect of dilutive options and stock units364  —  257  —  
Diluted weighted average number of common shares outstanding29,671
 46,315
 34,193
 46,180
Diluted weighted average number of common shares outstanding32,501  30,215  31,495  28,706  
Income (loss) per share:       Income (loss) per share:  
Basic$0.00
 $(0.20) $0.49
 $(0.35)Basic$0.16  $(0.58) $0.23  $(0.84) 
Diluted$0.00
 $(0.20) $0.47
 $(0.35)Diluted$0.16  $(0.58) $0.23  $(0.84) 

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16




BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

During periods in which the Company reports a net loss, basic and diluted loss per share are the same. The following table sets forth the number of stock options, RSUs and PSUs,stock units, excluded from the computation of diluted income (loss) per share for the periods indicated below because their effect was anti-dilutive (in thousands):
 Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Stock options1,675  1,973  1,720  1,987  
Stock units718  2,990  1,603  1,336  

 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Stock options2,625
 4,258
 1,858
 4,468
RSUs and PSUs19
 588
 9
 991
During the nine months ended September 30, 2017, the Company repurchased approximately 18.1 million shares of the Company’s common stock for an aggregate purchase price of approximately $150.0 million.
10.12. Stock-Based Compensation
The Company recorded $1.1$0.8 million and $1.4$3.6 million of stock-based compensation expense for the three months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, and $2.8$4.9 million and $5.7$5.3 million of stock-based compensation expense for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
The related income tax benefit was $0.4$0.2 million and $0.5$0.9 million for the three months endedSeptember June 30, 20172020 and 2016,2019, respectively, and $1.1$1.2 million and $2.1$1.3 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively.
During the ninesix months ended SeptemberJune 30, 2017,2020, the Company granted 0.51.4 million RSUs at a weighted average grant date fair value of $2.15 and 0.8 million RSUs vested. During the six months ended June 30, 2019, the Company granted 1.2 million RSUs at a grant date fair value of $10.48$6.03, and 0.4 million RSUs vested.
During the ninesix months ended SeptemberJune 30, 2016,2020, the Company granted 0.51.1 million RSUsperformance-based or market-based PSUs at a weighted average grant date fair value of $2.18, and 0 performance-based or market-based PSUs vested. During the six months ended June 30, 2019, 0.8 million market-based PSUs were granted at a grant date fair value of $10.18$7.17, and 0.5 million RSUs vested.
During the nine months ended September 30, 2017 and 2016, the Company did not grant any performance-based or market-based PSUs and no0 performance-based or market-based PSUs vested.
During the ninesix months ended SeptemberJune 30, 2017,2020, 0 stock options were granted and 0 stock options were exercised. During the six months ended June 30, 2019, the Company granted 0.30.2 million stock options at a grant date fair value of $4.76$4.28 and 0.5 million6,274 stock options were exercised. During the nine months ended September 30, 2016, the Company granted 0.4 million stock options at a grant date fair value of $3.28 and 0.2 million stock options were exercised.
As of SeptemberJune 30, 2017,2020, there was unrecognized compensation cost of $6.8$7.5 million related to unvested stock options, RSUs and PSUs.
11.13. Income Taxes
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 condensed consolidated financial statements that will result in income and deductions in future years.
The Company recognizes deferred tax assets if realization of such assets is more-likely-than-not. In order to make this determination, the Company evaluates a number of factors including the ability to generate future taxable income from reversing taxable temporary differences, forecasts of financial and taxable income or loss, and the ability to carryback certain operating losses to refund taxes paid in prior years. The cumulative loss incurred over the three-year period ended SeptemberJune 30, 20172020 constituted significant negative objective evidence against the Company’s ability to realize a benefit from its federal deferred tax assets. Such objective evidence limited the ability of the Company to consider in its evaluation certain subjective evidence such as the Company’s projections for future growth. On the basis of its evaluation, the Company determined that its deferred tax assets were not more-likely-than-not to be realized and that a valuation allowance against its deferred tax assets should continue to be maintained as of SeptemberJune 30, 2017.
The Company determines the interim income tax provision by applying the estimated effective income tax rate expected to be applicable for the full fiscal year to income before income taxes for the period. In determining the full year estimate, the


17


BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Company does not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.2020.
The Company’s current effective income tax rate that has been applied to normal, recurring operations for the ninesix months ended SeptemberJune 30, 20172020 was 1.8%(2.7)%. The Company’s actual effective income tax rate was (4.6)% for the ninesix months ended SeptemberJune 30, 2017, which includes a2020, after discrete tax benefit associated with return to provision adjustments related prior years as well as a discrete tax expense associated with unrecognizeditems, was 234.9%. The income tax benefit for the ninesix months ended SeptemberJune 30, 2017.2020 was attributable to certain changes in income tax law related to net operating loss carryback as a result of the Coronavirus Aid, Relief and Economic Security Act
At September
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ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
(“CARES Act”). The Company has filed for total refund claims of $12.7 million under the CARES Act and has received $6.2 million of the total refund claims as of June 30, 2017,2020.
As of June 30, 2020, and December 31, 2019, the Company had $18.8$0.5 million and $2.1 million of gross unrecognized tax benefits, of which $12.3$0.5 million and $2.0 million would impact the effective income tax rate if recognized. At December 31, 2016, the Company had $20.2 million of gross unrecognized tax benefits, of which $13.2 million, would impact the effective income tax rate if recognized. It is reasonably possible that the total amount of the unrecognized tax benefit could change during the next 12 months. Although the Company cannot predict the timing of resolution with taxing authorities, if any, therecognized, respectively. The Company believes it is reasonably possible that the total of the unrecognized tax benefits of $0.5 million related to the Internal Revenue Service (“IRS”) audit examination at June 30, 2020 could changebe released in the next twelve months due to settlement with tax authorities or expiration of the applicable statute of limitations. These unrecognized tax benefits primarily relate to apportionment of on-line service revenues for corporate income tax purposes.third quarter ending September 30, 2020. Although the Company believes the tax accruals provided are reasonable, the final determination of tax returns under review or returns that may be reviewed in the future and any related litigation could result in tax liabilities that materially differ from ourthe Company’s historical income tax provisions and accruals.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is currently under Internal Revenue Servicerequired to file income tax returns, as well as all open tax years in these jurisdictions. The tax years 2001 through 2019 are open to examination by major taxing jurisdictions to which the Company is subject.
The IRS audit examinations of the Company’s income and payroll tax returns for the years 2013 through 2015.2016 has been completed and the Joint Committee on Taxation has taken no exception to the conclusions reached by the IRS. The final notice of proposed adjustments from the IRS examination had no adverse material impact on the Company’s overall financial results as at June 30, 2020.
The Company’s income tax returns for the tax years ended December 31, 2013 through 2015 are being auditedunder examination by the California Franchise Tax Board for the years 2008 through 2015. The Company was notified by the Franchise Tax Board in March 2017 that they are continuing to challenge the Company’s filing position. The Company continues to work toward resolution, and based on all available information the Company has accrued for any uncertain tax positions that may be addressed in the audit.Board.
The Company’s income tax returns are being audited by the Oregon Department of Revenue for the years 2012 through 2014. In January 2017, the Oregon Department of Revenue issued Notices of Deficiencies, which were appealed by the Company.
12.14. Regulatory
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 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.
Act (“Title IV programs”). Ashford University is regionally accredited by WASCWestern Association of Schools and Colleges Senior College and University Commission (“WSCUC”) and University of the Rockies is regionally accredited by the Higher Learning Commission (“HLC”).
Department of Education Open Program Review of Ashford University
OnIn July 7, 2016, Ashford University was notified by the Department that an off-site program review had been scheduled to assess Ashford’s administration of the Title IV programs in which it participates. The off-site program review commenced onin July 25, 2016 and covered students identified in the 2009-2012 calendar year data previously provided by Ashford University to the Department in response to a request for information received from the Multi-Regional and Foreign School Participation Division of the Department’s Office of Federal Student Aid (the “FSA”(“FSA”) onin December 10, 2015 but may be expanded if the Department deems such expansion appropriate.
OnIn December 9, 2016, the Department informed Ashford that it intended to continue the program review on-site at Ashford. The on-site program review commenced onin January 23, 2017 and initially coverscovered 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.


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BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Department of Education Program Participation Agreement for Ashford University
On October 20, 2017,April 23, 2018, Ashford University received an updated Program Participation Agreement from the U.S. Department of Education (“Department”).Department. Based on the updated Program Participation Agreement, Ashford University is provisionally certified to participate in Federal Student Financial Aid Programs until DecemberMarch 31, 2018.2021. 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 pending educational programs have been approved and Ashford University is required to submit its reapplication for continued certification by December 31, 2020.
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ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Department of Education Close Out Audit of University of the Rockies
The Company previously recorded an expense of $1.5 million for the year ended December 31, 2018, in relation to the close out audit of University of the Rockies resulting from its merger with Ashford in October 2018. The expense was recorded in relation to borrower defense to repayment regulations. On September 30, 2018.26, 2019, the Department of Education sent Ashford 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 Ashford. The briefing on the appeal is complete and the Company is awaiting a decision by the administrative law judge.
WSCUC Accreditation of Ashford University
In July 2013, WSCUC granted Initial Accreditation to Ashford University for five years, until July 15, 2018. In December 2013, Ashford effected its transition to WSCUC accreditation and designated its San Diego, California facilities as its main campus and its Clinton, Iowa campus as an additional location. As part of a continuing monitoring process, Ashford hosted a visiting team from WSCUC in a special visit in April 2015. In July 2015, Ashford received an Action Letter from WSCUC outlining the findings arising out of its visiting team's special visit. The Action Letter stated that the WSCUC visiting team found evidence that Ashford continues to make progress in all six areas recommended by WSCUC in 2013. As part of its institutional review process, WSCUC will conduct acommenced its comprehensive review of Ashford scheduled to commence with an off-site review in spring 2018, followedMarch 2018. As part of the WSCUC Institutional Review Process a Reaffirmation of Accreditation Visit was conducted by an on-siteevaluation team April 3-5, 2019. At its meeting June 26-28, 2019, the Commission acted to reaffirm Ashford’s accreditation through Spring 2025.
WSCUC also visited Ashford on May 1, 2019 to conduct its federally mandated, six-month post-implementation review, in fall 2018.
Substantial Misrepresentation
The Higher Education Act prohibits an institution participating in Title IV programs from engaging in substantial misrepresentation regardingdue to the naturemerger of its educational programs, its financial charges or the employability of its graduates. Under the Department’s rules, a “misrepresentation” is any false, erroneous or misleading statement an institution, one of its representatives or any ineligible institution, organization or person with whom the institution has an agreement to provide educational programs or marketing, advertising, recruiting, or admissions services makes directly or indirectly to a student, prospective student or any memberUniversity of the public, or to an accrediting agency, a state agency or the Department. The Department’s rules define a “substantial misrepresentation” as any misrepresentationRockies and into Ashford which was finalized on which the person to whom it was made could reasonably be expected to rely, orOctober 31, 2018. WSCUC has reasonably relied, toverified that person’s detriment. For-profit educational institutions are also subject to the general deceptive practices jurisdiction of the Federal Trade Commission and the Consumer Financial Protection Bureau (the “CFPB”).
On December 10, 2015, Ashford University received a request for information from the Multi-Regional and Foreign School Participation Division of the FSA for (i) advertising and marketing materials provided to prospective students regarding the transferability of certain credits, (ii) documents produced in response to the August 10, 2015 Civil Investigative Demand from the CFPBhas met all post-implementation requirements related to the CFPB’s investigationmerger of the two entities.
Ashford submitted a change of control and legal status application (the “Change of Control Application”) to determine whether for-profit postsecondary education companies or other unnamed persons have engaged in or are engaging in unlawful acts or practices relatedconvert to a nonprofit California public benefit corporation, and separate from the Company (the “Conversion Transaction”). On July 12, 2019, WSCUC notified Ashford that it had approved the Change of Control Application for the Conversion Transaction. The approval is subject to certain conditions which must be met prior to the advertising, marketing or originationclose of private student loans, (iii) certain documents producedthe Conversion Transaction, including divestiture of financial and ownership interest in responsethe Company by all Ashford officers and related parties and submission of a revised services agreement with respect to subpoenasthe Conversion Transaction, including the incorporation of key performance indicators into that agreement. WSCUC is also requiring a post-implementation site visit of Ashford within six months of the close of the Conversion Transaction.
On July 1, 2020, and interrogatories issuedin connection with the transaction recently announced, Ashford submitted to WSCUC a substantive change application for a change in ownership which requires review and approval by the Attorney GeneralSubstantive Change Committee and the Structural Change Committee of the State of California (the “CA Attorney General”) and (iv) records created between 2009 and 2012 related to the disbursement of certain Title IV funds.Commission. The FSA is reviewing representations made byname change from Ashford University to potential and enrolled students, and has askedUniversity of Arizona Global Campus will not occur until the change of ownership receives approval from WSCUC. For further information regarding subsequent events, refer to Note 16, “Subsequent Events” to the condensed consolidated financial statements.
Department of Education Abbreviated Preacquisition Review Letter
On October 7, 2019, the Company and Ashford to assistannounced that in its assessment of Ashford’s complianceconnection with the prohibitionConversion Transaction, the Department has provided a response (the “Abbreviated Preacquisition Review Letter”) to the request for review made on substantial misrepresentations.July 15, 2019. The Company and Ashford University are cooperating fullyrequest for an abbreviated preacquisition review was made in accordance with Department procedures pursuant to which the Department provides information about conditions it intends to impose in connection with the FSAcontinued participation in federal Title IV student financial aid programs by the applicant following a change in ownership.
In the Abbreviated Preacquisition Review Letter, along with a view toward demonstrating the compliant nature of their practices.
As discussed above,other conditions, the Department is currently conducting a program review to assess Ashford University’s administrationindicated that it would require the posting of an irrevocable letter of credit with the Department within ten days of the Conversion Transaction for approximately $103 million letter of credit (“LOC”), representing the Department’s determination of 25% of the Title IV programsfunding in which it participates, which covers in part students identified infiscal year 2018 (the “25% LOC”). The Department is expected to conduct a post-closing review of Ashford following the 2009-2012 calendar year data provided by Ashford tochange of control resulting from the Conversion Transaction consistent with the Department’s procedures during which the Department in response to the FSA’s December 10, 2015 request for information.
If the Department determines that one of the Company’s institutions has engaged in substantial misrepresentation, the Department may (i) revoke the institution’s program participation agreement, if the institution is provisionally certified, (ii) impose limitationsmakes a determination on the institution’s participation in Title IV programs, ifrequest for recertification from the institution is provisionally certified, (iii) deny participation applications made on behalf ofDepartment following the institution or (iv) initiate proceedings to fine the institution or to limit, suspend


