10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2019

or

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

For the transition period from________________to________________

Commission File Number: 001-34272

___________________________________________________________________________

ZOVIO INC

(Exact name of registrant as specified in its charter)

____________________________________________________________________________

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

1811 E. Northrop Blvd, Chandler, AZ 85286

(Address, including zip code, of principal executive offices)

(858) 668-2586

(Registrant’s telephone number, including area code)

____________________________________________________________________________

None

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☒
Non-accelerated filer ☐	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

Securities registered pursuant to Section 12(b) of the Act:

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

The total number of shares of common stock outstanding as of October 25, 2019, was 30,267,821.

ZOVIO INC

FORM 10-Q

INDEX

PART I—FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Income (Loss)	4
	Condensed Consolidated Statements of Stockholders’ Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		32
Item 3. Quantitative and Qualitative Disclosures About Market Risk		43
Item 4. Controls and Procedures		44
PART II—OTHER INFORMATION		46
Item 1. Legal Proceedings		46
Item 1A. Risk Factors		46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		48
Item 3. Defaults Upon Senior Securities		48
Item 4. Mine Safety Disclosures		48
Item 5. Other Information		48
Item 6. Exhibits		49
SIGNATURES		50

2

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements.

ZOVIO INC

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value)

	As of September 30, 2019			As of December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	79,145		$	166,307
Restricted cash	25,744			18,619
Investments	2,385			2,068
Accounts receivable, net	35,675			27,015
Prepaid expenses and other current assets	24,705			18,255
Total current assets	167,654			232,264
Property and equipment, net	32,995			16,860
Operating lease assets	21,903			—
Goodwill and intangibles, net	45,932			12,441
Other long-term assets	2,625			7,927
Total assets	$	271,109		$	269,492
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	68,343		$	62,792
Deferred revenue and student deposits	54,461			63,834
Total current liabilities	122,804			126,626
Rent liability	23,882			3,183
Lease financing obligation	—			8,634
Other long-term liabilities	6,167			3,435
Total liabilities	152,853			141,878
Commitments and contingencies (see Note 15)
Stockholders' equity:
Preferred stock, $0.01 par value:
20,000 shares authorized; zero shares issued and outstanding at both September 30, 2019, and December 31, 2018	—			—
Common stock, $0.01 par value:
300,000 shares authorized; 65,636 and 65,289 issued, and 30,268 and 27,168 outstanding, at September 30, 2019 and December 31, 2018, respectively	659			653
Additional paid-in capital	188,717			205,157
Retained earnings	398,195			429,992
Treasury stock, 35,368 and 38,121 shares at cost at September 30, 2019, and at December 31, 2018, respectively	(469,315		)	(508,188		)
Total stockholders' equity	118,256			127,614
Total liabilities and stockholders' equity	$	271,109		$	269,492

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

3

ZOVIO INC

Condensed Consolidated Statements of Income (Loss)

(Unaudited)

(In thousands, except per share amounts)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Revenue	$	104,251		$	112,846		$	321,510		$	348,660
Costs and expenses:
Instructional costs and services	51,406			55,109			158,432			166,120
Admissions advisory and marketing	40,838			41,902			134,720			129,971
General and administrative	17,389			13,731			55,841			39,028
Legal settlement expense	—			—			—			141
Restructuring and impairment expense	2,467			1,225			7,890			3,795
Total costs and expenses	112,100			111,967			356,883			339,055
Operating income (loss)	(7,849		)	879			(35,373		)	9,605
Other income, net	144			367			1,040			899
Income (loss) before income taxes	(7,705		)	1,246			(34,333		)	10,504
Income tax benefit	(147		)	(415		)	(2,536		)	(7,547		)
Net income (loss)	$	(7,558	)	$	1,661		$	(31,797	)	$	18,051
Income (loss) per share:
Basic	$	(0.25	)	$	0.06		$	(1.09	)	$	0.67
Diluted	$	(0.25	)	$	0.06		$	(1.09	)	$	0.66
Weighted average number of common shares outstanding used in computing income (loss) per share:
Basic	30,263			27,061			29,230			27,131
Diluted	30,263			27,589			29,230			27,532

