SECURITIES AND EXCHANGE COMMISSION


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

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

☒

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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	ZVO	The Nasdaq Stock Market LLC

The total number of shares of common stock outstanding as of ~~October 21, 2021,~~May 2, 2022, was ~~33,459,695.~~34,095,968.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements

(In thousands, except par value)


		As of September 30, 2021		As of December 31, 2020			As of March 31, 2022		As of December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	31,608	$	35,462	Cash and cash equivalents	$	33,698	$	28,265
Restricted cash	Restricted cash	9,808		20,035		Restricted cash	6,083		9,288
Investments	Investments	1,322		1,515		Investments	905		974
Accounts receivable, net of allowance for credit losses of $1.8 million and $1.2 million at September 30, 2021 and December 31, 2020, respectively		8,539		7,204
Accounts receivable, net of allowance for credit losses of $1.1 million and $0.9 million at March 31, 2022 and December 31, 2021, respectively						Accounts receivable, net of allowance for credit losses of $1.1 million and $0.9 million at March 31, 2022 and December 31, 2021, respectively	6,596		9,631

Prepaid expenses and other current assets	Prepaid expenses and other current assets	15,564		12,617		Prepaid expenses and other current assets	17,243		13,423

Total current assets	Total current assets	66,841		76,833		Total current assets	64,525		61,581
Property and equipment, net	Property and equipment, net	27,711		30,575		Property and equipment, net	24,965		26,382
Operating lease assets	Operating lease assets	29,909		20,114		Operating lease assets	28,103		28,881

Goodwill and intangibles, net	Goodwill and intangibles, net	29,998		31,785		Goodwill and intangibles, net	29,079		29,499

Other long-term assets	Other long-term assets	3,316		1,999		Other long-term assets	2,079		2,691
Total assets	Total assets	$	157,775	$	161,306	Total assets	$	148,751	$	149,034
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	$	57,878	$	62,693	Accounts payable and accrued liabilities	$	85,521	$	74,769
Deferred revenue and student deposits	Deferred revenue and student deposits	13,083		8,090		Deferred revenue and student deposits	15,157		14,939

Total current liabilities	Total current liabilities	70,961		70,783		Total current liabilities	100,678		89,708
Rent liability	Rent liability	35,373		24,125		Rent liability	33,132		34,205

Other long-term liabilities	Other long-term liabilities	8,577		7,181		Other long-term liabilities	3,674		5,115
Total liabilities	Total liabilities	114,911		102,089		Total liabilities	137,484		129,028
Commitments and contingencies (see Note 15)		0		0
Commitments and contingencies (see Note 14)						Commitments and contingencies (see Note 14)	0		0
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Preferred stock, $0.01 par value:	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, 2021, and December 31, 2020		—		—
20,000 shares authorized; zero shares issued and outstanding at both March 31, 2022, and December 31, 2021						20,000 shares authorized; zero shares issued and outstanding at both March 31, 2022, and December 31, 2021	—		—
Common stock, $0.01 par value:	Common stock, $0.01 par value:					Common stock, $0.01 par value:
300,000 shares authorized; 67,155 and 66,454 issued, and 33,446 and 32,267 outstanding, at September 30, 2021 and December 31, 2020, respectively		675		668
300,000 shares authorized; 67,764 and 67,255 issued, and 34,055 and 33,546 outstanding, at March 31, 2022 and December 31, 2021, respectively						300,000 shares authorized; 67,764 and 67,255 issued, and 34,055 and 33,546 outstanding, at March 31, 2022 and December 31, 2021, respectively	681		676
Additional paid-in capital	Additional paid-in capital	171,315		179,489		Additional paid-in capital	170,753		172,060
Retained earnings	Retained earnings	307,574		326,319		Retained earnings	276,533		283,970

Treasury stock, 33,709 and 34,187 shares at cost at September 30, 2021, and December 31, 2020, respectively		(436,700)		(447,259)
Treasury stock, 33,709 and 33,709 shares at cost at March 31, 2022, and December 31, 2021, respectively						Treasury stock, 33,709 and 33,709 shares at cost at March 31, 2022, and December 31, 2021, respectively	(436,700)		(436,700)
Total stockholders' equity	Total stockholders' equity	42,864		59,217		Total stockholders' equity	11,267		20,006
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	157,775	$	161,306	Total liabilities and stockholders' equity	$	148,751	$	149,034

The accompanying notes are an integral part of these condensed consolidated financial statements.

(In thousands, except per share amounts)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Revenue	Revenue	$	59,808	$	5,131	$	200,585	$	14,258	Revenue	$	59,624	$	74,107
University-related revenue		—		97,035		—		289,720

Other revenue	Other revenue	2,418		—		7,686		—		Other revenue	2,009		2,752
Revenue and other revenue	Revenue and other revenue	$	62,226	$	102,166	$	208,271	$	303,978	Revenue and other revenue	$	61,633	$	76,859
Costs and expenses:	Costs and expenses:									Costs and expenses:
Technology and academic services	Technology and academic services	$	16,498	$	19,084	$	53,698	$	54,821	Technology and academic services	$	18,498	$	19,144
Counseling services and support	Counseling services and support	20,438		24,670		68,936		71,529		Counseling services and support	21,331		25,325
Marketing and communication	Marketing and communication	21,068		23,274		68,628		70,017		Marketing and communication	21,914		25,831
General and administrative	General and administrative	9,013		11,437		33,285		36,405		General and administrative	7,122		15,896
University-related expenses		—		22,863		—		72,332

Restructuring and impairment expense		300		184		2,641		3,430

Total costs and expenses	Total costs and expenses	67,317		101,512		227,188		308,534		Total costs and expenses	68,865		86,196
Operating income (loss)		(5,091)		654		(18,917)		(4,556)
Operating loss										Operating loss	(7,232)		(9,337)

Other income (loss), net		(69)		39		90		(62)
Other income (expense), net										Other income (expense), net	(127)		(73)

Income (loss) before income taxes		(5,160)		693		(18,827)		(4,618)
Income tax expense (benefit)		59		(428)		(82)		(12,906)
Net income (loss)		$	(5,219)	$	1,121	$	(18,745)	$	8,288
Income (loss) per share:
Loss before income taxes										Loss before income taxes	(7,359)		(9,410)
Income tax expense										Income tax expense	78		83
Net loss										Net loss	$	(7,437)	$	(9,493)
Loss per share:										Loss per share:
Basic	Basic	$	(0.16)	$	0.03	$	(0.56)	$	0.26	Basic	$	(0.22)	$	(0.29)
Diluted	Diluted	$	(0.16)	$	0.03	$	(0.56)	$	0.26	Diluted	$	(0.22)	$	(0.29)
Weighted average number of common shares outstanding used in computing income (loss) per share:
Weighted average number of common shares outstanding used in computing loss per share:										Weighted average number of common shares outstanding used in computing loss per share:
Basic	Basic	33,427		32,646		33,182		31,711		Basic	33,562		32,769
Diluted	Diluted	33,427		34,015		33,182		32,342		Diluted	33,562		32,769

The accompanying notes are an integral part of these condensed consolidated financial statements.

Common Stock Additional
Paid-in
Capital Retained
Earnings Treasury
Stock
Shares Par Value Total
Balance at December 31, 2019 65,695 $ 660 $ 192,413 $ 375,180 $ (469,315) $ 98,938
Adoption of accounting standard (ASU 2016-13) — — — 91 — 91
Stock-based compensation — — 4,138 — — 4,138
Stock issued under stock incentive plan, net of shares held for taxes 338 3 (205) — — (202)
Net income — — — 2,020 — 2,020
Balance at March 31, 2020 66,033 $ 663 $ 196,346 $ 377,291 $ (469,315) $ 104,985
Stock-based compensation — — 802 — — 802
Stock issued under employee stock purchase plan 57 1 111 — — 112
Stock issued under stock incentive plan, net of shares held for taxes 236 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, 2020 66,326 $ 666 $ 176,160 $ 382,438 $ (447,259) $ 112,005
Stock-based compensation — — 1,146 — — 1,146
Stock issued under stock incentive plan, net of shares held for taxes 23 1 (19) — — (18)
Net income — — — 1,121 — 1,121
Balance at September 30, 2020 66,349 $ 667 $ 177,287 $ 383,559 $ (447,259) $ 114,254


	Common Stock			Additional Paid-in Capital		Retained Earnings			Treasury Stock
	Shares	Par Value						Total
Balance at December 31, 2020	66,454	$	668	$	179,489	$	326,319		$	(447,259)	$	59,217

Stock-based compensation	—	—		2,382		—			—		2,382

Stock issued under stock incentive plan, net of shares held for taxes	563	5		(1,083)		—			—		(1,078)

Contingent consideration	—	—		(122)		—			—		(122)
Stock issued for acquisition	—	—		(10,559)		—			10,559		—
Net loss	—	—		—		(9,493)			—		(9,493)

Balance at March 31, 2021	67,017	$	673	$	170,107	$	316,826		$	(436,700)	$	50,906

The accompanying notes are an integral part of these condensed consolidated financial statements.

