Summary of Significant Accounting Policies

6 Months Ended

Dec. 31, 2020

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

3.   Summary of Significant Accounting Policies

Recent Accounting Pronouncements

Accounting Standards Adopted

On July 1, 2020, the Company adopted Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments – Credit Losses (“ASC 326”), related to the methodology for recognizing credit losses. The new standard revises the accounting requirements related to the measurement of credit losses. Assets must be presented in the financial statements as the net amount expected to be collected. The allowance is based upon historical losses, customer-specific information, current economic conditions, and reasonable and supportable forecasts of future economic conditions. The Company adopted this standard using the modified retrospective approach. The adoption of ASC 326 resulted in the recognition of an additional allowance for credit losses of $8.5 million, as well as decreases of $6.2 million and $2.3 million to retained earnings and deferred tax liabilities, respectively, as of July 1, 2020.

On July 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2017-04, Intangibles – Goodwill and Other (Topic 350) (“ASU 2017-04”). This amendment simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit’s goodwill with the carrying amount of that goodwill. Instead, under the amendments in this update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The Company adopted this standard prospectively without a material impact to its condensed consolidated financial statements.

Accounting Standards Not Yet Adopted

In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848) (“ASU 2020-04”) which provides relief to companies that will be impacted by the cessation of reference rate

reform, e.g. LIBOR, that is tentatively planned for the end of calendar year 2022. The ASU permits an entity to consider contract modifications due to reference rate reform to be an event that does not require contract remeasurement. This ASU will be effective for the Company as of March 12, 2020 through December 31, 2022 and adoption is permitted at any time during the period on a prospective basis. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity’s Own Equity (Subtopic 815-40) which, among other things, simplifies the accounting for convertible instruments by eliminating the requirement to separate conversion features from the host contract. Consequently, a convertible debt instrument will be accounted for as a single liability measured at its amortized cost. Early adoption is permitted for fiscal years beginning after December 15, 2020, including interim periods. The Company is currently evaluating the impact of this ASU on its condensed consolidated financial statements.

Revenue Recognition

Revenue is recognized when control of the promised goods or services is transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services using the following steps:

● identify the contract, or contracts, with a customer;

● identify the performance obligations in the contract;

● determine the transaction price;

● allocate the transaction price to the performance obligations in the contract; and

● recognize revenue when, or as, the Company satisfies a performance obligation.

Revenues related to the products and services that the Company provides to students in kindergarten through twelfth grade or adult learners are considered to be General Education or Career Learning based on the school in which the student is enrolled. General Education products and services are focused on core subjects, including math, English, science and history, for kindergarten through twelfth grade students to help build a common foundation of knowledge. Career Learning products and services are focused on developing skills to enter and succeed in careers in high-growth, in-demand industries—including information technology, business, and health services, for students in middle school through high school and adult learners.

The majority of the Company’s contracts are with the following types of customers:

● an online or blended school whereby the amount of revenue is primarily determined by funding the school receives;

● a school or individual who licenses certain curriculum on a subscription or course-by-course basis; or

● an enterprise who contracts with the Company to provide job training.

Funding-based Contracts

The Company provides an integrated package of systems, services, products, and professional expertise that is administered together to support an online or blended public school. Contractual agreements generally span multiple years with performance obligations being isolated to annual periods which generally coincide with the Company’s fiscal year. Customers of these programs can obtain administrative support, information technology, academic support services, online curriculum, learning systems platforms and instructional services under the terms of a negotiated service agreement. The schools receive funding on a per student basis from the state in which the public school or school district is located. Shipments of materials for schools that occur in the fourth fiscal quarter and for the upcoming school year are recorded in deferred revenue.

The Company generates revenues under contracts with online and blended public schools and include the following components, where required:

● providing each of a school’s students with access to the Company’s online school and lessons;

● offline learning kits, which include books and materials to supplement the online lessons;

● the use of a personal computer and associated reclamation services;

● internet access and technology support services;

● instruction by a state-certified teacher; and

● management and technology services necessary to support an online or blended school. In certain contracts, revenues are determined directly by per enrollment funding.