24
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BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

change of control, including whether to impose an increase in the letter of credit requirement or place other conditions or restrictions on Ashford.
orOn July 7, 2020, the Department indicated it would no longer require the 25% LOC due to a proposed new transaction structure. Pursuant to the new structure, Ashford University LLC, the current owner and operator of Ashford, will become the sole member of, and will transfer the assets of Ashford to, AU NFP. Following this transfer, Ashford University, LLC will take certain steps necessary to become a nonprofit corporation and terminate the participationCompany’s ownership interest in it. Because the legal entity that currently owns and operates Ashford will continue as the sole member of AU NFP, the Department has concluded that the historical financial statements of Ashford University, LLC will satisfy the new owner’s financial statement requirements and, accordingly, that a 25% LOC would no longer be necessary. As a result, the Company will no longer be pursuing a LOC through a senior secured term loan facility.
Financial Responsibility
The Department calculates an institution's composite score for financial responsibility based on its (i) equity ratio, which measures the institution's capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution's ability to operate at a profit. An institution that does not meet the Department's minimum composite score of 1.5 may demonstrate its financial responsibility by posting a letter of credit in favor of the institutionDepartment and possibly accepting other conditions on its participation in the Title IV programs.
For the fiscal year ended December 31, 2018, the consolidated composite score calculated was 2.2, satisfying the composite score requirement of the Department's financial responsibility test, which institutions must satisfy to participate in Title IV programs. Because Ashford University is provisionally certified, ifThe Company expects the consolidated composite score for the year ended December 31, 2019 to be 0.7 and below the composite score requirement as a result of non-recurring restructuring and acquisition related charges. The Department has historically calculated Ashford’s composite score based on Zovio’s consolidated audited financial statements rather than Ashford’s stand alone audited financial statements. The deadline to submit audited financial statements was postponed by the Department determined thatfrom June 30, 2020 until up through December 31, 2020.
If the Conversion Transaction takes place, Ashford has engaged in substantial misrepresentation,will no longer be owned by Zovio, and therefore Ashford will submit its stand-alone audited financial statements to the Department may takefor the actions set forthpurpose of calculating the institution’s composite score. The Company expects Ashford’s composite score, based on its standalone audited financial statements for the year ended December 31, 2019, to be at least 1.6 and above the Department’s requirement for a composite score of 1.5 or greater.
On August 3, 2020, the Company announced the signing of a definitive agreement with the Arizona Board of Regents, a body corporate, for and on behalf of the University of Arizona and the University of Arizona Global Campus to acquire the assets of Ashford University. For further information regarding subsequent events, refer to Note 16, “Subsequent Events” to the condensed consolidated financial statements.
If the Department calculates Ashford’s composite score based on Zovio’s consolidated financial statements, the institution’s composite score for the period ended December 31, 2019 would be below the required composite score of at least 1.5. In such event, to continue participation in clauses (i) and (ii) above in additionTitle IV programs, Ashford would either need to: (1) submit a letter of credit equal to any other actions takenat least 50% or more of the Title IV Program funds received by the Department.institution during its most recently completed fiscal year; or (2) at the discretion of the Department, submit a letter of credit equal to at least 10% or more of the Title IV Program funds received by the institution during its most recently completed fiscal year and accept additional conditions (including, but not limited to, a provisional certification, compliance with monitoring requirements, remain current on debt payments, meet certain financial obligations, agree to receive Title IV Program funds under an arrangement other than the Department’s standard advance funding arrangement, and agree to pay Title IV credit balances due to students before submitting a request for funds to the Department).
25


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
GI Bill Benefits
On September 6, 2019, the U.S. Department of Veterans Affairs (“VA”) announced that effective October 1, 2019, the VA would be assuming the functions of the State Approving Agency (“SAA”) for California (“CSAAVE”), based on its negative assessment of CSAAVE’s performance during the preceding three years. On October 14, 2019, Ashford submitted the application for approval in California with the VA. On February 14, 2020, Ashford received notice from the VA, serving as the SAA for the State of California, that Ashford meets the criteria for approval for veterans education under the provisions of Title 38, United States Code, Section 3675, and that the VA, acting as the California SAA, had approved substantially all of Ashford’s programs that students and potential students could pursue using their GI Bill benefits, retroactive to July 1, 2019. This notice substantially resolved the GI Bill Benefits issue that emerged in May 20, 2016, the Company received a letter fromwhen the Iowa Department of Education (the “Iowa(“Iowa DOE”) indicating, which is the Iowa SAA, informed the Company that, as a result of the planned closure of Ashford University’s residential campus inthe Clinton Iowa,Campus, the Iowa State Approving Agency (the “ISAA”)DOE would no longer continue to approve Ashford’s programs for GI Bill benefits after June 30, 2016, and recommendingrecommended Ashford seek approval through the State Approving Agency of jurisdictionSAA for any location that meetsmet what the Iowa DOE determined to be the definition of a “main campus” or “branch campus”. Ashford University begancampus.”
On June 25, 2020, the process of applying for approval through the State Approving Agency in California (“CSAAVE”), and the Company subsequently disclosed that on June 20, 2016 it received a second letter from the Iowa DOE indicating that the Iowa DOE had issued a stay of the ISAA’s withdrawal of approval of Ashford’s programs for GI Bill benefits effective immediately until the earlier of (i) 90 days from June 20, 2016 or (ii) the date on which CSAAVE completed its review and issued a decision regarding the approval of Ashford in California. Ashford received communication from CSAAVE indicating that additional information and documentation would be required before Ashford’s application could be considered for CSAAVE approval. Ashford subsequently withdrew the CSAAVE application and continued working with the U.S. Department of Veterans Affairs (“VA”),signed an agreement with the Iowa DOE andUS Department of Veterans Affairs that returned the ISAACSAAVE to obtain continued approvalits role as the SAA for the State of Ashford’s programs for GI Bill benefits andCalifornia. CSAAVE’s transition back into their role as the SAA became effective on July 1, 2020.
Defense to prevent any disruption of educational benefits to Ashford’s veteran students.Repayment
On October 28, 2016, the Department published borrower defense to repayment regulations to change processes that assist students in gaining relief under certain provisions of the Direct Loan Program regulations.
On June 14, 2017, the Department announced a postponement of the 2016 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 that it was postponing the effective date of this rule until July 1, 2019, so that it could complete the negotiated rulemaking process and develop the new regulations. Because the negotiated rulemaking committee did not reach consensus, the Department published a proposed regulation through a notice of proposed rulemaking (“NPRM”), took public comment, and planned to issue final regulations by November 1, 2018, effective July 1, 2019. This did not occur.
In September 15, 2016, in response to a Petition for Declaratory and Injunctive Relief (the “Petition”) filed by Ashford University,October of 2018, the IowaU.S. District Court for Polk County enteredthe District of Columbia issued a written order (the “Order”) stayingseries of orders and opinions holding these procedural delays by the Iowa DOE’s announced intentionDepartment to withdrawbe improper. The Court reinstated the approval2016 repayment regulations as of Ashford asOctober 16, 2018.
The 2016 defense to repayment regulations allow a GI Bill eligible institution untilborrower to assert a defense to repayment on the entrybasis of a final and appealable order andsubstantial 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 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 action. new regulations establish the conditions or events that trigger the requirement for an institution to provide the Department with financial protection in the form of a letter of credit 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 new regulations also prohibit schools from requiring that students agree to settle future disputes through arbitration.
On June 23, 2017,March 15, 2019, the Iowa District Court held a hearing on Ashford’s Petition and on July 17, 2017,Department issued guidance for the Court ruled in favorimplementation of parts of the Iowa DOEregulations. The guidance covers an institution's responsibility in regard to reporting mandatory and denieddiscretionary triggers as part of the petition. Ashford filed a motion for reconsiderationfinancial responsibility standards, class action bans and pre-dispute arbitration agreements, submission of this ruling, which was denied on August 17, 2017. arbitral and judicial records, and repayment rates.
On August 23, 2017, Ashford filed a Petition to Vacate or Modify30, 2019, the Iowa District Court’s July 17, 2017 ruling, based on material evidence, newly discovered, which could not with reasonable diligence have been previously discovered by Ashford (the “Petition to Vacate”). The Petition to Vacate is pending. On September 18, 2017, Ashford posted an appeal bond, which stays this matter pending resolution of Ashford’s appeal,Department finalized the regulations derived from the 2017-2018 negotiated rulemaking process and as a result, Ashford’s approval was not withdrawn, and Ashford’s programs remain approved for GI Bill purposes. The Assistant Attorney General handling this matter on behalfsubsequent public comments. This version of the Iowa DOE also advised Ashford that the Iowa DOE would take no action pending the post-ruling motions and appeal. On October 12, 2017, the Iowa District Court judge that issued the July 17, 2017 ruling filed a Disclosure Statement revealing family tiesborrower defense regulations applies to the Iowa Attorney General’s Office, and following a motion by Ashford for recusal, the judge recused herself from further proceedings concerning the Petition to Vacateall federal student loans made on October 20, 2017. On October 24, 2017, Ashford moved to vacate the July 17, 2017 ruling and all other material orders entered by the judge, or in the alternative, for a limited remand of this matter. This motion is pending. On July 6, 2017, Ashford University received approval from the Arizona State Approving Agency to provide GI Bill benefits to its students. On September 13, 2017, the VA accepted the Arizona State Approving Agency’s approval, subject to Ashford's continued compliance with the approval requirements, which was the final step needed for Ashford University to continue to certify eligible students for GI Bill benefits.


26
20




BRIDGEPOINT EDUCATION, INC.ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

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, which may be greater or lesser than their original claim amount. It also includes financial triggers and other factors for recalculating an institution's financial responsibility composite score that differ from those in the 2016 regulations.
13.On June 8, 2020, President Trump vetoed House Joint Resolution 56, a Congressional Review Act resolution that would block the Trump administration’s rewrite of the Obama administration borrower defense to repayment rule. On June 26, 2020, the House failed to override President Trump’s veto of a bill that would have undone the Trump administration’s borrower-defense rule. The rule went into effect on July 1, 2020 and will apply to any federal student loans made on that date or after.
The Department recently notified Ashford that they would be initiating a preliminary review of borrower defense applications from borrowers who made claims regarding Ashford. As part of the initial fact-finding process, the Department will send individual student claims to the University and allow the institution the opportunity to submit a response to the borrower’s allegations. The University has begun to receive these claims and is reviewing and compiling the individual facts of each case to submit to the Department for their review.
15. Commitments and Contingencies
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. Below is a list of material legal proceedings to which the Company or its subsidiaries is a party.
Compliance Audit by the Department’s Office of the Inspector General
In January 2011, Ashford University received a final audit report from the Department’s Office of Inspector General (the “OIG”) regarding the compliance audit commenced in May 2008 and covering the period July 1, 2006 through June 30, 2007. The audit covered Ashford University’s administration of Title IV program funds, including compliance with regulations governing institutional and student eligibility, awards and disbursements of Title IV program funds, verification of awards and returns of unearned funds during that period, and compensation of financial aid and recruiting personnel during the period May 10, 2005 through June 30, 2009.
The final audit report contained audit findings, in each case for the period July 1, 2006 through June 30, 2007, which are applicable to award year 2006-2007. Each finding was accompanied by one or more recommendations to the FSA. Ashford University provided the FSA a detailed response to the OIG’s final audit report in February 2011. In June 2011, in connection with two of the six findings, the FSA requested that Ashford University conduct a file review of the return to Title IV fund calculations for all Title IV recipients who withdrew from distance education programs during the 2006-2007 award year. The institution cooperated with the request and supplied the information within the time frame required.
Ashford University received a final audit determination on February 22, 2017 from the Department that was dated February 14, 2017. The determination maintained that Ashford University owed the Department $0.3 million as a result of incorrect refund calculations and refunds that were not made or were made late, and that Ashford ensure it properly enforces its policies and is in compliance with regulations related to disbursement of Title IV funds. The Department closed or required no further action on all other prior OIG findings. Ashford University made the required payment to the Department during the first quarter of 2017 and the matter is now concluded.
New York Attorney General Investigation of Bridgepoint Education, Inc.
In May 2011, the Company received from the Attorney General of the State of New York (the “NY Attorney General”) a subpoena relating to the NY Attorney General’s investigation of whether the Company and its academic institutions have complied with certain New York state consumer protection, securities and finance laws. Pursuant to the subpoena, the NY Attorney General requested from the Company and its academic institutions documents and detailed information for the time period March 17, 2005 to present. The Company cooperated with this request and cannot predict the eventual scope, duration or outcome of the investigation at this time.
North Carolina Attorney General Investigation of Ashford University
In September 2011, Ashford University received from the Attorney General of the State of North Carolina (the “NC Attorney General”) an Investigative Demand relating to the NC Attorney General’s investigation of whether the university’s business practices complied with North Carolina consumer protection laws. Pursuant to the Investigative Demand, the NC Attorney General requested from Ashford University documents and detailed information for the time period January 1, 2008 to present. Ashford University cooperated with this request and cannot predict the eventual scope, duration or outcome of the investigation at this time.


