Additional

Common Stock

Paid-in

Retained


Shares

Par Value

Capital

Earnings

Total

Balance at December 31, 2015

11,027,177

$
110

$
24,738

$
118,008

$
142,856

Tax shortfall associated with stock-based compensation arrangements

—

—

(51)

—

(51)

Restricted stock grants, net of forfeitures

66,781

1

(1)

—

—

Stock-based compensation

—

—

7,330

—

7,330

Net income

—

—

—

23,084

23,084

Balance at September 30, 2016

11,093,958

$
111

$
32,016

$
141,092

$
173,219

Additional

Common Stock

Paid-in

Retained

Shares

Par Value

Capital

Earnings

Total

Balance at December 31, 2016

11,093,489

$
111

$
35,453

$
152,810

$
188,374

Restricted stock grants, net of forfeitures

73,936

1

(1)

—

—

Stock-based compensation

—

—

8,569

—

8,569

Common stock dividends

—

—

—

(8,561)

(8,561)

Net income

—

—

—

27,107

27,107

Balance at September 30, 2017

11,167,425

$
112

$
44,021

$
171,356

$
215,489


	For the three months ended September 30, 2019
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	Shares	Par Value
Balance at June 30, 2019	21,948,563	$	219	$	1,305,148	$	132,060	$	449	$	1,437,876
Stock-based compensation	—	—		3,021		—		—		3,021
Exercise of stock options, net	12,795	1		(1,565)		—		—		(1,564)
Issuance of restricted stock, net	3,147	—		(251)		—		—		(251)
Common stock dividends ($0.50 per share)	—	—		—		(11,113)		—		(11,113)
Unrealized losses on marketable securities, net of tax	—	—		—		—		(2)		(2)
Net income	—	—		—		16,692		—		16,692
Balance at September 30, 2019	21,964,505	$	220	$	1,306,353	$	137,639	$	447	$	1,444,659

The Company’s assets and liabilities that are subject to fair value measurement are categorized in one of the three levels above. Fair values are based on the inputs available at the measurement dates, and may rely on certain assumptions that may affect the valuation of fair value for certain assets or liabilities.

~~On May 5, 2015, the Company’s shareholders approved the Strayer Education, Inc. 2015 Equity Compensation Plan (the “2015 Plan”), which provides for the granting~~

Accounts payable and accrued expenses consist of the ~~stock option activity and other stock option information~~following as of December 31, 2019 and ~~for the nine months ended~~ September 30, ~~2017:~~

Weighted-


average

Weighted-

remaining

Aggregate

Number of

average

contractual

intrinsic value(1)


shares

exercise price

life (years)

(in thousands)

Balance, December 31, 2016

100,000

$
51.95

4.1

$
2,868

Grants

—

—

Exercises

—

—

Forfeitures/Expirations

—

—

Balance, September 30, 2017

100,000

$
51.95

3.3

$
3,532

Exercisable, September 30, 2017

100,000

$
51.95

3.3

$
3,532

2020 (in thousands):


	December 31, 2019		September 30, 2020
Trade payables	$	47,503	$	57,860
Accrued compensation and benefits	33,924		25,525
JWMI license payment (see Note 8)	0		25,343
Accrued student obligations	4,580		3,957
Real estate liabilities	751		441
Other	4,070		2,703
Accounts payable and accrued expenses	$	90,828	$	115,829

⁽¹⁾

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the respective trading day and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holder had all options been exercised on the respective trading day. The amount of intrinsic value will change based on the fair market value of the Company’s common stock.

~~Valuation~~

10. Long-Term Debt

On August 1, 2018, the Company entered into an amended credit facility (the “Amended Credit Facility”), which provides for a senior secured revolving credit facility (the “Revolver”) in an aggregate principal amount of up to $250 million. The Amended Credit Facility provides the Company with an option (the "Accordion Option"), under certain conditions, to increase the commitments under the Revolver or establish one or more incremental term loans (each, an “Incremental Facility”) in an amount up to the sum of (x) $150 million and ~~Expense Information under Stock Compensation Topic ASC 718~~

~~At September 30, 2017, total stock-based compensation cost which has not yet been recognized was $17.8~~(y) if such Incremental Facility is incurred in connection with a permitted acquisition, any amount so long as the Company’s leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75:1.00. The maturity date of the Amended Credit Facility is August 1, 2023. The Company paid approximately $1.2 million ~~for unvested restricted stock, restricted stock units,~~in debt financing costs associated with the Amended Credit Facility, and ~~stock option awards. This cost is expected to be recognized~~these costs are being amortized on a straight-line basis over the ~~next 24 months on~~five-year term of the Amended Credit Facility.

On August 10, 2020, in anticipation of the closing of the acquisition of Laureate's Australia and New Zealand operations, the Company exercised the Accordion Option by entering into a ~~weighted-average basis. Awards of approximately 561,000 shares of restricted stock and restricted stock units are subject~~supplement agreement with certain lenders under the Amended Credit Facility, which increased the total commitments under the Revolving Credit Facility from $250 million to ~~performance conditions. The accrual~~$350 million. See Note 17 for ~~stock-based compensation for performance awards is based~~additional information.

Borrowings under the Revolver will bear interest at a per annum rate equal to, at the Company’s election, LIBOR or a base rate, plus a margin ranging from 1.50% to 2.00% depending on the Company’s ~~estimates that such performance criteria are probable of being achieved over the respective vesting periods. Such~~leverage ratio. The Company also is subject to a ~~determination involves judgment surrounding~~quarterly unused commitment fee ranging from 0.20% to 0.30% per annum depending on the Company’s ~~ability~~leverage ratio, times the daily unused amount under the Revolver.

The Amended Credit Facility is guaranteed by all domestic subsidiaries, subject to ~~maintain regulatory compliance. If~~certain exceptions, and secured by substantially all of the ~~performance targets are not reached during~~assets of the ~~respective vesting period, or it is determined it is more likely than not~~Company and its subsidiary guarantors. The Amended Credit Facility contains customary affirmative and negative covenants, representations, warranties, events of default, and remedies upon default, including acceleration and rights to foreclose on the collateral securing the Amended Credit Facility. In addition, the Amended Credit Facility requires that the ~~performance criteria~~Company satisfy certain financial maintenance covenants, including:

•A leverage ratio of not greater than 2 to 1. Leverage ratio is defined as the ratio of total debt to trailing four-quarter EBITDA (earnings before interest, taxes, depreciation, amortization, and noncash charges, such as stock-based compensation).

•A coverage ratio of not less than 1.75 to 1. Coverage ratio is defined as the ratio of trailing four-quarter EBITDA and rent expense to trailing four-quarter interest and rent expense.

•A U.S. Department of Education (“Department” or "Department of Education") Financial Responsibility Composite Score of not less than 1.5.

The Company was in compliance with all the terms of the Amended Credit Facility and had 0 borrowings outstanding under the Revolver as of September 30, 2020.

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11. Other Long-Term Liabilities

Other long-term liabilities consist of the following as of December 31, 2019 and September 30, 2020 (in thousands):


	December 31, 2019		September 30, 2020
Contract liabilities, net of current portion	$	30,925	$	32,116
Asset retirement obligations	1,961		1,984
Deferred payments related to acquisitions	4,963		637
Employee separation costs	1,838		0
Other	1,764		1,415
Other long-term liabilities	$	41,451	$	36,152

Contract Liabilities

As discussed in Note 4, in connection with its student tuition contracts, the Company has an obligation to provide free classes in the future should certain eligibility conditions be maintained (the Graduation Fund). Long-term contract liabilities represent the amount of revenue under these arrangements that the Company expects will ~~not~~ be ~~achieved,~~realized after one year.

Asset Retirement Obligations

Obligations related ~~compensation~~to lease agreements that require the leased premises to be returned in a predetermined condition.

Deferred Payments Related to Acquisitions

In connection with previous acquisitions, the Company acquired certain assets and entered into deferred payment arrangements with the sellers. The deferred payment arrangements are valued at approximately $2.2 million and $0.6 million as of December 31, 2019 and September 30, 2020, respectively. In addition, one of the sellers contributed $2.8 million to the Company representing the seller’s continuing interest in the assets acquired. In the third quarter of 2020, the $2.8 million liability offset the prepaid expense ~~is adjusted.~~

asset recognized in connection with the final one-time cash payment that the Company will make related to the JWMI perpetual license agreement (as discussed in Note 8) because the counterparty's continuing interest will terminate following the payment.

Employee Separation Costs

Severance and other employee separation costs to be paid after one year.

12. Equity Awards

The following table sets forth the amount of stock-based compensation expense recorded in each of the expense line items for the three and nine months ended September 30, ~~2016~~2019 and ~~2017~~2020 (in thousands):


	For the three months ended				For the nine months ended					For the three months ended September 30,				For the nine months ended September 30,
	September 30,				September 30,					2019		2020		2019		2020
	2016		2017		2016		2017
Instruction and educational support	$	522	$	548	$	678	$	1,363
Marketing		—		—		—		—
Admissions advisory		—		—		—		—
Instructional and support costs									Instructional and support costs	$	945	$	1,390	$	2,820	$	3,776
General and administration		1,882		2,366		6,652		7,206	General and administration	2,077		2,485		5,888		6,983
Merger and integration costs									Merger and integration costs	(523)		0		367		0
Stock-based compensation expense included in operating expense		2,404		2,914		7,330		8,569	Stock-based compensation expense included in operating expense	2,499		3,875		9,075		10,759
Tax benefit		957		1,151		2,857		3,384	Tax benefit	651		997		2,333		2,767
Stock-based compensation expense, net of tax	$	1,447	$	1,763	$	4,473	$	5,185	Stock-based compensation expense, net of tax	$	1,848	$	2,878	$	6,742	$	7,992

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Notice Regarding Forward-Looking Statements

Certain of the statements included in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” as well as elsewhere in this Quarterly Report on Form 10-Q are forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995 (“Reform Act”). Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” "may," “will,” “forecast,” “outlook,” “plan,” “project,” or similar words, and include, without limitation, statements relating to future enrollment, revenues, revenues per student, earnings growth, operating expenses, capital expenditures and ~~capital expenditures.~~the ultimate effect of the COVID-19 pandemic on the Company's business and results. These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. In accordance with the Safe Harbor provisions of the Reform Act, the Company has identified important factors that could cause the actual results to differ materially from those expressed in or implied by such statements. The assumptions, risks and uncertainties include ~~the pace of growth of student enrollment,~~ our continued compliance with Title IV of the Higher Education Act, and the regulations thereunder, as well as ~~regional~~institutional accreditation standards and state regulatory requirements, rulemaking by the Department ~~of Education~~ and increased focus by the ~~U. S.~~U.S. Congress on for-profit education institutions, the pace of student enrollment, competitive factors, risks associated with the further spread of COVID-19, including the ultimate effect of COVID-19 on people and economies, the effect of regulatory measures or voluntary actions that may be put in place to limit the spread of COVID-19, including restrictions on business operations or social distancing requirements, risks associated with the opening of new campuses, risks associated with the offering of new educational programs and adapting to other changes, risks associated with the acquisition of existing educational institutions including in the case of the Company’s acquisition of Laureate’s Australia and New Zealand business, the risk that the benefits of the acquisition may not be fully realized or may take longer to realize than expected, and the risk that the acquisition may not advance the Company’s business strategy and growth strategy, risks relating to the timing of regulatory approvals, our ability to implement our growth strategy, the risk that the combined company may experience difficulty integrating employees or operations, risks associated with the ability of our students to finance their education in a timely manner, and general economic and market conditions. Further information about these and other relevant risks and uncertainties may be found in Part II, “Item 1A. Risk Factors” of this Quarterly Report on Form 10-Q, Part I, “Item 1A. Risk Factors” of the Company’s Annual Report on Form 10-K and ~~its~~in the Company’s other filings with the Securities and Exchange Commission, including in Part II, “Item 1A. Risk Factors” in the Company’s Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017, and in this Quarterly Report on Form 10-Q.Commission. The Company undertakes no obligation to update or revise forward-looking ~~statements.~~

statements, except as required by law.