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

4

ZOVIO INC

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

	Common Stock			Additional Paid-in Capital			Retained Earnings			Treasury Stock
	Shares	Par Value											Total
Balance at December 31, 2017	64,887	$	649	$	201,755		$	426,356		$	(505,764	)	$	122,996
Adoption of accounting standards (Note 2)	—	—		—			(1,000		)	—			(1,000		)
Stock-based compensation	—	—		1,165			—			—			1,165
Stock issued under stock incentive plan, net of shares held for taxes	186	2		(707		)	—			—			(705		)
Net income	—	—		—			1,310			—			1,310
Balance at March 31, 2018	65,073	$	651	$	202,213		$	426,666		$	(505,764	)	$	123,766
Stock-based compensation	—	—		1,160			—			—			1,160
Stock issued under employee stock purchase plan	16	—		98			—			—			98
Stock issued under stock incentive plan, net of shares held for taxes	20	—		(48		)	—			—			(48		)
Stock repurchase	—	—		—			—			(2,424		)	(2,424		)
Net income	—	—		—			15,080			—			15,080
Balance at June 30, 2018	65,109	$	651	$	203,423		$	441,746		$	(508,188	)	$	137,632
Stock-based compensation	—	—		1,265			—			—			1,265
Exercise of stock options	122	2		453									455
Net share settlement of stock options	—	—		(1,097		)	—			—			(1,097		)
Stock issued under stock incentive plan, net of shares held for taxes	26	—		(131		)	—			—			(131		)
Net income	—	—		—			1,661			—			1,661
Balance at September 30, 2018	65,257	$	653	$	203,913		$	443,407		$	(508,188	)	$	139,785

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

5

ZOVIO INC

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands)

	Common Stock			Additional Paid-in Capital			Retained Earnings			Treasury Stock
	Shares	Par Value											Total
Balance at December 31, 2018	65,289	$	653	$	205,157		$	429,992		$	(508,188	)	$	127,614
Stock-based compensation	—	—		1,706			—			—			1,706
Exercise of stock options	6	1		59			—			—			60
Stock issued under stock incentive plan, net of shares held for taxes	284	2		(757		)	—			—			(755		)
Net loss	—	—		—			(6,642		)	—			(6,642		)
Balance at March 31, 2019	65,579	$	656	$	206,165		$	423,350		$	(508,188	)	$	121,983
Stock-based compensation	—	—		3,596			—			—			3,596
Stock issued under employee stock purchase plan	29	—		96			—			—			96
Stock issued under stock incentive plan, net of shares held for taxes	20	—		(51		)	—			—			(51		)
Stock issued under acquisition	—	3		(24,513		)				38,873			14,363
Net loss	—	—		—			(17,597		)	—			(17,597		)
Balance at June 30, 2019	65,628	$	659	$	185,293		$	405,753		$	(469,315	)	$	122,390
Stock-based compensation	—	—		3,428			—			—			3,428
Stock issued under stock incentive plan, net of shares held for taxes	8	—		(4		)	—			—			(4		)
Net loss	—	—		—			(7,558		)	—			(7,558		)
Balance at September 30, 2019	65,636	$	659	$	188,717		$	398,195		$	(469,315	)	$	118,256

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

6

ZOVIO INC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income (loss)	$	(31,797	)	$	18,051
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Provision for bad debts	10,508			19,339
Depreciation and amortization	7,171			5,200
Deferred income taxes	67			54
Stock-based compensation	8,730			3,590
Noncash lease expense	14,287			—
Net gain on marketable securities	(216		)	(63		)
Reassessment of lease charges	558			1,864
Loss on disposal or impairment of fixed assets	—			334
Changes in operating assets and liabilities:
Accounts receivable	(13,517		)	(25,418		)
Prepaid expenses and other current assets	(306		)	1,962
Other long-term assets	(336		)	2,082
Accounts payable and accrued liabilities	(1,170		)	(14,743		)
Deferred revenue and student deposits	(11,923		)	(12,034		)
Operating lease liabilities	(17,377		)	—
Other liabilities	(2,922		)	(10,886		)
Net cash used in operating activities	(38,243		)	(10,668		)
Cash flows from investing activities:
Capital expenditures	(26,956		)	(1,696		)
Purchases of investments	(102		)	(1,050		)
Capitalized costs for intangible assets	(454		)	(700		)
Cash paid in acquisition, net of cash acquired	(19,286		)	—
Sale of investments	—			975
Net cash used in investing activities	(46,798		)	(2,471		)
Cash flows from financing activities:
Proceeds from exercise of stock options	60			455
Tax withholdings related to net issuance of stock options	—			(1,097		)
Proceeds from the issuance of stock under employee stock purchase plan	96			98
Tax withholdings on issuance of stock awards	(810		)	(884		)
Repurchase of common stock	—			(2,424		)
Net cash used in financing activities	(654		)	(3,852		)
Net decrease in cash, cash equivalents and restricted cash	(85,695		)	(16,991		)
Cash, cash equivalents and restricted cash at beginning of period	190,584			205,526
Cash, cash equivalents and restricted cash at end of period	$	104,889		$	188,535
Supplemental disclosure of non-cash transactions:
Purchase of equipment included in accounts payable and accrued liabilities	$	1,582		$	462
Issuance of common stock for vested restricted stock units	$	2,650		$	2,569
Consideration for acquisition in accounts payable and accrued liabilities	$	483		$	—
Issuance of common stock for acquisitions	$	14,363		$	—
Property and equipment under build-to-suit leases	$	—		$	6,076
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	79,145		$	163,091
Restricted cash	25,744			19,786
Long-term restricted cash	—			5,658
Total cash, cash equivalents and restricted cash	$	104,889		$	188,535

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

7

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nature of Business

Zovio Inc (the “Company”), formerly known as Bridgepoint Education, Inc., is a Delaware corporation, and is an education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions to help learners and leaders achieve their aspirations. One of its wholly owned subsidiaries, Ashford University^®, is a regionally accredited academic institution, which delivers programs primarily online. Ashford University offers associate’s, bachelor’s, master’s and doctoral programs.

