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 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 our continued
compliance with Title IV of the Higher Education Act, and the regulations
thereunder, as well as regional accreditation standards and state regulatory
requirements, rulemaking by the Department and increased focus by the 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, 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 in the Company's other filings
with the Securities and Exchange Commission. The Company undertakes no
obligation to update or revise forward-looking statements, except as required by
law.
Additional Information
We maintain a website at http://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
Strategic Education, Inc. ("SEI," "we", "us" or "our") is an education services
company that 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 "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 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.

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As the pandemic has continued, we have begun to see deterioration in overall
demand, including lower new student enrollment and lower continuation rates,
which has impacted our total enrollment results for the third quarter and likely
for the fourth quarter as well. The weakness has been most pronounced at Strayer
University, where we estimate new student enrollment for the third quarter to
decline approximately 27%. 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 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 that revenue and
adjusted operating income in the period ending September 30, 2020 will be flat
compared to the prior year. If these trends continue through the balance of the
year, we would 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 July 29, 2020, the Company and its wholly owned subsidiary SEI Newco Inc.
(the "Purchaser") entered into a sale and purchase agreement (the "Purchase
Agreement") with LEI AMEA INVESTMENTS B.V. (the "Seller") and, solely as
guarantor of certain of the Seller's obligations thereunder, Laureate Education,
Inc. ("Laureate") pursuant to which, subject to the satisfaction or waiver of
certain conditions, the Purchaser will acquire Laureate's Australia and New
Zealand operations by means of a purchase of all of the outstanding equity
interests of certain subsidiaries held by the Seller. Pursuant to the Purchase
Agreement, the Purchaser will pay a purchase price of approximately $642.7
million, subject to certain adjustments specified therein, including for working
capital, indebtedness, and cash at the closing of the transaction, and the
forecasted performance of the acquired business. The Company has agreed to
guarantee the obligations of the Purchaser under the Purchase Agreement. The
transaction, which is expected to close by the first quarter of 2021, is subject
to certain regulatory approvals and customary closing conditions. The Company
has received commitments from its lenders to expand its existing revolving
credit facility from $250 million to $350 million coinciding with the close of
the transaction.
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 June 30, 2020, SEI had the following reportable segments:
Strayer University Segment
•      Strayer University is an institution of higher learning that offers

undergraduate and graduate degree programs in business administration,

accounting, information technology, education, health services

administration, public administration, and criminal justice at 76 physical

campuses, predominantly located in the eastern United States, and online.

Strayer University is accredited by the Middle States Commission on Higher


       Education ("Middle States" or "Middle States Commission"), one of the
       seven regional collegiate accrediting agencies recognized by the
       Department of Education. By offering its programs both online and in
       physical classrooms, Strayer University provides its working adult
       students flexibility and 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 program offering affordable,

high-quality, leading-edge software coding education at 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 second quarter, Strayer University's enrollment increased 6% to
       53,782 compared to 50,713 for the same period in 2019. New student

enrollment for the period decreased 4% and continuing student enrollment

for the period increased 8%. We believe new student enrollment at Strayer

University is more volatile in the current economic environment due to

Strayer's mostly undergraduate student mix, which includes many first-time

college students. We project new student enrollment at Strayer University


       in the third quarter will be lower by approximately 27% from the prior
       year, and total enrollment will be lower by approximately 1%. In the first
       quarter of 2020, Strayer University adopted a new enrollment



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reporting census date, which occurs approximately two weeks following the start
of the academic term. Previously the Strayer University enrollment census date
coincided with the end of the University's "drop-add" period, approximately one
week following the start of the academic 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 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 working adults, in the following primary disciplines: public

service leadership, nursing and 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 Higher Learning

Commission, one of the seven regional collegiate accrediting agencies

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 college credit.