Additional Information

We maintain a website at http://~~www.strayereducation.com.~~www.strategiceducation.com. The information on our website is not incorporated by reference in this Quarterly Report on Form 10-Q, and our web address is included as an inactive textual reference only. We make available, free of charge through our website, our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Background ~~and Overview~~

~~We are~~

Strategic Education, Inc. (“SEI,” “we”, “us” or “our”) is an education services ~~holding~~ company that ~~owns~~seeks to provide the most direct path between learning and employment through campus-based and online post-secondary education offerings and through programs to develop job-ready skills for high-demand markets. We operate primarily through our wholly-owned subsidiaries Strayer University and Capella University (the ~~“University”~~"Universities"), both accredited post-secondary institutions of higher education. Our operations also include certain non-degree programs, mainly focused on software and application development.

Company Response to COVID-19

The ongoing COVID-19 pandemic has caused significant volatility and disruption to the United States and international economies. SEI took early action to protect the health and well-being of our students and employees in accordance with government mandates and informed by guidance from the Centers for Disease Control and Prevention. Specifically, we have instituted a work-from-home policy for the vast majority of our workforce, closed physical campus locations, moved our on-ground courses at Strayer University online, postponed large events such as graduation ceremonies, and prohibited non-essential employee travel.

We are taking measures to provide financial relief to our students and employer partners negatively affected by the COVID-19 crisis. Measures include payment flexibility, scholarship opportunities, and other pricing relief. We expect that these measures will enable more students to continue pursuing their education during and after the COVID-19 crisis, and that revenue-per-student

Table of ~~January 13, 2016,~~Contents

will range from flat to down 2% compared to 2019. In addition, we have decided to pause planned 2020 new campus expansion for campus projects that have not yet started, although we have completed or executed leases on roughly half of the originally planned eight to twelve new campuses for 2020. In the third quarter of 2020, we began implementing a restructuring plan that includes both voluntary and involuntary employee terminations in an effort to reduce ongoing operating costs to align with changes in enrollment. These headcount reductions are expected to result in a 5% decrease to SEI's total workforce.

As the pandemic has continued, we have seen deterioration in overall demand, including lower new student enrollment and lower continuation rates, which has impacted our total enrollment results for the third and fourth quarters. The weakness has been most pronounced at Strayer University, where new student enrollment for the third quarter declined approximately 28% and we expect the percentage change in new student enrollment for the fourth quarter to be similar to the third quarter. While it is not possible to predict the magnitude or persistence of this deterioration, enrollment weakness that started in 2010, following the recession in 2008, impacted Strayer University’s new student enrollment for several quarters. Enrollment at Capella University also has been impacted by the pandemic, though not as severely as at Strayer University. As a result of the near-term enrollment trends we have enhanced our cost management efforts to offset lower than expected revenue, and now project 2020 revenue to be flat to slightly up compared to 2019, and adjusted operating income and income before income taxes to increase in the low to mid-single digits from 2019. The Company does not intend to disclose anticipated enrollment figures or trends in future periodic filings or earnings releases, except as may be required by law.

We believe our current financial position and expected operating results, and ability to further control costs are sufficient to support the ongoing operation of SEI and its two Universities in a manner that protects the health and well-being of our employees, students, and partners.

Recent Developments

On November 3, 2020, we completed the previously announced acquisition of the Australia and New ~~York Code~~Zealand operations of Laureate Education Inc., in accordance with a sale and ~~Design Academy (“NYCDA”~~purchase agreement dated July 29, 2020 (the "Purchase Agreement"). Pursuant to the Purchase Agreement, the aggregate consideration paid was approximately $662.0 million in cash, which reflected the original agreed upon purchase price of $642.7 million, plus a $19.3 million adjustment reflecting an estimated $16.0 million of net cash at close, and an estimated $3.3 million related to higher net working capital. These estimated adjustments will be subject to a final true-up of net cash and net working capital, based on the actual closing accounts to be agreed upon no more than 60 days following close. The aggregate consideration paid in the transaction was funded using cash on hand and borrowings under our revolving credit facility.

Company Overview

During the first quarter of 2020, the Company revised its reportable segments and restated the results for the prior period to conform to the current period presentation. As of September 30, 2020, SEI had the following reportable segments:

Strayer University Segment

•Strayer University is an institution of higher ~~education which~~learning that offers undergraduate and graduate degree programs in business administration, accounting, information technology, education, health services administration, public administration, and criminal justice at 78 physical campuses, predominantly located in the eastern United States, and online. ~~NYCDA~~Strayer University is accredited by the Middle States Commission on Higher Education (“Middle States” or “Middle States Commission”), an institutional collegiate accrediting agency recognized by the Department of Education. By offering its programs both online and in physical classrooms, Strayer University provides ~~non-degree courses in web~~its working adult students flexibility and ~~application~~convenience.

•The Jack Welch Management Institute (“JWMI”) offers an executive MBA online and is a Top 25 Princeton Review ranked online MBA program.

•DevMountain is a software development ~~primarily~~program offering affordable, high-quality, leading-edge software coding education at ~~campuses~~multiple campus locations and online.

•Hackbright Academy is a software engineering school for women. Its primary offering is an intensive 12-week accelerated software development program, together with placement services and coaching.

•In the third quarter, Strayer University’s enrollment decreased 1% to 48,774 compared to 49,194 for the same period in 2019. New ~~York City~~student enrollment for the period decreased 28% and ~~Philadelphia, PA. NYCDA’s results of operations are included in our results from~~continuing student enrollment for the ~~acquisition date.~~

~~Most of our revenue comes from the University, which derives approximately 96% of its revenue from tuition for educational programs, whether delivered in person~~period increased 6%. New student enrollment at ~~a physical campus or delivered online. The academic year of the~~Strayer University is ~~divided into four quarters,~~more volatile in the current economic environment due to Strayer’s mostly undergraduate student mix, which includes many first-time college students. In the first quarter of 2020, Strayer

Table of Contents

University adopted a new enrollment reporting census date, which occurs approximately coincide with the four quarters of the calendar year. Students at the University and at NYCDA make payment arrangements for the tuition for each course at the time of enrollment. Tuition revenue is recognized ratably over the course of instruction. If a student withdraws from a course prior to completion, the University refunds a portion of the tuition depending on when the withdrawal occurs. Tuition revenue is shown net of any refunds, withdrawals, corporate discounts, employee tuition discounts and scholarships. The University also derives revenue from other sources such as textbook-related income, certificate revenue, certain academic fees, licensing revenue, and other income, which are all recognized when earned.

~~Tuition receivable and deferred revenue for our students are recorded upon the start of the course, which for the University is~~two weeks following the start of the academic term. ~~Because~~Previously the ~~University’s academic quarters coincide~~Strayer University enrollment census date coincided with ~~the calendar quarters, at~~ the end of the ~~fiscal quarter (and~~University’s “drop-add” period, approximately one week following the start of the academic ~~term), tuition receivable generally represents amounts due~~term. The new census date is consistent with the approach employed by Capella University. All historical enrollment data included in this Form 10-Q has been revised using the new census date. Year-over-year percentage change in enrollment for the new census date does not differ significantly from ~~students~~the prior approach.

Capella University Segment

•Capella University is an online post-secondary education company that offers a variety of doctoral, master’s and bachelor’s degree programs, primarily for ~~educational services already provided and deferred revenue generally represents advance payments for academic services to be provided~~working adults, in the ~~future. Based upon past experience~~following primary disciplines: public service leadership, nursing and ~~judgment,~~health sciences, social and behavioral sciences, business and technology, education, and undergraduate studies. Capella University focuses on master's and doctoral degrees, with approximately 70% of its learners enrolled in a master’s or doctoral degree program. Capella University's academic offerings are built with competency-based curricula and are delivered in an online format that is convenient and flexible. Capella University designs its offerings to help working adult learners develop specific competencies they can apply in their workplace. Capella University is accredited by the ~~University establishes~~Higher Learning Commission, an ~~allowance~~institutional regional collegiate accrediting agency recognized by the Department of Education.

•Sophia Learning is an innovative company which leverages technology and high quality academic content to provide self-paced online courses recommended by the American Council on Education for ~~doubtful accounts with respect to accounts~~

college credit.

~~Table of Contents~~

receivable. Any uncollected account more than one year past due is charged against the allowance. Accounts less than one year past due are reserved according to the length of time the balance has been outstanding. •In establishing reserve amounts, we also consider the status of students as to whether or not they are currently enrolled for the next term, as well as the likelihood of recovering balances that have previously been written off, based on historical experience. Bad debt expense as a percentage of revenues for the third quarter, Capella University’s enrollment increased 4% to 40,268 compared to 38,885 for the same period in 2019. New student enrollment for the period increased 4% and continuing student enrollment for the period increased 4%. In the first quarter of ~~2016 and 2017 was 3.8% and 4.9%, respectively.~~

~~Below is~~2020, Capella University consolidated two different enrollment reporting census dates into a ~~description~~single date, which occurs approximately two weeks following the start of the ~~nature of the consolidated costs~~academic term. All historical enrollment data included in this Form 10-Q has been revised using the new census date. Year-over-year percentage change in enrollment for the new census date does not differ significantly from the prior approach.

We believe we have the right operating strategies in place to provide the most direct path between learning and employment for our ~~operating expense categories:~~

~~Instruction and educational support expenses~~ generally contain items of expense directly attributable to educational activities. This expense category includes salaries and benefits of faculty and academic administrators, as well as administrative personnel who support faculty and students. Instruction and educational support expenses also include costs of educational supplies and facilities, including rent for campus facilities, certain costs of establishing and maintaining computer laboratories and all other physical plant and occupancy costs, with the exception of costs attributable to the corporate offices. Bad debt expense incurred on delinquent student account balances is also included in instruction and educational support expenses.

~~Marketing expenses~~ ~~include the costs of advertising and production of marketing materials and related personnel costs.~~

~~Admissions advisory expenses~~ ~~include salaries, benefits and related costs of personnel engaged in admissions.~~

~~General and administration expenses~~ include salaries and benefits of management and employees engaged in accounting, human resources, legal, regulatory compliance, and other corporate functions, along with the occupancy and other related costs attributable to such functions.

~~Investment income consists primarily~~students. We focus on innovation continually to differentiate ourselves in our markets and drive growth by supporting student success, producing affordable degrees, optimizing our comprehensive marketing strategy, serving a broader set of ~~earnings~~our students’ professional needs, and ~~realized gains or losses~~establishing new growth platforms. Technology and the talent of our faculty and employees enable these strategies. We believe these strategies and enablers will allow us to continue to deliver high-quality, affordable education, resulting in continued growth over the long-term. We will continue to invest in these enablers to strengthen the foundation and future of our business. We also believe our enhanced scale and capabilities allow us to continue to focus on ~~investments~~innovative cost and ~~interest expense consists of interest incurred on~~revenue synergies, while improving the value provided to our ~~outstanding borrowings, unused revolving credit facility fees, and amortization of deferred financing costs.~~

students.

Critical Accounting Policies and Estimates

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” discusses our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosures of contingent assets and liabilities. On an ongoing basis, management evaluates its estimates and judgments related to its allowance for ~~doubtful accounts;~~credit losses; income tax provisions; the useful lives of property and ~~equipment;~~equipment and intangible assets; redemption rates for scholarship ~~programs;~~programs and valuation of contract liabilities; fair value of ~~future contractual operating~~right-of-use lease ~~obligations~~assets for facilities that have been ~~closed;~~vacated; incremental borrowing rates; valuation of deferred tax assets, goodwill, and intangible assets; forfeiture rates and achievability of performance targets for stock-based compensation plans; and accrued expenses. Management bases its estimates and judgments on historical experience and various other factors and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments regarding the carrying values of assets and liabilities that are not readily apparent from other sources. Management regularly reviews its estimates and judgments for reasonableness and may modify them in the future. Actual results may differ from these estimates under different assumptions or conditions.

Management believes that the following critical accounting policies are its more significant judgments and estimates used in the preparation of its consolidated financial statements.

Revenue recognition — Like many traditional institutions, ~~the~~Strayer University ~~offers its~~and Capella University offer educational programs primarily on a quarter system having four academic terms, which generally coincide with our quarterly financial reporting periods. ~~NYCDA’s revenues are recognized as services are provided, generally ratably over the length of a course.~~ Approximately 96% of ~~the University’s~~our revenues during the nine months ended September 30, ~~2017~~2020 consisted of tuition revenue.