On April 1, 2019, the Company acquired Fullstack Academy, Inc (“Fullstack”) and on April 3, 2019, the Company acquired TutorMe.com, Inc. (“TutorMe”), which became wholly-owned subsidiaries of the Company. The operating results of Fullstack and TutorMe subsequent to the acquisition dates have been included in the Company's condensed consolidated results of operations. For further information regarding the acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements.

2. Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (“SEC”) on March 12, 2019. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.

Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP for complete annual financial statements.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. Actual results could differ from those estimates.

Comprehensive Income (Loss)

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

Goodwill and Indefinite-Lived Intangible Assets

The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each fiscal year, or more frequently if events and circumstances warrant. To evaluate the impairment of goodwill, the Company first assesses qualitative factors, such as deterioration in general economic conditions or negative company financial performance, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. To evaluate the impairment of the indefinite-lived intangible assets, the Company assesses the fair value of the assets to determine

8

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

whether they were greater or less than the carrying values. Determining the fair value of indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are inherently uncertain and may include such items as growth rates used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and a determination of appropriate market comparables.

The Company has reassessed its reporting units in 2019, noting that it has three distinct reporting units including i) Zovio which includes Ashford, ii) Fullstack and iii) TutorMe. During the third quarter of 2019, the Company's qualitative assessment of goodwill and indefinite-lived intangible assets under ASC 350, Intangibles - Goodwill and Other, indicated triggering events in its Zovio reporting unit. There were no impairment indicators in the Fullstack or TutorMe reporting units. The impairment indicator for Zovio included a sustained declining stock price, which indicated the fair value of the Zovio reporting unit was potentially less than the carrying amount. Consequently, the Company then performed Step 1 of the impairment test and assessed the fair value of that reporting unit and determined that it was less than its carrying value.

Preliminary analysis indicated potential impairment of the goodwill within the Zovio reporting unit. However, due to the time and effort required to determine the implied fair value of goodwill (i.e. Step 2 of the impairment assessment), the analysis is not complete at this time. As of September 30, 2019, Zovio’s reporting unit carrying value of goodwill is $0.7 million and its carrying value of other indefinite-lived intangible assets is $1.4 million. The Company's valuation to determine the amount of impairment will be completed in the fourth quarter of 2019.

Impairment of Long-Lived Assets

The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded if the carrying amount of the long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results.

During the third quarter of 2019, the Company's qualitative assessment of long-lived assets under ASC 360, Property and Equipment, indicated impairment indicators. The Company then performed an undiscounted cash flow analysis, noting that the related assets were recoverable. As such, no impairment in the Company’s long-lived assets is deemed necessary as of September 30, 2019.

Leases

In accordance with Accounting Standard Update (“ASU”) 2016-02, Leases (ASC 842) (“ASC 842”), leases are evaluated and classified as either operating or finance leases. The Company does not have any finance leases. The Company’s operating leases are included in operating lease assets, accounts payable and accrued liabilities, and noncurrent lease liabilities on the condensed consolidated balance sheets. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on information available at the date of adoption in calculating the present value of its existing lease payments. The incremental borrowing rate is determined using the U.S. Treasury rate adjusted to account for the Company’s credit rating and the collateralized nature of operating leases. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line method over the term of the lease.

Leased property and equipment meeting certain criteria are capitalized as finance lease assets, and the present value of the related lease payments is recognized as a finance lease liability on the condensed consolidated balance sheets. Amortization of capitalized leased assets is computed on the straight-line method over the term of the lease or the life of the related asset, whichever is shorter.

9

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Business Combinations

The Company uses the acquisition method of accounting for business combinations. This method requires the use of significant estimates, assumptions and judgments in the determination of the estimated fair value of assets acquired and liabilities assumed in order to properly allocate the purchase price at the acquisition date. The estimates, assumptions and judgments are based in part on historical experience, industry data, information obtained from the management of the acquired companies and assistance from independent third-party appraisal firms. Examples of critical estimates include assigning values to the acquired identifiable intangible assets and valuing contingent consideration and earnout liabilities. For further information regarding the acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update 2018-15 (“ASU 2018-15”), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Specifically, ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract and which costs to expense. This guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019; early adoption is permitted. Entities are permitted to apply a retrospective or a prospective transition approach to adopt the guidance.  The Company early adopted ASU 2018-15 during the period ended March 31, 2019, on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.