•      In the second quarter, Capella University's enrollment increased 1% to
       39,341 compared to 38,979 for the same period in 2019. New student

enrollment for the period increased 1% and continuing student enrollment


       for the period increased 1%. Capella University's enrollment demand has
       also seen a slight contraction though less severe than at Strayer
       University, most likely attributable to the greater mix of graduate
       learners who are less sensitive to the current economic downturn. We

expect a new student enrollment decline from the prior year of between

5-10%, while total enrollment at Capella will increase approximately 1%

from the prior year. In the first quarter of 2020, Capella University

consolidated two different enrollment reporting census dates into a single


       date, which occurs approximately two weeks following the start of the
       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 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 our students'
professional needs, and 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 innovative cost and revenue synergies, while improving the
value provided to our 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
credit losses; income tax provisions; the useful lives of property and equipment
and intangible assets; redemption rates for scholarship programs and valuation
of contract liabilities; fair value of right-of-use lease assets for facilities
that have been 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.

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Revenue recognition - Like many traditional institutions, Strayer University and
Capella University offer educational programs primarily on a quarter system
having four academic terms, which generally coincide with our quarterly
financial reporting periods. Approximately 96% of our revenues during the six
months ended June 30, 2020 consisted of tuition revenue. 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 Universities and the schools
offering non-degree programs provide academic services, 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 Universities also 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 is recorded for academic services to be provided, and a tuition
receivable is recorded for 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 a
contract liability.
Students of the 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 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 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 been recognized for that student. Since the 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 portion of tuition
revenue refundable to students may vary based on the student's state of
residence.
For students who withdraw from all their courses during the quarter of
instruction, we reassess 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 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
is responsible for returning Title IV funds to the Department 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 until cash is received and
the term is complete.
New students at Strayer University registering in credit-bearing courses in any
undergraduate program for the summer 2013 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 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

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Graduation Fund credits. In their final academic year, qualifying students will
receive one free course for every three courses that the student successfully
completed in prior years. The University's performance obligation associated
with free courses that may be redeemed in the future is 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 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 June 30, 2020, we had deferred $52.3 million
for estimated redemptions earned under the Graduation Fund, as compared to $49.6
million at December 31, 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 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. 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 methodologies for estimating 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
second quarter of both 2020 and 2019, bad debt expense was 4.7% of revenue. A
change in our allowance for credit losses of 1% of gross tuition receivable as
of June 30, 2020 would have changed our income from operations by approximately
$0.8 million.
Goodwill and intangible assets - Goodwill represents the excess of the purchase
price of an acquired business over the amount assigned to the assets acquired
and 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 which
discrete financial information is 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 the three and six months ended June 30, 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 six month periods ended June 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 finite-lived
intangible assets for 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 six month periods ended June 30, 2020.
Other estimates - We record estimates for certain of our accrued expenses and
for income tax liabilities. We estimate the useful lives of our property and
equipment and intangible assets 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 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 second quarter of 2020, we generated $255.8 million in revenue compared
to $245.1 million in 2019. Our income from operations was $46.4 million for the
second quarter of 2020 compared to $27.6 million in 2019 due primarily to higher
revenues driven by enrollment growth and lower merger and integration related
costs. Net income in the second quarter of 2020 was $34.2 million compared to
$24.4 million for the same period in 2019. Diluted earnings per share was $1.55
compared to $1.10 for the same period in 2019. For the six months ended June 30,
2020, we generated $521.1 million in revenue, compared to $491.6 million for the
same period in 2019. Our income from operations was $90.4 million for the six
months ended June 30, 2020 compared to $53.3 million for the same period in
2019. Net income was $69.4 million for the six months ended June 30, 2020
compared to $35.9 million for the same period in 2019, and diluted earnings per
share was $3.15 in the six months ended June 30, 2020 compared to $1.63 for the
same period in 2019.

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In the accompanying analysis of financial information for 2020 and 2019, we use
certain financial measures including Adjusted Total Costs and Expenses, Adjusted
Income from Operations, Adjusted Operating Margin, 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 potential


       future business combinations,


•      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 substitute for or superior to, GAAP results. A reconciliation of these
measures to the most directly comparable GAAP measures is provided below.
Adjusted income from operations was $63.0 million in the second quarter of 2020
compared to $46.0 million in 2019. Adjusted net income was $45.4 million in the
second quarter of 2020 compared to $35.2 million in 2019, and adjusted diluted
earnings per share was $2.06 in the second quarter of 2020 compared to $1.59 in
2019. Adjusted income from operations was $126.1 million in the six months ended
June 30, 2020 compared to $94.4 million for the same period in 2019. Adjusted
net income was $91.9 million in the six months ended June 30, 2020 compared to
$71.9 million for the same period in 2019, and adjusted diluted earnings per
share was $4.17 in the six months ended June 30, 2020 compared to $3.26 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 June 30, 2020