To determine the pro rata amount of revenue to recognize in a fiscal quarter, the Company estimates the total expected funds each school will receive in a particular school year. Total funds for a school are primarily a function of the number of students enrolled in the school and established per enrollment funding levels, which are generally published on an annual basis by the state or school district. The Company reviews its estimates of funding periodically, and updates as necessary, by adjusting its year-to-date earned revenues to be proportional to the total expected revenues to be earned during the fiscal year. Actual school funding may vary from these estimates and the impact of these differences could impact the Company’s results of operations. Since the end of the school year coincides with the end of the Company’s fiscal year, annual revenues are generally based on actual school funding and actual costs incurred (including costs for the Company’s services to the schools plus other costs the schools may incur). The Company’s schools’ reported results are subject to annual school district financial audits, which incorporate enrollment counts, funding and other routine financial audit considerations. The results of these audits are incorporated into the Company’s monthly funding estimates for the three and six months ended December 31, 2020 and 2019.

Each state and/or school district has variations in the school funding formulas and methodologies that it uses to estimate funding for revenue recognition at its respective schools. As the Company estimates funding for each school, it takes into account the state definition for count dates on which reported enrollment numbers will be used for per pupil funding. The parameters the Company considers in estimating funding for revenue recognition purposes include school district count definitions, withdrawal rates, average daily attendance, special needs enrollment, academic progress and historical completion, student location, funding caps and other state specified categorical program funding.

Under the contracts where the Company provides products and services to schools, the Company is responsible for substantially all of the expenses incurred by the school and has generally agreed to absorb any operating losses of the schools in a given school year. These school operating losses represent the excess of costs incurred over revenues earned by the online or blended public school (the school’s expected funding), as reflected in its respective financial statements, including Company charges to the schools. To the extent a school does not receive sufficient funding for each student enrolled in the school, the school would still incur costs associated with serving the unfunded enrollment. If losses due to unfunded enrollments result in a net operating loss for the year that loss is reflected as a reduction in the revenues and net receivables that the Company collects from the school. A school net operating loss in one year does not necessarily mean the Company anticipates losing money on the entire contract with the school. However, a school’s net operating loss may reduce the Company’s ability to collect its management fees in full and recognized revenues are constrained to reflect the expected cash collections from such schools. The Company records the school’s estimated net operating loss against revenues based upon the percentage of actual revenues in the period to total estimated revenues for the fiscal year. Actual school net operating losses may vary from these estimates or revisions, and the impact of these differences could have a material impact on results of operations. For the three months ended December 31, 2020 and 2019, the Company’s revenues included a reduction for net school operating losses at the schools of $24.2 million and $11.2 million, respectively, and $44.2 million and $27.5 million for the six months ended December 31, 2020 and 2019, respectively. Because the Company has agreed to absorb any operating losses of the schools, the Company records the expenses incurred by the school as both revenue and expenses in the condensed consolidated statements of operations. Amounts recorded as revenues and expenses for the three months ended December 31, 2020 and 2019 were $102.4 million and $83.9 million, respectively, and for the six months ended December 31, 2020 and 2019 were $212.1 million and $169.4 million, respectively.

Subscription-based Contracts

The Company provides certain online curriculum and services to schools and school districts under subscription agreements. Revenues from the licensing of curriculum under subscription arrangements are recognized on a ratable basis over the subscription period. Revenues from professional consulting, training and support services are deferred and recognized ratably over the service period.

In addition, the Company contracts with individual customers who have access for one to two years to company-provided online curriculum and generally prepay for services to be received. Adult learners enroll in courses that provide specialized training in a specific industry. Each of these contracts are considered to be one performance obligation. The Company recognizes these revenues pro rata over the maximum term of the customer contract based on the defined contract price.