The Company adopted ASU 2016-02, Leases (ASC 842), as of January 1, 2019, using the modified retrospective approach. The Company elected the ‘comparatives under ASC 840 option’ as a transitional practical expedient, which allows the Company to initially apply the new lease requirements at the effective date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. It also allows the Company to report comparative periods in the financial statements under previous GAAP under ASC 840, Leases (“ASC 840”). The Company also elected the ‘package of practical expedients’ permitted under the transition guidance, which allowed the Company to (i) carry forward the historical lease classification, (ii) forgo reassessment of whether any expired or existing contracts contain leases, and (iii) forgo reassessment of whether any previously unamortized initial direct costs continue to meet the definition of initial direct costs under ASC 842. The Company did not, however, elect the ‘hindsight’ practical expedient to reassess the lease term for existing leases. Additionally, the Company does not have land easements, therefore, practical expedients pertaining to land easements are not applicable to the Company.

For the accounting policy practical expedients, the Company elected the short-term lease exemption, under which any lease less than 12 months is excluded from recognition on the balance sheet. The Company elected not to recognize right of use assets and lease liabilities for short term leases, which has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Additionally, the Company elected the non-separation of lease and non-lease components, and as a result, the Company does not need to account for lease components (e.g., fixed payments including rent) separately from the non-lease components (e.g., common-area maintenance costs).

Upon adoption of ASC 842, the Company recorded right-of-use assets of approximately $25.2 million, with corresponding operating lease liabilities of approximately $31.8 million, respectively, with an offset to accounts payable and accrued liabilities and other long-term liabilities of approximately $8.4 million to eliminate accrued rent and an offset to prepaid and other current assets of $1.7 million on the consolidated balance sheet as of January 1, 2019. The Company also derecognized an existing construction-in-process of approximately $8.6 million, with a corresponding debt obligation of the same amount for an asset under construction in build-to-suit lease arrangements. However, when the Company completed the related build-to-suit construction in April 2019, the Company recognized a right-of-use asset and lease liability on its balance sheet for the associated lease.

10

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

There was no adjustment to the opening balance of retained earnings upon adoption of the new standard given the nature of the impacts and the other transition practical expedients elected by the Company. Adoption of the standard impacted the Company’s previously reported results on January 1, 2019, as follows (in thousands):

	Closing balance at December 31, 2018		Adjustments due to ASC 842			Opening balance at January 1, 2019
Assets
Prepaid and other current assets	$	18,255	$	(1,745	)	$	16,510
Property and equipment, net	$	16,860	$	(8,634	)	$	8,226
Operating lease assets (1) (2)	$	—	$	25,165		$	25,165
Liabilities and stockholder’s equity
Accounts payable and accrued liabilities	$	62,792	$	13,177		$	75,969
Noncurrent operating lease liabilities (3)	$	3,183	$	10,243		$	13,426
Lease financing obligation	$	8,634	$	(8,634	)	$	—

⁽¹⁾  Represents the reclassification of prepaid rent to operating lease assets

⁽²⁾  Represents capitalization of operating lease assets

⁽³⁾  Represents recognition of operating lease liabilities; Previously disclosed as rent liability for the portion related to accrued rent.

The standard did not materially impact the Company’s consolidated net earnings and had no material impact on the condensed consolidated statement of cash flows. For further information regarding leases, refer to Note 10, “Lease Obligations” to the condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The update requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The update requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. The update is effective for SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company will adopt this standard on January 1, 2020 and does not believe the adoption of ASU 2016-13 will have a material impact on the Company’s consolidated financial statements.

11

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

3. Business Combinations

Acquisition of Fullstack Academy, Inc.

On April 1, 2019, the Company acquired Fullstack, a coding academy headquartered in New York, by acquiring all of its outstanding shares, pursuant to an Agreement and Plan of Reorganization (the “Fullstack Merger Agreement”). As of March 31, 2019, Fullstack had a carrying value of approximately $7.1 million of assets, excluding goodwill. At the closing of the Fullstack acquisition, the equityholders of Fullstack received consideration consisting of $17.5 million in cash (less purchase price adjustments of approximately $2.0 million, plus third-party expenses of approximately $2.0 million), and an aggregate of approximately 2,443,260 shares of the Company’s common stock, subject to escrow adjustments. Additionally, under the Fullstack Merger Agreement, the equityholders of Fullstack will be entitled to receive up to 2,250,000 contingent shares of the Company’s common stock (the “Fullstack Contingent Consideration”). The Fullstack Merger Agreement contains an employee incentive retention pool of up to $5.0 million in cash, payable at times over a two-year period.