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BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

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(“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.the date of the Investigative Subpoena. 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 continue to discussalso discussed a potential resolution involving injunctive relief, other non-monetary remedies and a payment to the CA Attorney General. TheGeneral and in the third quarter of 2016, the Company currently estimates that a reasonable range of loss for this matter is between $8.0 million and $20.0 million. The Company has accruedrecorded an expense of $8.0 million related to the cost of resolving this matter.
The parties did not reach a resolution and on November 29, 2017, the CA Attorney General filed suit against Ashford and the Company. The Company intends to vigorously defend this case and emphatically denies the allegations made by the CA
27


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Attorney General that it ever deliberately misled its students, falsely advertised its programs, or in any way was not fully accurate in its statements to investors. However, the outcome of this matter.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 of $8.0 million remains and is recorded on the accounts payable and accrued liabilities line item on the condensed consolidated balance sheets.
Massachusetts Attorney General Investigation of Bridgepoint Education, Inc. and Ashford University
On July 21, 2014, the Company and Ashford University received from the Attorney General of the State of Massachusetts (the “MA(“MA Attorney General”) a Civil Investigative Demand (the “MA(“MA CID”) relating to the MA Attorney General’s investigation of for-profit educational institutions and whether the university’s business practices complied with Massachusetts consumer protection laws. Pursuant to the MA CID, the MA Attorney General has requested from the Company and Ashford University documents and information for the time period January 1, 2006 to present. The Company is cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time.
Consumer Financial Protection Bureau Subpoena of Bridgepoint Education, Inc. and Ashford University
On August 10, 2015, the Company and Ashford University received from the CFPB Civil Investigative Demands related to the CFPB’s investigation to determine whether for-profit postsecondary education companies or other unnamed persons have engaged in or are engaging in unlawful acts or practices related to the advertising, marketing or origination of private student loans. The Company and Ashford University provided documents and other information to the CFPB and the CFPB attended several meetings with representatives from the Company and the CA Attorney General’s office to discuss the status of both investigations, 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.
All of the parties met again in the spring of 2016 to discuss the status of the investigations and explore a potential joint resolution involving injunctive relief, other non-monetary remedies and a payment to the CA Attorney General and the CFPB. On September 7, 2016, the Company consented to the issuance of a Consent Order (the “Consent Order”) by the CFPB in full resolution of the CFPB’s allegations stemming from the Civil Investigative Demands. The Consent Order includes payment by the Company of $8.0 million in penalties to the CFPB and approximately $5.0 million to be used for restitution to students who incurred debt from student loans made by the Company’s institutions, and forgiveness by the Company of approximately $18.6 million of outstanding institutional loan debt. The Consent Order also outlines certain compliance actions the Company must undertake, including that the Company must require certain students to utilize the CFPB’s Electronic Financial Impact Platform before enrolling in one of the Company’s institutions, the Company must implement a compliance plan designed to ensure its institutional loan program complies with the terms of the Consent Order, and the Company must submit reports describing its compliance with the Consent Order to the CFPB at designated times and upon request by the CFPB. The institutional loan programs were discontinued by the Company’s institutions before the CFPB investigation began. As of the end of the first quarter of 2017, the amount accrued related to this matter was paid in full.


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BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

Department of Justice Civil Investigative Demand
On July 7, 2016, the Company received from the U.S. Department of Justice (the “DOJ”) a Civil Investigative Demand (the “DOJ CID”) related to the DOJ's investigation concerning allegations that the Company may have misstated Title IV refund revenue or overstated revenue associated with private secondary loan programs and thereby misrepresented its compliance with the 90/10 rule of the Higher Education Act. Pursuant to the DOJ CID, the DOJ has requested from the Company documents and information for fiscal years 2011-2014. The Company is cooperating with the DOJ and cannot predict the eventual scope, duration or outcome of the investigation at this time. The Company has not accrued any liability associated with this action.
Securities Class Action
Zamir v. Bridgepoint Education, Inc., et al.
On February 24, 2015, a securities class action complaint was filed in the U.S. District Court for the Southern District of California by Nelda Zamir naming the Company, Andrew Clark and Daniel Devine as defendants. The complaint asserts violations of Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 promulgated thereunder, claiming that the defendants made false and materially misleading statements and failed to disclose material adverse facts regarding the Company’s business, operations and prospects, specifically regarding the Company’s improper application of revenue recognition methodology to assess collectability of funds owed by students. The complaint asserts a putative class period stemming from August 7, 2012 to May 30, 2014 and seeks unspecified monetary relief, interest and attorneys’ fees. On July 15, 2015, the Court granted plaintiff’s motion for appointment as lead plaintiff and for appointment of lead counsel.
On September 18, 2015, the plaintiff filed a substantially similar amended complaint that asserts a putative class period stemming from March 12, 2013 to May 30, 2014. The amended complaint also names Patrick Hackett, Adarsh Sarma, Warburg Pincus & Co., Warburg Pincus LLC, Warburg Pincus Partners LLC, and Warburg Pincus Private Equity VIII, L.P. as additional defendants. On November 24, 2015, all defendants filed motions to dismiss. On July 25, 2016, the Court granted the motions to dismiss and granted plaintiff leave to file an amended complaint within 30 days. Plaintiffs subsequently filed a second amended complaint and the Company filed a second motion to dismiss on October 24, 2016, which was granted by the Court with leave to amend. Plaintiffs filed a third amended complaint on April 19, 2017 and the defendants filed a third motion to dismiss, which is currently pending with the court. The outcome of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise. The Company has not accrued any liability associated with this action.
Shareholder Derivative Actions
In re Bridgepoint, Inc. Shareholder Derivative Action
On July 24, 2012, a shareholder derivative complaint was filed in California Superior Court by Alonzo Martinez. In the complaint, the plaintiff asserts a derivative claim on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned Martinez v. Clark, et al. and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement on behalf of the Company, as well as other equitable relief and attorneys’ fees.On September 28, 2012, a substantially similar shareholder derivative complaint was filed in California Superior Court by David Adolph-Laroche. In the complaint, the plaintiff asserts a derivative claim on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned Adolph-Laroche v. Clark, et al. and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched.
On October 11, 2012, the Adolph-Laroche action was consolidated with the Martinez action and the case is now captioned In re Bridgepoint, Inc. Shareholder Derivative Action. A consolidated complaint was filed on December 18, 2012 and the defendants filed a motion to stay the case while the underlying securities class action is pending. The motion was granted by the Court on April 11, 2013. A status conference was held on October 10, 2013, during which the Court ordered the stay continued for the duration of discovery in the underlying securities class action, but permitted the plaintiff to receive copies of any discovery responses served in the underlying securities class action. The stay was lifted following the settlement of the


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BRIDGEPOINT EDUCATION, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited) (Continued)

underlying securities class action and all defendants filed demurrers on October 3, 2016, which were granted with leave to amend on October 6, 2017. On October 17, 2017, the plaintiff submitted a litigation demand to the Company's Board of Directors, which appointed a working group to evaluate the demand. The board refused the demand and the Plaintiff filed a Second Amended Complaint on October 3, 2018. The Defendants filed demurrers on December 21, 2018, which were granted by the Court on June 14, 2019. As a result, the Court entered a final order dismissing the case on July 8, 2019. Plaintiff filed a notice of appeal, but the parties subsequently filed a joint stipulation to dismiss the appeal with prejudice, which was granted by the Court. As a result, this matter is now concluded.
ReardonObrochta v. Clark, et al.
On March 18, 2015, a shareholder derivative complaint was filed in the Superior Court of the State of California in San Diego. The complaint asserts derivative claims on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned Reardon v. Clark, et al. and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement, as well as other equitable relief and attorneys’ fees. Pursuant to a stipulation among the parties, on May 27, 2015, the Court ordered the case stayed during discovery in the underlying Zamir securities class action, but permitted the plaintiff to receive copies of any discovery conducted in the underlying Zamir securities class action.
Larson v. Hackett, et al.
On January 19, 2017,February 13, 2020, a shareholder derivative complaint was filed in the Superior Court of the State of California in San Diego. The complaint asserts derivative claims on the Company's behalf against certain of its current and former officers and directors. The complaint is captioned LarsonObrochta v. Hackett,Clark, et al. and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement, as well as other equitable relief and attorneys’ fees. The parties have not yet responded to the complaint, but will most likely seek to have the case dismissed or stayed during discovery in the underlying Zamir Stein securities class action.
Nieder v. Ashford University, LLC
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ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Stein Securities Class Action
On March 8, 2019, a securities class action complaint (the “Stein Complaint”) was filed in the U.S. District Court for the Southern District of California by Shiva Stein naming the Company, Andrew Clark, Kevin Royal, and Joseph D’Amico as defendants (the “Defendants”). The Stein Complaint alleges that Defendants made false and materially misleading statements and failed to disclose material adverse facts regarding the Company's business, operations and prospects, specifically that the Company had applied an improper revenue recognition methodology to students enrolled in the FTG program. The Stein Complaint asserts a putative class period stemming from March 8, 2016 to March 7, 2019. The Stein Complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder.
On October 4, 2016, Dustin Nieder1, 2019, the plaintiff filed a purported class action against Ashford University insubstantially similar amended complaint. On November 27, 2019, all defendants filed a motion to dismiss, which was granted by the Superior Court of the State of California in San Diego. The complaint is captioned Dustin Nieder v. Ashford University, LLC and generally alleges various wage and hour claims under California law for failure to pay overtime, failure to pay minimum wages and failure to provide rest and meal breaks. The lawsuit seeks back pay, the cost of benefits, penalties and interest on behalf of the putative class members, as well as other equitable relief and attorneys' fees. The Company filed an answer denying the claims and the case is currently in discovery.June 15, 2020. The outcome of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise. Based on information available to the Company at present, it cannot reasonably estimate a range of loss for this action. Accordingly, theThe Company has not accrued any liability associated with this action.


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16. Subsequent Events
Zovio Inc, a Delaware corporation (the “Company”), through its wholly owned subsidiary, Ashford University, LLC, a California limited liability company (“AU LLC”), owns and operates Ashford University, a regionally-accredited, online university (the “University”). On August 1, 2020, the Company and AU LLC entered into 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 Arizona (the “University of Arizona”), and the University of Arizona Global Campus, a newly formed Arizona nonprofit corporation (“University of Arizona Global Campus”). Upon the closing of the transaction contemplated by the Purchase Agreement (the “Sale”), University of Arizona Global Campus will own and operate the University in affiliation with the University of Arizona and with a focus on expanding access to education for non-traditional adult learners. The board of directors of the Company, on behalf of the Company and AU LLC and with the support of the University’s board of trustees, has approved the Purchase Agreement and the consummation of the Sale in accordance with its terms. University of Arizona and University of Arizona Global Campus have also received all authorizations necessary to enter into the Purchase Agreement and consummate the Sale in accordance with its terms and subject to the conditions set forth therein.
Pursuant to the Purchase Agreement, at the closing of the Sale, the Company and AU LLC have agreed to transfer to University of Arizona Global Campus the tangible and intangible academic and related operations and assets comprising the University to University of Arizona Global Campus for consideration of $1.00 and University of Arizona Global Campus’s agreement to assume certain related liabilities. The transferred assets will include the University’s academic curriculum and content (subject to a license of that content back to the Company for use in its continuing business) and $16.5 million in cash working capital and, at closing, the Company will make an additional cash payment to University of Arizona Global Campus of $37.5 million. In addition, at the closing of the Sale, the University’s faculty, academic leadership and related staff will transfer their employment from AU LLC to University of Arizona Global Campus.
At this time, we are projecting cash and net assets transferred of $54.0 million and $49.0 million, respectively. The Company is still evaluating the amount, however, given the sales price of $1.00, the Company expects to incur a loss in the transaction that could be material to its consolidated financial statements.
On July 1, 2020, and in connection with the transaction recently announced, Ashford submitted to WSCUC a substantive change application for a change in ownership which requires review and approval by the Substantive Change Committee and the Structural Change Committee of the Commission. The University’s name change from Ashford University to University of Arizona Global Campus will not occur until the change of ownership receives approval from WSCUC.
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following Management’s Discussions and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this report. For additional information regarding our financial condition and results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2016 (the “Form2019 (“Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”(“SEC”) on March 7, 2017,February 20, 2020, as well as our consolidated financial statements and related notes thereto included in Part II, Item 8 of the Form 10-K.
Unless the context indicates otherwise, in this report the terms “Bridgepoint,“Zovio,” “the Company,” “we,” “us” and “our” refer to Bridgepoint Education, Inc.,Zovio Inc, a Delaware corporation, and its wholly owned and indirect subsidiaries.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange(“Exchange Act”). All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements may include, among others, statements regarding future events, future financial and operating results, strategies, expectations, the competitive environment, regulation and the availability of financial resources, including, without limitation, statements regarding:
Ashford University’s•our ability to continueeither (i) successfully convert Ashford University® (“Ashford”) to operate an accredited institution subjecta nonprofit California public benefit corporation and for Ashford to separate from the Company, including meeting all required conditions and obtaining all required approvals, or (ii) consummate another strategic opportunity regarding Ashford;
•our ability to meet other conditions of the Department with respect to the requirementspotential conversion and separation of Ashford;
•our ability to successfully close on the asset purchase agreement with the Arizona Board of Regents, for and on behalf of the StateUniversity of California, DepartmentArizona and the University of Consumer Affairs, Bureau for Private Postsecondary Education;Arizona Global Campusregarding Ashford University;
•our ability to comply with the extensive and continually evolving regulatory framework applicable to us and our institutions,Ashford, including Title IV of the Higher Education Act of 1965, as amended (the “Higher(“Higher Education Act”), and its implementing regulations, the gainful employment rules and regulations, the “defensedefense to repayment”repayment regulations, state authorization regulations, state laws and regulatory requirements, and accrediting agency requirements;
•projections, predictions and expectations regarding our business, financial position, results of operations, liquidity and liquidity,capital resources, and enrollment trends at Ashford;
•our institutions;anticipated seasonal fluctuations in enrollment and operating results;
expectations regarding the effect of the closure of Ashford University’s residential campus in Clinton, Iowa on our business;
•our ability to obtain continued approval of Ashford’s programs for GI Bill benefits through the Iowa State Approving Agency (the “ISAA”(“ISAA”), or the ArizonaCalifornia State Approving Agency for Veteran's Education (“CSAAVE”), and to prevent any disruption of educational benefits to Ashford’s veteran students;
new •the ability of Ashford to continue participating in the U.S. Department of Defense Tuition Assistance Program for active duty military personnel and to prevent any disruption of educational benefits to Ashford’s active duty military students;
•the outcome of various lawsuits, claims and legal proceedings;
•the impact of COVID-19 on the timing of the Ashford transactions, on the economy, and the demand for our services and the collectibility of our receivables;
•initiatives focused on student success, retention and academic quality;
changes in our student fee structure;
•expectations regarding the adequacy of our cash and cash equivalents and other sources of liquidity for ongoing operations;operations, planned capital expenditures and working capital requirements;
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•expectations regarding investment in onlinecapital expenditures;
•the impact of accounting standards on our financial statements;
•the reasonableness and other advertising and capital expenditures;acceptance of our tax accruals;
our anticipated seasonal fluctuations in results of operations;
management’s•management's goals and objectives; and
•other similar matters that are not historical facts.
Forward-looking statements may generally be identified by the use of words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in the future tense.
Forward-looking statements should not be interpreted as a guarantee of future performance or results and will not necessarily be accurate indications of the times at or by which such performance or results will be achieved. Forward-looking statements are based on information available at the time such statements are made and the current good faith beliefs,