Non-GAAP Adjustments


                                            Amortization of
                           As Reported        intangible            Merger and          Income from other           Tax            As Adjusted
                             (GAAP)            assets(1)       integration costs(2)      investments(3)        adjustments(4)      (Non-GAAP)
Revenues                 $     255,831     $           -       $            -         $              -        $            -     $     255,831
Total costs and expenses       209,436           (15,417 )             (1,174 )                      -                     -           192,845
Income from operations          46,395            15,417                1,174                        -                     -            62,986
Operating margin                 18.1%                                                                                                   24.6%
Net income               $      34,152     $      15,417       $        1,174         $         (1,135 )      $       (4,213 )   $      45,395

Diluted earnings per
share                    $        1.55                                                                                           $        2.06
Weighted average diluted
shares outstanding              22,012                                                                                                  22,012




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

Non-GAAP Adjustments


                                            Amortization of
                           As Reported        intangible            Merger and          Income from other           Tax            As Adjusted
                             (GAAP)            assets(1)       integration costs(2)      investments(3)        adjustments(4)      (Non-GAAP)
Revenues                 $     245,110     $           -       $            -         $              -        $            -     $     245,110
Total costs and expenses       217,514           (15,417 )             (3,019 )                      -                     -           199,078
Income from operations          27,596            15,417                3,019                        -                     -            46,032
Operating margin                 11.3%                                                                                                   18.8%
Net income               $      24,409     $      15,417       $        3,019         $         (1,605 )      $       (6,040 )   $      35,200

Diluted earnings per
share                    $        1.10                                                                                           $        1.59
Weighted average diluted
shares outstanding              22,109                                                                                                  22,109


Reconciliation of Reported to Adjusted Results of Operations for the six months
ended June 30, 2020
                                                                          Non-GAAP Adjustments
                                            Amortization of
                           As Reported        intangible            Merger and          Income from other           Tax            As Adjusted
                             (GAAP)            assets(1)       integration costs(2)      investments(3)        adjustments(4)      (Non-GAAP)
Revenues                 $     521,133     $           -       $            -         $              -        $            -     $     521,133
Total costs and expenses       430,779           (30,834 )             (4,938 )                      -                     -           395,007
Income from operations          90,354            30,834                4,938                        -                     -           126,126
Operating margin                 17.3%                                                                                                   24.2%
Net income               $      69,391     $      30,834       $        4,938         $         (1,389 )      $      (11,898 )   $      91,876

Diluted earnings per
share                    $        3.15                                                                                           $        4.17
Weighted average diluted
shares outstanding              22,041                                                                                                  22,041



Reconciliation of Reported to Adjusted Results of Operations for the six months
ended June 30, 2019
                                                                           Non-GAAP Adjustments
                                             Amortization of        Merger and
                            As Reported        intangible           integration         Income from other           Tax            As Adjusted
                              (GAAP)            assets(1)            costs(2)            investments(3)        adjustments(4)      (Non-GAAP)
Revenues                  $     491,618     $           -       $            -        $              -        $            -     $     491,618
Total costs and expenses        438,299           (30,834 )            (10,198 )                     -                     -           397,267
Income from operations           53,319            30,834               10,198                       -                     -            94,351
Operating margin                  10.8%                                                                                                  19.2%
Net income                $      35,909     $      30,834       $       10,198        $         (2,628 )      $       (2,411 )   $      71,902

Diluted earnings per
share                     $        1.63                                                                                          $        3.26
Weighted average diluted
shares outstanding               22,079                                                                                                 22,079

__________________________________________________________________________________________

(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

potential future business combinations.

(3) Reflects income recognized from the Company's investments in partnership


     interests and other investments.


(4)  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 27.5% and 28.5% for the three


     and six months ended June 30, 2019 and 2020, respectively.