The assets and liabilities of Fullstack were recorded on the Company’s condensed consolidated balance sheets at their preliminary estimated fair values as of April 1, 2019, the acquisition date. Fullstack’s results of operations are included in the Company’s condensed consolidated statements of income (loss) from that date. Fullstack recognized revenue of $3.3 million, had an operating loss of $3.0 million, and net loss of $3.0 million for the three months ended September 30, 2019. For the nine months endedSeptember 30, 2019, the Company recorded acquisition-related expenses of $4.1 million, in general and administrative on the condensed consolidated statement of income (loss), associated with the Fullstack acquisition. The Company accounts for business combinations using the acquisition method of accounting.

The following table summarizes the preliminary purchase price, as well as the preliminary allocation of the purchase price relating to the assets and liabilities purchased (in thousands):

Estimated cash consideration for acquired assets	$	17,540
Estimated fair value of equity	12,336
Preliminary fair value of contingent consideration payable	3,250
Total estimated purchase price	$	33,126

Preliminary Purchase Price Allocation:
Cash and cash equivalents	$	585
Accounts receivable	5,604
Prepaid and other assets	665
Property and equipment	167
Operating lease assets	1,297
Intangible assets	11,605
Other long-term assets	20
Accounts payable and accrued liabilities	(496		)
Deferred revenue	(2,350		)
Long-term liabilities	(1,297		)
Total identifiable net assets acquired	$	15,800
Deferred tax liability	(2,165		)
Goodwill	19,491
Total estimated purchase consideration	$	33,126

The fair value of the consideration to be paid exceeded the fair value of the net assets acquired and liabilities assumed, resulting in goodwill being recorded. Goodwill arising from the acquisition consists largely of future performance expected to be generated from new university and student relationships. None of the goodwill recognized is expected to be deductible for

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Notes to Condensed Consolidated Financial Statements (Unaudited)

income tax purposes. The above purchase price and purchase price allocation are preliminary and subject to future revision as the acquired assets and liabilities assumed are dependent upon the finalization of the related valuations. The fair values assigned to assets acquired and liabilities assumed for Fullstack are based upon managements best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of the valuations pertaining to tax liabilities assumed, including the calculation of deferred tax assets and liabilities.

The fair value of the common shares issued as part of the consideration paid was determined on the basis of the closing market price of the Company’s shares on the acquisition date, and also incorporated a discount for lack of marketability rates for various holding periods.

The Fullstack Contingent Consideration will become issuable, subject to the terms and conditions of the Fullstack Merger Agreement. Of the total contingent 2,250,000 shares, (i) 1,250,000 are based upon final determination of the achievement of certain employee retention requirements and is being expensed over the retention period, (ii) 500,000 shares are based upon revenue performance in 2019 and 2020, earned on a sliding scale, in the event that the revenues for Fullstack are between $25.0 million and $35.0 million, and (iii) 500,000 shares are based upon contract performance milestones in 2019 and 2020, earned on a sliding scale, in the event that Fullstack obtains between 4 and 8 new university contracts. The fair value of the performance based Fullstack Contingent Consideration arrangements was estimated by applying a Monte Carlo simulation, based upon the result of forecast information. These measures are based upon significant inputs that are not observable by the market, and are therefore deemed to be Level 3 inputs. At each subsequent reporting date, the Company will remeasure the contingent consideration and recognize any changes in value, if necessary. If the probability of achieving the performance target significantly changes from what was initially anticipated, the change could have a significant impact on the Company’s financial statements in the period recognized. No changes in the value of contingent consideration were necessary for the quarter ended September 30, 2019.

Acquisition of TutorMe.com, Inc.

On April 3, 2019, the Company acquired TutorMe, a provider of on-demand tutoring and online courses, headquartered in California, by acquiring all of its outstanding shares, pursuant to an Agreement and Plan of Reorganization (the “TutorMe Merger Agreement”). As of March 31, 2019, TutorMe had a carrying value of approximately $0.6 million of assets, excluding goodwill. At the closing of the TutorMe acquisition, in exchange for all outstanding shares of TutorMe capital stock and other rights to acquire or receive capital stock of TutorMe, the Company (i) paid a total of approximately $2.8 million in cash, subject to certain purchase price adjustments, (ii) issued a total of 309,852 shares of the Company’s common stock, and (iii) assumed all issued and outstanding options of TutorMe (the “Assumed Options”), of which a total of 231,406 shares of the Company’s common stock are underlying the Assumed Options that are subject to certain time-based vesting requirements and a total of 79,199 shares of the Company’s common stock are underlying the Assumed Options that are subject to certain performance-based vesting requirements. In addition, as part of the transactions contemplated by the TutorMe Merger Agreement, the Company (x) paid a total of approximately $1.2 million in cash to certain service providers of TutorMe as a transaction bonus and (y) issued a total of 293,621 Performance Stock Units (“PSUs”) to certain continuing service providers of TutorMe pursuant to the Company’s 2009 Stock Incentive Plan (as amended) and a restricted stock unit agreement.