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Capella University offers monthly start options for new students, who then transition to a quarterly schedule. Capella University also offers its FlexPath program, which allows students to determine their 12-week billing session schedule after they complete their first course. Tuition revenue for all students is recognized ratably over the course of instruction as the ~~University provides~~Universities and the schools offering non-degree programs provide academic services, ~~in a given term,~~ whether delivered in person at a physical campus or online. Tuition revenue is shown net of any refunds, withdrawals, corporate discounts, scholarships, and employee tuition discounts. The ~~University~~Universities also ~~derives~~derive revenue from other sources such as textbook-related income, certificate revenue, certain academic fees, licensing revenue, and other income, which are all recognized when earned. In accordance with ASC 606, materials provided to students in connection with their enrollment in a course are recognized as revenue when control of those materials transfers to the student. At the start of each academic term or program, a contract liability ~~(deferred revenue)~~ is recorded for academic services to be provided, and a tuition receivable is recorded for

~~Table of Contents~~

the portion of the tuition not paid in advance. Any cash received prior to the start of an academic term or program is recorded as ~~deferred revenue.~~

a contract liability.

Students of the ~~University~~Universities finance their education in a variety of ways, and historically about three quarters of our students have participated in one or more financial aid programs provided through Title IV of the Higher Education Act. In addition, many of our working adult students finance their own education or receive full or partial tuition reimbursement from their employers. Those students who are veterans or active duty military personnel have access to various additional government-funded educational benefit programs.

A typical class is offered in weekly increments over a ~~ten-week~~six- to twelve-week period, depending on the University and course type, and is followed by an exam. Students who withdraw from a course may be eligible for a refund of tuition charges based on the timing of the withdrawal. We use the student’s withdrawal date or last date of attendance for this purpose. Student attendance is based on physical presence in class for on-ground classes. For online classes, attendance consists of logging into one’s course shell and performing an academically-related activity (e.g., engaging in a discussion post or taking a quiz).

If a student withdraws from a course prior to completion, a portion of the tuition may be refundable depending on when the withdrawal occurs. Our specific refund policies vary across the Universities and non-degree programs. For students attending Strayer University, our refund policy typically permits students who complete less than half of a course to receive a partial refund of tuition for that course. For learners attending Capella University, our refund policy varies based on course format. GuidedPath learners are allowed a 100% refund through the first five days of the course, a 75% refund from six to twelve days, and 0% refund for the remainder of the period. FlexPath learners receive a 100% refund through the 12th calendar day of the course for their first billing session only and a 0% refund after that date and for all subsequent billing sessions. Refunds reduce the tuition revenue that otherwise would have ~~otherwise~~ been recognized for that student. Since the ~~University’s~~Universities’ academic terms coincide with our financial reporting periods for most programs, nearly all refunds are processed and recorded in the same quarter as the corresponding revenue. For certain programs where courses may overlap a quarter-end date, the Company estimates a refund rate and does not recognize the related revenue until the uncertainty related to the refund is resolved. The ~~amount~~portion of tuition revenue refundable to students may vary based on the student’s state of residence.

For ~~undergraduate~~ students who withdraw from all their courses during the quarter of instruction, we reassess ~~collectibility~~collectability of tuition and fees for revenue recognition purposes. In addition, we cease revenue recognition when a student fully withdraws from all of his or her courses in the academic term. Tuition charges billed in accordance with our billing schedule may be greater than the pro rata revenue amount, but the additional amounts are not recognized as revenue unless they are collected in ~~cash.~~

cash and the term is complete.

For students who receive funding under Title IV and withdraw, funds are subject to return provisions as defined by the Department of Education. The ~~University~~university is responsible for returning Title IV funds to the Department ~~of Education~~ and then may seek payment from the withdrawn student of prorated tuition or other amounts charged to him or her. Loss of financial aid eligibility during an academic term is rare and would normally coincide with the student’s withdrawal from the institution. As discussed above, we cease revenue recognition upon a student’s withdrawal from all of his or her classes in an academic ~~term.~~

~~New students~~term until cash is received and the term is complete.

Students at Strayer University registering in credit-bearing courses in any undergraduate program ~~for~~beginning in the summer 2013 term or graduate program beginning in the summer 2020 term (fiscal third quarter), and subsequent terms, qualify for the Graduation Fund, whereby qualifying students earn tuition credits that are redeemable in the final year of a student’s course of study if he or she successfully remains in the program. Students must meet all of the University’s admission requirements and not be eligible for any previously offered scholarship program. Our employees and their dependents are not eligible for the program. To maintain eligibility, students must be enrolled in a bachelor’s or master's degree program. Students who have more than one consecutive term of non-attendance lose any Graduation Fund credits earned to date, but may earn and accumulate new credits if the student is reinstated or readmitted by the University in the future. In response to the COVID-19 pandemic, Strayer University is temporarily allowing students to miss two consecutive terms without losing their Graduation Fund credits. In their final

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academic year, qualifying students will receive one free course for every three courses that ~~were~~the student successfully ~~completed. Revenue and the value of the benefit earned by students participating~~completed in prior years. The University's performance obligation associated with free courses that may be redeemed in the ~~Graduation Fund~~future is ~~recognized~~valued based on a systematic and rational allocation of the cost of honoring the benefit earned to each of the underlying revenue transactions that result in progress by the student toward earning the benefit. The estimated value of awards under the Graduation Fund that will be recognized in the future is based on historical experience of students’ persistence in completing their course of study and earning a ~~degree.~~degree and the tuition rate in effect at the time it was associated with the transaction. Estimated redemption rates of eligible students vary based on their term of enrollment. As of September 30, ~~2017,~~2020, we had deferred ~~$34.4~~$51.6 million for estimated redemptions earned under the Graduation Fund, as compared to ~~$29.5~~$49.6 million at December 31, ~~2016.~~2019. Each quarter, we assess our methodologies and assumptions underlying our estimates for persistence and estimated redemptions based on actual experience. To date, any adjustments to our estimates have not been material. However, if actual persistence or redemption rates change, adjustments to the reserve may be necessary and could be material.

Tuition receivable — We record estimates for our allowance for ~~doubtful accounts for~~credit losses related to tuition receivable from students primarily based on our historical collection rates by age of receivable and adjusted for reasonable expectations of future collection performance, net of ~~recoveries, and consideration of other relevant factors.~~recoveries. Our experience is that payment of outstanding balances is influenced by whether the student returns to the institution, as we require students to make payment arrangements for their outstanding balances prior to enrollment. Therefore, we monitor outstanding tuition receivable balances through subsequent terms, increasing the reserve on such balances over time as the likelihood of returning to the institution diminishes and our historical experience indicates collection is less likely. We periodically assess our

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methodologies for estimating ~~bad debts~~credit losses in consideration of actual experience. If the financial condition of our students were to deteriorate based on current or expected future events resulting in evidence of impairment of their ability to make required payments for tuition payable to us, additional allowances or write-offs may be required. For the third quarter of ~~2017,~~2020, our bad debt expense was ~~4.9%~~4.7% of revenue, compared to ~~3.8%~~5.0% for the same period in ~~2016.~~2019. A change in our allowance for ~~doubtful accounts~~credit losses of 1% of gross tuition receivable as of September 30, ~~2017~~2020 would have changed our income from operations by approximately ~~$0.4~~$0.9 million.

~~Accrued lease~~

Goodwill and ~~related costs~~intangible assets — ~~We estimate potential sublease income~~Goodwill represents the excess of the purchase price of an acquired business over the amount assigned to the assets acquired and ~~vacancy periods~~liabilities assumed. Indefinite-lived intangible assets, which include trade names, are recorded at fair market value on their acquisition date. At the time of acquisition, goodwill and indefinite-lived intangible assets are allocated to reporting units. Management identifies its reporting units by assessing whether the components of its operating segments constitute businesses for ~~space that~~which discrete financial information is ~~not~~available and management regularly reviews the operating results of those components. Goodwill and indefinite-lived intangible assets are assessed at least annually for impairment. No events or circumstances occurred in use, adjusting our estimates when circumstances change. If our estimates change or if we enter into subleases at rates that are substantially different than our current estimates, we will adjust our liability for leasethe three and ~~related costs. During the~~ nine months ended September 30, ~~2017~~2020 to indicate an impairment to goodwill or indefinite-lived intangible assets. Accordingly, no impairment charges related to goodwill or indefinite-lived intangible assets were recorded during the three and ~~2016, we reduced~~nine month periods ended September 30, 2020.

Finite-lived intangible assets that are acquired in business combinations are recorded at fair value on their acquisition dates and are amortized on a straight-line basis over the estimated useful life of the asset. Finite-lived intangible assets consist of student relationships. We review our ~~liability~~finite-lived intangible assets for ~~leases by approximately $0.3 million~~impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If such assets are not recoverable, a potential impairment loss is recognized to the extent the carrying amount of the assets exceeds the fair value of the assets. No impairment charges related to finite-lived intangible assets were recorded during the three and ~~$2.0 million, respectively.~~

nine month periods ended September 30, 2020.

Other estimates — We record estimates for ~~contingent consideration,~~ certain of our accrued expenses and for income tax liabilities. We estimate the useful lives of our property and equipment ~~assess goodwill~~ and intangible assets ~~for impairment,~~ and periodically review our assumed forfeiture rates and ability to achieve performance targets for stock-based awards and adjust them as necessary. Should actual results differ from our estimates, revisions to our ~~contingent consideration,~~ accrued expenses, carrying amount of goodwill and intangible assets, stock-based compensation expense, and income tax liabilities may be required.

Results of Operations

In the third quarter of ~~2017,~~2020, we generated ~~$108.5~~$239.0 million in revenue ~~a 6% increase~~ compared to ~~2016, principally due to a 7% increase~~$241.7 million in ~~total enrollment and partially offset by a 1% decline in revenue per student. Income~~2019. Our income from operations was ~~$8.2~~$15.4 million for the third quarter of ~~2017. During the third quarter of 2017, we recorded approximately $2.1~~2020 compared to $20.0 million in ~~net benefits~~2019 due primarily to restructuring costs incurred as a result of the Company's workforce reductions as well as higher merger and integration related to a reduction in the value of contingent consideration payable under the NYCDA acquisition, partially offset by nonrecurring personnel costs associated with a one-time staff reduction program. Income from operations for the third quarter of 2016 was $4.8 million, which includes a $0.2 million noncash benefit to reduce our liability for leases on facilities no longer in use.costs. Net income in the third quarter of ~~2017~~2020 was ~~$6.2~~$11.0 million ~~including approximately $2.4 million in after-tax benefits from the nonrecurring adjustments described above,~~ compared to ~~$2.9~~$16.7 million for the same period in ~~2016, which reflected approximately $0.1 million in after-tax benefits from the nonrecurring adjustments described above.~~2019. Diluted earnings per share was ~~$0.56~~$0.47 compared to ~~$0.27~~$0.75 for the same period in ~~2016. Diluted~~2019. For the nine months ended September 30, 2020, we generated $760.2 million in revenue, compared to $733.4 million for the same period in 2019. Our income from operations was $105.8 million for the nine months ended September 30, 2020 compared to $73.3 million for the same period in 2019. Net income was $80.4 million for the nine months ended September 30, 2020 compared to $52.6 million for the same period in 2019, and diluted earnings per share was $3.58 in the nine months ended September 30, 2020 compared to $2.38 for the ~~third quarter of 2017 and 2016 was $0.34 and $0.25 per share, respectively, after the nonrecurring adjustments~~

~~Key enrollment trends by quarter for the University were as follows:~~

~~Enrollment~~

~~% Change vs Prior Year~~

same period in 2019.

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~~Since 2013,~~In the accompanying analysis of financial information for 2020 and 2019, we ~~have introduced~~use certain financial measures including Adjusted Total Costs and Expenses, Adjusted Income from Operations, Adjusted Operating Margin, Adjusted Income Before Income Taxes, Adjusted Net Income, and Adjusted Diluted Earnings per Share that are not required by or prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These measures, which are considered “non-GAAP financial measures” under SEC rules, are defined by us to exclude the following:

•amortization and depreciation expense related to intangible assets and software assets acquired through the Company’s merger with Capella Education Company,

•integration expenses associated with the Company's merger with Capella Education Company, and transaction expenses associated with the Company's acquisition of the Australia and New Zealand operations of Laureate,

•severance costs associated with the Company's restructuring,

•income from partnership and other investments that are not part of our core operations, and

•discrete tax adjustments related to stock-based compensation and other adjustments.