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Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30,
2019
Revenues. Consolidated revenue increased to $255.8 million, compared to $245.1
million in the same period in the prior year, primarily due to enrollment growth
at the 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 enrollment as well as enhanced scholarships and discounts we are
offering our students. In the Strayer University segment for the three months
ended June 30, 2020, enrollment grew 6% to 53,782 from 50,713 for the same
period in 2019. Revenue grew 4.8% to $138.1 million compared to $131.7 million
in 2019 as a result of the increase in enrollment. In the Capella University
segment for the three months ended June 30, 2020, enrollment grew 1% to 39,341
from 38,979 for the same period in 2019. Capella University segment revenue
increased 3.9% to $117.8 million compared to $113.4 million in the same period
in the prior year as a result of the enrollment growth.
Instructional and support costs. Consolidated instructional and support costs
decreased to $125.5 million, compared to $130.7 million in the same period in
the prior year, principally due to efficiencies gained through our technology
investments, which have also helped improve student success, and cost synergies
realized as a result of the merger with CEC. Consolidated instructional and
support costs as a percentage of revenues decreased to 49.1% in the second
quarter of 2020 from 53.3% in the second quarter of 2019.
General and administration expenses. Consolidated general and administration
expenses decreased to $67.3 million in the second quarter of 2020 compared to
$68.4 million in the prior year, principally due to cost synergies realized as a
result of the merger with CEC. Consolidated general and administration expenses
as a percentage of revenues decreased to 26.3% in the second quarter of 2020
from 27.9% in the second quarter of 2019.
Amortization of intangible assets. Amortization expense related to intangible
assets acquired in the merger with CEC was $15.4 million in the second quarter
of both 2020 and 2019.
Merger and integration costs. Merger and integration costs were $1.2 million in
the second quarter of 2020 compared to $3.0 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 expenses associated
with potential future business combinations incurred in the second quarter of
2020.
Income from operations. Consolidated income from operations increased to $46.4
million in the second quarter of 2020 compared to $27.6 million in the second
quarter of 2019, principally due to higher revenues as a result of enrollment
growth at both Universities and lower merger and integration related costs.
Strayer University segment income from operations increased 46.6% to $35.8
million in the second quarter of 2020, compared to $24.4 million in the second
quarter of 2019, primarily due to higher revenues due to enrollment growth.
Capella University segment income from operations increased 25.8% to $27.2
million in the second quarter of 2020 compared to $21.6 million for the same
period in 2019, primarily due to higher revenues due to enrollment growth.
Other income. Other income decreased to $1.6 million in the second quarter of
2020 compared to $4.1 million in the second 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 $13.9 million in the second
quarter of 2020, compared to $7.3 million in the second quarter of 2019. Our
effective tax rate for the quarter was 28.9%, compared to 23.1% for the same
period in 2019. The increase in the effective tax rate is due to an increase in
state taxes in the current year period, and larger tax windfalls on share-based
compensation in the prior year period.
Net income. Net income increased to $34.2 million in the second quarter of 2020
compared to $24.4 million in the second quarter of 2019 due to the factors
discussed above.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019



Revenues. Consolidated revenue increased to $521.1 million, compared to $491.6
million in the same period in the prior year, primarily due to enrollment growth
at the 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 enrollment as well as enhanced scholarships and discounts we are
offering our students. In the Strayer University segment, revenue grew 8.1% to
$283.7 million in the six months ended June 30, 2020 from $262.5 million in the
six months ended June 30, 2019, primarily due to enrollment growth. In the
Capella University segment, revenue increased 3.6% to $237.4 million in the six
months ended June 30, 2020, compared to $229.1 million in the six months ended
June 30, 2019, primarily due to enrollment growth.


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Instructional and support costs. Consolidated instructional and support costs
decreased to $258.5 million in the six months ended June 30, 2020 from $264.8
million in the six months ended June 30, 2019, principally due to efficiencies
gained through our technology investments, which have also helped improve
student success, and cost synergies realized as a result of the merger with CEC.
Consolidated instructional and support costs as a percentage of revenues
decreased to 49.6% in the six months ended June 30, 2020 from 53.9% in the six
months ended June 30, 2019.

General and administration expenses. Consolidated general and administration
expenses increased to $136.5 million in the six months ended June 30, 2020 from
$132.5 million in the six months ended June 30, 2019, principally due to
increased investments in branding initiatives and partnerships with brand
ambassadors. Consolidated general and administration expenses as a percentage of
revenues decreased to 26.2% in the six months ended June 30, 2020 from 27.0% in
the six months ended June 30, 2019.