(In thousands)


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)		$	(18,745)	$	8,288
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Net loss						Net loss	$	(7,437)	$	(9,493)
Adjustments to reconcile net loss to net cash provided by operating activities:						Adjustments to reconcile net loss to net cash provided by operating activities:
Provision for bad debts	Provision for bad debts	1,002		9,845		Provision for bad debts	201		661
Depreciation and amortization	Depreciation and amortization	6,297		8,749		Depreciation and amortization	2,033		2,285

Deferred income taxes		—		6

Stock-based compensation	Stock-based compensation	3,619		6,086		Stock-based compensation	(1,169)		2,382
Noncash lease expense	Noncash lease expense	6,539		8,546		Noncash lease expense	1,433		2,077

Net loss (gain) on marketable securities	Net loss (gain) on marketable securities	(144)		47		Net loss (gain) on marketable securities	63		(68)

Loss (gain) on disposal or impairment of fixed assets		71		38

Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(2,335)		(14,513)		Accounts receivable	2,833		(288)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(2,948)		219		Prepaid expenses and other current assets	(3,820)		(2,776)
Other long-term assets	Other long-term assets	(1,318)		(821)		Other long-term assets	612		(305)
Accounts payable and accrued liabilities	Accounts payable and accrued liabilities	(2,369)		(12)		Accounts payable and accrued liabilities	10,784		7,457
Deferred revenue and student deposits	Deferred revenue and student deposits	4,992		4,269		Deferred revenue and student deposits	218		(13)
Operating lease liabilities	Operating lease liabilities	(7,527)		(8,173)		Operating lease liabilities	(1,705)		(2,598)
Other liabilities	Other liabilities	1,275		(2,468)		Other liabilities	(1,440)		1,455

Net cash provided by (used in) operating activities		(11,591)		20,106
Net cash provided by operating activities						Net cash provided by operating activities	2,606		776
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Capital expenditures	Capital expenditures	(1,155)		(2,587)		Capital expenditures	(24)		(184)
Purchases of investments	Purchases of investments	(740)		(702)		Purchases of investments	(2)		(30)
Capitalized costs for intangible assets	Capitalized costs for intangible assets	(565)		(199)		Capitalized costs for intangible assets	(227)		(143)

Sale of investments	Sale of investments	1,076		1,818		Sale of investments	8		247

Net cash used in investing activities	Net cash used in investing activities	(1,384)		(1,670)		Net cash used in investing activities	(245)		(110)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:

Proceeds from the issuance of stock under employee stock purchase plan		76		112

Borrowings from long-term liabilities		—		2,682

Tax withholdings on issuance of stock awards	Tax withholdings on issuance of stock awards	(1,182)		(400)		Tax withholdings on issuance of stock awards	(133)		(1,078)
Repurchase of common stock		—		(106)

Net cash provided by (used in) financing activities		(1,106)		2,288

Net cash used in financing activities						Net cash used in financing activities	(133)		(1,078)
Net increase (decrease) in cash, cash equivalents and restricted cash	Net increase (decrease) in cash, cash equivalents and restricted cash	(14,081)		20,724		Net increase (decrease) in cash, cash equivalents and restricted cash	2,228		(412)

Cash, cash equivalents and restricted cash at beginning of period	Cash, cash equivalents and restricted cash at beginning of period	55,497		92,537		Cash, cash equivalents and restricted cash at beginning of period	37,553		55,497
Cash, cash equivalents and restricted cash at end of period	Cash, cash equivalents and restricted cash at end of period	$	41,416	$	113,261	Cash, cash equivalents and restricted cash at end of period	$	39,781	$	55,085

Reconciliation of cash, cash equivalents, and restricted cash:	Reconciliation of cash, cash equivalents, and restricted cash:					Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	Cash and cash equivalents	$	31,608	$	86,628	Cash and cash equivalents	$	33,698	$	35,052
Restricted cash	Restricted cash	9,808		26,633		Restricted cash	6,083		20,033

Total cash, cash equivalents and restricted cash	Total cash, cash equivalents and restricted cash	$	41,416	$	113,261	Total cash, cash equivalents and restricted cash	$	39,781	$	55,085

The accompanying notes are an integral part of these condensed consolidated financial statements.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nature of Business

Zovio Inc (the “Company”) is a Delaware corporation, and 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. In April 2019, the Company acquired both Fullstack Academy, Inc. (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”), each of which became wholly-owned subsidiaries of the Company at that time. 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.

On December 1, 2020, the Company ~~and AU LLC~~ finalized a definitive Asset Purchase and Sale Agreement (the “Purchase Agreement”), by and among the Company, AU LLC (the “University”), the Arizona Board of Regents, a body corporate, for and on behalf of the University of Arizona (the “University of Arizona”), and the University of Arizona Global Campus ~~a newly formed Arizona nonprofit corporation~~ (“Global Campus”). Upon the closing of the Purchase Agreement (the “Sale Transaction”), the Company and Ashford University (the “University”) transferred to Global Campus the tangible and intangible academic and related operations and assets comprising the University to Global Campus.

~~Following the closing of the Sale Transaction,~~ Global Campus owns and operates the University in affiliation with the University of Arizona and with a focus on expanding access to education for non-traditional adult learners, and the Company provides services to Global Campus under a long-term Strategic Services Agreement (the “Services Agreement”). The services that the Company provides to Global Campus under the Services Agreement include recruiting, admissions, marketing, student finance, financial aid processing, and financial aid advising, program advising, student retention advising, support services for academics, information technology and institutional support.

The majority of the Company's cash comes from the Services Agreement with Global Campus. The service fees in the Services Agreement are subject to certain minimum residual liability adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance during each service period, and to a certain extent the performance and forecast of Global Campus.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of 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, ~~2020,~~2021, which was filed with the Securities and Exchange Commission (“SEC”) on ~~February 24, 2021.~~April 15, 2022. 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.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

The fair value of the Company’s outstanding notes payable was estimated using the net present value of the payments, discounted at an interest rate consistent with market interest rates. The Company, through Fullstack, had previously entered into a contract whereby its counterparty advanced funds to the Company for certain program development costs, which the Company was obligated to repay out of future revenues from the developed program. The Company originally recognized these advances as a debt obligation.

During the first half of 2021, the notes payable contract was amended and the amount was revalued. As such, included within the other income (loss), net, on the condensed consolidated statements of income (loss) for the nine months ended September 30, 2021, is an offset of interest expense in the amount of $3.1 million, as well as a loss on extinguishment of debt of $2.8 million, the net impact of which is immaterial.

~~Revenue and Other Revenue~~

Revenues are recognized when control of the promised goods or services are transferred, in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods or services. Determining whether a valid customer contract exists includes an assessment of whether amounts due under the contract are collectible. The Company performs this assessment at the beginning of every contract and subsequently thereafter if new information indicates there has been a significant change in facts and circumstances.

On December 1, 2020, the Company entered into the Services Agreement with Global Campus whereby the Company will provide certain educational technology and support services, which has an initial term of just over fifteen years, subject to renewal options and certain early termination provisions. The amounts earned from the Services Agreement are within the scope of ASC 606, ~~Revenue from Contracts with Customers~~ (“ASC 606”), and are denoted as revenue on the condensed consolidated statements of income (loss). On December 1, 2020, the Company also entered into a transition services agreement with Global Campus whereby the Company will provide certain temporary transition services (the “Transition Services Agreement”), which has a term of three years. The amounts earned from the Transition Services Agreement are denoted as other revenue on the condensed consolidated statements of income (loss).