When considered together with GAAP financial results, we believe these measures provide management and investors with an additional understanding of our business and operating results, including underlying trends associated with the Company’s ongoing operations.

Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable with other similarly titled measures of other companies. Non-GAAP financial measures may be considered in addition to, but not as a ~~number~~substitute for or superior to, GAAP results. A reconciliation of ~~initiatives in response~~these measures to the ~~variability in our enrollment. Recognizing that affordability~~most directly comparable GAAP measures is an important factor in a prospective student’s decision to seek a college degree, we reduced the University undergraduate tuition for new students by 20% beginning in our 2014 winter academic term. We also introduced the Graduation Fund in mid-2013, whereby qualifying students can receive one free course for every three courses successfully completed. The free courses are redeemable in the student’s final academic year. In 2015, we launched Strayer@Work, which works with Fortune 1000 companies to structure customized education and training programs for their employees, often with significant discounts to our published tuition rates. In January 2016, we acquired NYCDA, which charges variable tuition by program based on the number of hours of instruction. These initiatives had a net negative impact on revenue per student, which declined 1% in 2016, and is expected to decrease slightly in 2017, by approximately 2%.

~~Three Months Ended September 30, 2017 Compared to Three Months Ended September 30, 2016~~

~~Enrollment. Total enrollments at the University for the summer term 2017 increased to 41,679 students,~~provided below.

Adjusted income from ~~38,813 for the summer term 2016. New student enrollments increased by 7%, and continuing student enrollments increased by 8%.~~

~~Revenues. Revenues increased 6% to $108.5~~operations was $37.8 million in the third quarter of ~~2017 from $102.2~~2020 compared to $36.9 million in 2019. Adjusted net income was $27.4 million in the third quarter of ~~2016, principally~~2020 compared to $28.4 million in 2019, and adjusted diluted earnings per share was $1.18 in the third quarter of 2020 compared to $1.28 in 2019. Adjusted income from operations was $163.9 million in the nine months ended September 30, 2020 compared to $131.3 million for the same period in 2019. Adjusted net income was $119.3 million in the nine months ended September 30, 2020 compared to $100.3 million for the same period in 2019, and adjusted diluted earnings per share was $5.32 in the nine months ended September 30, 2020 compared to $4.54 for the same period in 2019.

The tables below reconcile our reported results of operations to adjusted results (amounts in thousands, except per share data):

Reconciliation of Reported to Adjusted Results of Operations for the three months ended September 30, 2020


			Non-GAAP Adjustments
	As Reported (GAAP)		Amortization of intangible assets(1)		Merger and integration costs(2)		Restructuring costs(3)		Income from other investments(4)		Tax adjustments(5)		As Adjusted (Non-GAAP)
Revenues	$	239,026	$	—	$	—	$	—	$	—	$	—	$	239,026
Total costs and expenses	223,604		(15,417)		(2,920)		(4,024)		—		—		201,243
Income from operations	15,422		15,417		2,920		4,024		—		—		37,783
Operating margin	6.5%												15.8%
Income before income taxes	16,334		15,417		2,920		4,024		(391)		—		38,304
Net income	$	10,960	$	15,417	$	2,920	$	4,024	$	(391)	$	(5,543)	$	27,387

Diluted earnings per share	$	0.47											$	1.18
Weighted average diluted shares outstanding	23,214												23,214

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Reconciliation of Reported to Adjusted Results of Operations for the three months ended September 30, 2019


			Non-GAAP Adjustments
	As Reported (GAAP)		Amortization of intangible assets(1)		Merger and integration costs(2)		Restructuring costs(3)		Income from other investments(4)		Tax adjustments(5)		As Adjusted (Non-GAAP)
Revenues	$	241,747	$	—	$	—	$	—	$	—	$	—	$	241,747
Total costs and expenses	221,747		(15,417)		(1,500)		—		—		—		204,830
Income from operations	20,000		15,417		1,500		—		—		—		36,917
Operating margin	8.3%												15.3%
Income before income taxes	23,243		15,417		1,500		—		(706)		—		39,454
Net income	$	16,692	$	15,417	$	1,500	$	—	$	(706)	$	(4,496)	$	28,407

Diluted earnings per share	$	0.75											$	1.28
Weighted average diluted shares outstanding	22,129												22,129

Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2020


			Non-GAAP Adjustments
	As Reported (GAAP)		Amortization of intangible assets(1)		Merger and integration costs(2)		Restructuring costs(3)		Income from other investments(4)		Tax adjustments(5)		As Adjusted (Non-GAAP)
Revenues	$	760,159	$	—	$	—	$	—	$	—	$	—	$	760,159
Total costs and expenses	654,383		(46,251)		(7,858)		(4,024)		—		—		596,250
Income from operations	105,776		46,251		7,858		4,024		—		—		163,909
Operating margin	13.9%												21.6%
Income before income taxes	110,450		46,251		7,858		4,024		(1,780)		—		166,803
Net income	$	80,351	$	46,251	$	7,858	$	4,024	$	(1,780)	$	(17,441)	$	119,263

Diluted earnings per share	$	3.58											$	5.32
Weighted average diluted shares outstanding	22,432												22,432

Reconciliation of Reported to Adjusted Results of Operations for the nine months ended September 30, 2019


			Non-GAAP Adjustments
	As Reported (GAAP)		Amortization of intangible assets(1)		Merger and integration costs(2)		Restructuring costs(3)		Income from other investments(4)		Tax adjustments(5)		As Adjusted (Non-GAAP)
Revenues	$	733,365	$	—	$	—	$	—	$	—	$	—	$	733,365
Total costs and expenses	660,046		(46,251)		(11,698)		—		—		—		602,097
Income from operations	73,319		46,251		11,698		—		—		—		131,268
Operating margin	10.0%												17.9%
Income before income taxes	84,014		46,251		11,698		—		(3,334)		—		138,629
Net income	$	52,601	$	46,251	$	11,698	$	—	$	(3,334)	$	(6,907)	$	100,309

Diluted earnings per share	$	2.38											$	4.54
Weighted average diluted shares outstanding	22,096												22,096

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(1)Reflects amortization and depreciation expense of intangible assets and software assets acquired through the Company’s merger with Capella Education Company.

(2)Reflects integration expenses associated with the Company's merger with Capella Education Company, and transaction expenses associated with the Company's acquisition of the Australia and New Zealand operations of Laureate.

(3)Reflects severance costs associated with the Company's restructuring.

(4)Reflects income recognized from the Company's investments in partnership interests and other investments.

(5)Reflects tax impacts of the adjustments described above and discrete tax adjustments related to stock-based compensation and other adjustments, utilizing an adjusted effective tax rate of 28.5% for the three and nine months ended September 30, 2020 and an adjusted effective tax rate of 28.0% and 27.6% for the three and nine months ended September 30, 2019, respectively.

Three Months Ended September 30, 2020 Compared to the Three Months Ended September 30, 2019

Revenues. Consolidated revenue decreased to $239.0 million, compared to $241.7 million in the same period in the prior year, primarily due to ~~total enrollment growth of 7%, partially offset by~~ a decline in revenue per student as a result of ~~1%. The decline~~enhanced scholarships and discounts we are offering our students at both Universities. Future revenue growth at both Universities is expected to be affected negatively as a result of the COVID-19 pandemic because of potential declines in ~~revenue per student is largely attributable to a new pricing structure which was implemented~~enrollment as well as the enhanced scholarships and discounts we are offering our students. In the Strayer University segment for the first quarter of 2014 which reduced tuition for new undergraduate students by approximately 20%, and gave eligible students access to the Graduation Fund. Revenues for undergraduate students increased 11% in the three months ended September 30, ~~2017, driven by an increase~~2020, enrollment decreased 1% to 48,774 from 49,194 for the same period in ~~total undergraduate~~2019. Revenue decreased 1.2% to $128.4 million compared to $130.0 million in 2019 as a result of the decline in enrollment and lower revenue-per-student. In the Capella University segment for the three months ended September 30, 2020, enrollment grew 4% to 40,268 from 38,885 for the same period in 2019. Capella University segment revenue decreased 1.0% to $110.6 million compared to $111.8 million in the same period in the prior year as a result of ~~13%, partially offset by~~ a decline in ~~revenue per student of 2%. We expect this decline in revenue per student~~revenue-per-student.

Instructional and support costs. Consolidated instructional and support costs decreased to ~~continue at the undergraduate level as we enroll more new undergraduate students. For graduate students, revenues decreased 5% in 2017, driven by a decline in total graduate enrollment of 6%.~~

~~Instruction and educational support expenses.~~ ~~Instruction and educational support expenses increased $0.7~~$127.2 million, compared to ~~$57.0~~$132.5 million in the ~~third quarter of 2017 from $56.3 million~~same period in the ~~third quarter of 2016,~~prior year, principally due to ~~increases in bad debt expense~~efficiencies gained through our technology investments, which have also helped improve student success, and ~~nonrecurring personnel~~cost synergies realized as a result of the merger with CEC. Consolidated instructional and support costs associated with a one-time staff reduction program, offset by a noncash adjustment to reduce the value of contingent consideration related to our acquisition of NYCDA. Instruction and educational support expenses as a percentage of revenues decreased to ~~52.5%~~53.2% in the third quarter of ~~2017~~2020 from ~~55.1%~~54.8% in the third quarter of ~~2016.~~

~~Marketing~~2019.

General and administration expenses. ~~Marketing~~Consolidated general and administration expenses increased ~~$1.4 million, or 6%,~~ to ~~$26.8~~$74.1 million in the third quarter of ~~2017 from $25.4~~2020 compared to $72.3 million in the ~~third quarter of 2016,~~prior year, principally due to increased investments in branding ~~initiatives. Marketing expenses as a percentage of revenues decreased to 24.7% in 2017 from 24.9% in 2016.~~

~~Admissions advisory expenses~~. Admissions advisory expenses increased $0.6 million, or 13%, to $5.3 million in the third quarter of 2017 from $4.7 million in the third quarter of 2016 due primarily to increased personnel costs. Admissions advisoryinitiatives and partnerships with brand ambassadors. Consolidated general and administration expenses as a percentage of revenues increased to ~~4.9%~~31.0% in the third quarter of ~~2017~~2020 from ~~4.6%~~29.9% in the third quarter of ~~2016.~~

~~General and administration expenses~~2019.

Amortization of intangible assets. ~~General and administration expenses increased $0.2 million~~Amortization expense related to ~~$11.2~~intangible assets acquired in the merger with CEC was $15.4 million in the third quarter of ~~2017~~both 2020 and 2019.

Merger and integration costs. Merger and integration costs were $2.9 million in the third quarter of 2020 compared to $1.5 million for the same period in 2019 and reflect expenses for integration support services and severance costs incurred in connection with the merger with CEC as well as transaction expenses associated with the Company's acquisition of the Australia and New Zealand operations of Laureate incurred in the third quarter of 2020.

Income from operations. Consolidated income from operations decreased to $15.4 million in the third quarter of 2020 compared to $20.0 million in the third quarter of 2019, due primarily to restructuring costs incurred as a result of the Company's workforce reductions as well as higher merger and integration related costs. Strayer University segment income from operations increased 26.8% to $22.8 million in the third quarter of 2020, compared to $18.0 million in the third quarter of 2019, primarily due to expense savings related to campus closures during the pandemic, as well as lower marketing expense. Capella University segment income from operations decreased 20.9% to $15.0 million in the third quarter of 2020 compared to $18.9 million for the same period in 2019, primarily due to higher investments in branding initiatives.

Other income. Other income decreased to $0.9 million in the third quarter of 2020 compared to $3.2 million in the third quarter of 2019, as a result of lower yields on money markets and marketable securities and a decrease in investment income from our limited partnership and other investments. We expect interest income in 2020 to be negatively affected by reductions in interest rates as a result of the COVID-19 crisis.

Provision for income taxes. Income tax expense was $5.4 million in the third quarter of 2020, compared to $6.6 million in the third quarter of 2019. Our effective tax rate for the quarter was 32.9%, compared to 28.2% for the same period in 2019. The increase in the effective tax rate is primarily due to non-deductible transaction expenses incurred in the current year period.

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Net income. Net income decreased to $11.0 million in the third quarter of ~~2016, related~~2020 compared to $16.7 million in the third quarter of 2019 due to the factors discussed above.

Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

Revenues. Consolidated revenue increased to $760.2 million, compared to $733.4 million in the same period in the prior year, primarily due to enrollment growth at the Universities. In the Strayer University segment, revenue grew 5.0% to $412.1 million in the nine months ended September 30, 2020 from $392.5 million in the nine months ended September 30, 2019, primarily due to enrollment growth. In the Capella University segment, revenue increased 2.1% to $348.0 million in the nine months ended September 30, 2020, compared to $340.9 million in the nine months ended September 30, 2019, primarily due to enrollment growth.

Instructional and support costs. Consolidated instructional and support costs decreased to $385.7 million in the nine months ended September 30, 2020 from $397.3 million in the nine months ended September 30, 2019, principally due to significant savings from the impact of the pandemic, which included lower expenses associated with travel, events, facilities, and healthcare. Consolidated instructional and support costs as a percentage of revenues decreased to 50.7% in the nine months ended September 30, 2020 from 54.2% in the nine months ended September 30, 2019.

General and administration expenses. Consolidated general and administration expenses increased to $210.6 million in the nine months ended September 30, 2020 from $204.8 million in the nine months ended September 30, 2019, principally due to increased ~~personnel~~investments in branding initiatives and ~~corporate compliance costs. General~~partnerships with brand ambassadors. Consolidated general and administration expenses as a percentage of revenues decreased to ~~10.3%~~27.7% in ~~the third quarter of 2017 from 10.7% in the third quarter of 2016.~~

~~Income from operations. Income from operations increased $3.4 million, or 70%, to $8.2 million in the third quarter of 2017 from $4.8 million in the third quarter of 2016.~~

~~Investment income and interest expense~~. Investment income increased to $0.3 million in the third quarter of 2017 compared to $0.1 million in the third quarter of 2016 as a result of higher yields and an increase in our cash balances. Interest expense was $0.2 million in the third quarter of both 2017 and 2016. We have $150.0 million available under our revolving credit facility and no borrowings outstanding as of September 30, 2017.

~~Provision for income taxes~~. Income tax expense was $2.1 million in the third quarter of 2017, compared to $1.9 million in the third quarter of 2016. Our effective tax rate for the quarter was 25.6% and was favorably impacted by the reduction in the value of contingent consideration related to the NYCDA acquisition, which is not subject to income tax. We expect our effective tax rate, including the effect of tax benefits associated with the vesting of restricted stock and the impacts of the contingent consideration adjustments referenced above, to be approximately 34.0% for 2017.

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~~Net income. Net income increased $3.3 million to $6.2 million in the third quarter of 2017 from $2.9 million in the third quarter of 2016 due to the factors discussed above.~~

~~Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Enrollment. Average enrollments at the University increased 6% to 42,826 students for~~ the nine months ended September 30, ~~2017 compared~~2020 from 27.9% in the nine months ended September 30, 2019.

Amortization of intangible assets. Amortization expense related to ~~40,238 students for~~intangible assets acquired in the ~~same period in 2016.~~

~~Revenues. Revenues increased 4% to $336.1~~merger with CEC was $46.3 million in the nine months ended September 30, ~~2017 from $321.8~~2020 and 2019.

Merger and integration costs. Merger and integration costs were $7.9 million in the nine months ended September 30, ~~2016, principally due~~2020 compared to ~~total enrollment growth of 6%, partially offset by a decline~~$11.7 million in ~~revenue per student of 2%. The decline in revenue per student is largely attributable to a new pricing structure which was implemented~~ for the ~~first~~same period in 2019 and reflect expenses for integration support services and severance costs incurred in connection with the merger with CEC as well as transaction expenses associated with the Company's acquisition of the Australia and New Zealand operations of Laureate.

Restructuring costs. Restructuring costs include severance and other personnel-related expenses from voluntary and involuntary employee terminations in connection with the Company's workforce reduction efforts implemented in the third quarter of ~~2014 which reduced tuition for new undergraduate students by approximately 20%, and gave eligible students access~~2020.

Income from operations. Consolidated income from operations increased to the Graduation Fund. Revenues for undergraduate students increased 10% in the nine months ended September 30, 2017, driven by an increase in total undergraduate enrollment of 13%, partially offset by a decline in revenue per student of 3%. We expect this decline in revenue per student to continue at the undergraduate level as we enroll more new undergraduate students. For graduate students, revenues decreased 7% in 2017, driven by a decline in total graduate enrollment of 8%, partially offset by an increase in revenue per student of 1%. The increase in graduate revenue per student was due primarily to increased average tuition per class compared to 2016.

~~Instruction and educational support expenses.~~ ~~Instruction and educational support expenses increased $3.9 million, or 2%, to $180.1~~$105.8 million in the nine months ended September 30, ~~2017 from $176.2~~2020 compared to $73.3 million in the nine months ended September 30, ~~2016. The increase primarily resulted from increases in personnel costs associated with a one-time staff reduction program and increased bad debt expense, offset by adjustments~~2019, principally due to ~~reduce the value of contingent consideration related to our acquisition of NYCDA. Instruction and educational support expenses~~higher revenues as a ~~percentage~~result of ~~revenues decreased~~enrollment growth at both Universities and lower merger and integration related costs. Strayer University segment income from operations increased 43.8% to ~~53.6% in the nine months ended September 30, 2017 from 54.7% in the nine months ended September 30, 2016.~~

~~Marketing expenses. Marketing expenses increased $3.3 million, or 5%, to $64.7~~$95.2 million in the nine months ended September 30, ~~2017 from $61.4~~2020, compared to $66.2 million in the nine months ended September 30, ~~2016, principally~~2019, primarily due to higher revenues due to enrollment growth and lower expenses. Capella University segment income from operations increased ~~investments in branding initiatives. Marketing expenses as a percentage of revenues increased~~5.6% to ~~19.3% in the nine months ended September 30, 2017 from 19.1% in the nine months ended September 30, 2016.~~

~~Admissions advisory expenses. Admissions advisory expenses increased $1.6 million, or 12%, to $14.8~~$68.7 million in the nine months ended September 30, ~~2017 from $13.2~~2020, compared to $65.0 million for the same period in 2019, primarily due to higher revenues due to enrollment growth.

Other income. Other income decreased to $4.7 million in the nine months ended September 30, ~~2016, primarily due~~2020 compared to ~~increased personnel costs. Admissions advisory expenses as a percentage of revenues increased to 4.4% in the nine months ended September 30, 2017 from 4.1% in the nine months ended September 30, 2016.~~

~~General and administration expenses. General and administration expenses increased $2.8 million to $36.0~~$10.7 million in the nine months ended September 30, ~~2017~~2019, as a result of lower yields on money markets and marketable securities and a decrease in investment income from ~~$33.2~~our limited partnership and other investments. We expect interest income in 2020 to be negatively affected by reductions in interest rates as a result of the COVID-19 crisis.

Provision for income taxes. Income tax expense was $30.1 million in the nine months ended September 30, ~~2016. During the nine months ended September 30, 2016, we recorded a $2.0 million noncash benefit associated with adjustments~~2020 compared to our reserve for leases on facilities no longer in use. General and administration expenses as a percentage of revenues increased to 10.7% in the nine months ended September 30, 2017 from 10.3% in the nine months ended September 30, 2016.

~~Income from operations. Income from operations increased $2.7 million, or 7%, to $40.5~~

$31.4 million in the nine months ended September 30, ~~2017 from $37.8~~2019. Our effective tax rate for the nine months ended September 30, 2020 was 27.3% compared to 37.4% for the nine months ended September 30, 2019. The tax rate in 2019 was unfavorably impacted by changes in previously deferred compensation arrangements, resulting in a discrete charge of $11.5 million to reduce the Company's deferred tax asset related to these arrangements. The tax rate for both periods reflects favorable discrete adjustments, primarily related to tax windfalls recognized through share-based payment arrangements.

Net income. Net income increased to $80.4 million in the nine months ended September 30, ~~2016.~~

~~Investment income and interest expense.~~ ~~Investment income increased to $0.7~~2020 from $52.6 million in the nine months ended September 30, 2017 compared to $0.3 million in the nine months ended September 30, 2016, as a result of higher yields and an increase in our cash balances. Interest expense was $0.5 million in both of the nine months ended September 30, 2017 and 2016. We have $150.0 million available under our revolving credit facility and no borrowings outstanding as of September 30, 2017.

~~Provision for income taxes.~~ Income tax expense decreased to $13.7 million in the nine months ended September 30, 2017 from $14.6 million in the nine months ended September 30, 2016. This decrease reflects a tax surplus recorded in the current year associated with the vesting of certain shares of restricted stock. In addition, we recognized tax benefits resulting from the reduction in the value of contingent consideration related to the NYCDA acquisition. We expect our effective tax rate, including the effect of tax benefits associated with the vesting of restricted stock and the impacts of the contingent consideration adjustments referenced above, to be approximately 34.0% for 2017 compared to 39.3% in 2016.

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~~Net income. Net income increased $4.0 million to $27.1 million in the nine months ended September 30, 2017 from $23.1 million in the nine months ended September 30, 2016~~2019 due to the factors discussed above.

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Liquidity and Capital Resources

At September 30, ~~2017,~~2020, we had cash, ~~and~~ cash equivalents, and marketable securities of ~~$150.5~~$768.9 million compared to ~~$129.2~~$491.2 million at December 31, ~~2016~~2019 and ~~$120.5~~$457.1 million at September 30, ~~2016.~~2019. At September 30, ~~2017,~~2020, most of our cash was held in demand deposit accounts at high credit quality financial institutions.

On November 3, 2020, in connection with closing the acquisition of Laureate's Australia and New Zealand operations, we borrowed $141.8 million on our credit facility and paid approximately $662.0 million to complete the transaction.

Our net cash provided by operating activities for the nine months ended September 30, 2020 was $158.8 million, compared to $141.4 million for the same period in 2019. The increase in net cash from operating activities was largely due to the increase in net income.

Capital expenditures increased to $34.8 million for the nine months ended September 30, 2020, compared to $27.8 million for the same period in 2019, due to investments in software, technology infrastructure and facilities renovations.

We are party to a credit ~~agreement~~facility (the “Amended Credit Facility”), which provides for a ~~$150 million~~senior secured revolving credit facility ~~and~~(the “Revolver”) in an ~~option~~aggregate principal amount of up to establish incremental term loans under certain conditions. The credit agreement has a maturity date of July 2, 2020. We had no borrowings outstanding under the revolving credit facility during each of the nine months ended September 30, 2016 and 2017, and as of September 30, 2017.

$350 million. Borrowings under the ~~revolving credit facility~~Amended Credit Facility bear interest at LIBOR or a base rate, plus a margin ranging from ~~1.75%~~1.50% to ~~2.25%~~2.00%, depending on our leverage ratio. An unused commitment fee ranging from ~~0.25%~~0.20% to ~~0.35%~~0.30%, depending on our leverage ratio, accrues on unused ~~amounts under the revolving credit facility.~~amounts. During ~~each of~~ the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, we paid unused commitment fees of ~~$0.3~~$0.4 million. The Amended Credit Facility provides the Company with an option, under certain conditions, to increase the commitments under the Revolver or establish one or more incremental term loans (each, an “Incremental Facility”) in an amount up to the sum of (x) $150 million and (y) if such Incremental Facility is incurred in connection with a permitted acquisition, any amount so long as the Company’s leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75:1.00. We were in compliance with all applicable covenants related to the ~~credit agreement~~Amended Credit Facility as of September 30, ~~2017.~~

~~Our net cash from operating activities for~~2020. We had no borrowings outstanding during each of the nine months ended September 30, 2017 increased to $44.4 million, as compared to $30.1 million for the same period in 2016. The increase in net cash from operating activities was largely due to the payment of retention agreements in connection with the NYCDA acquisition in January 2016, cash provided by changes in working capital,2020 and ~~the timing of income tax payments in 2017 compared to 2016.~~

~~Capital expenditures were $14.6 million for the nine months ended~~ September 30, ~~2017, compared to $7.5~~2019.

In August 2020, we completed a public offering of 2,185,000 shares of our common stock for total cash proceeds of $220.2 million, ~~for the same period in 2016.~~

net of underwriting discounts and offering costs of $9.2 million.