Enterprise Contracts

The Company provides job training over a specified contract period to enterprises. Each of these contracts are considered to be one performance obligation. The Company recognizes these revenues based on the number of students trained during the term of the contract based on the defined contract price.

Disaggregated Revenues

The revenue recognition related to the types of contracts discussed above can span both of the Company’s lines of revenue as shown below. For example, a funding-based contract may include both General Education and Career Learning students. In total, there is one performance obligation and revenue is recognized over the Company’s fiscal year. The revenue is then disaggregated between General Education and Career Learning based on the Company’s estimated full-year enrollment totals of each category. During the three months ended December 31, 2020 and 2019, approximately 88% and 88%, respectively, of the Company’s General Education revenues; and 98% and 98%, respectively, of the Company’s Middle – High School Career Learning revenues, were from funding-based contracts. During the six months ended December 31, 2020 and 2019, approximately 88% and 88%, respectively, of the Company’s General Education revenues; and 98% and 99%, respectively, of the Company’s Middle – High School Career Learning revenues, were from funding-based contracts.

The following table presents the Company’s revenues disaggregated based on its two lines of revenue for the three and six months ended December 31, 2020 and 2019:

	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
	(In thousands)
General Education	$	313,989	$	232,619	$	627,838	$	466,185
Career Learning
Middle - High School		51,376		24,940		100,147		48,495
Adult		10,780		—		19,120		—
Total Career Learning		62,156		24,940		119,267		48,495
Total Revenues	$	376,145	$	257,559	$	747,105	$	514,680

Concentration of Customers

During the three and six months ended December 31, 2020 and 2019, the Company had zero contracts that represented greater than 10% of total revenues.

Contract Balances

The timing of revenue recognition, invoicing, and cash collection results in accounts receivable, unbilled receivables (a contract asset) and deferred revenue (a contract liability) in the condensed consolidated balance sheets. Accounts receivable are recorded when there is an executed customer contract and the customer is billed. An allowance is recorded

to reflect expected losses at the time the receivable is recorded. The collectability of outstanding receivables is evaluated regularly by the Company to determine if additional allowances are needed. Unbilled receivables are created when revenue is earned prior to the customer being billed. Deferred revenue is recorded when customers are billed or cash is collected in advance of services being provided.

The opening and closing balance of the Company’s accounts receivable, unbilled receivables and deferred revenue are as follows:

	December 31,		June 30,
	2020		2020
	(In thousands)
Accounts receivable	$	435,254	$	236,134
Unbilled receivables (included in accounts receivable)		19,031		15,688
Deferred revenue		62,635		24,417
Deferred revenue, long-term (included in other long-term liabilities)		1,970		2,236

The difference between the opening and closing balance of the accounts receivable and unbilled receivables relates to the timing of the Company’s billing in relation to month end and contractual agreements. The difference between the opening and closing balance of the deferred revenue relates to the timing difference between billings to customers and the service periods under the contract. Typically, each of these balances are at their highest during the first quarter of the fiscal year and lowest at the end of the fiscal year. The amount of revenue recognized during the three months ended December 31, 2020 and 2019 that was included in the previous October 1^st deferred revenue balance was $47.8 million and $22.5 million, respectively. The amount of revenue recognized during the six months ended December 31, 2020 and 2019 that was included in the previous July 1^st deferred revenue balance was $21.4 million and $16.1 million, respectively. During the three months ended December 31, 2020 and 2019, the Company recorded revenues of $1.7 million and $2.4 million, respectively, and $1.6 million and $2.8 million, respectively, during the six months ended December 31, 2020 and 2019, related to performance obligations satisfied in prior periods.

Performance Obligations

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the unit of account. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. For the majority of its contracts, the Company’s performance obligations are satisfied over time, as the Company delivers, and the customer receives the services, over the service period of the contract. The Company’s payment terms are generally net 30 or net 45, but can vary depending on the customer or when the school receives its funding from the state.