The Services Agreement has a single performance obligation, as the promises to provide the identified services are not distinct within the context of these agreements. The single performance obligation constitutes a series of distinct services as the customer benefits as services are provided. Service revenue is recognized over time using the input method. The input method provides a faithful depiction of the performance toward complete satisfaction of the performance obligation and can be tied to the direct cost incurred. The service fees received over the term of the agreement are variable in nature in that they are dependent upon the number of students attending the university and revenues generated from those students during the service period. The service fees are subject to certain adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance during each service period. Such adjustments are presented as minimum residual liability within accounts payable and accrued liabilities. For additional information, see Note 8, “Other Significant Balance Sheet Accounts - Accounts Payable and Accrued Liabilities.” The Company allocates variable consideration to the distinct increments of service to which it relates, as the variability is directly related to the Company’s effort to satisfy the distinct increments of service provided. This is consistent with the allocation objective in ASC 606. The Company meets the criteria in the standard and exercises the practical expedient to not disclose the aggregate amount of the transaction price allocated to the single performance obligation that is unsatisfied as of the end of the reporting period. The Company does not disclose the value of unsatisfied performance obligations because the variable consideration is allocated entirely to a wholly unsatisfied promise to transfer a service that forms part of a single performance obligation.

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

The Company, through Fullstack, offers both full-time and part-time technology bootcamps. The tuition fees for these programs are recognized as revenue as the services are provided to the student, which occurs over the applicable period of instruction. For most Fullstack programs, tuition is collected prior to the start of the cohort; however, for certain programs students can defer payment until completion of the program and for these students an accounts receivable balance is recorded.

The Company, through TutorMe, provides online on-demand tutoring services through hourly and access license contracts. Revenue for these contracts are recognized based on hours used or ratably over the contract period depending on the type of contract. For most TutorMe contracts, cash is collected at or near the onset of the contract. The collected cash is recognized as deferred revenue until recognized into revenue.

~~Technology and Academic Services~~

Technology and academic services costs consist primarily of costs related to ongoing maintenance of educational infrastructure, including online course delivery and management, student records, assessment, customer relations management and other internal administrative systems. These costs were previously components of instructional costs and services, as well as general and administrative. This also includes costs to provide support for curriculum and new program development, support for faculty training and development and technical support. This expense category includes salaries, benefits and share-based compensation, information technology costs, curriculum and new program development costs (which are expensed as incurred) and other costs associated with these support services. This category also includes an allocation of depreciation, amortization, human resources, rent, and occupancy costs attributable to the provision of these services.

~~Counseling Services and Support~~

Counseling services and support costs consist primarily of costs including team-based counseling and other support to prospective and current students as well as financial aid processing. These costs were previously components of instructional costs and services, admissions advisory and marketing, as well as general and administrative. This expense category includes salaries, benefits and share-based compensation, and other costs such as dues, fees and subscriptions and travel costs. This category also includes an allocation of depreciation, amortization, human resources, rent, and occupancy costs attributable to the provision of these services.

~~Marketing and Communication~~

Marketing and communication costs consist primarily of lead acquisition, digital communication strategies, brand identity advertising, media planning and strategy, video, data science and analysis, marketing to potential students and other promotional and communication services. These costs were previously components of admissions advisory and marketing, as well as some general and administrative. This expense category includes salaries, benefits and share-based compensation for marketing and communication personnel, brand advertising, marketing leads and other promotional and communication expenses. This category also includes an allocation of depreciation, amortization, human resources, rent, and occupancy costs attributable to the provision of these services. Advertising costs are expensed as incurred.

~~General and Administrative~~

General and administrative costs consist primarily of compensation and benefit costs, including related stock-based compensation, for employees engaged in corporate management, finance, compliance, and other corporate functions. This category also includes an allocation of depreciation, amortization, human resources, rent, and occupancy costs attributable to the provision of these services.

~~University-Related Expenses~~

University-related expenses represent those costs that were transferred to Global Campus in the Sale Transaction and that are no longer incurred by the Company. These costs were previously primarily components of instructional costs and services, with some costs from admissions advisory and marketing and some general and administrative, including instructor fees and other employee costs, student related bad debt expense, license fees for licenses transferred to Global Campus and other costs.

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

Comprehensive Income (Loss)

The Company has no components of other comprehensive income (loss), and therefore, comprehensive income (loss) equals net income (loss).

Recent Accounting Pronouncements

~~In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes~~ (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740. The amendments in this update also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this standard are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company applied the new standard, including all applicable updates, effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.None noted as applicable.

3. ~~Financial Statement Reclassification~~

On December 1, 2020, the Company consummated the Sale Transaction. For additional information on the Sale Transaction, see Note 1, “Nature of Business” above. The Company now provides services to Global Campus, which include recruiting, financial aid, counseling, institutional support, information technology, and academic support services. The Company made changes in its presentation of revenue line items and operating expenses and reclassified prior periods to conform to the current presentation. The Company determined that these changes would provide more meaningful information as this new presentation provides transparency for costs that will be incurred as a service provider and costs that will not reoccur in the future as they are related to university costs that were transferred to Global Campus in the Sale Transaction.

We have reclassified our operating expenses for prior period to conform to the above disaggregation and revisions to our presentation. There were no changes to total operating expenses or operating income as a result of these reclassifications.

The following table presents our operating expenses as previously reported and as reclassified on our condensed consolidated statements of income (loss) for each of the three and nine-months period ended September 30, 2020 (in thousands):
Three Months Ended
September 30, 2020 Nine Months Ended
September 30, 2020
Costs and expenses: As Reported As Reclassified As Reported As Reclassified
Technology and academic services $ — $ 19,084 $ — $ 54,821
Counseling services and support — 24,670 — 71,529
Marketing and communication — 23,274�� — 70,017
Instructional costs and services 44,929 — 136,184 —
Admissions advisory and marketing 41,620 — 122,155 —
General and administrative 14,779 11,437 46,765 36,405
University-related expenses — 22,863 — 72,332
Restructuring and impairment expense 184 184 3,430 3,430
Total costs and expenses $ 101,512 $ 101,512 $ 308,534 $ 308,534

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

4. Revenue, Other Revenue and Deferred Revenue

The following table presents the Company’s net revenue disaggregated based on the revenue source (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Strategic services revenue	Strategic services revenue	$	52,702	$	—	$	179,318	$	—	Strategic services revenue	$	50,289	$	66,927
Transition services income	Transition services income	2,418		—		7,685		—		Transition services income	2,009		2,752
Tuition revenue, net	Tuition revenue, net	7,012		93,183		20,967		277,533		Tuition revenue, net	9,246		7,089
Digital materials revenue, net		—		5,809		—		17,415
Technology fee revenue, net		—		2,628		—		7,628
Other revenue, net (1)	Other revenue, net (1)	94		546		301		1,402		Other revenue, net (1)	89		91
Total revenue, net	Total revenue, net	$	62,226	$	102,166	$	208,271	$	303,978	Total revenue, net	$	61,633	$	76,859

(1) Primarily consists of revenues generated from various services and other miscellaneous fees.

The following table presents the Company’s net revenue disaggregated based on the timing of revenue recognition (in thousands):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Over time, over period of instruction	Over time, over period of instruction	$	62,159	$	82,659	$	208,062	$	244,872	Over time, over period of instruction	$	61,592	$	76,768
Over time, full tuition grant (1)		—		13,948		—		42,792

Point in time ~~(2)~~(1)	Point in time ~~(2)~~(1)	67		5,559		209		16,314		Point in time ~~(2)~~(1)	41		91
Total revenue, net	Total revenue, net	$	62,226	$	102,166	$	208,271	$	303,978	Total revenue, net	$	61,633	$	76,859

(1)~~Represents revenue generated from the FTG program.~~

~~(2)~~Represents revenue generated from digital textbooks and other miscellaneous fees.