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expectations and assumptions of management regarding future events. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. For a discussion of some of these risks and uncertainties, see Part II, Item 1A, “Risk Factors” as well as the discussion of such risks and uncertainties contained in our other filings with the SEC, including the Form 10-K.
All forward-looking statements in this report are qualified in their entirety by the cautionary statements included in this report,herein, and you should not place undue reliance on any forward-looking statements. These forward-looking statements speak only as of the date of this report. We assume no obligation to update or revise any forward-looking statements contained herein to reflect actual results or any changes in our assumptions or expectations or any other factors affecting such forward-looking statements, except to the extent required by applicable securities laws. If we do update or revise one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Overview
We areZovio Inc is an education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions to help learners and leaders achieve their aspirations. Our wholly-owned subsidiary, Ashford is a provider of postsecondary education services through our regionally accredited academic institutions,institution, which delivers programs primarily online. Ashford University® and University of the RockiesSM. Ashford University offers associate’s, bachelor’s, and master’s programs, and University of the Rockies offers master’s and doctoral programs.programs primarily online. As of SeptemberJune 30, 2017, our academic institutions2020, Ashford offered approximately 1,1401,100 courses and approximately 8065 degree programs. We
In April 2019, the Company acquired both Fullstack Academy, Inc (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”), which each became wholly-owned subsidiaries of the Company. Fullstack is an innovative web development school offering immersive technology bootcamps, and TutorMe is an online education platform that provides 24/7 on-demand tutoring and online courses. Fullstack and TutorMe are also focused on providing innovative technologiesboth contributors to enhance the student experience and support faculty and student engagement.strategy of Zovio becoming a best-in-class education technology services company.
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Key operating data
In evaluating our operating performance, management focuses in large part on our (i) revenue, and(ii) operating income (loss) and (iii) period-end enrollment at our academic institutions.Ashford. The following table, which should be read in conjunction with our condensed consolidated financial statements included in Part I, Item I1 of this report, presents our key operating data for each of the periods presented (in thousands, except for enrollment data):
Three Months Ended
June 30,		Six Months Ended
June 30,
2020201920202019
Consolidated Statement of Income Data:
Revenue$103,940  $107,495  $201,812  $217,259  
Operating income (loss)$5,285  $(20,329) $(5,210) $(27,524) 
Consolidated Other Data:
Period-end enrollment (1)
34,395  37,910  34,395  37,910  
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Consolidated Statement of Income (Loss) Data:     
Revenue$119,367
 $136,583
 $373,438
 $407,555
Operating income (loss)$(1,503) $(8,823) $14,339
 $(21,765)
        
Consolidated Other Data:       
Period-end enrollment (1)
       
Online42,065
 47,733
 42,065
 47,733
Campus-based67
 98
 67
 98
Total42,132
 47,831
 42,132
 47,831
(1) We define period-end enrollment as the number of active students on the last day of the financial reporting period. A student is considered active if the student has attended a class within the prior 15 days or is on an institutionally-approved break not to exceed 45 days, unless the student has graduated or provided notice of withdrawal, or for new students who have completed their third week of attendance, and posted attendance in the fourth week.
(1)We define period-end enrollment as the number of active students on the last day of the financial reporting period. A student is considered active if the student has attended a class within the prior 15 days or is on an institutionally-approved break not to exceed 45 days, unless the student has graduated or provided notice of withdrawal.
Key enrollment trends
Enrollment at our academic institutionsAshford decreased 11.9%9.3% to 42,13234,395 students at SeptemberJune 30, 20172020 as compared to 47,83137,910 students at SeptemberJune 30, 2016.2019. Enrollment decreased by 6.6%0.9% since the end of the preceding fiscal year, from 45,08734,722 students at December 31, 20162019 to 42,13234,395 students at SeptemberJune 30, 2017.2020.
We believe the decline in enrollment over the past few years is partially attributable to a general weakening in the overall education industry due in large part to increased regulatory scrutiny, and has also been caused by the initiatives our institutions have put in place to help ensure student preparedness, raise academic quality and improve student outcomes. In addition, we believe total enrollment has also been impacted by the recent changes in our marketing strategy. This change in our marketing strategy


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reflects a shift in our advertising mix in an effort to attract prospective students who have a higher probability of being academically successful, while concurrently making meaningful improvements to the efficiency of our advertising, admissions and marketing spend.scrutiny.
We continue to focusmake investments in the workflow along the student lifecycle to better support our efforts on stabilizingincoming and restarting enrollment growth. We recently received approval from the Department of Education on 16 new programs and are looking forward to offering these programs tocurrent students. We plan to launch a number of these new program offerings throughout 2018 and beyond to help achieve this goal relating to restarting new enrollment growth and over time growing total enrollments. One other area in which we continue to experience positive enrollment trends is within our Educationalthe Education Partnerships programs with various employers. These corporate partnershipSome of these programs provide companies with the opportunity to allowoffer their employees a way to pursue and complete a college degree without incurring any student debt. Enrollments through thesein the Education Partnerships programs remains relatively small compared toaccount for approximately 35% of our total enrollment but are growingas of June 30, 2020. Revenue derived from Education Partnerships is cash pay and is therefore not considered federal student aid for purposes of calculations under the 90/10 rule.
While early in the second quarter we had witnessed certain corporate partners suspending their tuition reimbursement programs in-line with large scale cost cutting programs as a percentage year over year.result of the uncertainty surrounding the COVID-19 pandemic, this trend has stabilized in recent weeks, with some partners even re-instating their programs. While this remains an important aspect of our new enrollment growth, after many quarters of substantial growth, we do anticipate the velocity of new enrollments from this contingent to moderate in coming quarters.
Trends and uncertainties regarding revenue and continuing operations
Proposed sale transaction
Zovio Inc, a Delaware corporation (the “Company”), through its wholly owned subsidiary, Ashford University, LLC, a California limited liability company (“AU LLC”), owns and operates Ashford University, a regionally-accredited, online university (the “University”). On August 1, 2020, the Company and AU LLC entered into 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 Arizona (the “University of Arizona”), and the University of Arizona Global Campus, a newly formed Arizona nonprofit corporation (“University of Arizona Global Campus”). Upon the closing of the transaction contemplated by the Purchase Agreement (the “Sale”), University of Arizona Global Campus will own and operate the University in affiliation with the University of Arizona and with a focus on expanding access to education for non-traditional adult learners. The board of directors of the Company, on behalf of the Company and AU LLC and with the support of the University’s board of trustees, has approved the Purchase Agreement and the consummation of the Sale in accordance
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with its terms. University of Arizona and University of Arizona Global Campus have also received all authorizations necessary to enter into the Purchase Agreement and consummate the Sale in accordance with its terms and subject to the conditions set forth therein.
Pursuant to the Purchase Agreement, at the closing of the Sale, the Company and AU LLC have agreed to transfer to University of Arizona Global Campus the tangible and intangible academic and related operations and assets comprising the University to University of Arizona Global Campus for consideration of $1.00 and University of Arizona Global Campus’s agreement to assume certain related liabilities. The transferred assets will include the University’s academic curriculum and content (subject to a license of that content back to the Company for use in its continuing business) and $16.5 million in cash working capital and, at closing, the Company will make an additional cash payment to University of Arizona Global Campus of $37.5 million. In addition, at the closing of the Sale, the University’s faculty, academic leadership and related staff will transfer their employment from AU LLC to University of Arizona Global Campus.
The Purchase Agreement includes customary representations, warranties, covenants, and indemnities by the parties, including (a) covenants generally requiring the Company and AU LLC to operate the University in the ordinary course prior to the closing, and (b) covenants generally requiring the respective parties to use commercially reasonable efforts to cause the transaction to be consummated. Other than the specific liabilities assumed by University of Arizona Global Campus, the Company and AU LLC will generally remain responsible for liabilities of the University relating to periods prior to the closing.
The closing of Sale is subject to customary closing conditions for transactions in this sector, including (a) the approval of the change in ownership of the University by the WASC Senior College and University Commission, the University’s institutional accrediting body, (b) the issuance by the U.S. Department of Education (“ED”) of a pre-acquisition review notice that does not require the University or University of Arizona Global Campus to post a letter of credit in order to obtain from ED a Temporary Provisional Program Participation Agreement (“TPPPA”) or a Provisional Program Participation Agreement (“PPPA”) or require the University of Arizona to co-sign the TPPPA or PPPA (either separately or as a condition of not receiving a letter of credit in order to obtain a TPPPA or PPPA); provided, however, that this condition generally will expire and be of no force and effect and University of Arizona Global Campus and University of Arizona shall be deemed to have waived this condition for all purposes, if ED does not issue such notice prior to December 1, 2020, and (c) the expiration or early termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended. The Company expects the transaction to close during the fourth quarter of 2020.
In connection with the closing of the Sale, the Company and University of Arizona Global Campus will enter into a long-term strategic services agreement (the “Strategic Services Agreement”) pursuant to which the Company will provide recruiting, financial aid, counseling, institutional support, information technology, and academic support services to University of Arizona Global Campus. The Strategic Services Agreement has an initial term of fifteen (15) years, subject to renewal options, although University of Arizona Global Campus has the right to terminate the agreement after seven (7) years 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 Strategic Services Agreement, University of Arizona 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 University of Arizona Global Campus’s tuition and fees revenue. If, in year seven or later, University of Arizona 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 year, University of Arizona Global Campus’s tuition and fee revenue again exceeds $440.0 million. In addition, the parties have agreed on certain minimum profit levels to be achieved by University of Arizona Global Campus after payment of the Company’s services fees of $12.5 million in the second year of the agreement, $25.0 million in years 3-5, and $10.0 million in years 6-15; subject to certain limitations, the Company is required to adjust its fees in any year to the extent necessary for University of Arizona Global Campus to achieve such minimum levels.
After the seventh year of the Strategic Services Agreement, either party may terminate the agreement if University of Arizona Global Campus achieves tuition and fees revenue of $400.0 million or less. Each party also has certain termination rights in connection with a material breach of the agreement by the other party and upon certain other defined events.
At the closing of the Sale, the Company and University of Arizona Global Campus will also enter into a transition services agreement (the “Transition Services Agreement”) pursuant to which the Company will provide certain services to
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University of Arizona Global Campus on a transition basis in return for fees equal to the Company’s direct costs to provide such services. University of Arizona Global Campus may transition any of these services at any time on six months’ advance notice, and all such services will be transitioned to University of Arizona Global Campus within three years.
On July 1, 2020, and in connection with the transaction recently announced, Ashford submitted to WSCUC a substantive change application for a change in ownership which requires review and approval by the Substantive Change Committee and the Structural Change Committee of the Commission. The university’s name change from Ashford University to University of Arizona Global Campus will not occur until the change of ownership receives approval from WSCUC.
Conversion transaction
Ashford submitted a change of control and legal status application (the “Change of Control Application”) to WSCUC seeking approval to convert to a nonprofit California public benefit corporation and separate from the Company (the “Conversion Transaction”).
On October 7, 2019, the Company announced that in connection with the Conversion Transaction, the Department has provided a response (the “Abbreviated Preacquisition Review Letter”) to the request for review made on July 15, 2019. The request for an abbreviated preacquisition review was made in accordance with Department procedures pursuant to which the Department provides information about conditions it intends to impose in connection with the continued participation in federal Title IV student financial aid programs by the applicant following a change in ownership.
In the Abbreviated Preacquisition Review Letter, along with other conditions, the Department indicated that it would require the posting of an irrevocable letter of credit with the Department within ten days of the Conversion Transaction for approximately $103 million, representing the Department’s determination of 25% of the Title IV funding in fiscal year 2018 (the “25% LOC”).
On July 7, 2020, the Department indicated it would no longer require the 25% LOC due to a proposed new transaction structure. Pursuant to the new structure, Ashford University LLC, the current owner and operator of Ashford, will become the sole member of, and will transfer the assets of Ashford to, AU NFP. Following this transfer, Ashford University, LLC will take certain steps necessary to become a nonprofit corporation and terminate the Company’s ownership interest in it. Because the legal entity that currently owns and operates Ashford will continue as the sole member of AU NFP, the Department has concluded that the historical financial statements of Ashford University, LLC will satisfy the new owner’s financial statement requirements and, accordingly, that a 25% LOC would no longer be necessary. As a result, the Company will no longer be pursuing a LOC through a senior secured term loan facility.
The Company and the trustees of Ashford and AU NFP have taken steps, including Ashford’s formation of a special independent negotiating committee, to protect Ashford’s and AU NFP’s independence in considering the Conversion Transaction in order to enable Ashford and AU NFP to act in the best interests of Ashford and its students. However, in light of the unprecedented COVID-19 pandemic and uncertain economic outlook, and other recent developments impacting our industry and business our timing for the closing of the conversion could be delayed.
On December 30, 2019, the Company and AU NFP entered into the LOI contemplating that the Company, Ashford and AU NFP would enter into an agreement and plan of conversion pursuant to which the Company, in exchange for $1.00 and entry into a Services Agreement, would cause Ashford to separate from the Company through a series of conversion and merger transactions ultimately resulting in Ashford (inclusive of all of the operations and assets constituting Ashford) being independently owned and operated by AU NFP. The Company would retain the assets and contracts related to, and continue to operate, its educational technology and services business, including all employees and assets necessary to perform the services contemplated by the Services Agreement. The parties also contemplate entering into a transition services agreement, pursuant to which the Company would provide identified services to AU NFP for a period of up to five years in exchange for which AU NFP would pay to the Company its direct cost charges incurred in providing such services.
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Restructuring and impairment chargesexpense
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 chargesexpense line item on our condensed consolidated statements of income (loss). The restructuring and impairment charges are primarily comprised of (i) severance costs related to headcount reductions, (ii) estimated lease costs related to facilities vacated or 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. Changes to these estimates could have a material impact on the Company’s condensed consolidated financial statements. For information regarding the restructuring and impairment chargesexpense recorded, refer to Note 3,5, “Restructuring and Impairment Charges”Expense” to our condensed consolidated financial statements included in Part I, Item 1 of this report.Form 10-Q.
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, 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 SeptemberJune 30, 20172020 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 of 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 SeptemberJune 30, 2017.2020.
On March 27, 2020, the US government enacted the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The CARES Act is an emergency economic stimulus package passed in response to the coronavirus outbreak. The CARES Act, among other things, includes provisions relating to refundable payroll tax credits, deferment of employer side social security payments, net operating loss (“NOL”) carryback periods, alternative minimum tax credit refunds, modifications to the net interest deduction limitations and technical corrections to tax depreciation methods for qualified improvement property. As of June 30, 2020, the Company has recorded an income tax benefit of $12.7 million directly related to the net operating loss carryback provisions under the CARES Act and could also benefit from the deferral of certain payroll taxes through the end of calendar year 2020.
Recent Regulatory Developments
Negotiated Rulemaking
On July 31, 2018, the Department published a notice in the Federal Register announcing its intention to establish a negotiated rulemaking committee (the “Rulemaking Committee”) to prepare proposed regulations for the Federal Student Aid programs authorized under Title IV of the Higher Education Act of 1965, as amended. In September 2018, interested parties commented at three public hearings on the topics suggested by the Department in the notice, and Other Executive Actionsuggested additional topics for consideration for action by the Rulemaking Committee.
The Rulemaking Committee met from January through March of 2019 on topics related to accreditation, competency-based education, state approval of online programs, and distance learning. The Rulemaking Committee reached consensus on all topics and the Department issued proposed regulations based on that consensus on June 12, 2019. On October 31, 2019, the Department issued final regulations on accreditation and state authorization to be effective on July 1, 2020.
The new regulations, among other things to: (1) define the roles and responsibilities of accrediting agencies, States, and the Department in oversight of institutions participating in the Federal Student Aid programs authorized under Title IV of the Higher Education Act of 1965, as amended (Title IV, Higher Education Act programs); (2) establish “substantial compliance” as the standard for agency recognition; (3) modify “substantive change” requirements to provide greater flexibility to institutions to innovate and respond to the needs of students and employers, while maintaining strict agency oversight in instances of more complicated or higher risk changes in institutional mission, program mix, or level of credential offered; (4) clarify the Department’s accrediting agency recognition process, including accurate recognition of the geographic area within which an agency conducts business; and (5) modify the requirements for state authorization.
The new regulations provide for early implementation of select pieces of the state authorization component. Ashford has chosen to early implement and did so on March 20, 2020.
State Authorization for Distance Education Rules
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To be eligible to participate in Title IV programs, an institution must be legally authorized to offer its educational programs by the states in which it is physically located. An institution is legally authorized by a state if, among other things, it meets one of the following sets of requirements:
• the state establishes the institution by name as an educational institution through a charter, statute, constitutional provision or other action issued by an appropriate state agency or state entity and is authorized to operate educational programs beyond secondary education, including programs leading to a degree or certificate; the institution complies with any applicable state approval or licensure requirements, except that the state may exempt the institution from any state approval or licensure requirement based on the institution's accreditation by one or more accrediting agencies recognized by the Department or based upon the institution being in operation for at least 20 years; and the state has a process to review and appropriately act on complaints concerning the institution including the enforcement of state laws;
• the institution is established by the state on the basis of an authorization to conduct business in the state or to operate as a nonprofit charitable organization; the institution, by name, is approved or licensed by the state to offer programs beyond secondary education, including programs leading to a degree or certificate; and the institution is not exempt from the state's approval or licensure requirements based on accreditation, years in operation, or other comparable exemption; and the state has a process to review and appropriately act on complaints concerning the institution including the enforcement of state laws; or
• the institution is exempt from state authorization as a religious institution under the state constitution or by state law, and the state has a process to review and appropriately act on complaints concerning the institution and to enforce applicable state laws.
The Department has stated that it will not publish a list of states that meet, or fail to meet, the above requirements, and it is unclear how the Department will interpret these requirements in each state.
The regulations also provide that if an institution is offering postsecondary education through distance or correspondence education to students in a state in which it is not physically located or in which it is otherwise subject to state jurisdiction as determined by the state, the institution must meet any state requirements to legally offer postsecondary distance or correspondence education to students in that state. Additionally, upon request by the Department, an institution must be able to document that it has the applicable state approval.
Additional Proposed Rules on Distance Education and Innovation
On December 16, 2016,April 2, 2020, the Department released final regulations to clarify state authorization requirementsproposed rules covering Distance Education and other topics which were not covered in the Departments two prior rule making packages. The proposed changes include amending definitions of “distance education” and “correspondence courses” as well as other key terminology like “clock” and “credit hour.” The proposed rule also addresses competency based education, regular and substantive interaction, incarcerated students, and foreign schools. The Department allowed for postsecondary institutions offering distance education that participate in federal student loan programs, as required by the Higher Education Act. Among other things, the final regulations (i) require institutions offering distance education or correspondence courses to be authorized by each state ina short comment period which they enroll students, if such authorization is required by the state, (ii) require institutions to document the state process for resolving student complaints regarding distance education programs, (iii) require public and 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 effectended on July 1, 2018.May 4, 2020.
Gainful Employment
OnIn October 31, 2014, the Department published gainful employment regulations impacting programs required to prepare