The assets and liabilities of TutorMe were recorded on the Company’s condensed consolidated balance sheets at their preliminary estimated fair values as of April 3, 2019, the acquisition date. TutorMe’s results of operations are included in the Company’s condensed consolidated statements of income (loss) from that date. TutorMe recognized revenue of $0.2 million, had an operating loss of $0.5 million, and net loss of $0.5 million for the three months ended September 30, 2019. For the nine months endedSeptember 30, 2019, the Company recorded acquisition-related expenses of $2.6 million, in general and administrative on the condensed consolidated statement of income (loss), associated with the TutorMe Acquisition. The Company accounts for business combinations using the acquisition method of accounting.

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the preliminary purchase price, as well as the preliminary allocation of the purchase price relating to the assets and liabilities purchased (in thousands):

Estimated cash consideration for acquired assets	$	3,028
Estimated fair value of equity	2,026
Total estimated purchase price	$	5,054

Preliminary Purchase Price Allocation:
Cash and cash equivalents	$	214
Accounts receivable	46
Intangible assets	1,730
Accounts payable and accrued liabilities	(35		)
Deferred revenue	(200		)
Long-term liabilities	(3		)
Total identifiable net assets acquired	$	1,752
Deferred tax liability	(260		)
Goodwill	3,562
Total estimated purchase consideration	$	5,054

The fair value of the consideration to be paid exceeded the fair value of the net assets acquired and liabilities assumed, resulting in goodwill being recorded. Goodwill arising from the acquisition consists largely of future performance expected to be generated from new university and student relationships, as well as the developed technology. None of the goodwill recognized is expected to be deductible for income tax purposes. The above purchase price and purchase price allocation are preliminary and subject to future revision as the acquired assets and liabilities assumed are dependent upon the finalization of the related valuations. The fair values assigned to assets acquired and liabilities assumed for TutorMe are based upon managements best estimates and assumptions as of the reporting date, and are considered preliminary pending finalization of the valuations pertaining to tax liabilities assumed, including the calculation of deferred tax assets and liabilities.

The fair value of equity includes the common shares issued as part of the consideration paid was determined on the basis of the closing market price of the Company’s shares on the acquisition date, which also incorporated a discount for lack of marketability rates for various holding periods.

4. Revenue Recognition

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

The Company’s contracts with customers generally include multiple performance obligations, which it identifies by assessing whether each good and service promised in the contract is distinct. For each performance obligation, the Company allocates the transaction price, including fixed and variable consideration, on the basis of the relative standalone selling prices of each good and service in the contract, which is determined using observable prices.

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Tuition revenue, net	$	95,043	$	102,352	$	291,729	$	317,353
Digital materials revenue, net	5,890		6,284		18,947		18,951
Technology fee revenue, net	2,856		3,777		9,381		10,861
Other revenue, net (1)	462		433		1,453		1,495
Total revenue, net	$	104,251	$	112,846	$	321,510	$	348,660

(1) Primarily consists of revenues generated from services such as graduation fees, transcript fees, and other miscellaneous services.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Over time, over period of instruction	$	85,110	$	96,735	$	264,555	$	301,905
Over time, full tuition grant (1)	13,599		9,986		38,908		27,825
Point in time (2)	5,542		6,125		18,047		18,930
Total revenue, net	$	104,251	$	112,846	$	321,510	$	348,660

(1) Represents revenue generated from the FTG program.

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

The Company operates under one reportable segment. The Company generates the majority of its revenue from tuition, technology fees, and digital materials related to students whose primary funding source is governmental funding. Tuition represents amounts charged for course instruction, and technology fees represent amounts charged for the students’ use of the technology platform on which course instruction is delivered. Digital materials fees represent amounts charged for the digital textbooks that accompany the majority of courses taught at Ashford University. With the exception of students attending courses within the three-week conditional admission, the majority of tuition and technology fees are recognized as revenue as control of the services is transferred to the student, which occurs over the applicable period of instruction. Similarly, the majority of digital materials fees are recognized as revenue when control of the product has been transferred to the student, which occurs when the student is granted unrestricted access to the digital textbook, generally, on the first day of the course. Revenue generated from students within the conditional admission period is deferred and recognized when the student matriculates into Ashford University, which occurs in the fourth week of the course.

Ashford University’s online students generally enroll in a program that encompasses a series of five to six-week courses that are taken consecutively over the length of the program. With the exception of those students under conditional admission and students enrolled under the FTG program, online students are billed on a payment period basis on the first day of a course. Students under conditional admission are billed for the payment period upon matriculation.