The Company operates under 2 reportable segments and has no significant foreign operations or assets located outside of the United States. For additional information on segmentation, see Note ~~16,~~15, “Segment Information.”

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Deferred Revenue and Student Deposits

Current deferred revenue and student deposits consisted of the following (in thousands):


		As of September 30, 2021		As of December 31, 2020			As of March 31, 2022		As of December 31, 2021
Deferred revenue, current	Deferred revenue, current	$	12,126	$	7,477	Deferred revenue, current	$	14,734	$	14,469
Student deposits	Student deposits	957		613		Student deposits	423		470
Total current deferred revenue and student deposits	Total current deferred revenue and student deposits	$	13,083	$	8,090	Total current deferred revenue and student deposits	$	15,157	$	14,939

Below are the opening and closing balances of current deferred revenue from the Company’s contracts with customers (in thousands):


		2021		2020			March 31, 2022		March 31, 2021
Current deferred revenue opening balance, January 1	Current deferred revenue opening balance, January 1	$	7,477	$	23,356	Current deferred revenue opening balance, January 1	$	14,469	$	7,477
Current deferred revenue closing balance, September 30		12,126		29,413
Current deferred revenue closing balance, March 31						Current deferred revenue closing balance, March 31	14,734		7,307
Increase (decrease)	Increase (decrease)	$	4,649	$	6,057	Increase (decrease)	$	265	$	(170)

For further information on receivables, refer to Note 7,6, “Accounts Receivable, Net” within the condensed consolidated financial statements.

Deferred revenue consists of cash payments that are received or due in advance of the Company’s performance. As of ~~September 30, 2021~~March 31, 2022 the deferred revenue balance relates entirely to the Zovio Growth segment. For the majority of the Company’s customers, payment for services is due prior to services being provided and is included in current deferred revenue. However, there are contracts which include deferred revenue that is deemed to be long-term. For additional information, refer to Note 8,7, “Other Significant Balance Sheet Accounts - Other Long-Term Liabilities” within the condensed consolidated financial statements.

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 ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the Company recognized ~~$6.4~~$6.7 million of revenue that was included in the deferred revenue balance as of January 1, ~~2021.~~2022. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the Company recognized ~~$23.3~~$4.7 million of revenue that was included in the deferred revenue balance as of January 1, ~~2020.~~2021. Amounts reported in the closing balance of deferred revenue are expected to be recognized as revenue within the next 12 months.

5.4. Restructuring and Impairment Expense

During the three months ended September 30, 2021 and 2020, the Company recognized $0.3 million and $0.2 million, respectively, of restructuring and impairment expense. During the nine months ended September 30, 2021 and 2020, the Company recognized $2.6 million and $3.4 million, respectively, of restructuring and impairment expense. The components of these expenses are further described below.

The Company ~~had~~ previously vacated or consolidated properties and subsequently reassessed its non-cancelable ~~leases obligation.~~leases. Additionally, the Company ~~had~~ previously relocated its headquarters from California to Arizona. As a result, during the three and nine months ended September 30, 2020, the Company recognized relocation and lease reassessment expenses of $0.3 million and $0.5 million, respectively. NaN such expense was recorded for either the three or nine months ended September 30, 2021, respectively.

~~In May and July 2021, the Company~~ implemented restructuring plans to reduce operating expenses, implement cost reductions and conserve cash resources. ~~During the three months ended September 30, 2021, the Company recognized~~The severance costs ~~of $0.3 million, all of which related to the University Partners segment. These restructuring charges consist of one-time termination benefits for employee severance, benefits~~ and ~~related~~lease costs ~~all of which~~ are expected to ~~result in cash expenditures and~~ substantially all ~~of which will~~ be paid out over the next 12 months. ~~For the three months ended September 30, 2020, the Company reversed $0.1 million of restructuring and impairment expense relating to severance costs for wages and~~

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~benefits for a prior restructuring plan. During the nine months ended September 30, 2021 and 2020, the Company recognized severance costs of $2.6 million and $2.9 million, respectively.~~

The following table summarizes the amounts recorded in the restructuring and impairment expense line item on the Company’s condensed consolidated statements of income (loss) for each of the periods presented (in thousands):
Three Months Ended
September 30, Nine Months Ended
September 30,
2021 2020 2021 2020
Severance costs $ 300 $ (70) $ 2,641 $ 2,902
Lease exit and other costs — 254 — 528
Total restructuring and impairment expense $ 300 $ 184 $ 2,641 $ 3,430

The following table summarizes the changes in the Company's restructuring and impairment liability by type during the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 (in thousands):
Student Transfer Costs Severance Costs Lease Exit and Other Costs Total
Balance at December 31, 2020 $ 1,282 $ 742 $ 1,974 $ 3,998
Restructuring and impairment expense — 2,641 — 2,641
Payments and adjustments — (2,493) (1,115) (3,608)
Balance at September 30, 2021 $ 1,282 $ 890 $ 859 $ 3,031


	Student Transfer Costs		Severance Costs		Lease Exit and Other Costs		Total
Balance at December 31, 2021	$	1,282	$	520	$	398	$	2,200

Payments and adjustments	—		(294)		(67)		(361)

Balance at March 31, 2022	$	1,282	$	226	$	331	$	1,839

The restructuring liability amounts are recorded within either the (i) accounts payable and accrued liabilities account or (ii) ~~lease~~rent liability account on the condensed consolidated balance sheets.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

6.5. Fair Value Measurements

The following tables summarize ~~the~~ fair value information as of ~~September 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively (in thousands):
As of September 30, 2021
Level 1 Level 2 Level 3 Total
Mutual funds $ 1,322 $ — $ — $ 1,322


	As of March 31, 2022
	Level 1		Level 2		Level 3		Total
Mutual funds	$	905	$	—	$	—	$	905

As of December 31, 2020
Level 1 Level 2 Level 3 Total
Mutual funds $ 1,515 $ — $ — $ 1,515


	As of December 31, 2021
	Level 1		Level 2		Level 3		Total
Mutual funds	$	974	$	—	$	—	$	974

The mutual funds in the tables above, represent ~~the~~ deferred compensation asset balances, which are considered to be trading securities. The Company’s deferred compensation asset balances are recorded in the investments line item on the Company’s condensed consolidated balance sheets, and are classified as Level 1 securities. There were no transfers between any level categories for investments during the periods presented.

There were no differences between amortized cost and fair value of investments as of ~~September 30, 2021~~March 31, 2022 or December 31, ~~2020,~~2021, and no reclassifications out of accumulated other comprehensive income during ~~either~~ the ~~nine~~three months ended ~~September 30,~~March 31, 2022 or 2021.

6. Accounts Receivable, Net

Accounts receivable, net, consisted of the following (in thousands):


	As of March 31, 2022		As of December 31, 2021
Accounts receivable	$	7,726	$	10,562
Less allowance for credit losses	1,130		931
Accounts receivable, net	$	6,596	$	9,631

The following table presents the changes in the allowance for credit losses for the three months ended March 31, 2022 (in thousands):


Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance


$	931	$	201	$	(2)	$	—	$	1,130

The following table presents the changes in the allowance for credit losses for the three months ended March 31, 2021 ~~or 2020.~~(in thousands):


Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance


$	1,216	$	661	$	(159)	$	—	$	1,718

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

7. ~~Accounts Receivable, Net~~

~~Accounts receivable, net, consisted of the following (in thousands):~~
As of
September 30, 2021 As of
December 31, 2020
Accounts receivable $ 10,372 $ 8,420
Less allowance for credit losses 1,833 1,216
Accounts receivable, net $ 8,539 $ 7,204

~~The following table presents the changes in the allowance for credit losses for the nine months ended September 30, 2021 (in thousands):~~
Beginning
Balance Charged to
Expense Write-offs Recoveries of amounts Ending
Balance
Non-FTG related allowance $ 1,216 $ 1,002 $ (385) $ — $ 1,833
Total allowance for credit losses $ 1,216 $ 1,002 $ (385) $ — $ 1,833