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graduates for gainful employment in a recognized occupation. Almost all academic programs offered by Title IV-participating private sector institutions of higher education must prepare students for gainful employment in a recognized occupation. The gainful employment regulations became effective July 1, 2015, with certain institutional disclosure requirements thatwhich became effective in early 2017. The
On July 1, 2019, the Department of Education published a final rule rescinding the Department’s 2014 gainful employment regulations. The Higher Education Act requires that regulations have a framework with three components:
Certification: Institutions must certify that each of their gainful employmentaffecting programs meet state and federal licensure, certification and accreditation requirements.
Accountability Measures: To maintainunder Title IV eligibility, gainful employment programs will be required to meet minimum standards for the debt burden versus the earnings of their graduates.
◦Pass: Programs whose graduates have annual loan payments less than 8% of total earnings or less than 20% of discretionary earnings.
◦Zone: Programs whose graduates have annual loan payments between 8% and 12% of total earnings or between 20% and 30% of discretionary earnings.
◦Fail: Programs whose graduates have annual loan payments greater than 12% of total earnings and greater than 30% of discretionary earnings.
Programs that failpublished in two out of any three consecutive years or are in the Zone for four consecutive years will be disqualified from participation in the Title IV programs.
Transparency: Institutions will be required to make public disclosures regarding the performance and outcomes of their gainful employment programs. The disclosures will include information such as costs, earnings, debt and completion rates.
The accountability measures will typically weigh a calculated debt burden from graduates who completed their studies three and four yearsfinal form by November 1, prior to the measuring academicstart of the award year and earnings from(July 1) to which they become effective. This section also permits the most recent calendar year priorSecretary to designate any regulation as one that an entity subject to the conclusionregulations may choose to implement earlier, as well as conditions for early implementation. The Department designated the regulatory changes for early implementation, and an institution that early implements the rescission must document its early implementation internally. Ashford has chosen and documented early implementation.
Institutions that have early implemented the rescission of the measuring academic year. Thus for the 2014-2015 academic year, the two-year cohort will include graduates from the 2010-2011 and 2011-2012 academic years and earnings for these graduates from calendar year 2014.
On October 20, 2016, we received draft debt-to-earnings rates and certain underlying data from the Department for the first gainful employment measurement year, and on January 8, 2017 we received our institutions’ final debt-to-earnings rates for the firstrule are not required to report gainful employment measurement year. Based ondata to the final rates, none of our programs were determinedNational Student Loan Data System. Additionally, those institutions that have early implemented are not required to fail. Two of our current programs, includinginclude the Associate of Arts in Early Childhood Education and the Bachelor of Arts in Early Childhood Education/Administration, were determined to be in the zone. At September 30, 2017, approximately 3% of our institutions' students were enrolled in the Associate of Arts in Early Childhood Education and approximately 8% of our institutions' students were enrolled in the Bachelor of Arts in Early Childhood Education/Administration. During the three months ended September 30, 2017, we derived revenue of approximately $3.8 million from the Associate of Arts in Early Childhood Education and approximately $11.3 million from the Bachelor of Arts in Early Childhood Education/Administration. The Company is currently working to determine what, if any, measures it might implement in order to bring these programs into the “pass” category.
The fact that none of our programs were determined to fail and only two of our current programs were determined to be in the zone is significant given the framework discussed above, as a program would be disqualified from participation in Title IV programs only if it were to fail for two out of three consecutive years, or either fail or be in the zone for three out of four consecutive years. The gainful employment regulations contemplate a transition period in the first several years to afford institutions the opportunity to make changes to their programs and retain Title IV eligibility.
On June 15, 2017, the Department announced its intention to conduct additional negotiated rulemaking on certain issues related to gainful employment. On June 30, 2017, the Department also granted institutions until July 1, 2018 to comply with disclosure provisions related to promotional materials and prospective students, and extended the deadline for all programs to file alternate earnings appeals to a soon to be announced date. The Department did not change a July 1, 2017 deadline requiring institutions to provide a completed disclosure template, or a link thereto, onin their gainful employment program Web pagespromotional materials and our schoolsdirectly distribute the disclosure template to prospective students. Institutions that have complied with this requirement.

early implemented are no longer

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We continuerequired to review the information provided by the Department to understand the potential impact ofpost the gainful employment regulations on our programs,disclosure template and we will continue to evaluate options related to new programs or adjustments to current programs that could help mitigatemay remove the potential adverse consequences of the regulations.
Defense to Repayment
On June 8, 2015, the Department announced processes that will be established to assist students who may have been the victims of fraud in gaining relief under the “defense to repayment” provisions of the William D. Ford Federal Direct Loan Program regulations. Rarely used in the past, the defense to repayment provisions currently in effect allow a student to assert as a defense against repayment of federal direct loans any commission of fraud or other violation of applicable state law by the school related to such loans or the educational services for which the loans were provided.
On June 16, 2016, the Department published proposed regulations regarding borrower defense to repaymenttemplate and related matters, and on October 28, 2016, the Department published its final regulations with an effective date of July 1, 2017. The new regulations allow a borrower to assert a defense to repayment on the basis of a 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 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 new regulations establish the conditions or events that trigger the requirement for an institution to provide the Department with financial protection in the form of a letter of credit 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 warningsgainful employment disclosures from the SEC or the applicable stock exchange, or the failure to timely file a required annual or quarterly report with the SEC. The new regulations also prohibit schools from requiring that students agree to settle future disputes through arbitration.
On June 14, 2017, the Department announced a postponement of the 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. While rulemaking occurs, the Department will continue to process claims under the current borrower defense rules.their web pages.
Cohort Default Rate
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 recentany federal fiscal years, 30%40% 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, 20132016, 2015 and 20122014 federal fiscal years were 14.9%13.7%, 14.5%13.5% and 15.3%14.9%, respectively. The most recent officialdraft three-year cohort default ratesrate for Ashford University of the Rockies for the 2014, 2013 and 20122017 federal fiscal years were 5.5%, 3.8% and 4.3%, respectively.year is 14.7%.
For additional information regarding the regulatory environment and related risks, see Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors” of the Form 10-K.
Seasonality
Our operations are generally subject to seasonal trends. We generally experience 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 we enroll students throughout the year, our fourth quarter revenue generally is lower than other quarters due to the holiday break in December, with an increase in the first quarter of each year.
Critical Accounting Policies and Use of Estimates
The critical accounting policies and estimates used in the preparation of our consolidated financial statements are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Use of Estimates” included in Part II, Item 7 of the Form 10-K.
On January 1, 2020, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, using the modified retrospective method. For information regarding the impact of this recent accounting pronouncements, refer to Note 2, “Summary of Significant Accounting Policies - Recent Accounting Pronouncements” as well as Note 7, “Accounts Receivable” to our condensed consolidated financial statements included elsewhere in this report.
There were no other material changes to these critical accounting policies and estimates during the ninesix months endedSeptember June 30, 2017.