The Company has elected, as a practical expedient, not to report the value of unsatisfied performance obligations for contracts with customers that have an expected duration of one year or less. The amount of unsatisfied performance obligations for contracts with customers which extend beyond one year as of December 31, 2020 was $2.0 million.

Significant Judgments

The Company determined that the majority of its contracts with customers contain one performance obligation. The Company markets the products and services as an integrated package building off its curriculum offerings. It does not market distinct products or services to be sold independently from the curriculum offering. The Company provides the significant service of integrating the goods and services into the operation of the school and education of its students, for which the customer has contracted.

The Company has determined that the time elapsed method is the most appropriate measure of progress towards the satisfaction of the performance obligation. Generally, the Company delivers the integrated products and services package over the course of the Company’s fiscal year. This package includes enrollment, marketing, teacher training, etc. in addition to the core curriculum and instruction. All of these activities are necessary and contribute to the overall education

of its students, which occurs evenly throughout the year. Accordingly, the Company recognizes revenue on a straight-line basis.

The Company determined that the expected value method is the most appropriate method to account for variable consideration and the Company’s forecasting method is an estimation process that uses probability to determine expected funding. On a monthly basis, the Company estimates the total funds each school will receive in a particular school year and the amount of full-year school revenues and operating expenses to determine the amount of revenue the Company will recognize. Enrollment and state funding rates are key inputs to this estimate. The estimates are adjusted monthly, and a cumulative catch-up adjustment is recorded to revenue as necessary to reflect the total revenues earned to date to be proportional to the total revenues to be earned in the fiscal year. The Company builds in known constraints (i.e. enrollment, funding, net operating losses, etc.) into the estimate of the variable consideration to record the most probable amount.

Sales Taxes

Sales tax collected from customers is excluded from revenues. Collected but unremitted sales tax is included as part of accrued liabilities in the condensed consolidated balance sheets. Revenues do not include sales tax as the Company considers itself a pass-through conduit for collecting and remitting sales tax.

Consolidation

The condensed consolidated financial statements include the accounts of the Company, the wholly-owned and affiliated companies that the Company owns, directly or indirectly, and all controlled subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

Allowance for Doubtful Accounts

The Company maintains an allowance for uncollectible accounts primarily for estimated losses resulting from the inability or failure of individual customers to make required payments. The Company analyzes accounts receivable, historical percentages of uncollectible accounts, and changes in payment history when evaluating the adequacy of the allowance for uncollectible accounts. The Company maintains an allowance under ASC 326 based on historical losses, customer-specific information, current economic conditions, and reasonable and supportable forecasts of future economic conditions. The allowance under ASC 326 is updated as additional losses are incurred or information becomes available related to the customer or economic condition.

The Company writes-off accounts receivable based on the age of the receivable and the facts and circumstances surrounding the customer and reasons for non-payment. Actual write-offs might differ from the recorded allowance.

Inventories

Inventories consist primarily of textbooks and curriculum materials, a majority of which are supplied to online and blended public schools, and utilized directly by students. Inventories represent items that are purchased and held for sale and are recorded at the lower of cost (first-in, first-out method) or net realizable value. The Company classifies its inventory as current or long-term based on the holding period. As of December 31, 2020 and June 30, 2020, $4.8 million and $5.2 million, respectively, of inventory, net of reserves, was deemed long-term and included in deposits and other assets on the condensed consolidated balance sheets. The provision for excess and obsolete inventory is established based upon the evaluation of the quantity on hand relative to demand. The excess and obsolete inventory reserve was $5.2 million and $4.8 million at December 31, 2020 and June 30, 2020, respectively.

Other Current Assets

Other current assets consist primarily of textbooks, curriculum materials and other supplies which are expected to be returned upon the completion of the school year. Materials not returned are expensed as part of instructional costs and services.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization expense is calculated using the straight-line method over the estimated useful life of the asset (or the lesser of the term of the lease and the estimated useful life of the asset under the finance lease). Amortization of assets capitalized under finance lease arrangements is included in depreciation expense. Leasehold improvements are amortized over the lesser of the lease term or the estimated useful life of the asset. The determination of the lease term is discussed below under “Leases.”