The Board of Directors declared ~~an annual~~a regular, quarterly cash dividend of ~~$1.00~~$0.60 per share of common ~~share, payable quarterly.~~stock for each of the first three quarters of 2020. During the nine months ended September 30, ~~2017,~~2020, we ~~have~~ paid a total of ~~$8.6~~$41.3 million in cash dividends on our common stock. ~~For~~During the nine months ended September 30, ~~2017,~~2020, we ~~did not~~invested approximately $0.2 million to repurchase ~~any~~common shares in the open market under our repurchase program. As of ~~common stock and, at~~ September 30, ~~2017,~~2020, we had ~~$70~~$249.8 million inof share repurchase authorization remaining to use through December 31, ~~2017.~~

2020.

For the third quarter of ~~2017,~~2020 and 2019, bad debt expense as a percentage of revenue was ~~4.9% compared to 3.8% for the third quarter of 2016.~~

4.7% and 5.0%, respectively.

We believe that existing cash and cash equivalents, cash generated from operating activities, and if necessary, cash borrowed under our ~~revolving credit facility,~~Amended Credit Facility will be sufficient to meet our requirements for at least the next 12 months. Currently, we maintain our cash primarily in ~~mostly~~ demand deposit bank accounts and money market funds, which isare included in cash and cash equivalents at September 30, ~~2017~~2020 and ~~2016.~~2019. We also hold marketable securities, which primarily include tax-exempt municipal securities and corporate debt securities. During the nine months ended September 30, ~~2017~~2020 and ~~2016,~~2019, we earned interest income of ~~$0.7~~$3.6 million and ~~$0.3~~$8.0 million, respectively.

~~The table below sets forth our contractual commitments associated with operating leases, excluding subleases as of September 30, 2017 (in thousands):~~

Payments Due By Period




Less than 1

1-3

3-5

More than

Total

Year

Years

Years

5 Years

Operating leases

$
119,061

$
31,782

$
49,750

$
26,384

$
11,145

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ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to the impact of interest rate changes and may be subject to changes in the market values of our future investments. We invest our excess cash in bank overnight deposits, money market funds, and marketable securities. We have not used derivative financial instruments in our investment portfolio. Earnings from investments in bank overnight deposits, money market mutual funds, and marketable securities may be adversely affected in the future should interest rates decline, although such a decline may reduce the interest rate payable on any borrowings under our revolving credit facility. Our future investment income may fall short of expectations due to changes in interest rates, or we may suffer losses in principal if forced to sell securities that have declined in market value due to changes in interest rates. As of September 30, ~~2017,~~2020, a 1% increase or decrease in interest rates would not have a material impact on our future earnings, fair values, or cash flows related to investments in cash equivalents or interest earning marketable securities.

~~Changing interest rates could also have a negative impact on~~

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On August 1, 2018, the ~~amount of interest expense we incur. On July 2, 2015, we used approximately $116 million of our existing cash and cash equivalents to prepay our term loan and terminate~~Company entered into an ~~interest rate swap as part of an amendment to our~~amended credit ~~and term loan agreement. The credit agreement~~facility (the “Amended Credit Facility”), which provides for a ~~$150 million~~senior secured revolving credit facility ~~and~~(the “Revolver”) in an aggregate principal amount of up to $250 million. The Amended Credit Facility provides the Company with an option (the "Accordion Option"), under certain conditions, to increase the commitments under the Revolver or establish one or more incremental term loans ~~under certain conditions.~~(each, an “Incremental Facility”) in an amount up to the sum of (x) $150 million and (y) if such Incremental Facility is incurred in connection with a permitted acquisition, any amount so long as the Company’s leverage ratio (calculated on a trailing four-quarter basis) on a pro forma basis will be no greater than 1.75:1.00. The ~~credit agreement has a~~ maturity date of ~~July 2, 2020.~~ the Amended Credit Facility is August 1, 2023.

On August 10, 2020, in anticipation of the closing of the acquisition of Laureate's Australia and New Zealand operations, the Company exercised the Accordion Option by entering into a supplement agreement with certain lenders under the Amended Credit Facility, which increased the total commitment under the Revolving Credit Facility from $250 million to $350 million.

We had no borrowings outstanding under the ~~revolving credit facility after prepayment of the term loan facility, and~~Amended Credit Facility as of September 30, ~~2017.~~2020. Borrowings under the ~~revolving credit facility~~Amended Credit Facility bear interest at LIBOR or a base rate, plus a margin ranging from ~~1.75%~~1.50% to ~~2.25%~~2.00%, depending on our leverage ratio. An unused commitment fee ranging from ~~0.25%~~0.20% to ~~0.35%~~0.30%, depending on our leverage ratio, accrues on unused amounts under the ~~revolving credit facility.~~Amended Credit Facility. An increase in LIBOR would affect interest expense on any outstanding balance of the revolving credit facility. For every 100 basis points increase in LIBOR, we would incur an incremental ~~$1.5~~$3.5 million in interest expense per year assuming the entire ~~$150~~$350 million revolving credit facility was utilized.

ITEM 4: CONTROLS AND PROCEDURES

~~Disclosure Controls and Procedures.~~ The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2017. Based upon such review, the Chief Executive Officer and Chief Financial Officer have concluded that the Company had in place, as of September 30, 2017, effective disclosure controls and procedures designed to ensure that information required to be disclosed by the Company (including consolidated subsidiaries) in the reports it files or submits under the Securities Exchange Act of 1934, as amended, and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in reports it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

~~Internal Control Over Financial Reporting~~. There have not been any changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2017 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

a)Disclosure Controls and Procedures. The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2020. Based upon such review, the Chief Executive Officer and Chief Financial Officer have concluded that the Company had in place, as of September 30, 2020, effective disclosure controls and procedures designed to ensure that information required to be disclosed by the Company (including consolidated subsidiaries) in the reports it files or submits under the Securities Exchange Act of 1934, as amended, and the rules thereunder, is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in reports it files or submits under the Securities Exchange Act is accumulated and communicated to the Company’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

b)Internal Control Over Financial Reporting. There have not been any changes in the Company’s internal control over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II — OTHER INFORMATION

Item 1. Legal Proceedings

~~From time to time, we~~

We are involved in litigation and other legal proceedings arising out of the ordinary course of our business. ~~There~~From time to time, certain matters may arise that are ~~no pending~~other than ordinary and routine. The outcome of such matters is uncertain, and we may incur costs in the future to defend, settle, or otherwise resolve them. We currently believe that the ultimate outcome of such matters will not, individually or in the aggregate, have a material ~~legal proceedings to which we~~adverse effect on our consolidated financial position, results of operations or ~~our property are subject.~~

cash flows. However, depending on the amount and timing, an unfavorable resolution of some or all of these matters could materially affect future results of operations in a particular period.

Item 1A. Risk Factors

You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017, which could materially affect our business, adversely affect the market price of our common stock and could cause you to suffer a partial or complete loss of your investment.

There have been no material changes to the risk factors previously described in Part I, “Item 1A. Risk Factors” included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, other than the additional and revised risk factors included below.

You should carefully consider the factors discussed below and in Part I, “Item 1A. Risk Factors” in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017, except that we have updated two of the risk factors to reflect recent developments occurring after the filing of our QuarterlyAnnual Report on Form ~~10-Q~~10-K for the ~~quarter~~year ended ~~June 30, 2017.~~December 31, 2019, which could materially affect our business, adversely affect the market price of our common stock and could cause you to suffer a partial or complete loss of your investment. The risks described in our Annual Report on Form 10-K ~~as updated by our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017,~~ and this Quarterly Report on Form 10-Q, are not the only risks facing the Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also could materially adversely affect our business. See “Cautionary Notice Regarding Forward-Looking Statements.”

The ~~following risk factors update~~current COVID-19 pandemic and ~~supersede~~other possible future public health emergencies may adversely affect our business, our future results of operations, and our overall financial performance.

The ongoing COVID-19 global and national pandemic has caused significant volatility and disruption to the ~~risk factors~~international and United States economies. Like many other companies, to comply with government mandates and to protect the ~~same captions~~safety and wellbeing of our students/learners, faculty and staff, and the communities in ~~our Annual Report on Form 10-K~~which we live, we have instituted a remote work policy for the ~~year ended December 31, 2016, as updated by~~vast majority of our ~~Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017~~workforce, closed most physical campus locations, and ~~June 30, 2017.~~

~~We are subject~~moved our on-ground courses at Strayer University, which comprised less than 5% of total seat count, to ~~compliance reviews, which, if they resulted in a material finding of noncompliance, could~~online-only instruction. The transition to remote working involves many operational challenges and may adversely affect our ability to satisfy student needs. Remote working may increase the chance of successful cyber-attacks, including email phishing schemes targeting employees to give up their credentials. Preparing our offices in anticipation of a portion of our workforce returning to physical office locations also presents operational challenges as on-site staff adjust to new equipment, new protocols, and hybrid combinations of on-site and remote work.

The extent to which the COVID-19 pandemic and future public health emergencies will affect our business, operations and financial results is uncertain and will depend on numerous evolving factors that remain uncertain and are impossible to predict, including: the duration and scope of the pandemic; the impact on economic activity from the pandemic and actions taken in response, including those of governmental entities; the impact of the pandemic and the government response thereto on our employees, students, and business partners, including any suspensions or terminations of employer tuition reimbursement programs; our ability to operate and provide our services with employees working remotely and/or closures of our campus locations; potential exposure to claims for liability arising out of employees or students who may contract the virus; and the ability of our students/learners to continue their education notwithstanding the pandemic.

COVID-19 related regulatory and legislative changes may contain ambiguous provisions that could result in penalties in case of institutional noncompliance.

The CARES Act and subsequent guidance from the Department of Education create several changes with regard to the administration of federal financial assistance programs. These changes include several ambiguities that make compliance difficult. In case of noncompliance, the Universities may face administrative sanctions, including penalties, Title IV program participation restrictions, debarment, and liabilities under applicable law, such as the False Claims Act, any of which could have a material adverse effect on our business.

We are unable to predict whether Congress or the Department of Education plan to implement further changes related to federal financial assistance programs as a result of the COVID-19 pandemic.

Student loan defaults could result in the loss of eligibility to participate in Title IV programs.

~~Because we operate~~

In general, under the Higher Education Act, an educational institution may lose its eligibility to participate in some or all Title IV programs if, for three consecutive federal fiscal years, 30% or more of its students who were required to begin repaying their

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student loans in the relevant federal fiscal year default on their payment by the end of the second federal fiscal year following that fiscal year. Institutions with a ~~highly regulated industry, we~~cohort default rate equal to or greater than 15% for any of the three most recent fiscal years for which data are available are subject to compliance reviews and claims of noncompliance and related lawsuits by government agencies, accrediting agencies and third parties, including claims brought by third parties on behalf of the federal government. For example, the Department of Education regularly conducts program reviews of educational institutions that are participatinga 30-day delayed disbursement period for first-year, first-time borrowers. In addition, an institution may lose its eligibility to participate in some or all Title IV programs if its default rate for a federal fiscal year was greater than 40%.

The global spread of COVID-19 has created significant economic uncertainty and disrupted large portions of the economy. The pandemic and the ~~Office~~preventative measures taken to contain the pandemic have caused a substantial increase in unemployment and could cause a global recession, which could result in an increase in the number of ~~Inspector General of the Department of Education regularly conducts audits and investigations of such institutions. The Department of Education could limit, suspend, or terminate~~borrowers defaulting on their student loans, including among our participation in Title IV programs, place us on a more restrictive, slower payment method for receipt of Title IV program funds, or impose other penalties such as requiring us to make refunds, pay liabilities, or pay an administrative fine upon a material finding of noncompliance.

The Department of Education conducted four campus-based program reviews of Strayer University’s administration of Title IV programs in three states and the District of Columbia, with one on-site review conducted August 18-20, 2014; one on-site review conducted September 8-11, 2014; and two on-site reviews conducted September 22-26, 2014. On October 21, 2014, the Department of Education issued an Expedited Final Program Review Determination Letter for one of the program reviews conducted the week of September 22, 2014, closing the program review with no further action required by us. On November 17, 2014, we received a Program Review Report for the program review conducted in August 2014, and provided a response to the Department of Education on December 15, 2014. On January 7, 2015, we received a Final Program Review Determination letter from that August 2014 review, closing the program review with no further action required by us. On March 24, 2015, the Company received a Program Review Report for another program review, and provided a response to the Department on April 21, 2015. On April 29, 2015, the Company received a Final Program Review Determination Letter closing the review and identifying a payment of less than $500 due to the Department of Education based on an underpayment on a return to Title IV calculation. The Company remitted payment, and received a letter from the Department on May 26, 2015, indicating that no further action was required and that the matter was closed. On September 15, 2015, the Company received a Program Review Report for the final program review, and provided a response to the Department on October 5, 2015. On January 5, 2016, the Company received a Final Program Review Determination Letter for the final program review, indicating that this program review was closed and no further action was required.

graduates.