2020.

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The Iran Threat Reduction and Syria Human Rights Act of 2012
During the three months ended September 30, 2017, Santander Asset Management Investment Holdings Limited (“SAMIH”) engaged in certain activities that are subject to disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Exchange Act. These activities are disclosed in Exhibit 99.1 to this report. Affiliates of Warburg Pincus, LLC (i) beneficially own more than 10% of our outstanding common stock and are members of our board of directors and (ii) beneficially own more than 10% of the equity interests of and have the right to designate members of the board of directors of SAMIH. We will be required to separately file with the SEC, concurrently with this report, a notice that such activities have been disclosed in this report, which notice must also contain the information required by Section 13(r) of the Exchange Act.


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Results of Operations
The following table sets forth our condensed consolidated statements of income (loss) data as a percentage of revenue for each of the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30, Three Months Ended
June 30,		Six Months Ended
June 30,
2017 2016 2017 2016 2020201920202019
Revenue100.0 % 100.0 % 100.0 % 100.0 %Revenue100.0 %100.0 %100.0 %100.0 %
Costs and expenses:       Costs and expenses:  
Instructional costs and services48.4
 46.9
 48.7
 49.1
Instructional costs and services43.2  51.3  45.2  49.3  
Admissions advisory and marketing36.6
 38.5
 35.4
 38.5
Admissions advisory and marketing37.3  41.7  39.9  43.2  
General and administrative9.6
 8.5
 9.9
 9.0
General and administrative13.9  21.0  15.8  17.7  
Legal settlement expense—
 12.3
 —
 8.1
Restructuring and impairment charges6.7
 0.3
 2.1
 0.7
Restructuring and impairment expenseRestructuring and impairment expense0.5  5.0  1.6  2.5  
Total costs and expenses101.3
 106.5
 96.1
 105.4
Total costs and expenses94.9  119.0  102.5  112.7  
Operating income (loss)(1.3) (6.5) 3.9
 (5.4)Operating income (loss)5.1  (19.0) (2.5) (12.7) 
Other income, net0.3
 0.4
 0.3
 0.5
Other income (expense), netOther income (expense), net0.2  0.3  (0.1) 0.4  
Income (loss) before income taxes(1.0) (6.1) 4.2
 (4.9)Income (loss) before income taxes5.3  (18.7) (2.6) (12.3) 
Income tax expense (benefit)(1.0) 0.9
 (0.2) (0.9)Income tax expense (benefit)0.3  (2.3) (6.2) (1.1) 
Net income (loss)— % (7.0)% 4.4 % (4.0)%Net income (loss)5.0 %(16.4)%3.6 %(11.2)%
Three Months Ended SeptemberJune 30, 20172020 Compared to Three Months Ended SeptemberJune 30, 20162019
Revenue. Our revenue for the three months ended SeptemberJune 30, 20172020 and 2019, was $119.4$103.9 million representingand $107.5 million, respectively, a decrease of $17.2$3.6 million, or 12.6%, as compared to revenue of $136.6 million for the three months ended September 30, 2016.3.3%. The decrease between periods was primarily due to a decrease of 11.3%8.8% in average weekly enrollment at our academic institutions, from 47,65738,304 students for the three monthsmonth period ended SeptemberJune 30, 20162019 to 42,28034,952 students for the three monthsmonth period ended SeptemberJune 30, 2017. Tuition2020. As a result of the decrease in enrollments, tuition revenue decreased by approximately $15.4$3.4 million, which is primarily due to the decrease in average weekly enrollment, partially offsetnet revenue generated from course digital materials decreased by the approximate 2.0% tuition increase on April 1, 2017.$0.5 million, and technology fee revenue decreased by $0.4 million. The decrease in revenue between periods was also due to higher scholarships for the period, an increase of $0.6$1.4 million. The overall revenue decrease was partially offset by net revenue from subsidiaries of $4.9 million, as well as a decrease in net revenue generated from course digital materials of approximately $0.5 million.tuition and fees increase, effective January 2020.
Instructional costs and services. Our instructional costs and services for the three months ended SeptemberJune 30, 20172020 and 2019, were $57.8$44.9 million representingand $55.1 million, respectively, a decrease of $6.3$10.2 million, or 9.9%, as compared to instructional18.5%. Specific decreases between periods primarily include direct compensation of $4.1 million, corporate support services of $1.3 million, other subsidiary costs of $1.3 million, facilities costs of $1.0 million, bad debt expense of $0.9 million, professional fees of $0.6 million, business related travel of $0.5 million and instructor fees of $0.4 million. Instructional costs and services, as a percentage of $64.1 millionrevenue, for the three months ended SeptemberJune 30, 2016. In addition to the decline in enrollment, specific decreases between periods2020 and 2019, were 43.2% and 51.3%, respectively, a decrease of 8.1%. This decrease primarily includeincluded decreases in direct compensation (including financial aid processing fees) of $2.2 million,3.3%, other subsidiary costs of 1.2%, corporate support services of $2.1 million, instructor fees of $1.0 million, license fees of $1.0 million, and1.0%, facilities costs of $0.8 million, partially offset by an increase in information technology costs of $0.6 million. Instructional costs and services increased as a percentage of revenue to 48.4% for the three months ended September 30, 2017, as compared to 46.9% for the three months ended September 30, 2016. The increase of 1.5% as a percentage of revenue primarily included increases in information technology costs of 1.0% and0.9%, bad debt expense of 0.7%, professional fees of 0.5% and business related travel of 0.5%. As a percentage of revenue, bad debt expense was 6.3%2.9% for the three months ended SeptemberJune 30, 2017,2020, compared to 5.6%3.6% for three months ended SeptemberJune 30, 2016.2019.
Admissions advisory and marketing. Our admissions advisory and marketing expenses for the three months ended SeptemberJune 30, 20172020 and 2019, were $43.7$38.8 million representingand $44.8 million, respectively, a decrease of $8.9$6.0 million, or 17.0%, as compared to admissions advisory and marketing expenses of $52.6 million for the three months ended September 30, 2016. As a result of our change in marketing strategy and the shift in advertising mix, specific13.4%. Specific factors contributing to the overall decrease between periods were decreases in compensation of $5.4 million, advertising costs of $2.4$2.0 million, andcompensation of $1.8 million, professional fees of $0.8 million, facilities costs of $1.7$0.8 million, partially offset by an increase in corporate support servicesand other subsidiary costs of $1.1$0.5 million. AsAdmissions advisory and marketing, as a percentage of revenue, our admissions advisory and marketing expenses decreased to 36.6% for the three months ended SeptemberJune 30, 2017, as compared to 38.5% for the three months ended


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September 30, 2016. The2020 and 2019, were 37.3% and 41.7%, respectively, a decrease of 1.9% as a percentage4.4%. This decrease primarily included decreases in advertising costs of revenue was primarily due to a decrease in1.4%, compensation of 2.0%1.2%, professional fees of 0.7%, facilities costs of 0.7% and other subsidiary costs of 0.5%.
General and administrative. Our general and administrative expenses for the three months ended SeptemberJune 30, 20172020 and 2019, were $11.4$14.5 million representingand $22.5 million, respectively, a decrease of $0.2$8.0 million, or 1.4%, as compared35.7%. The decrease between periods was
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primarily due to generaldecreases in acquisition costs of $7.3 million and administrative compensation of $3.4 million, partially offset by an increase in other subsidiary costs of $1.9 million and transaction costs of $0.8 million. General and administrative expenses, as a percentage of $11.6revenue, for the three months ended June 30, 2020 and 2019, were 13.9% and 21.0%, respectively, a decrease of 7.1%. This decrease was primarily due to decreases in acquisition costs of 6.8% and administrative compensation of 2.9%, partially offset by increases in other subsidiary costs of 1.7% and transaction costs of 0.9%.
Restructuring and impairment expense. We recorded a charge of approximately $0.5 million to restructuring and impairment expense for the three months ended June 30, 2020, primarily from severance costs resulting from a reduction in force and revised estimates of lease charges. For the three months ended June 30, 2019, we recorded a charge of approximately $5.4 million to restructuring and impairment expense, comprised primarily of a reduction in force and revised estimates of lease charges.
Other (expense) income, net. Our other expense, net, was $0.2 million for the three months ended SeptemberJune 30, 2016.2020 and other income, net, was $0.3 million for the three months ended June 30, 2019. The decrease between periods was primarily due to decreases in facilities costs of $0.5 million and administrativea loss on deferred compensation of $0.5 million, offset by increases in corporate support services of $1.0 million. Our general and administrative expenses increased as a percentage of revenue to 9.6%investments for the three months ended SeptemberJune 30, 2017, as compared to 8.5% for the three months ended September 30, 2016. The increase2020.
Income tax expense (benefit). We recognized income tax expense of 1.1% as a percentage$0.3 million, and an income tax benefit of revenue was primarily due to increases in administrative compensation of 0.5% and professional fees of 0.4%.
Legal settlement expense. For the three months ended September 30, 2017, we had no expenses relating to legal settlements. The expenses for the cost of resolution of the previously disclosed civil investigative demands from the Consumer Financial Protection Bureau and the Attorney General of the State of California for the three months ended September 30, 2016 were $16.8 million.
Restructuring and impairment charges. We had $8.0 million restructuring and impairment charges for the three months ended September 30, 2017, comprised primarily of revised estimates of lease charges as well as severance costs resulting from a reduction in force. For the three months ended September 30, 2016, restructuring and impairment charges were $0.4 million, comprised primarily of severance costs resulting from a reduction in force.
Other income, net. Our other income, net, was $0.4$2.4 million for the three months ended SeptemberJune 30, 20172020 and $0.6June 30, 2019, respectively, at effective tax rates of 5.5% and 12.2%, respectively. The income tax expense for the three months ended June 30, 2020 was mainly attributable to tax refund true-ups related to the CARES Act and IRS audit examination.
Net income (loss). Our net income was $5.1 million for the three months ended SeptemberJune 30, 2016. The decrease between periods was primarily due2020, compared to decreased interest income on average cash balances.
Income tax expense (benefit). We recognized an income tax benefitnet loss of $1.2 million and an income tax expense of $1.2$17.6 million for the three months ended SeptemberJune 30, 2017 and 2016, at effective tax rates of 103.4% and (14.7)%, respectively.
Net income. Our net income was $39,000 for the three months ended September 30, 2017, compared to net loss of $9.5 million for the three months ended September 30, 2016, which represents2019, a $9.5$22.7 million increase in net income as a result of the factors discussed above.
NineSix Months Ended SeptemberJune 30, 20172020 Compared to NineSix Months Ended SeptemberJune 30, 20162019
Revenue. Our revenue for the ninesix months ended SeptemberJune 30, 20172020 and 2019, was $373.4$201.8 million representingand $217.3 million, respectively, a decrease of $34.2$15.5 million, or 8.4%, as compared to revenue of $407.6 million for the nine months ended September 30, 2016.7.1%. The decrease between periods was primarily due to a decrease of 9.6%8.5% in average weekly enrollment at our academic institutions, from 49,20438,396 students duringfor the nine monthssix month period ended SeptemberJune 30, 20162019 to 44,46935,126 students duringfor the nine monthssix month period ended SeptemberJune 30, 2017. Tuition2020. As a result of the decrease in enrollments, tuition revenue decreased by approximately $33.8$13.5 million, which is primarily due to the decrease in average weekly enrollment, partially offsettechnology fee revenue decreased by the approximate 2.0% tuition increase on April 1, 2017.$1.2 million and net revenue generated from course digital materials decreased by $1.0 million. The decrease in revenue between periods was also due to ahigher scholarships for the period, an increase of $5.4 million. The overall revenue decrease inwas partially offset by net revenue generated from course digital materialssubsidiaries of approximately $1.5 million.$8.9 million, as well as a tuition and fees increase, effective January 2020.
Instructional costs and services. Our instructional costs and services for the ninesix months ended SeptemberJune 30, 20172020 and 2019, were $181.9$91.3 million representingand $107.0 million, respectively, a decrease of $18.2$15.7 million, or 9.1%, as compared to instructional costs and services of $200.1 million for the nine months ended September 30, 2016.14.7%. In addition to the decline in enrollment, specific decreases between periods include direct compensation costs of $5.8$7.6 million, corporate support services of $4.9$4.6 million, instructor feesbad debt expense of $3.5$1.1 million, facilities costsbusiness related travel of $3.0$0.7 million, and license fees of $1.7$0.7 million partially offset by an increase inand information technology costs of $1.2$0.6 million. Instructional costs and services, decreased as a percentage of revenue, to 48.7% for the ninesix months ended SeptemberJune 30, 2017, as compared to 49.1% for the nine months ended September 30, 2016. The2020 and 2019, were 45.2% and 49.3%, respectively, a decrease of 0.4% as a percentage of revenue4.1%. This decrease primarily included decreases in direct compensation costs of 2.4%, corporate support services of 0.6%1.7%, bad debt expense of 0.3% and facilities costslicense fees of 0.5%0.3%, partially offset by an increase in bad debt expenseinstructor fees of 0.8%0.5%. As a percentage of revenue, bad debt expense was 6.5%3.2% for the ninesix months ended SeptemberJune 30, 2017,2020, compared to 5.8%3.5% for the ninesix months ended SeptemberJune 30, 2016.2019.
Admissions advisory and marketing. Our admissions advisory and marketing expenses for the ninesix months ended SeptemberJune 30, 20172020 and 2019, were $132.1$80.5 million representingand $93.9 million, respectively, a decrease of $24.7$13.4 million, or 15.7%, as compared to admissions