Property and equipment are depreciated over the following useful lives:

	Useful Life
Student and state testing computers	3 - 5 years
Computer hardware	3 - 7 years
Computer software	3 - 5 years
Web site development	3 years
Office equipment	5 years
Furniture and fixtures	7 years
Leasehold improvements	Shorter of useful life or term of the lease

The Company makes an estimate of unreturned student computers based on an analysis of recent trends of returns.  The Company recorded accelerated depreciation of $1.1 million and $0.7 million for the three months ended December 31, 2020 and 2019, respectively, and $1.9 million and $1.3 million for the six months ended December 31, 2020 and 2019, respectively, related to unreturned student computers.

Depreciation expense, including accelerated depreciation, related to computers provided to students and reflected in instructional costs and services for the three months ended December 31, 2020 and 2019 was $9.3 million and $4.3 million, respectively, and $14.8 million and $8.2 million, respectively, during the six months ended December 31, 2020 and 2019. Depreciation expense related to property and equipment reflected in selling, general, and administrative expenses for the three months ended December 31, 2020 and 2019 was $1.0 million and $1.1 million, respectively and $1.9 million and $2.3 million, respectively, during the six months ended December 31, 2020 and 2019.

The Company fully expenses computer peripheral equipment (e.g. keyboards, mouses) upon purchase as recovery has been determined to be uneconomical. These expenses totaled $1.6 million and $0.7 million for the three months ended December 31, 2020 and 2019, respectively, and $6.0 million and $3.2 million for the six months ended December 31, 2020 and 2019, respectively, and are recorded as instructional costs and services.

Capitalized Software Costs

The Company develops software for internal use. Software development costs incurred during the application development stage are capitalized. The Company amortizes these costs over the estimated useful life of the software, which is generally three years. Capitalized software development costs are stated at cost less accumulated amortization.

Capitalized software additions totaled $14.1 million and $13.0 million for the six months ended December 31, 2020 and 2019, respectively. The Company recorded amortization expense related to capitalized software of $5.0 million and $5.2 million during the three months ended December 31, 2020 and 2019, respectively, and $9.7 million and $10.6 million during the six months ended December 31, 2020 and 2019, respectively, within instructional costs and services.

Amortization expense related to capitalized software reflected in selling, general, and administrative expenses for the three months ended December 31, 2020 and 2019 was $1.1 million and $1.5 million, respectively and $2.2 million and $3.0 million, respectively, during the six months ended December 31, 2020 and 2019.

Capitalized Curriculum Development Costs

The Company internally develops curriculum, which is primarily provided as online content and accessed via the Internet. The Company also creates textbooks and other materials that are complementary to online content.

The Company capitalizes curriculum development costs incurred during the application development stage, as well as the design and deployment phases of the project. As a result, a significant portion of the Company’s courseware development costs qualify for capitalization due to the concentration of its development efforts on the content of the courseware. Capitalization ends when a course is available for general release to its customers, at which time amortization of the capitalized costs begins. The period of time over which these development costs are amortized is generally five years.

Total capitalized curriculum development additions were $7.5 million and $12.0 million for the six months ended December 31, 2020 and 2019, respectively. These amounts are recorded on the condensed consolidated balance sheets net of amortization charges. Amortization expense for the three months ended December 31, 2020 and 2019 was $4.3 million and $4.4 million, respectively, and $8.3 million and $8.8 million for the six months ended December 31, 2020 and 2019, respectively, and is recorded in instructional costs and services.

Leases

The Company’s principal leasing activities include student computers and peripherals, classified as finance leases, and facilities, classified as operating leases.