~~The following table presents the changes in the allowance for credit losses for the nine months ended September 30, 2020 (in thousands):~~
Beginning
Balance Charged to
Expense Write-offs Recoveries of amounts Ending
Balance
FTG-related allowance $ 1,749 $ 1,524 $ (1,872) $ 337 $ 1,738
Non-FTG related allowance 11,963 8,321 (14,124) 4,518 10,678
Total allowance for credit losses $ 13,712 $ 9,845 $ (15,996) $ 4,855 $ 12,416

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

8. Other Significant Balance Sheet Accounts

Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets consisted of the following (in thousands):


		As of September 30, 2021		As of December 31, 2020			As of March 31, 2022		As of December 31, 2021
Prepaid expenses	Prepaid expenses	$	3,106	$	3,027	Prepaid expenses	$	3,760	$	2,664
Prepaid licenses	Prepaid licenses	2,257		1,371		Prepaid licenses	3,685		1,233
Prepaid income taxes		—		48
Income tax receivable		—		1,644

Prepaid insurance	Prepaid insurance	3,044		1,127		Prepaid insurance	2,437		2,254

Insurance recoverable	Insurance recoverable	476		404		Insurance recoverable	515		496
Other current assets (1)	Other current assets (1)	6,681		4,996		Other current assets (1)	6,846		6,776
Total prepaid expenses and other current assets	Total prepaid expenses and other current assets	$	15,564	$	12,617	Total prepaid expenses and other current assets	$	17,243	$	13,423

(1) Other current assets includes a net asset adjustment due from Global Campus related to the Sale Transaction, which is currently in mediation.

Property and Equipment, Net

Property and equipment, net, consisted of the following (in thousands):


		As of September 30, 2021		As of December 31, 2020			As of March 31, 2022		As of December 31, 2021

Furniture and office equipment	Furniture and office equipment	$	23,974	$	36,146	Furniture and office equipment	$	22,001	$	22,032
Software	Software	5,502		7,512		Software	4,493		4,493
Leasehold improvements	Leasehold improvements	15,901		16,325		Leasehold improvements	15,921		15,921
Vehicles	Vehicles	22		22		Vehicles	22		22

Total property and equipment	Total property and equipment	45,399		60,005		Total property and equipment	42,437		42,468
Less accumulated depreciation and amortization	Less accumulated depreciation and amortization	(17,688)		(29,430)		Less accumulated depreciation and amortization	(17,472)		(16,086)
Total property and equipment, net	Total property and equipment, net	$	27,711	$	30,575	Total property and equipment, net	$	24,965	$	26,382

For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ depreciation and amortization expense related to property and equipment was $1.4 million and ~~$1.5 million, respectively. For the nine months ended September 30, 2021 and 2020, depreciation and amortization expense related to property and equipment was $3.9 million and $4.7~~$1.3 million, respectively.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Goodwill and Intangibles, Net

Goodwill and intangibles, net, consisted of the following (in thousands):


		September 30, 2021							March 31, 2022
Definite-lived intangible assets:	Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	Capitalized curriculum costs	$	13,932	$	(12,760)	$	1,172	Capitalized curriculum costs	$	14,012	$	(12,733)	$	1,279
Purchased intangible assets	Purchased intangible assets	14,185		(8,535)		5,650		Purchased intangible assets	14,185		(9,561)		4,624
Total definite-lived intangible assets	Total definite-lived intangible assets	$	28,117	$	(21,295)	$	6,822	Total definite-lived intangible assets	$	28,197	$	(22,294)	$	5,903
Goodwill	Goodwill					23,176		Goodwill					23,176
Total goodwill and intangibles, net	Total goodwill and intangibles, net					$	29,998	Total goodwill and intangibles, net					$	29,079

		December 31, 2020							December 31, 2021
Definite-lived intangible assets:	Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	Capitalized curriculum costs	$	13,745	$	(12,644)	$	1,101	Capitalized curriculum costs	$	13,982	$	(12,796)	$	1,186
Purchased intangible assets	Purchased intangible assets	14,185		(6,677)		7,508		Purchased intangible assets	14,185		(9,048)		5,137
Total definite-lived intangible assets	Total definite-lived intangible assets	$	27,930	$	(19,321)	$	8,609	Total definite-lived intangible assets	$	28,167	$	(21,844)	$	6,323
Goodwill	Goodwill					23,176		Goodwill					23,176
Total goodwill and intangibles, net	Total goodwill and intangibles, net					$	31,785	Total goodwill and intangibles, net					$	29,499

For the three months ended ~~September 30,~~March 31, 2022 and 2021, ~~and 2020,~~ amortization expense was ~~$0.7~~$0.6 million and ~~$1.3 million, respectively. For the nine months ended September 30, 2021 and 2020, amortization expense was $2.4 million and $4.0~~$1.0 million, respectively.

The following table summarizes the estimated remaining amortization expense as of each fiscal year ended below (in thousands):


Year Ended December 31,	Year Ended December 31,			Year Ended December 31,
Remainder of 2021		$	658
2022		2,533
Remainder of 2022				Remainder of 2022	$	1,887
2023	2023	2,380		2023	2,477
2024	2024	791		2024	910
2025	2025	122		2025	257
2026				2026	137
Thereafter	Thereafter	338		Thereafter	235
Total future amortization expense	Total future amortization expense	$	6,822	Total future amortization expense	$	5,903

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following (in thousands):


		As of September 30, 2021		As of December 31, 2020			As of March 31, 2022		As of December 31, 2021
Accounts payable	Accounts payable	$	9,129	$	11,246	Accounts payable	$	9,952	$	5,967
Accrued salaries and wages	Accrued salaries and wages	7,305		6,149		Accrued salaries and wages	7,205		5,434
Accrued bonus	Accrued bonus	2,521		11,428		Accrued bonus	1,714		3,625
Accrued vacation	Accrued vacation	3,084		3,369		Accrued vacation	3,055		3,037
Accrued litigation and fees	Accrued litigation and fees	8,041		8,341		Accrued litigation and fees	22,376		22,376
Minimum residual liability		7,422		1,216
Minimum residual liability (1)						Minimum residual liability (1)	22,481		14,987
Accrued expenses	Accrued expenses	14,494		12,473		Accrued expenses	12,816		13,400

Current leases payable	Current leases payable	4,405		6,934		Current leases payable	4,515		4,492
Accrued insurance liability	Accrued insurance liability	1,424		1,537		Accrued insurance liability	1,280		1,404
Accrued income taxes payable	Accrued income taxes payable	53		—		Accrued income taxes payable	127		47
Total accounts payable and accrued liabilities	Total accounts payable and accrued liabilities	$	57,878	$	62,693	Total accounts payable and accrued liabilities	$	85,521	$	74,769

(1)Amount represents approximately 75% of the total amount anticipated to be remitted to Global Campus in June 2022. The amount payable could be materially different than the current estimate projected by management.

Other Long-Term Liabilities

Other long-term liabilities consisted of the following (in thousands):


		As of September 30, 2021		As of December 31, 2020			As of March 31, 2022		As of December 31, 2021
Uncertain tax positions		$	28	$	28

Notes payable	Notes payable	2,885		2,981		Notes payable	$	2,759	$	2,723
Deferred revenue	Deferred revenue	942		—		Deferred revenue	673		807
Other long-term liabilities	Other long-term liabilities	4,722		4,172		Other long-term liabilities	242		1,585
Total other long-term liabilities	Total other long-term liabilities	$	8,577	$	7,181	Total other long-term liabilities	$	3,674	$	5,115

9.8. Credit Facilities

The Company has issued letters of credit that are collateralized with cash, in the aggregate amount of ~~$9.8~~$6.0 million as of ~~September 30, 2021.~~March 31, 2022. The letters of credit relate primarily to the Company's leased facilities and insurance requirements. The collateralized cash is held in restricted cash on the Company's condensed consolidated balance sheets.

The Company is required to provide surety bonds in certain states in which it does business. As a result, the Company ~~had~~ previously entered into a surety bond facility with an insurance company to provide such bonds when required. Although there are no remaining issued bonds on the Company’s behalf under this facility as of ~~September 30, 2021,~~March 31, 2022, the Company still holds certain liability associated with any required collateral.