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advisory and marketing expenses of $156.8 million for the nine months ended September 30, 2016.14.2%. As a result of our change in marketing strategy and the shift in advertising mix, specific factors contributing to the overall decrease between periods include decreases in compensation of $14.9 million, advertising costs of $7.7$6.1 million, facilitiescompensation of $6.0 million, professional fees of $0.9 million, and business related travel of $0.8 million. Our admissions advisory and marketing expenses, as a percentage of revenue, for the six months ended June 30, 2020 and 2019, were 39.9% and 43.2%, respectively, a decrease of 3.3%. This decrease primarily included decreases in compensation of 1.8%, advertising costs of $5.51.5%, professional fees of 0.3% and business related travel of 0.3% partially offset by an increase in other subsidiary costs of 0.6%.
General and administrative. Our general and administrative expenses for the six months ended June 30, 2020 and 2019, were $32.0 million and information technology$38.5 million, respectively, a decrease of $6.5 million, or 16.8%. The decrease between periods was
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primarily due to decreases in acquisition costs of $2.6 million. These decreases were$8.2 million, professional fees of $1.2 million and other subsidiary costs of $0.9 million, partially offset by increases in corporate support services of $5.1$2.4 million, amortization of intangible assets of $0.8 million and professional feestransaction costs of $0.5 million. AsOur general and administrative expenses, as a percentage of revenue, our admissions advisory and marketing expenses decreased to 35.4% for the ninesix months ended SeptemberJune 30, 2017 as compared to 38.5% for the nine months ended September 30, 2016. The2020 and 2019, were 15.8% and 17.7%, respectively, a decrease of 3.1% as a percentage of revenue1.9%. This decrease was primarily due to decreases in compensation of 2.3%, facilitiesacquisition costs of 1.2%,3.8% and advertisingother subsidiary costs of 0.6%0.5%, partially offset by an increaseincreases in corporate support services of 1.1%.
General and administrative. Our general and0.7%, administrative expenses for the nine months ended September 30, 2017 were $37.0 million, representing an increasecompensation of $0.3 million, or 0.8%0.7%, as compared to general and administrative expenses of $36.7 million for the nine months ended September 30, 2016. The increase between periods was primarily due to an increase in professional fees of $3.6 million, partially offset by decreases in other administrative costs of $1.4 million, administrative compensation of $1.1 million,0.5%, and facilitiestransaction costs of $1.1 million. Our general and administrative expenses increased as a percentage of revenue to 9.9% for the nine months ended September 30, 2017, compared to 9.0% for the nine months ended September 30, 2016. The increase of 0.9% as a percentage of revenue was primarily due to an increase in professional fees of 1.2% and administrative compensation of 0.4%, partially offset by a decrease in corporate support services of 0.5%.
Legal settlement expense. For the nine months ended September 30, 2017, we had no expenses relating to legal settlements. The expenses for the cost of resolution of the previously disclosed civil investigative demands from the Consumer Financial Protection Bureau and the Attorney General of the State of California for the nine months ended September 30, 2016 were $32.9 million.
Restructuring and impairment charges.expense. We had $8.0recognized $3.2 million of restructuring and impairment chargesexpense for the ninesix months ended SeptemberJune 30, 2017,2020, comprised primarily of revised estimates of lease charges, as well as severance costs resulting from a reduction in force. For the ninesix months ended SeptemberJune 30, 2016,2019, there were $5.4 million of similar restructuring and impairment charges were $2.8expenses.
Other (expense) income, net. Our other expense, net was $0.1 million comprised primarily of severance costs resulting from a reduction in force.
Other income, net. Ourfor the six months ended June 30, 2020, as compared to other income, net was $1.2of $0.9 million for the ninesix months ended SeptemberJune 30, 2017, as compared to $1.9 million for the nine months ended September 30, 2016, representing2019, a decrease of $0.7$1.0 million. The decrease between periods was primarily due to decreased interest income on average cash balances.balances and a loss on deferred compensation investments.
Income tax expense (benefit).benefit. We recognized an income tax benefit of $0.7$12.5 million and $3.6$2.4 million for the ninesix months ended SeptemberJune 30, 20172020 and 2016,2019, respectively, at effective tax rates of (4.6)%234.9% and 18.2%9.0%, respectively. The income tax benefit for the six months ended June 30, 2020 was mainly attributable to the $12.7 million refund claims from the net operating loss carryback provisions of the CARES Act.
Net income (loss). Our net income was $16.2$7.2 million for the ninesix months ended SeptemberJune 30, 20172020 compared to net loss of $16.3$24.2 million for the ninesix months ended SeptemberJune 30, 2016,2019, a $32.5$31.4 million changeincrease in net income as a result of the factors discussed above.
Liquidity and Capital Resources
We finance our operating activities and capital expenditures primarily through cash on hand and through cash provided by operating activities.hand. At SeptemberJune 30, 20172020 and December 31, 2016,2019, our cash and cash equivalents were $165.2$75.1 million and $307.8$69.3 million, total restricted cash was $25.9 million and $23.3 million, and we had investments of $1.3 million and $2.5 million, respectively. At June 30, 2020, we had $2.8 million of long-term notes payable.
There was a slight decrease in the fair value of our investments at June 30, 2020 as compared to December 31, 2019. We believe that any fluctuations we have experienced are temporary in nature and, while some of 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.
Our income tax receivable increased from December 31, 2019 to June 30, 2020 due to the changes in income tax law related to net operating loss utilization as a result of the CARES Act. The Company recorded tax refund in a total of $12.7 million and received $6.2 million in June 2020. We anticipate receiving the remaining refund by the end of the third quarter ending September 30, 2017 and December 31, 2016, we had restricted cash of $19.9 million and $24.5 million, respectively, and investments of $27.0 million and $49.4 million, respectively. At September 30, 2017, we had no long-term debt.2020.
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’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 Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk.”
There was a slight increaseRisk” in the fair value of our investments at September 30, 2017 as compared to December 31, 2016. We believe that any fluctuations we have recently experienced are temporary in nature and that while some of our


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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.this Form 10-Q.
Title IV and other governmental funding
Our institutions deriveAshford derives the substantial majority of theirits respective revenues from students who enroll and are eligible for various federal student financial assistance programs authorized under Title IV of the Higher Education Act. Our institutions areAshford 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 “Business—Regulation” included in Part I, Item 1 of the Form 10-K. The balance of revenues derived by our institutionsAshford is from government tuition assistance programs for
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military personnel, including veterans, payments made in cash by individuals, reimbursement from corporate affiliates and private loans.
If we were to become ineligible to receive Title IV funding or other governmental funding, our liquidity would be significantly impacted. The timing of disbursements under Title IV programs is based on federal regulations and our ability to successfully and timely arrange financial aid for our institutions’Ashford’s students. Title IV funds are generally provided in multiple disbursements before we earn a significant portion of tuition and fees and incur related expenses over the period of instruction. Students must apply for new loans and grants each academic year. These factors, together with the timing at which our institutions’Ashford’s students begin their programs, affect our revenues and operating cash flow.
Stock repurchase programs
The Company's board of directors may authorize us to repurchase outstanding shares of its common stock from time to time in the open market through block trades or otherwise depending on market conditions and other considerations, pursuant to the applicable rules of the SEC. The Company's policy is to retain these repurchased shares as treasury shares and not to retire them. The amount and timing 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.
Operating activities
Net cash used inprovided by operating activities was $16.7$6.7 million for the ninesix months ended SeptemberJune 30, 2017,2020, compared to net cash used in operating activities of $12.9$22.1 million for the ninesix months ended SeptemberJune 30, 2016,2019, an overall increase between periods in net cash used inprovided by operating activities of $3.8$28.8 million. ThisThe increase in cash used inprovided by operating activities wasis primarily attributable to changes in accounts payable and accrued liabilities, loss on impairment of student loan receivables in prior year, and changes in other long-term assets. This change was partially offset by the $32.5$31.4 million increase in net income between periods. Despite theperiods, partially offset by a decrease in lease expense of $2.9 million, provision of bad debt of $1.1 million and changes in working capital.
Investing activities
Net cash used in operating activities during the period, we expect to generate cash from our operating activities for the foreseeable future.
Investing activities
Net cash provided by investing activities was $19.3$0.6 million for the ninesix months ended SeptemberJune 30, 2017,2020, compared to net cash used in investing activities of $7.7$37.4 million for the ninesix months ended SeptemberJune 30, 2016.2019. Capital expenditures for the six months ended June 30, 2020 were $1.6 million, compared to $17.8 million for the six months ended June 30, 2019. During the ninesix months ended SeptemberJune 30, 2017,2019, we had maturitiesused $19.3 million of investments of $22.7 million, purchases of investmentscash paid for acquisition. During the six months ended June 30, 2020 and 2019, we capitalized costs for intangibles of $0.1 million and no sales of investments. This is compared to purchases of investments of $20.2$0.3 million, no sales of investments and $14.7 million maturities of investments for the nine months ended September 30, 2016. Capital expenditures for the nine months endedSeptember 30, 2017 were $2.9 million, compared to $1.6 million for the nine months endedSeptember 30, 2016.respectively. We expect our capital expenditures to be approximately $5.8$4.6 million for the year ending December 31, 2017.2020.
Financing activities
Net cash used inprovided by financing activities was $149.8$2.3 million for the ninesix months ended SeptemberJune 30, 2017,2020, compared to net cash used in financing activities of $1.6$0.7 million for the ninesix months ended SeptemberJune 30, 2016. During2019. For the ninesix months ended September June 30, 2017, we repurchased approximately 18.1 million shares of our common stock for an aggregate purchase price of $150.0 million and $2.02020, $2.7 million of related fees.cash provided by financing activities was cash received in the current period for which it will be repaid as a function of generating future revenue. During each of the ninesix months endedSeptember June 30, 20172020 and 2016,2019, net cash used in financing activities included tax withholdings related to the issuance of shares upon the vesting of restricted stock units partially offset by the cash provided by stock option exercises.vesting.
Based on our current level of operations, we believe that our future cash flows from operating activities and our existing cash and cash equivalents will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months. However, changes could occur that would consume our available capital resources before that time. Our capital requirements depend on numerous factors, including our ability to continue to generate revenue. There can be no assurance that additional funding, if necessary, will be available to us on favorable terms, if at all.


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Off-Balance Sheet Arrangements and Significant Contractual Obligations
As part of our normal business operations, we are required to provide surety bonds in certain states where we do business. In May 2009, we entered into a surety bond facility with an insurance company to provide such bonds when required. As of SeptemberJune 30, 2017, our total available surety bond facility was $3.5 million and2020, the surety had issued $8.6 million of bonds totaling $3.3 million on our behalf under suchthis facility.
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Significant Contractual Obligations
The following table sets forth, as of SeptemberJune 30, 2017,2020, certain significant cash and contractual obligations that will affect our future liquidity:
Payments Due by PeriodPayments Due by Period
(In thousands)Total 2017 2018 2019 2020 2021 Thereafter(In thousands)Total20202021202220232024Thereafter
Operating lease obligations$77,878
 $9,080
 $31,400
 $20,833
 $9,504
 $5,112
 $1,949
Operating lease obligations$45,771  $4,147  $8,914  $5,299  $3,805  $3,538  $20,068  
Other contractual obligations49,332
 4,229
 12,535
 10,592
 8,549
 3,427
 10,000
Other contractual obligations51,663  10,502  13,530  10,470  8,132  4,925  4,104  
Uncertain tax positions8,290
 —
 8,290
 —
 —
 —
 —
Uncertain tax positions104  —  —  104  —  —  —  
Total$135,500
 $13,309
 $52,225
 $31,425
 $18,053
 $8,539
 $11,949
Total$97,538  $14,649  $22,444  $15,873  $11,937  $8,463  $24,172  
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2, “Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in Part I, Item 1 of this report.Form 10-Q.
Item 3.  Quantitative and Qualitative Disclosures About Market 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 SeptemberJune 30, 2017,2020, we had no outstanding borrowings.approximately $2.8 million in long-term notes payable.
Our future investment income may fall short of expectations due to changes in interest rates. At SeptemberJune 30, 2017,2020, 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.


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Item 4.  Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of any possible 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 the design and operation of our disclosure controls and procedures as of the end of the period covered by this report pursuant todefined in Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act. Based on thisthat 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 SeptemberJune 30, 2017.2020.
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 SeptemberJune 30, 20172020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION
Item 1.  Legal Proceedings.
For information regarding our legal proceedings, refer to Note 13,15, “Commitments and Contingencies” to our condensed consolidated financial statements included in Part I, Item 1 of this report, which note is incorporated by reference into this Part II, Item 1.