If a student's attendance in a class precedes the receipt of cash from the student's source of funding, the Company establishes an account receivable and corresponding deferred revenue in the amount of the tuition due for that payment period. Cash received either directly from the student or from the student's source of funding reduces the balance of accounts receivable due from the student. Financial aid from sources such as the federal government's Title IV programs pertains to the online student's award year and is generally divided into two disbursement periods. As such, each disbursement period may contain funding for up to four courses. Financial aid disbursements are typically received during the online student's attendance in the first or second course. Since the majority of disbursements cover more courses than for which a student is currently enrolled,

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

the amount received in excess effectively represents a prepayment from the online student for up to four courses. At the end of each accounting period, the deferred revenue and related account receivable balances are reduced to present amounts attributable to the current course.

In certain cases, Ashford University provides scholarships to students who qualify under various programs. These scholarships are recognized as direct reductions of revenue consistent with the timing of recognition associated with the related performance obligations. Also, for some customers, we do not expect to collect 100% of the consideration to which we are contractually entitled and, as a result, those customers may receive discounts or price adjustments that, based on historical Company practice, represent implied price concessions and are accounted for as variable consideration. The majority of these price concessions relate to amounts charged to students for goods and services, which management has determined will not be covered by the student’s primary funding source (generally, government aid) and, as a result, the student will become directly financially responsible for them. The reduction in the transaction price that results from this estimate of variable consideration reflects the amount the Company does not expect to be entitled to in exchange for the goods and services it will transfer to the students, as determined using historical experience and current factors, and includes performing a constraint analysis. These estimates of variable consideration are recorded as direct reductions of revenue consistent with the timing of recognition associated with the related performance obligation.

A portion of tuition revenue, technology fee revenue, and digital materials revenue is generated from contracts with students enrolled under the FTG program, which is a 12-month grant that, when combined with a corporate partner’s annual tuition assistance program, enables eligible students to earn their degree without incurring student loan debt. Students enrolled under this program are eligible to take up to ten undergraduate or eight graduate courses per 12-month grant period and must first utilize 100% of the funds awarded under their employer’s annual tuition assistance program before they can be awarded the FTG grant. The grants awarded by Ashford University under the FTG program are considered a material right, and, as such, the Company records a contract liability for a portion of the consideration received or due under these contracts. The contract liability is recorded in deferred revenue and student deposits on the Company’s condensed consolidated balance sheets, and further discussed in the deferred revenue section below. The standalone selling price of the material right is determined based on the observable standalone selling price of the courses. The transaction price in each FTG contract is allocated to this material right on a relative standalone selling price basis. The contract liability is recognized as revenue at the earlier of satisfaction of the future obligation or its expiration. Billing of products and services transferred under an FTG student contract generally occurs after the conclusion of a course. There are no material differences between the timing of the products and services transferred and the payment terms.

Deferred Revenue

Deferred revenue consists of cash payments that are received or due in advance of the Company’s performance as well as deferrals associated with certain contracts that include a material right.

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

	Nine Months Ended September 30,
	2019		2018
Deferred revenue opening balance, January 1	$	21,768	$	22,001
Deferred revenue closing balance, September 30	22,549		23,833
Increase (Decrease)	$	781	$	1,832

For further information on deferred revenue and student deposits, refer to Note 8, “Other Significant Balance Sheet Accounts - Deferred Revenue and Student Deposits” and for further information on receivables, refer to Note 7, “Accounts Receivable, Net” within the condensed consolidated financial statements.

For the majority of the Company’s customers, payment for products and services is due at the beginning of each course. Under special circumstances, some customers may be offered non-interest bearing payment plan arrangements that can extend

16

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

for up to a maximum of three years. These payment plan arrangements give rise to significant financing components. However, since the Company historically collects substantially all of the consideration to which it expects to be entitled under such payment plans within one year or less, the impact of these significant financing components is not material to any period presented.

The difference between the opening and closing balances of deferred revenue primarily results from the timing difference between the Company’s performance and the customer’s payment. For the nine months endedSeptember 30, 2019, the Company recognized $21.8 million of revenue that was included in the deferred revenue balance as of January 1, 2019. For the nine months endedSeptember 30, 2018, the Company recognized $21.9 million of revenue that was included in the deferred revenue balance as of January 1, 2018. Amounts reported in the closing balance of deferred revenue are expected to be recognized as revenue within the next 12 months.

5. Restructuring and Impairment Expense

During the three and nine months endedSeptember 30, 2019, the Company recognized $2.5 million and $7.9 million, respectively, of restructuring and impairment expense. During the three and nine months endedSeptember 30, 2018, the Company recognized $1.2 million and $3.8 million, respectively, of restructuring and impairment expense. These restructuring and impairment charges were comprised of the components described below.

The Company had previously vacated or consolidated properties in San Diego and Denver, and subsequently reassessed its obligations on non-cancelable leases. In addition, the Company relocated its headquarters from San Diego, California to Chandler, Arizona. As a result of these lease reassessments and relocation, during the three and nine months endedSeptember 30, 2019 the Company recognized expense of approximately $1.3 million and $1.8 million, respectively. During the three and nine months endedSeptember 30, 2018, the Company recognized expense of approximately $0.6 million and $1.9 million, respectively.