Subsequent to the quarter end, on April 14, 2022, the Company entered into a Financing Agreement (the “Credit Facility”) among the Company, as borrower, each of its wholly-owned subsidiaries as subsidiary guarantors (the “Guarantors”), the lenders party thereto from time to time (the “Lenders”) and Blue Torch Finance LLC, as administrative agent and collateral agent for the Lenders (the “Agent”). The Credit Facility provides for, among other things, a term loan in the aggregate principal amount of $31.5 million (the “Term Loan”). The proceeds of the Term Loan will be used (i) if necessary, to satisfy any final judgement in the CA Attorney General lawsuit, and (ii) thereafter, to fund the working capital of the Company and the Guarantors.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Subject to the terms of Credit Facility, the Term Loan bears interest at a rate per annum equal to LIBOR plus 9.0%, payable monthly. The principal amount of the Term Loan will be repayable in equal quarterly installments of $393,750 beginning June 30, 2023 and through March 31, 2025, with the remaining unpaid principal amount of the Term Loan, and all accrued and unpaid interest thereon, due and payable on the maturity date of April 14, 2025.

The Credit Facility contains customary representations, warranties, affirmative and negative covenants (including financial covenants), and indemnification provisions in favor of the Agent and the Lenders. The financial covenants include a minimum cash flow covenant that takes effect six months following the Effective Date and that is to be tested on a monthly basis for the trailing twelve month period, a minimum liquidity covenant that requires the Company to maintain unrestricted cash on hand at all times of at least $7.5 million (inclusive of any proceeds of the Term Loan in excess of the amounts used to satisfy any final judgment in the CA Attorney General lawsuit, and minimum revenue covenants applicable to each of the Company’s Fullstack Academy, LLC and TutorMe, LLC subsidiaries and that are to be tested on a monthly basis beginning June 30, 2022 for the trailing twelve month period.

In connection with the Credit Facility, the Company issued warrants (the “Warrants”) to the Lenders to purchase at any time or from time to time on or after the date that is six months from the Effective Date, at an exercise price of $0.01 per share, such number of shares of common stock of the Company as equals 5.0% of the outstanding fully-diluted shares of common stock of the Company as of the issuance date.

9. Lease Obligations

The Company leases various office and classroom facilities with terms that expire at various dates through 2033. 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 and classrooms. All of the leases were classified as operating leases for the period ended ~~September 30, 2021,~~March 31, 2022, 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.

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~The~~In 2021, the Company ~~obtained additional~~entered into a new lease in New York for classrooms and office space and recorded a right-of-use ~~assets~~asset of $14.6 million in exchange for lease ~~obligations related~~obligations. However, in the fourth quarter of 2021, the Company began to ~~new classroom and office leases during~~market this space for sublease. There is no guarantee that the ~~period ended September 30, 2021.~~Company will be able to sublease the space at rates materially similar to that of the current lease.

The ~~Company has agreements to~~Company's 1 active sublease ~~certain portions of its office facilities, with 2 active subleases~~ as of ~~September 30, 2021.~~March 31, 2022 relates to office space of approximately 21,000 square feet in Denver, Colorado with a remaining commitment to lease of 11 months and net lease payments of $0.6 million. Sublease income for the three months ended March 31, 2022 and 2021 was $0.1 million and $0.6 million, respectively. The Company’s ~~subleases do~~sublease does not include any options to extend or for early termination and do not contain any residual value guarantees or restrictive covenants. ~~All of the subleases were~~The sublease was classified as an operating ~~leases~~lease for the period ended September 30, 2021. The Company is subleasing office space of approximately 21,000 square feet in Denver, Colorado with a remaining commitment to lease of 17 months and net lease payments of $0.9 million. The Company is also subleasing approximately 24,000 square feet of office space in San Diego, California with a remaining commitment to lease of 3 months and net lease payments of $0.3 million. Sublease income for the nine months ended September 30, 2021 and 2020 was $1.9 million and $1.4 million, respectively.March 31, 2022.

~~11.~~10. 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”).

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 March 31,
		2021		2020		2021		2020			2022		2021
Numerator:	Numerator:									Numerator:
Net income (loss)	Net income (loss)	$	(5,219)	$	1,121	$	(18,745)	$	8,288	Net income (loss)	$	(7,437)	$	(9,493)
Denominator:	Denominator:									Denominator:
Weighted average number of common shares outstanding	Weighted average number of common shares outstanding	33,427		32,646		33,182		31,711		Weighted average number of common shares outstanding	33,562		32,769
Effect of dilutive options and stock units	Effect of dilutive options and stock units	—		1,369		—		631		Effect of dilutive options and stock units	—		—

Diluted weighted average number of common shares outstanding	Diluted weighted average number of common shares outstanding	33,427		34,015		33,182		32,342		Diluted weighted average number of common shares outstanding	33,562		32,769
Income (loss) per share:	Income (loss) per share:									Income (loss) per share:
Basic	Basic	$	(0.16)	$	0.03	$	(0.56)	$	0.26	Basic	$	(0.22)	$	(0.29)
Diluted	Diluted	$	(0.16)	$	0.03	$	(0.56)	$	0.26	Diluted	$	(0.22)	$	(0.29)

The following table sets forth the number of stock options and 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 September 30,		Nine Months Ended September 30,			Three Months Ended March 31,
		2021	2020	2021	2020		2022	2021
Stock options	Stock options	1,279	1,525	1,391	1,654	Stock options	1,096	1,582
Stock units	Stock units	972	—	1,170	577	Stock units	3,163	1,461

11. Stock-Based Compensation

The Company recorded a reversal of $1.2 million of stock-based compensation expense for the three months ended March 31, 2022, primarily relating to the forfeitures of certain performance-based PSUs not meeting their targets. The Company recorded $2.4 million of stock-based compensation expense for the three months ended March 31, 2021. The related income tax expense was $0.3 million for the three months ended March 31, 2022, and the related income tax benefit was $0.6 million for the three months ended March 31, 2021.

During the three months ended March 31, 2022, the Company granted 1.0 million RSUs at a weighted average grant date fair value of $0.84 and 0.5 million RSUs vested. During the three months ended March 31, 2021, the Company granted 0.5 million RSUs at a grant date fair value of $4.25, and 0.8 million RSUs vested.

During the three months ended March 31, 2022, the Company granted 0.4 million performance-based PSUs at a weighted average grant date fair value of $0.91, and 0.2 million performance-based or market-based PSUs vested. During the three months ended March 31, 2021, the Company did not grant any performance-based or market-based PSUs and no performance-based or market-based PSUs vested.

During each of the three months ended March 31, 2022, and 2021, the Company did not grant any stock options and no stock options were exercised.

As of March 31, 2022, unrecognized compensation cost was $5.8 million related to unvested stock options, RSUs and PSUs.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

12. ~~Stock-Based Compensation~~

The Company recorded $1.0 million and $1.1 million of stock-based compensation expense for the three months ended September 30, 2021 and 2020, respectively. The related income tax benefit was $0.2 million and $0.3 million for the three months ended September 30, 2021 and 2020, respectively.

The Company recorded $3.6 million and $6.1 million of stock-based compensation expense for the nine months ended September 30, 2021 and 2020, respectively. The related income tax benefit was $0.9 million and $1.5 million for the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, the Company granted 1.1 million RSUs at a weighted average grant date fair value of $3.31 and 1.0 million RSUs vested. During the nine months ended September 30, 2020, the Company granted 1.4 million RSUs at a grant date fair value of $2.22, and 0.8 million RSUs vested.

During the nine months ended September 30, 2021, the Company granted 0.9 million performance-based PSUs at a weighted average grant date fair value of 2.72, and no performance-based or market-based PSUs vested. During the nine months ended September 30, 2020, 1.1 million market-based PSUs were granted at a weighted average grant date fair value of 2.18 and no performance-based or market-based PSUs vested.

~~During each of the nine months ended September 30, 2021, and September 30, 2020, the Company did not grant any stock options and no stock options were exercised.~~

~~As of September 30, 2021, unrecognized compensation cost was $5.4 million related to unvested stock options, RSUs and PSUs.~~

~~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 ~~September 30, 2021~~March 31, 2022 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 ~~September 30, 2021.~~March 31, 2022.