Item 1A.  Risk Factors.
Investing in our common stock involves risk. Before making an investment in our common stock, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of the Form 10-K. The risks described in the Form 10-K are those which we believe are the material risks we face, and such risks could materially adversely affect our business, prospects, financial condition, cash flows and results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may impact us. Except as set forth below, there have been no material changes in our risk factors from those previously disclosed in the Form 10-K.
Risks Related to the Proposed Ashford Transactions and Proposed Change in the Structure of Our institutionsOperations
Failure to complete the asset purchase agreement with the Arizona Board of Regents, for and on behalf of the University of Arizona and the University of Arizona Global Campus, which is subject to conditions and also may not close due to uncertainties, may prevent us from executing on our strategic plans, and could materially and adversely impact us.
The asset purchase agreement with the Arizona Board of Regents, a body corporate, for and on behalf of the University of Arizona and the University of Arizona Global Campus is subject to certain conditions, some of which are out of our control. There can be no assurance when or whether these conditions will be satisfied or, to the extent waivable, waived or the occurrence of any effect, event, development or change will not transpire. If these conditions are not satisfied or waived, if permitted, the asset purchase agreement may be terminated and would not be completed.
There can be no assurance with respect to the timing of the completion of the asset purchase agreement or whether it will be completed on its current terms, or at all. If it is not completed for any reason, we may not be able to fully implement our strategic plans, or such plans would be delayed, which could have a material adverse impact on our future expected financial performance.
The Conversion Transaction is subject to the receipt of regulatory approvals that if not obtained, could delay or prevent its consummation, and an excessive delay in finalizing the Conversion Transaction could disrupt our business during its pendency.
The Conversion Transaction remains subject to various regulatory approvals following the conversion. There can be no assurances that these regulatory approvals will be obtained on the currently contemplated timeline or at all. In addition, as a condition to granting these regulatory approvals, a regulatory authority may require changes to the structure of the Conversion Transaction, and these changes may negatively impact our financial condition and results of operations. A material delay in obtaining such approvals may create uncertainty or otherwise have negative consequences, including adverse changes in our relationships with Ashford’s students, vendors and faculty; adverse impacts on employee recruiting and retention efforts; and diversion of management’s attention and internal resources from ongoing business, any of which may materially and adversely affect our financial condition and results of operations. We cannot predict with certainty whether and when any of the required regulatory approvals will be granted. Whether or not the Conversion Transaction is consummated, while it is pending, we will continue to incur costs, fees, expenses and charges related to the Conversion Transaction.
If the Conversion Transaction is consummated, we will be 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.
Having obtained most regulatory approvals and agreed upon the general structure and major terms and conditions regarding the Conversion Transaction, if it is ultimately consummated, then various aspects of our operations would change in important ways. These changes include, but are not limited to, the following:
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•Following the Conversion Transaction, we would no longer own and operate a regulated institution of higher education, but we would instead be an education technology service provider to AU NFP and possibly other third-party education providers. While the services we would provide are services that we provide as part of our business today, we have no experience operating solely as an education technology service provider to third parties.
•Initially, all of our revenue would be derived pursuant to the services agreement with AU NFP. Accordingly, AU NFP’s ability to increase its enrollment and tuition and fee revenue, and our ability to continue to perform the services necessary to enable AU NFP to achieve such goals, would be critical to the success of our services business.
If the Conversion Transaction is consummated, but we are unable to successfully re-focus our business to providing education technology services to third-party education providers, or if the contemplated services agreement with AU NFP 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 Department does not approve the change of control related to the Conversion Transaction and recertify Ashford to continue participating in the Title IV programs, its students would lose their access to Title IV program funds, or there are significant limitations as a condition of Ashford’s continued participation in the Title IV programs, as a service provider to Ashford, 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. Ashford’s conversion to nonprofit status as a part of the Conversion Transaction, if consummated, would constitute a change in control of Ashford. The Department conducted an abbreviated preacquisition review of the change of control and is expected to conduct a post-closing review of Ashford following the change of control resulting from the Conversion Transaction, if consummated. See “Regulation – U.S. Department of Education Abbreviated Preacquisition Review Letter” in Item 1, “Business.” There can be no assurance that the Department will recertify Ashford or that the Department will not impose conditions or other restrictions on Ashford as a condition of granting Ashford a provisional certification following the proposed change in control. If the Department does not renew, or withdraws, the certification of Ashford to participate in the Title IV programs at any time, Ashford’s students would no longer be able to receive Title IV program funds. Similarly, the Department could renew Ashford’s certification, but restrict or delay Ashford’s students’ receipt of Title IV funds, limit the students to whom Ashford could disburse funds, decline to approve Ashford as a nonprofit institution for Title IV purposes, or place other restrictions on Ashford.
Any of these outcomes would have a material adverse effect on us. If the Conversion Transaction is consummated, we would no longer own or operate Ashford, and we would no longer participate in the Title IV programs as an institution. However, we would face the risks discussed above in connection with providing services to Ashford 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 contemplated services agreement if Ashford loses or has limits placed on its Title IV eligibility.
The separation of Ashford via the Conversion Transaction, may not be completed on the terms or timeline currently contemplated and failure to complete, or any delay of, the separation of Ashford from Zovio Inc may negatively impact our planned business, financial condition or results of operations.
The Conversion Transaction, which may be subject to a number of conditions including, among other things, regulatory approval. There can be no assurance that the conditions to the completion of the Conversion Transaction will be satisfied, or that the separation will be completed on the terms or timeline currently contemplated, if at all. Other unanticipated developments could further delay, prevent or otherwise adversely affect the separation of the university, including disruptions in the capital and other financial markets, among other things. If the separation of the university is not completed or is delayed, we will be subject to several risks, including but not limited to:
•a failure to complete the separation and transition or a delay in such events could result in a negative perception by the market of the Company generally and a resulting decline in the market price of our common stock;
•the Company and Ashford may experience negative reactions from its employees and business partners; and
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•there may be substantial disruption to our business and a distraction of our management team and employees from day-to-day operations, because matters related to the separation and transition have required substantial commitments of time and financial and other resources, which could otherwise have been devoted to other opportunities that might have been beneficial.
Risks Related to the Extensive Regulation of Our Business
The failure of Ashford to demonstrate financial responsibility may result in a loss of eligibility to participate in Title IV programs or face other sanctions if they derive more than 90%require the posting of their respective revenues from these programs.
Under the Higher Education Act, a proprietary institution losesletter of credit in order to maintain eligibility to participate in Title IV programs if the institution derives more than 90% of its revenues (calculated in accordance with Department regulations) from Title IV program funds for two consecutive fiscal years. 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 toprograms.
To participate in Title IV programs, foran 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's composite score, a number between negative 1.0 and positive 3.0. An institution's composite score must be at least two fiscal years. In addition, an1.5 for the institution whose rate exceeds 90%to be deemed financially responsible without the need for any single fiscal year willfurther Department oversight. If Ashford is found not to have satisfied the Department's financial responsibility requirements, they could be placed on provisional certification and may be subjectlimited in their access to other enforcement measures. In the fiscal years ended December 31, 2016, 2015 and 2014, Ashford University derived 81.2%, 80.9% and 83.4%, respectively, and University of the Rockies derived 86.5%, 86.6% and 88.3%, respectively, of their respective revenues fromor lose Title IV program funds. Ashford University and University of the Rockies continue to monitor their respective 90/10 rule calculations and their compliance with the 90/10 rule.
Revenue derived from government tuition assistance for military personnel, including veterans, is not considered federal student aid for purposes of calculations under the 90/10 rule, and accordingly helps our institutions satisfy the 90/10 rule. As of December 31, 2016, approximately 25.6% of our institutions' students were affiliated with the military, some of whom are eligible to receive government tuition assistance thatfunding, or they may be usedrequired to pursue postsecondary degrees. If there were a reduction in funding of government tuition assistance for military personnel, including veterans, or if our revenue derived from such funding were otherwise to decrease, it could be significantly more difficult for our institutions to satisfy the 90/10 rule. On May 20, 2016, the Company receivedpost a letter from the Iowa Department of Education (the “Iowa DOE”) indicating that, as a result of the planned closure of the Clinton Campus, the ISAA would no longer continue to approve Ashford’s programs for GI Bill benefits after June 30, 2016. The Iowa DOE subsequently issued a stay of the ISAA’s withdrawal of approval of Ashford’s programs for GI Bill benefits until 90 days from June 20, 2016. On September 15, 2016, in response to a Petition for Declaratory and Injunctive Relief filed by Ashford University, the Iowa District Court for Polk County entered a written order (the “Order”) staying the Iowa DOE’s announced intention to withdraw the approval of Ashford as a GI Bill eligible institution until the entry of a final and appealable order and judgment in the action. On June 23, 2017, the Iowa District Court held a hearing on Ashford’s Petition and on July 17, 2017, the Court ruledcredit in favor of the Iowa DOEDepartment and denied the petition. Ashford University is evaluating a variety of optionspossibly accept other conditions to ensure the continued approval of Ashford’s programs for GI Bill benefits, including filing of a motion for reconsideration and a potential appeal. The Iowa DOE has indicated that it will continue to approve Ashford’s programs for GI Bill benefits and take no further action, at least through the deadline to appeal, which is 30 days following a final decision by the Iowa District Court. In addition, on July 25, 2017, Ashford University received approval from the state of Arizona to provide GI Bill benefits to its students, and is currently awaiting the assignment of a facilities code from the U.S. Department of Veterans Affairs. The Company intends to continue to pursue its options in Iowa as well. At this time, we cannot predict the eventual outcome of this litigation, and any potential delays or gaps in coverage for GI Bill benefits could have a material adverse effect on current and future military student enrollment and the Company’s revenues, financial condition, cash flows and results of operations, and could make it significantly more difficult for our institutions to satisfy the 90/10 rule.
Changes in federal law that increase Title IV grant and loan limits may result in an increase in the revenues we receive from Title IV programs and make it more difficult for our institutions to satisfy the 90/10 rule. In addition, Congress could


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propose and adopt legislation that amends the 90/10 rule in ways that make it more difficult for our institutions to satisfy the 90/10 rule. Failure to satisfy the 90/10 rule could result in our institutions losing eligibility to participatetheir 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 Department historically has calculated Ashford’s composite score based on our consolidated audited financial statements, rather than the institution’s stand-alone audited financial statements. For the fiscal year ended December 31, 2018, our consolidated composite score calculated was 2.2, satisfying the composite score requirement of the Department's financial responsibility test. We expect our consolidated composite score for the fiscal year ended December 31, 2019 to be 0.7 and below the composite score requirement as a result of non-recurring restructuring and acquisition related charges unrelated to Ashford. To continue participation in Title IV programs, Ashford could be required to submit a letter of credit and agree to other conditions or restrictions on its Title IV participation. We also are subject to additional financial responsibility standards contained in the 2016 defense to repayment regulations and in the amended regulations that take effect on July 1, 2020. See “Regulation – Defense to repayment.”
If the institution is unable to submit a required letter of credit or to comply with any other applicable conditions or restrictions on its Title IV, the institution could lose its eligibility for Title IV program funding and be subject to other sanctions. The requirement that the institution submit a letter of credit and be subject to other conditions or restrictions on the institution’s Title IV participation, or any limitation or loss of the institution’s Title IV eligibility, would have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Risks Related to Our Business
We may require additional financing in the future and if such financing is not available on terms acceptable to us, it could adversely affect our ability to grow.
We believe that cash flow from operations will be adequate to fund our current operating plans for the foreseeable future. However, we may need additional financing to finance our plans, particularly if we pursue any acquisitions. The amount, timing and terms of such additional financing will vary principally depending on the timing and size of new program offerings, the timing and size of acquisitions we may seek to consummate and the amount of cash flows from our operations. To the extent that we require additional financing in the future, such financing may not be available on terms acceptable to us or at all and, consequently, we may not be able to fully implement our plans.
We may be susceptible to a number 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 cause a decrease in our enrollment and adversely affect our business and financial results.
The occurrence of certain political, economic or geographic events (for example, natural disasters or a pandemic, such as the recent outbreak of Coronavirus (“COVID-19”) could result in a significant decline in our revenue. We are dependent on students and other customers that are geographically diverse and could be negatively impacted if economic conditions in the US and globally were negatively impacted. Such an occurrence could cause a decrease in enrollment, including a decrease in
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student enrollment in our Corporate Partnership programs, through a slowing down of FTG, a decrease in military student enrollment, or including a decline in student retention.
The recent coronavirus outbreak has been declared a pandemic by the World Health Organization, has spread to the United States and many other parts of the world and will adversely affect our business operations, financial results, and employee availability, and may cause a decrease in our enrollment and a drop in student retention.
The outbreak of the COVID-19 continues to grow both in the United States and globally, and related government and private sector responsive actions have and will continue to adversely affect our business operations. 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 for the foreseeable future. Such precautionary measures could create operational challenges as we adjust to a remote workforce, which could adversely impact our business. We are also dependent on customers that are geographically diverse and would be negatively impacted if economic conditions in the US and globally continue to be negatively impacted and cause a decrease in our enrollment.
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.
None.The following table sets forth information regarding repurchases of our common stock on a monthly basis for the three months ended June 30, 2020:
ISSUER PURCHASES OF EQUITY SECURITIES
PeriodTotal 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 yet be Purchased
Under the Plans or Programs
April 1, 2020 through April 30, 202068,825  $1.56  —  $—  
May 1, 2020 through May 31, 2020—  $—  —  $—  
June 1, 2020 through June 30, 2020—  $—  —  $—  
Total68,825  $1.56  —  $—  
(1)On April 15, 2020, the Company repurchased shares in relation to the retention payout in connection with the Fullstack acquisition from April 1, 2019.
Item 3.  Defaults Upon Senior Securities.
None.
Item 4.  Mine Safety Disclosures.
None.
Item 5.  Other Information.
None.

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Item 6.  Exhibits.
Exhibit
Description
31.110.1 
31.1 
31.2
32.1
99.1101 
101
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2017,2020, filed with the SEC on October 25, 2017,August 3, 2020, formatted in Extensible Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016;Sheets; (ii) the Condensed Consolidated Statements of Income (Loss) for the three and nine months ended September 30, 2017 and 2016;; (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2017 and 2016;Stockholders’ Equity; (iv) the Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2017Cash Flows; and 2016; (v) the Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 and 2016; and (vi) the Notes to Condensed Consolidated Financial Statements.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)



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SIGNATURES
Pursuant to the requirements 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
August 3, 2020BRIDGEPOINT EDUCATION, INC./s/ KEVIN ROYAL
October 25, 2017/s/ JOSEPH D’AMICO
Joseph D’AmicoKevin Royal
Interim Chief Financial Officer
(Principal financial officer and duly authorized to
sign on behalf of the registrant)



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