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If we ~~fail to obtain recertification by the Department of Education when required, we would~~ lose ~~our ability to participate in Title IV programs.~~

An institution generally must seek recertification from the Department of Education at least every six years and possibly more frequently depending on various factors, such as whether it is provisionally certified. The Department of Education may also review an institution’s continued eligibility ~~and certification~~ to participate in Title IV programs ~~or scope~~because of ~~eligibility and certification, in~~high student loan default rates, the event the institution undergoes a change in ownership resulting in a change of control or expands its activities in certain ways, such as the addition of certain types of new programs, or, in certain cases, changes to the academic credentials that it offers. In certain circumstances, the Department of Education must provisionally certify an institution. The Department of Education may withdraw our certification if it determines that we are not fulfilling material requirements for continued participation in Title IV programs. If the Department of Education does not renew, or withdraws our certification to participate in Title IV programs, our students would no longer be able to receive Title IV program funds, whichloss would have a material adverse effect on our business.

~~Each~~ Strayer University’s three-year cohort default rates for federal fiscal years 2015, 2016 and 2017, were 10.6%, 10.4%, and 11.3%, respectively. Capella University’s three-year cohort default rates for federal fiscal years 2015, 2016, and 2017 were 6.5%, 6.8%, and 6.5%, respectively. The average official cohort default rates for proprietary institutions nationally were 15.6%, 15.2%, and 14.7% for federal fiscal years 2015, 2016, and 2017, respectively.

We may not realize all of the anticipated benefits of our acquisition of the Australia and New Zealand operations of Laureate Education, Inc. (“Laureate”).

On November 3, 2020, we acquired Laureate’s Australia and New Zealand operations, including Torrens University Australia, Think Education, and Media Design School. We may not realize all of the anticipated benefits from the acquisition, such as the opportunity to grow the acquired businesses, meaningfully diversify our offerings and revenue outside of the United States, and the benefits of potential cost savings and revenue enhancements with the acquired businesses. Integrating the acquired business may be a complex, costly, and time-consuming process. SEI does not have prior experience operating a higher education institution ~~participating~~outside the United States. The difficulties of integrating the acquired business include, among others:

•the diversion of management attention to integration matters;

•difficulties in integrating functions, personnel, and systems;

•challenges in conforming standards, controls, procedures and accounting, and other policies, business cultures, and compensation structures;

•difficulties in assimilating employees and in attracting and retaining key personnel;

•challenges in keeping existing students and enrolling new students;

•difficulties in maintaining consistency in educational programs across platforms;

•challenges related to maintaining accreditations with foreign accreditors;

•difficulties in achieving anticipated cost savings, synergies, business opportunities, and growth prospects;

•difficulties in managing businesses outside of the United States; and

•potential unknown liabilities, adverse consequences, and unforeseen increased expenses associated with the acquisition.

Many of these factors are outside of our control, and any one of them could result in increased costs, decreased expected revenues and diversion of management time and energy, which could materially adversely affect our business, financial condition and results of operations.

Government examination of for-profit post-secondary education could lead to legislation or other governmental action that may negatively affect the industry.

Since 2010, Congress has increased its focus on for-profit higher education institutions, including regarding participation in Title IV programs ~~must enter into a Program Participation Agreement with~~and oversight by the Department of ~~Education. Under the agreement, the institution agrees to follow~~Defense of tuition assistance and by the Department of ~~Education’s rules~~Veterans Affairs (“VA”) of veterans education benefits for military service members and ~~regulations governing Title IV programs. On October 13, 2017,~~veterans, respectively, attending for-profit colleges. The Senate Committee on Health, Education, Labor and Pensions and other congressional committees have held hearings into, among other things, the ~~Department informed the University that it was approved to participate~~proprietary education sector and its participation in Title IV programs, the standards and procedures of accrediting agencies, credit hours and program length, the portion of federal student financial aid going to proprietary institutions, and the receipt of military tuition assistance and veterans education benefits by students enrolled at proprietary institutions. Strayer University and Capella University have cooperated with ~~full certification through June 30, 2021.~~

these inquiries. A number of legislators have variously requested the Government Accountability Office to review and make recommendations regarding, among other things, recruitment practices,

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educational quality, student outcomes, the sufficiency of integrity safeguards against waste, fraud, and abuse in Title IV programs, and the percentage of proprietary institutions’ revenue coming from Title IV and other federal funding sources. During the prior Administration, the Department of Education indicated to Congress that it intended to increase its regulation of and attention to proprietary educational institutions, and the Government Accountability Office released several reports of investigations into proprietary educational institutions. The current Congress or Administration or a future Congress or Administrations may enact new legislation, propose new regulation, and increase oversight of proprietary educational institutions, including the Universities, which may have a negative impact on our stock price or our ability to operate our business.

This oversight activity may result in legislation, further rulemaking affecting participation in Title IV programs, and other governmental actions. In addition, concerns generated by congressional or Administration activity may adversely affect enrollment in, and revenues of, for-profit educational institutions. Limitations on the amount of federal student financial aid for which our students are eligible under Title IV could materially and adversely affect our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the three months ended September 30, ~~2017,~~2020, we did not repurchase any shares of common stock under our repurchase program. The remaining authorization for ~~our~~ common stock repurchases was ~~$70.0~~$249.8 million as of September 30, ~~2017,~~2020, and is available for use through December 31, ~~2017.~~

2020.

Item 3. Defaults Upon Senior Securities

None

Item 4.Mine Safety Disclosures

Not applicable

Item 5. Other Information

~~None~~

On November 3, 2020, upon the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors of the Company unanimously voted to elect Jerry L. Johnson to serve as a Director of the Company and as a member of the Audit Committee. Mr. Johnson’s service on the Board of Directors of the Company will begin on January 4, 2021. Mr. Johnson is Senior Vice President of Strategy, Corporate Development and Investor Relations at EnPro Industries, a diversified manufacturer of proprietary engineered products used in critical applications across diverse end markets. Mr. Johnson is a founding member and previously served as a Partner at RLJ Equity Partners since 2007. His career also includes service as a White House Fellow, and as a management consultant at McKinsey & Company. Mr. Johnson graduated from the University of Tennessee with a bachelor’s degree in chemical engineering, holds an MBA from Harvard Business School, and serves on The Council of Foreign Relations. Mr. Johnson will receive compensation for his service on the Board of Directors in accordance with the Company’s standard compensation arrangements for non-employee directors, a description of which can be found under the caption “Director Compensation” in the Company’s definitive proxy statement filed with the Securities and Exchange Commission on March 16, 2020.


Maryland		52-1975978
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

2303 Dulles Station Boulevard ~~Herndon, VA~~		~~20171~~
Herndon,	VA	20171
(Address of principal executive offices)		(Zip Code)



PART I — FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Unaudited Condensed Consolidated Balance Sheets at December 31, ~~2016~~2019 and September 30, ~~2017~~2020	3 3

		Unaudited Condensed Consolidated Statements of Income for the three and nine months ended September 30, ~~2016~~2019 and ~~2017~~2020	4 4

		Unaudited Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2019 and 2020	4

		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, ~~2016~~2019 and ~~2017~~2020	5 5

		Unaudited Condensed Consolidated Statements of Cash Flows for the three and nine months ended September 30, ~~2016~~2019 and ~~2017~~2020	7 6

		Notes to Unaudited Condensed Consolidated Financial Statements	8 7

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25 22

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	34 29

	Item 4.	Controls and Procedures	35 29

PART II — OTHER INFORMATION

	Item 1.	Legal Proceedings	36 30

	Item 1A.	Risk Factors	36 30

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38 31

	Item 3.	Defaults Upon Senior Securities	38 31

	Item 4.	Mine Safety Disclosures	38 31

	Item 5.	Other Information	38 31

	Item 6.	Exhibits	39 32

SIGNATURES			40 33

~~CERTIFICATIONS~~



	December 31, 2016		September 30, 2017			December 31, 2019		September 30, 2020
ASSETS					ASSETS
Current assets:					Current assets:
Cash and cash equivalents	$	129,245	$	150,483	Cash and cash equivalents	$	419,693	$	717,804
Marketable securities					Marketable securities	34,874		20,457
Tuition receivable, net		20,532		20,626	Tuition receivable, net	51,523		45,958
Income taxes receivable		—		2,734
Other current assets		10,766		12,917	Other current assets	18,004		22,156
Total current assets		160,543		186,760	Total current assets	524,094		806,375
Property and equipment, net		73,124		74,335	Property and equipment, net	117,029		115,607
Deferred income taxes		31,096		34,609
Right-of-use lease assets					Right-of-use lease assets	84,778		80,719
Marketable securities, non-current					Marketable securities, non-current	36,633		30,663
Intangible assets, net					Intangible assets, net	273,011		231,511
Goodwill		20,744		20,744	Goodwill	732,075		732,075
Other assets		13,189		12,127	Other assets	21,788		50,369
Total assets	$	298,696	$	328,575	Total assets	$	1,789,408	$	2,047,319

LIABILITIES & STOCKHOLDERS’ EQUITY					LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:					Current liabilities:
Accounts payable and accrued expenses	$	41,132	$	50,514	Accounts payable and accrued expenses	$	90,828	$	115,829
Income taxes payable		1,883		—	Income taxes payable	1,352		12,093
Deferred revenue		16,691		21,784
Other current liabilities		133		—
Contract liabilities					Contract liabilities	39,284		42,633
Lease liabilities					Lease liabilities	25,284		24,740
Total current liabilities		59,839		72,298	Total current liabilities	156,748		195,295
Deferred income tax liabilities					Deferred income tax liabilities	47,942		34,012
Lease liabilities, non-current					Lease liabilities, non-current	80,557		76,802
Other long-term liabilities		50,483		40,788	Other long-term liabilities	41,451		36,152
Total liabilities		110,322		113,086	Total liabilities	326,698		342,261

Commitments and contingencies					Commitments and contingencies
Stockholders’ equity:					Stockholders’ equity:
Common stock, par value $0.01; 20,000,000 shares authorized; 11,093,489 and 11,167,425 shares issued and outstanding at December 31, 2016 and September 30, 2017, respectively		111		112
Common stock, par value $0.01; 32,000,000 shares authorized; 21,964,809 and 24,403,364 shares issued and outstanding at December 31, 2019 and September 30, 2020, respectively					Common stock, par value $0.01; 32,000,000 shares authorized; 21,964,809 and 24,403,364 shares issued and outstanding at December 31, 2019 and September 30, 2020, respectively	220		244
Additional paid-in capital		35,453		44,021	Additional paid-in capital	1,309,438		1,515,662
Accumulated other comprehensive income					Accumulated other comprehensive income	233		760
Retained earnings		152,810		171,356	Retained earnings	152,819		188,392
Total stockholders’ equity		188,374		215,489	Total stockholders’ equity	1,462,710		1,705,058
Total liabilities and stockholders’ equity	$	298,696	$	328,575	Total liabilities and stockholders’ equity	$	1,789,408	$	2,047,319


	For the Nine Months Ended
	September 30,
	2016		2017
Cash flows from operating activities:
Net income	$	23,084	$	27,107
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of gain on sale of assets		(211)		(133)
Amortization of deferred rent		(919)		(1,351)
Amortization of deferred financing costs		197		197
Depreciation and amortization		13,276		13,718
Deferred income taxes		(5,543)		(3,728)
Stock-based compensation		7,330		8,569
Changes in assets and liabilities:
Tuition receivable, net		425		(454)
Other current assets		(3,895)		(2,151)
Other assets		(2,264)		1,200
Accounts payable and accrued expenses		2,825		9,711
Income taxes payable and income taxes receivable		(4,854)		(4,401)
Deferred revenue		5,940		5,386
Other long-term liabilities		(5,284)		(9,298)
Net cash provided by operating activities		30,107		44,372