The Company’s current effective income tax rate that has been applied to normal, recurring operations for the ~~nine~~three months ended ~~September 30, 2021 was (1.0)%. The Company’s actual effective income tax rate for the nine months ended September 30, 2021,~~March 31, 2022, after discrete items, was ~~0.4%~~(1.1)%.

As of both ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020,~~2021, the Company ~~had $19 thousand, respectively, of~~did not have any gross unrecognized tax ~~benefits, of which $15 thousand, respectively, would impact the effective income tax rate if recognized.~~benefits. 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 the 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 required to file income tax returns, as well as all open tax years in these jurisdictions. The 2017 tax ~~years 2001 through 2020~~year are forward are open to examination ~~by major taxing jurisdictions~~for federal income tax purposes, and the 2015 tax year and forward are open to ~~which the Company is subject.~~

examination for state income tax purposes.

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

~~14.~~13. 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 (“Higher Education Act”), and the regulations promulgated thereunder by the U.S. Department of Education (“Department”) subject the Company and its university partners to significant regulatory scrutiny on the basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”). After the sale of the University to Global Campus, the Company remains responsible for liabilities resulting from any violation of these regulatory requirements during the time it owned and operated the University, either directly or by an obligation to indemnify Global Campus.

Department of Education On-Site Program Review of former Ashford University

In December 2016, the Department informed the University that it intended to continue the on-site program review, which commenced in January 2017 and initially covered the 2015-2016 and 2016-2017 award years, but may be expanded if the Department deems such expansion appropriate. To date, the Company has not received a draft report from the Department.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Department of Education Close Out Audit of University of the Rockies

~~The~~During the fiscal year 2018, the Company ~~previously~~ recorded an expense of $1.5 million, ~~during the fiscal year 2018,~~ in relation to the close out audit of University of the Rockies resulting from its merger with the University in October 2018. The expense was recorded in relation to borrower defense to repayment regulations. On September 26, 2019, the Department sent the University a Final Audit Determination letter for the University of the Rockies. This letter confirmed that with the exception of the borrower defense to repayment regulations, none of the other audit findings resulted in financial liability. The Department also stated that additional liabilities could accrue in the future. On December 19, 2019, the Company filed an administrative appeal with the Department appealing the alleged liability on the basis that the University of Rockies did not close but rather merged with the University. The briefing on the appeal is complete and the Company is awaiting a decision by the administrative law judge.

WSCUC Accreditation of ~~former~~Global Campus (formerly Ashford ~~University~~University)

Global Campus is regionally accredited by WASC Senior College and University Commission (“WSCUC”). ~~As part of the WSCUC Institutional Review Process, a Reaffirmation of Accreditation Visit was conducted by an evaluation team in April 2019. At its meeting in~~In June 2019, ~~the Commission~~WSCUC acted to reaffirm accreditation through Spring 2025.

In connection with the Purchase Agreement by and among the Company and the University of Arizona, the Company submitted to WSCUC, on July 1, 2020, a substantive change application for a change in ownership from the University to Global Campus which required review and approval by the Substantive Change Committee and the Structural Change Committee of the Commission.

On November ~~12,~~ 2020, WSCUC approved the change of control application filed to complete the Sale Transaction, subject to certain conditions. These conditions included (i) ensuring that Global Campus is differentiated effectively from the University of Arizona and its affiliates in marketing materials; (ii) providing a report to WSCUC within 90 days of the close of the transaction outlining the actionable steps it will take to address student success including in the form of retention and graduation; (iii) those officers, administrators and related parties who become Global Campus officers or administrators divest themselves of their financial and ownership interest in the Company; and (iv) Global Campus and the Company submit a revised strategic services agreement which incorporates any applicable key performance indicators into that agreement. Additionally, WSCUC notified Global Campus that the provisions of the Notice of Concern issued as part of the reaffirmation of the University in July 2019 also remain in effect.

Department of Education Regulation

On December 1, 2020, the parties to the Purchase Agreement entered into Amendment No. 1 to the Purchase Agreement (“Amendment”) pursuant to which, among other things, the University of Arizona and Global Campus waived the closing condition regarding issuance of a pre-acquisition review notice by the Department of Education. Under the terms of the Purchase Agreement, as amended, the Closing was subject to customary closing conditions for transactions in this sector. The Department is expected to conduct a post-closing review of Global Campus following the Sale Transaction, consistent with the Department’s procedures during which the Department makes a determination on the institution’s request for recertification from the Department following the change of control, including whether to impose or place other conditions or restrictions.

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

To be eligible to participate in Title IV programs, an institution must comply with the Higher Education Act and the regulations thereunder that are administered by the Department. ~~The provisions of the Higher Education Act also include being in compliance with the following:~~

•~~The 90/10 Rule~~-A proprietary institution loses eligibility to participate in Title IV programs if the institution derives more than 90% of its revenues from Title IV program funds for two consecutive fiscal years, as calculated in accordance with Department regulations. Any institution that violates the 90/10 rule for two consecutive fiscal years becomes ineligible to participate in Title IV programs for at least ~~two~~ ~~fiscal years. In addition, an institution whose rate exceeds 90% for any single fiscal year is placed on provisional certification and may be subject to other enforcement measures.~~

•~~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 eligibility to participate in the Federal Direct Loan Program and the Federal Pell Grant Program if, for each of the three most recent federal fiscal years, 30% or more of its students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year.

•~~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 Department and possibly accepting other conditions on its participation in the Title IV programs.

Borrowers Defense to 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. These defense to repayment 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 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 March 15, 2019, the Department issued guidance for the implementation of parts of the regulations. The guidance covers an institution’s responsibility in regard to reporting mandatory and discretionary triggers as part of the financial responsibility standards, class action bans and pre-dispute arbitration agreements, submission of arbitral and judicial records, and repayment rates.

On August 30, 2019, the Department finalized the regulations derived from the 2017-2018 negotiated rulemaking process and subsequent public comments. This version of the borrower defense regulations applies to all federal student loans made on or after July 1, 2020, and, among other things: grants borrowers the right to assert borrower defense to repayment claims

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

On March 18, 2021, the Department announced it would adopt a streamlined approach for granting full debt relief to borrowers reversing the methodology first announced in December 2019 that allowed for partial student loan cancellation for borrowers. The Department determined that the previous methodology did not result in an appropriate relief determination.

In July 2020, the Department notified the Company that they would be initiating a preliminary review of borrower defense applications from borrowers who made claims regarding the University. 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. In 2020, the Company received and timely responded to the submitted ~~claims. The Company has responded to everything received~~claims and cannot predict the outcome of the Department’s review at this time. In 2022, Global Campus also received additional borrower defense applications from borrowers. Global Campus is responding to these additional submitted claims and we cannot predict the outcome of the Department's review at this time.

~~15.~~14. Commitments and Contingencies

From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with GAAP, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated, the best estimate within that range should be accrued. If no estimate is better than another, the Company records the minimum estimated liability in the range. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. Other than the specific liabilities assumed by Global Campus, the Company and AU LLC will generally remain responsible for liabilities of the University relating to periods prior to the closing of the Sale Transaction. Below is a list of material legal proceedings to which the Company or its subsidiaries is a party.

California Attorney General Investigation of For-Profit Educational Institutions

In January 2013, the Company received from the Attorney General of the State of California (“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 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 each such date.

Representatives from the Company met with representatives from the CA Attorney General’s office on several occasions to discuss the status of the investigation, additional information requests, and specific concerns related to possible unfair business practices in connection with the Company’s recruitment of students and debt collection practices. The parties also discussed a potential resolution involving injunctive relief, other non-monetary remedies and a payment to the CA Attorney General and in the third quarter of 2016, the Company recorded an expense of $8.0 million related to the cost of resolving this matter.

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

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~~defended this case and emphatically denies the allegations made by the CA Attorney General that it ever deliberately misled its students, falsely advertised its programs, or in any way ~~was~~were not fully accurate in its statements to investors. A ~~bench~~ trial took place from November 2021 through December 2021.