Leases are classified as operating leases unless they meet any of the criteria below to be classified as a finance lease:

● the lease transfers ownership of the asset at the end of the lease;

● the lease grants an option to purchase the asset which the lessee is expected to exercise;

● the lease term reflects a major part of the asset’s economic life;

● the present value of the lease payments equals or exceeds the fair value of the asset; or

● the asset is specialized with no alternative use to the lessor at the end of the term.

Finance Leases

The Company enters into agreements to finance the purchase of student computers and peripherals provided to students of its schools. Individual leases typically include 1 to 3 year payment terms, at varying rates, with a $1 purchase option at the end of each lease term. The Company pledges the assets financed to secure the outstanding leases.

Operating Leases

The Company enters into agreements for facilities that serve as offices for its headquarters, sales and enrollment teams, and school operations. Initial lease terms vary between 1 and 17 years. Certain leases include renewal options, usually based upon current market rates, as well as termination rights. The Company performs an evaluation of each lease to determine if the lease payments included in the renewal option should be included in the initial measurement of the lease liability.

Discount Rate

The present value of the lease payments is calculated using either the rate implicit in the lease, or the lessee’s incremental borrowing rate, over the lease term. For the Company’s finance leases, the stated rate is defined within the lease terms; while for the Company’s operating leases, the rate is not implicit. For operating leases, the Company uses its

incremental borrowing rate as the discount rate; determined as the Company’s borrowing rate on a collateralized basis for a similar term and amount to the term and amount of the lease.

For its adoption of ASC Topic 842, Leases (“ASC 842”), the Company utilized its agreements used for its finance leases as the basis for calculating its incremental borrowing rate. The rate was collateralized and its term reflected a similar term of the remaining lease payments of the Company’s largest operating lease. As of the adoption date, the incremental borrowing rate was 3.86%.  Upon the execution of its senior secured revolving credit facility (see Note 7, “Credit Facility”), the Company has reassessed its incremental borrowing rate as 2.55%. The incremental borrowing rate is subsequently reassessed upon modification of its leasing arrangements or with the execution of a new lease agreement.

Policy Elections

Short-term Leases

The Company has elected as an on-going accounting policy election not to apply ASC 842 to short-term facility leases of 12 months or less. By making this election, the Company will not record a right-of-use asset or lease liability at the commencement of the lease, and will continue to expense its lease payments on a straight-line basis over the lease term. The accounting policy election is made by class of underlying asset to which the right of use relates. The Company has elected to apply the accounting policy election only to operating leases.

Income Taxes

Deferred tax assets and liabilities are computed based on the difference between the financial reporting and income tax bases of assets and liabilities using the enacted marginal tax rate. The net deferred tax asset is reduced by a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of the net deferred tax asset will not be realized.

Goodwill and Intangible Assets

The Company records as goodwill the excess of the purchase price over the fair value of the identifiable net assets acquired. Finite-lived intangible assets acquired in business combinations subject to amortization are recorded at their fair value. Finite-lived intangible assets include trade names, acquired customers and distributors, developed technology and non-compete agreements. Such intangible assets are amortized on a straight-line basis over their estimated useful lives. Amortization expense for the three months ended December 31, 2020 and 2019 was $2.5 million and $0.8 million, respectively, and $4.6 million and $1.5 million for the six months ended December 31, 2020 and 2019, respectively, and is included within selling, general, and administrative expenses in the condensed consolidated statements of operations. Future amortization of intangible assets is expected to be $6.8 million, $12.9 million, $12.7 million, $11.8 million, and $10.5 million in the fiscal years ending June 30, 2021 through June 30, 2025, respectively, and $51.5 million thereafter. At December 31, 2020 and June 30, 2020, the goodwill balance was $240.8 million and $174.9 million, respectively.

The Company reviews its finite-lived intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset.