Cash flows from investing activities:
Purchases of property and equipment		(7,501)		(14,573)
Cash used in acquisition, net of cash acquired		(7,635)		—
Net cash used in investing activities		(15,136)		(14,573)

Cash flows from financing activities:
Payments of contingent consideration		(1,358)		—
Common dividends paid		—		(8,561)
Net cash used in financing activities		(1,358)		(8,561)
Net increase in cash and cash equivalents		13,613		21,238
Cash and cash equivalents — beginning of period		106,889		129,245
Cash and cash equivalents — end of period	$	120,502	$	150,483
Noncash transactions:
Purchases of property and equipment included in accounts payable	$	112	$	749


	For the nine months ended September 30,
	2019		2020
Cash flows from operating activities:
Net income	$	52,601	$	80,351
Adjustments to reconcile net income to net cash provided by operating activities:


Amortization of deferred financing costs	250		250
Amortization of investment discount/premium	286		108
Depreciation and amortization	78,862		78,189
Deferred income taxes	971		(12,867)
Stock-based compensation	9,075		10,759
Impairment of right-of-use lease assets	0		453
Changes in assets and liabilities:
Tuition receivable, net	2,258		(1,224)
Other assets	(1,648)		(8,684)
Accounts payable and accrued expenses	(2,022)		681
Income taxes payable	(7,125)		10,674
Contract liabilities	10,311		4,540
Other long-term liabilities	(2,412)		(4,444)
Net cash provided by operating activities	141,407		158,786

Cash flows from investing activities:
Purchases of property and equipment	(27,769)		(34,787)
Purchases of marketable securities	(17,769)		(1,863)
Proceeds from marketable securities	32,860		22,868
Other investments	(878)		(768)
Net cash used in investing activities	(13,556)		(14,550)

Cash flows from financing activities:
Net proceeds from issuance of common stock	0		220,248
Common dividends paid	(33,297)		(41,305)
Net payments for stock awards	(9,195)		(24,778)
Repurchase of common stock	0		(247)
Net cash provided by (used in) financing activities	(42,492)		153,918
Net increase in cash, cash equivalents, and restricted cash	85,359		298,154
Cash, cash equivalents, and restricted cash — beginning of period	312,237		420,497
Cash, cash equivalents, and restricted cash — end of period	$	397,596	$	718,651
Noncash transactions:
Non-cash additions to property and equipment	$	3,977	$	2,496
Right-of-use lease assets obtained in exchange for operating lease liabilities	$	4,082	$	12,427



				Additional
	Common Stock			Paid-in		Retained
	Shares	Par Value		Capital		Earnings		Total
Balance at December 31, 2015	11,027,177	$	110	$	24,738	$	118,008	$	142,856
Tax shortfall associated with stock-based compensation arrangements	—		—		(51)		—		(51)
Restricted stock grants, net of forfeitures	66,781		1		(1)		—		—
Stock-based compensation	—		—		7,330		—		7,330
Net income	—		—		—		23,084		23,084
Balance at September 30, 2016	11,093,958	$	111	$	32,016	$	141,092	$	173,219


				Additional
	Common Stock			Paid-in		Retained
	Shares	Par Value		Capital		Earnings		Total
Balance at December 31, 2016	11,093,489	$	111	$	35,453	$	152,810	$	188,374
Restricted stock grants, net of forfeitures	73,936		1		(1)		—		—
Stock-based compensation	—		—		8,569		—		8,569
Common stock dividends	—		—		—		(8,561)		(8,561)
Net income	—		—		—		27,107		27,107
Balance at September 30, 2017	11,167,425	$	112	$	44,021	$	171,356	$	215,489


	For the nine months ended September 30, 2019
	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total
	Shares	Par Value
Balance at December 31, 2018	21,743,498	$	217	$	1,306,653	$	118,322	$	32	$	1,425,224
Stock-based compensation	—	—		8,947		83		—		9,030
Exercise of stock options, net	103,364	2		(1,774)		—		—		(1,772)
Issuance of restricted stock, net	117,643	1		(7,473)		—		—		(7,472)
Common stock dividends ($1.50 per share)	—	—		—		(33,367)		—		(33,367)
Unrealized gains on marketable securities, net of tax	—	—		—		—		415		415
Net income	—	—		—		52,601		—		52,601
Balance at September 30, 2019	21,964,505	$	220	$	1,306,353	$	137,639	$	447	$	1,444,659


	As of January 1, 2020
	As Reported Under ASC 326		Pre-ASC 326 Adoption		Impact of ASC 326 Adoption
Tuition receivable, net	$	46,952	$	51,523	$	(4,571)
Deferred income tax liabilities	$	46,681	$	47,942	$	(1,261)
Retained earnings	$	149,509	$	152,819	$	(3,310)


	As of September 30,
	2019		2020
Cash and cash equivalents	$	397,094	$	717,804
Restricted cash included in other current assets	2		347
Restricted cash included in other assets	500		500
Total cash, cash equivalents, and restricted cash shown in the statement of cash flows	$	397,596	$	718,651


		~~Purchase~~
		~~Price~~
		~~Allocation~~	~~Useful Life~~
~~Cash~~	$	~~790~~
~~Other assets~~		~~1,265~~
~~Intangibles:~~
~~Trade name~~		~~5,660~~	~~Indefinite~~
~~Goodwill~~		~~13,944~~
~~Liabilities assumed~~		~~(4,734)~~
~~Total assets acquired and liabilities assumed, net~~		~~16,925~~
~~Less: contingent consideration~~		~~(14,500)~~
~~Less: cash acquired~~		~~(790)~~
~~Cash paid for acquisition, net of cash acquired~~	$	~~1,635~~


			Severance and Other Employee Separation Costs
	Lease and Related Costs, Net		CEC Integration Plan		2020 Restructuring Plan		Total
Balance at December 31, 2018	$	6,540	$	14,347	$	0	$	20,887
Restructuring and other charges(1)	0		2,334		0		2,334
Payments	0		(7,841)		0		(7,841)
Adjustments(2)	(6,540)		0		0		(6,540)
Balance at September 30, 2019	$	0	$	8,840	$	0	$	8,840

Balance at December 31, 2019(3)	$	0	$	8,283	$	0	$	8,283
Restructuring and other charges(1)	0		0		4,024		4,024
Payments	0		(5,401)		(34)		(5,435)
Adjustments	0		0		0		0
Balance at September 30, 2020(3)	$	0	$	2,882	$	3,990	$	6,872


	Amortized Cost		Gross Unrealized Gain		Gross Unrealized (Losses)		Estimated Fair Value
Corporate debt securities	$	22,865	$	485	$	0	$	23,350
Tax-exempt municipal securities	21,907		275		(12)		22,170
Variable rate demand notes	5,600		0		0		5,600

Total	$	50,372	$	760	$	(12)	$	51,120


	December 31, 2019		September 30, 2020
Due within one year	$	34,874	$	20,457
Due after one year through five years	36,633		30,663
Total	$	71,507	$	51,120


			Fair Value Measurements at Reporting Date Using
			Quoted Prices in		Significant
			Active Markets		Other		Significant
			for Identical		Observable		Unobservable
	September 30,		Assets/Liabilities		Inputs		Inputs					Fair Value Measurements at Reporting Date Using
	2017		(Level 1)		(Level 2)		(Level 3)			September 30, 2020		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:									Assets:
Money market funds	$	15,199	$	15,199	$	—	$	—	Money market funds	$	10,097	$	10,097	$	0	$	0
Marketable securities:									Marketable securities:
Corporate debt securities									Corporate debt securities	23,350		0		23,350		0
Tax-exempt municipal securities									Tax-exempt municipal securities	22,170		0		22,170		0
Variable rate demand notes									Variable rate demand notes	5,600		0		5,600		0
Total assets at fair value on a recurring basis									Total assets at fair value on a recurring basis	$	61,217	$	10,097	$	51,120	$	0

Liabilities:									Liabilities:
Deferred payments	$	4,424	$	—	$	—	$	4,424	Deferred payments	$	2,003	$	0	$	0	$	2,003


						As of September 30,
	September 30, 2016		September 30, 2017			2019		2020
Balance at beginning of period	$	3,278	$	11,741
Balance as of the beginning of period					Balance as of the beginning of period	$	4,120	$	3,257
Amounts paid		(7,358)		(1,133)	Amounts paid	(1,579)		(1,628)
Contingent consideration in connection with NYCDA acquisition		14,500		—
Other adjustments to fair value		1,920		(6,184)	Other adjustments to fair value	1,017		374
Balance at end of period	$	12,340	$	4,424	Balance at end of period	$	3,558	$	2,003


	December 31, 2019		September 30, 2020
Prepaid expenses, net of current portion	$	191	$	26,118
Equity method investments	15,795		16,734
Other investments	2,123		2,527
Other	3,679		4,990
Other assets	$	21,788	$	50,369


	Number of shares or units	Weighted- average Grant price
Balance, December 31, 2016	727,100	$	97.53
Grants	75,140		82.18
Vested shares	(84,718)		66.60
Forfeitures	(1,204)		62.28
Balance, September 30, 2017	716,318	$	99.64


				Weighted-
				average
		Weighted-		remaining	Aggregate
	Number of	average		contractual	intrinsic value(1)
	shares	exercise price		life (years)	(in thousands)
Balance, December 31, 2016	100,000	$	51.95	4.1	$	2,868
Grants	—		—
Exercises	—		—
Forfeitures/Expirations	—		—
Balance, September 30, 2017	100,000	$	51.95	3.3	$	3,532
Exercisable, September 30, 2017	100,000	$	51.95	3.3	$	3,532


	December 31, 2016		September 30, 2017
Deferred revenue, net of current portion	$	17,981	$	18,274
Deferred rent and other facility costs		8,251		7,406
Loss on facilities not in use		7,813		6,227
Deferred payments related to acquisitions		13,754		5,979
Lease incentives		2,684		2,902
Other long-term liabilities	$	50,483	$	40,788


	Payments Due By Period
			Less than 1		1-3		3-5		More than
	Total		Year		Years		Years		5 Years
Operating leases	$	119,061	$	31,782	$	49,750	$	26,384	$	11,145


2.1
~~3.1~~	~~Amended Articles of Incorporation~~Sale and ~~Articles Supplementary of~~Purchase Agreement, dated July 29, 2020, between the Company, SEI Newco Inc., LEI AMEA INVESTMENTS B.V. and Laureate Education, Inc. (incorporated by reference to Exhibit ~~3.01~~2.1 of the Company’s ~~Annual~~Current Report on Form ~~10-K (File No. 000-21039)~~8-K/A filed with the Commission on ~~March 28, 2002)~~August 5, 2020).
~~3.2~~ 3.1		Amended and Restated ~~Bylaws~~Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed with the Commission on ~~November 4, 2010)~~August 1, 2018).
~~3.3~~ 3.2		~~First Amendment to the~~ Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit ~~3.1~~3.2 of the Company’s Current Report on Form 8-K filed with the Commission on ~~April 17, 2017)~~August 1, 2018).
~~31.1~~ 10.1		Supplement Agreement, dated August 10, 2020, among the Company, certain of its subsidiaries party thereto as subsidiary loan parties, Truist Bank, as administrative agent, and Truist Bank and Bank of America, N.A., as lenders (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed with the Commission on August 10, 2020).
10.2		Third Amendment to Second Amended and Restated Revolving Credit and Term Loan Agreement and Amendment to Other Loan Documents, dated November 3, 2020, among Strategic Education Inc., certain subsidiaries of Strategic Education Inc. party thereto as subsidiary guarantors, Truist Bank, as Administrative Agent, and the other lenders party thereto.
31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.		INS Inline XBRL Instance Document
101.		SCH Inline XBRL Schema Document
101.		CAL Inline XBRL Calculation Linkbase Document
101.		DEF Inline XBRL Definition Linkbase Document
101.		LAB Inline XBRL Label Linkbase Document
101.		PRE XBRL Presentation Linkbase Document
104.		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


			~~STRAYER~~STRATEGIC EDUCATION, INC.

			By:			/s/ Daniel W. Jackson
			Daniel W. Jackson
			Executive Vice President and Chief Financial Officer
			Date: ~~October 30, 2017~~ November 5, 2020