On March 7, 2022, the Superior Court of the State of California, County of San Diego (the “Court”), issued a Statement of Decision regarding the Lawsuit in favor of the CA Attorney General. In the Statement of Decision, the Court ordered the Company to pay $22.4 million in statutory penalties. As a result, the Company accrued an additional $14.3 million in the fourth quarter of 2021, and the total of $22.4 million remains accrued as of March 31, 2022. The Court denied the CA Attorney General’s demands for ~~this matter is scheduled to begin in November 2021. We cannot predict the outcome of this matter at this time.~~restitution and injunctive relief finding no evidence postdating 2017 that would necessitate an injunction. The Company ~~cannot reasonably estimate any updated range~~is disappointed by the Court’s decision and believes that its practices were at all times in compliance with California law. The Company is currently considering all options available to it related to the Statement of ~~loss~~Decision. On April 7, 2022, the Company filed a motion for ~~this action based~~a new trial and/or to set aside and vacate the judgement, which is currently set for a hearing 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.

~~ZOVIO INC~~

~~Notes to Condensed Consolidated Financial Statements (Unaudited)~~

May 13, 2022.

~~16.~~15. Segment Information

~~Prior to December 1, 2020, the~~The Company ~~operated in one segment for reporting purposes. Following the Sale Transaction, the Company now~~ operates in 2 reportable segments: University Partners and Zovio Growth. ~~These segments were recast based upon the Company’s respective offerings.~~

~~On December 1, 2020, the Company consummated the Sale Transaction. For additional information see Note 1, “Nature of Business.”~~ The Company reports segment information based upon the management approach, and ~~the Sale Transaction resulted in a change in~~ how the chief operating decision maker ~~viewed~~views the ~~operations moving forward. This change included the creation of~~operations. The Company has three operating segments: Fullstack, TutorMe, and Zovio, and two reportable segments: University Partners and Zovio Growth.

The Company’s operating segments are determined based on (i) financial information reviewed by the CEO, who is the chief operating decision maker, (ii) internal management and related reporting structure, and (iii) the basis upon which the chief operating decision maker makes resource allocation decisions. In conjunction with the departure of the Company's previous chief executive officer in March 2021, the chief operating decision maker transitioned to the Office of the CEO, which is comprised of three executives. The Fullstack and TutorMe operating segments are aggregated into a single reportable segment, ~~the~~called Zovio ~~Growth segment.~~Growth. The aggregation of the Fullstack and TutorMe operating segments is based on their uniform customer bases and methods of services provided as ~~well as evaluation of quantitative thresholds as~~ required by ASC 280-10-50-12. Based on these same quantitative tests, the Zovio operating segment is a separate reportable segment, ~~the~~called University ~~Partners Segment.~~Partners. This change in segment reporting did not have any impact on the determination of reporting units used to assess impairment under ASC 350, Intangibles - Goodwill and Other.

The ~~Company’s~~ University Partners segment includes the technology and services provided to colleges and universities to enable the online delivery of degree programs and related goods and services. ~~University Partners also includes the tuition revenue related to the University prior to the Sale Transaction on December 1, 2020.~~



PART I—FINANCIAL INFORMATION		43
Item 1. Financial Statements		43
	Condensed Consolidated Balance Sheets (Unaudited)	43
	Condensed Consolidated Statements of Income (Loss) (Unaudited)	54

	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	65
	Condensed Consolidated Statements of Cash Flows (Unaudited)	86
	Notes to Condensed Consolidated Financial Statements (Unaudited)	97
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		2822
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3628
Item 4. Controls and Procedures		3730

PART II—OTHER INFORMATION		3831
Item 1. Legal Proceedings		3831
Item 1A. Risk Factors		3831
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3831
Item 3. Defaults Upon Senior Securities		3831
Item 4. Mine Safety Disclosures		3831
Item 5. Other Information		3831
Item 6. Exhibits		3932
SIGNATURES		4033


Supplemental disclosure of non-cash transactions:	Supplemental disclosure of non-cash transactions:					Supplemental disclosure of non-cash transactions:
Purchase of equipment included in accounts payable and accrued liabilities	Purchase of equipment included in accounts payable and accrued liabilities	$	65	$	36	Purchase of equipment included in accounts payable and accrued liabilities	$	—	$	16
Issuance of common stock for vested restricted stock units	Issuance of common stock for vested restricted stock units	$	3,861	$	1,388	Issuance of common stock for vested restricted stock units	$	560	$	3,461
Debt extinguishment		$	3,095	$	—
Issuance of notes payable		$	2,809	$	—


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Revenue by segment	Revenue by segment									Revenue by segment
University Partners	University Partners	$	55,185	$	95,991	$	187,118	$	288,819	University Partners	$	52,333	$	69,679
Zovio Growth	Zovio Growth	7,041		6,175		21,153		15,159		Zovio Growth	9,300		7,180
Total revenue and other revenue	Total revenue and other revenue	$	62,226	$	102,166	$	208,271	$	303,978	Total revenue and other revenue	$	61,633	$	76,859

Segment profitability	Segment profitability									Segment profitability
University Partners	University Partners	$	(408)	$	6,036	$	(6,499)	$	11,109	University Partners	$	(2,626)	$	(5,437)
Zovio Growth	Zovio Growth	(2,648)		(2,517)		(6,121)		(6,916)		Zovio Growth	(2,573)		(1,615)
Total segment profitability(1)	Total segment profitability(1)	$	(3,056)	$	3,519	$	(12,620)	$	4,193	Total segment profitability(1)	$	(5,199)	$	(7,052)


	As of September 30, 2021		As of December 31, 2020
University Partners accounts receivable	$	49	$	45
Zovio Growth accounts receivable	8,490		7,159
Total accounts receivable	$	8,539	$	7,204

University Partners deferred revenue	$	—	$	10
Zovio Growth deferred revenue	14,025		8,080
Total deferred revenue	$	14,025	$	8,090


	Payments Due by Period
(In thousands)	Total		2021		2022		2023		2024		2025		Thereafter
Operating lease obligations	$	55,358	$	1,754	$	7,009	$	5,316	$	5,022	$	4,759	$	31,498
Other contractual obligations	16,639		3,859		7,270		4,912		598		—		—
Uncertain tax positions	28		—		28		—		—		—		—
Total	$	72,025	$	5,613	$	14,307	$	10,228	$	5,620	$	4,759	$	31,498


(Mark One)
☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Three Months Ended September 30, 2020				Nine Months Ended September 30, 2020
Costs and expenses:	As Reported		As Reclassified		As Reported		As Reclassified
Technology and academic services	$	—	$	19,084	$	—	$	54,821
Counseling services and support	—		24,670		—		71,529
Marketing and communication	—		23,274��		—		70,017
Instructional costs and services	44,929		—		136,184		—
Admissions advisory and marketing	41,620		—		122,155		—
General and administrative	14,779		11,437		46,765		36,405
University-related expenses	—		22,863		—		72,332

Restructuring and impairment expense	184		184		3,430		3,430
Total costs and expenses	$	101,512	$	101,512	$	308,534	$	308,534


	As of September 30, 2021
	Level 1		Level 2		Level 3		Total
Mutual funds	$	1,322	$	—	$	—	$	1,322


	As of December 31, 2020
	Level 1		Level 2		Level 3		Total
Mutual funds	$	1,515	$	—	$	—	$	1,515


	Three Months Ended September 30,				Nine Months Ended September 30,
Consolidated Statement of Income Data:	2021		2020		2021		2020
Revenue and other revenue	$	62,226	$	102,166	$	208,271	$	303,978
Operating income (loss)	$	(5,091)	$	654	$	(18,917)	$	(4,556)


	Three Months Ended March 31,
Consolidated Statement of Income (Loss) Data:	2022		2021
Revenue and other revenue	$	61,633	$	76,859
Operating loss	$	(7,232)	$	(9,337)


Exhibit						Description



31.1						Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by ~~Christopher L. Spohn, Office of the~~Randy J. Hendricks, Chief Executive Officer, and Kevin Royal, Chief Financial Officer.
101						The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2022, filed with the SEC on ~~October 27, 2021,~~May 10, 2022, formatted in Extensible Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Income (Loss); (iii) the Condensed Consolidated Statements of Stockholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


			ZOVIO INC

~~October 27, 2021~~May 10, 2022			/s/ KEVIN ROYAL
			Kevin Royal Chief Financial Officer (Principal financial officer and duly authorized to sign on behalf of the registrant)