The process for testing goodwill and intangible assets with indefinite lives for impairment is a two-step process that is performed annually, as well as when an event triggering impairment may have occurred. Companies are also allowed to  qualitatively assess goodwill impairment through a screening process which would permit companies to forgo Step 1 of their annual goodwill impairment process. This qualitative screening process will hereinafter be referred to as “Step 0”. The Company performs its annual assessment on May 31^st based on the Company’s one reporting unit. During the year ended June 30, 2020, the Company performed “Step 0” of the impairment test and determined that there were no facts and circumstances that indicated that the fair value of the reporting unit may be less than its carrying amount, and as a result, the Company determined that no impairment was required.

The Company performed a qualitative assessment of Coronavirus disease 2019 (“COVID-19”) as a triggering event related to the value of its goodwill and intangible assets and concluded that there were no indicators of impairment during the three and six months ended December 31, 2020.

The following table represents the balance of the Company’s intangible assets as of December 31, 2020 and June 30, 2020:

	December 31, 2020						June 30, 2020
($ in millions)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Value		Gross Carrying Amount		Accumulated Amortization		Net Carrying Value
Trade names	$	84.5	$	(14.5)	$	70.0	$	77.9	$	(12.0)	$	65.9
Customer and distributor relationships		37.7		(18.6)		19.1		25.3		(17.2)		8.1
Developed technology		21.3		(4.2)		17.1		6.6		(3.5)		3.1
Other		1.3		(1.0)		0.3		1.4		(1.0)		0.4
Total	$	144.8	$	(38.3)	$	106.5	$	111.2	$	(33.7)	$	77.5

Impairment of Long-Lived Assets

Long-lived assets include property, equipment, right-of-use assets, capitalized curriculum and software developed or obtained for internal use. Management reviews the Company’s recorded long-lived assets for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. The Company determines the extent to which an asset may be impaired based upon its expectation of the asset’s future usability as well as on a reasonable assurance that the future cash flows associated with the asset will be in excess of its carrying amount. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset, a loss is recognized for the difference between fair value and the carrying value of the asset. The Company performed a qualitative assessment of COVID-19 as a triggering event related to the value of its long-lived assets and concluded that there were no indicators of impairment during the three and six months ended December 31, 2020.

Fair Value Measurements

Fair value is the price that would be received to sell an asset or paid to transfer a liability, in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants at the measurement date. Measurements are described in a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The three levels of inputs used to measure fair value are:

Level 1:   Inputs based on quoted market prices for identical assets or liabilities in active markets at the measurement date.

Level 2:   Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3:   Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. The inputs are unobservable in the market and significant to the instrument’s valuation.

The carrying values reflected in the condensed consolidated balance sheets for cash and cash equivalents, receivables, and short term debt approximate their fair values, as they are largely short-term in nature. The contingent consideration and Tallo, Inc. convertible note is discussed in more detail in Note 11, “Acquisitions and Investments.” The convertible senior notes due 2027 are discussed in more detail in Note 6, “Debt.”  

The following table summarizes certain fair value information at December 31, 2020 for assets or liabilities measured at fair value on a recurring basis:

	Fair Value Measurements Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Input		Inputs
Description	Fair Value		(Level 1)		(Level 2)		(Level 3)
		(In thousands)
Contingent consideration associated with acquisitions	$	10,833	$	—	$	—	$	10,833
Convertible note received in acquisition		5,006		—		—		5,006
Convertible Senior Notes due 2027		345,975		—		345,975		—

The following table summarizes certain fair value information at June 30, 2020 for assets or liabilities measured at fair value on a recurring basis:

	Fair Value Measurements Using:
			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant
			Identical		Observable		Unobservable
			Assets		Input		Inputs
Description	Fair Value		(Level 1)		(Level 2)		(Level 3)
		(In thousands)
Convertible note received in acquisition	$	5,006	$	—	$	—	$	5,006

The following table presents activity related to the Company’s fair value measurements categorized as Level 3 of the valuation hierarchy, valued on a recurring basis, for the three and six months ended December 31, 2020 and 2019:

	Three Months Ended December 31, 2020
			Purchases,
	Fair Value		Issuances,		Unrealized		Fair Value
Description	September 30, 2020		and Settlements		Gains/(Losses)		December 31, 2020
		(In thousands)
Contingent consideration associated with acquisitions	$	—	$	10,833	$	—	$	10,833
Convertible note received in acquisition		5,006		—		—		5,006

	Three Months Ended December 31, 2019
			Purchases,
	Fair Value		Issuances,		Unrealized		Fair Value
Description	September 30, 2019		and Settlements		Gains/(Losses)		December 31, 2019
	(In thousands)
Convertible note received in acquisition	$	5,006	$	—	$	—	$	5,006

		Six Months Ended December 31, 2020
			Purchases,
	Fair Value		Issuances,		Unrealized		Fair Value
Description	June 30, 2020		and Settlements		Gains (Losses)		December 31, 2020
	(In thousands)
Contingent consideration associated with acquisitions	$	—	$	10,833	$	—	$	10,833
Convertible note received in acquisition		5,006		—		—		5,006

		Six Months Ended December 31, 2019
			Purchases,
	Fair Value		Issuances,		Unrealized		Fair Value
Description	June 30, 2019		and Settlements		Gains (Losses)		December 31, 2019
	(In thousands)
Convertible note received in acquisition	$	5,006	$	—	$	—	$	5,006

Net Income (Loss) Per Common Share

Basic net income (loss) per common share is calculated by dividing net income (loss) by the weighted-average number of common shares outstanding during the reporting period. The weighted average number of shares of common stock outstanding includes vested restricted stock awards. Diluted net income (loss) per share (“EPS”) reflects the potential dilution that could occur assuming conversion or exercise of all dilutive unexercised stock options and vesting of all dilutive unvested restricted stock awards. The dilutive effect of stock options and restricted stock awards was determined using the treasury stock method. Under the treasury stock method, the proceeds received from the exercise of stock options and restricted stock awards, the amount of compensation cost for future service not yet recognized by the Company and the amount of tax benefits that would be recorded as income tax expense when the stock options become deductible for income tax purposes are all assumed to be used to repurchase shares of the Company’s common stock. Stock options and restricted stock awards are not included in the computation of diluted net income (loss) per share when they are antidilutive. Common stock outstanding reflected in the Company’s condensed consolidated balance sheets includes restricted stock awards outstanding.

The following schedule presents the calculation of basic and diluted net income per share:

	Three Months Ended December 31,				Six Months Ended December 31,
	2020		2019		2020		2019
	(In thousands except share and per share data)
Basic net income (loss) per share computation:
Net income (loss) attributable to common stockholders	$	24,501	$	20,594	$	37,167	$	10,864
Weighted average common shares  — basic		40,160,362		39,450,017		40,072,360		39,369,287
Basic net income (loss) per share	$	0.61	$	0.52	$	0.93	$	0.28
Diluted net income (loss) per share computation:
Net income (loss) attributable to common stockholders	$	24,501	$	20,594	$	37,167	$	10,864
Share computation:
Weighted average common shares  — basic		40,160,362		39,450,017		40,072,360		39,369,287
Effect of dilutive stock options and restricted stock awards		942,063		523,916		1,608,701		1,323,535
Weighted average common shares  — diluted		41,102,425		39,973,933		41,681,061		40,692,822
Diluted net income (loss) per share	$	0.60	$	0.52	$	0.89	$	0.27

For the three months ended December 31, 2020 and 2019, 372,016 and 1,015,949 shares issuable in connection with stock options and restricted stock were excluded from the diluted income per share calculation because the effect would have been antidilutive. For the six months ended December 31, 2020 and 2019, 284,792 and 797,292 shares were excluded, respectively. As of December 31, 2020, the Company had 46,893,934 shares issued and 41,559,191 shares outstanding.

Reclassifications

As discussed in Note 1, “Description of the Business”, the Company has revised its lines of revenue. There was no impact on the presentation of the Company’s condensed consolidated statements of operations.