Amortization of intangible assets. Amortization expense related to intangible
assets acquired in the merger with CEC was $30.8 million in the six months ended
June 30, 2020 and 2019.

Merger and integration costs. Merger and integration costs were $4.9 million in
the six months ended June 30, 2020 compared to $10.2 million in 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
expenses associated with potential future business combinations incurred in
2020.

Income from operations. Consolidated income from operations increased to $90.4
million in the six months ended June 30, 2020 compared to $53.3 million in the
six months ended June 30, 2019, principally due to higher revenues as a result
of enrollment growth at both Universities and lower merger and integration
related costs. Strayer University segment income from operations increased 50.1%
to $72.4 million in the six months ended June 30, 2020, compared to $48.2
million in the six months ended June 30, 2019, primarily due to higher revenues
due to enrollment growth. Capella University segment income from operations
increased 16.5% to $53.7 million in the six months ended June 30, 2020, compared
to $46.1 million for the same period in 2019, primarily due to higher revenues
due to enrollment growth.

Other income. Other income decreased to $3.8 million in the six months ended
June 30, 2020 compared to $7.5 million in the six months ended June 30, 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 $24.7 million in the six
months ended June 30, 2020 compared to
$24.9 million in the six months ended June 30, 2019. Our effective tax rate for
the six months ended June 30, 2020 was 26.3% compared to 40.9% for the six
months ended June 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 $69.4 million in the six months ended
June 30, 2020 from $35.9 million in the six months
ended June 30, 2019 due to the factors discussed above.
Liquidity and Capital Resources
At June 30, 2020, we had cash, cash equivalents, and marketable securities of
$525.3 million compared to $491.2 million at December 31, 2019 and $440.5
million at June 30, 2019. At June 30, 2020, most of our cash was held in demand
deposit accounts at high credit quality financial institutions.
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, 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. Borrowings under the Amended
Credit Facility bear interest at LIBOR or a base rate, plus a margin ranging
from 1.50% to 2.00%, depending on our leverage ratio. An unused commitment fee
ranging from 0.20% to 0.30%, depending on our leverage ratio, accrues on unused
amounts. During the six months ended June 30, 2020 and 2019, we paid unused
commitment fees of $0.3 million. We were in compliance with all applicable
covenants related to the Amended Credit Facility as of June 30, 2020. We had no
borrowings outstanding during each of the six months ended June 30, 2020 and
June 30, 2019.

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Our net cash provided by operating activities for the six months ended June 30,
2020 was $111.9 million, compared to $103.1 million for the same period in 2019.
The increase in net cash from operating activities was largely due to the
increase in income from operations, partially offset by payments of working
capital in the second quarter.
Capital expenditures increased to $25.5 million for the six months ended
June 30, 2020, compared to $18.9 million for the same period in 2019, due to
investments in new campuses and technologies.
The Board of Directors declared a regular, quarterly cash dividend of $0.60 per
share of common stock for each of the first two quarters of 2020. During the six
months ended June 30, 2020, we paid a total of $26.7 million in cash dividends
on our common stock. During the six months ended June 30, 2020, we invested
approximately $0.2 million to repurchase common shares in the open market under
our repurchase program. As of June 30, 2020, we had $249.8 million of share
repurchase authorization remaining to use through December 31, 2020.
For the second quarter of both 2020 and 2019, bad debt expense as a percentage
of revenue was 4.7%. Bad debt expense for the second quarter of 2020 includes
additional reserves to account for projected deterioration in collections
performance in 2020 due to the COVID-19 pandemic.
We believe that existing cash and cash equivalents, cash generated from
operating activities, and if necessary, cash borrowed under our Amended Credit
Facility will be sufficient to meet our requirements for at least the next 12
months. Currently, we maintain our cash primarily in demand deposit bank
accounts and money market funds, which are included in cash and cash equivalents
at June 30, 2020 and 2019. We also hold marketable securities, which primarily
include tax-exempt municipal securities and corporate debt securities. During
the six months ended June 30, 2020 and 2019, we earned interest income of $2.9
million and $5.2 million, respectively.

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