For the three and nine months endedSeptember 30, 2019, the Company recognized $1.2 million and $6.2 million, respectively, as restructuring and impairment expense relating to severance costs for wages and benefits. There is an additional $0.1 million of related costs that will be recognized in the remainder of 2019, relating to employees that are required to render service. For the three and nine months endedSeptember 30, 2018, the Company recognized $0.9 million and $1.9 million, respectively, as restructuring and impairment expense relating to severance costs for wages and benefits, due to the Company’s execution of a strategic reorganization resulting in reductions in force. The reorganization was part of the Company’s overall reassessment of resources based upon benchmarking activities with competitors in the Company’s industry.

For the three and nine months endedSeptember 30, 2019, the Company recognized a credit of approximately $32,000, and $0.2 million respectively, as a reversal to restructuring and impairment, relating to the closure of a component of the Company's business, which was originally recorded in the fourth quarter of 2018. For the three and nine months endedSeptember 30, 2018, the Company recognized a credit of $0.3 million, respectively, as a reversal to restructuring and impairment, relating to student transfer agreements.

During the nine months endedSeptember 30, 2018, as a result of the Company vacating certain leased space, the Company retired $0.3 million of assets. There were no such charges during the nine months endedSeptember 30, 2019.

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the amounts recorded in the restructuring and impairment charges line item on the Company’s condensed consolidated statements of income (loss) for each of the periods presented (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Asset impairment	$	—		$	—		$	—		$	325
Student transfer agreement costs (credit)	(32		)	(268		)	(171		)	(268		)
Severance costs	1,220			855			6,231			1,874
Lease exit and other costs	1,279			638			1,830			1,864
Total restructuring and impairment expense	$	2,467		$	1,225		$	7,890		$	3,795

The following table summarizes the changes in the Company's restructuring and impairment liability by type during the nine months endedSeptember 30, 2019 (in thousands):

	Student Transfer Agreement Costs			Severance Costs			Lease Exit and Other Costs			Total
Balance at December 31, 2018	$	1,503		$	267		$	2,864		$	4,634
Restructuring and impairment expense (credit)	(171		)	6,231			1,830			7,890
Payments and adjustments	(22		)	(5,606		)	(3,377		)	(9,005		)
Balance at September 30, 2019	$	1,310		$	892		$	1,317		$	3,519

The restructuring liability amounts are recorded within either the (i) accounts payable and accrued liabilities account, (ii) lease liability account or (iii) other long-term liabilities account on the condensed consolidated balance sheets.

6. Fair Value Measurements

The following tables summarize the fair value information as of September 30, 2019 and December 31, 2018, respectively (in thousands):

	As of September 30, 2019
	Level 1		Level 2		Level 3		Total
Mutual funds	$	2,385	$	—	$	—	$	2,385
Contingent consideration	$	—	$	—	$	3,250	$	3,250

	As of December 31, 2018
	Level 1		Level 2		Level 3		Total
Mutual funds	$	2,068	$	—	$	—	$	2,068

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

There were no differences between amortized cost and fair value of investments as of September 30, 2019 and December 31, 2018, respectively. There were no reclassifications out of accumulated other comprehensive income during either the nine months endedSeptember 30, 2019 and 2018.

The contingent consideration represents the shares to be issued as part of the acquisition of Fullstack. The contingent

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

consideration is recorded in the other long-term liabilities line item on the Company’s condensed consolidated balance sheets, and are classified as Level 3 securities. For further information regarding acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements. The fair value of accrued contingent consideration is remeasured each reporting period. Increases or decreases in projected revenue and the related probabilities of achieving the forecast results, may result in a higher or lower fair value measurement. Changes in fair value resulting from changes in the likelihood of contingent payments are included in the condensed consolidated statements of income (loss).

7. Accounts Receivable, Net

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

	As of September 30, 2019		As of December 31, 2018
Accounts receivable	$	45,835	$	39,195
Less allowance for doubtful accounts	10,160		12,180
Accounts receivable, net	$	35,675	$	27,015

There is an immaterial amount of accounts receivable, net, at each balance sheet date with a payment due date of greater than one year.

The following table presents the changes in the allowance for doubtful accounts for accounts receivable for the periods indicated (in thousands):

	Beginning Balance		Charged to Expense		Deductions (1)			Ending Balance
Allowance for doubtful accounts receivable:
For the nine months ended September 30, 2019	$	12,180	$	10,508	$	(12,528	)	$	10,160
For the nine months ended September 30, 2018	$	15,189	$	19,339	$	(20,194	)	$	14,334

(1) Deductions represent accounts written off, net of recoveries.

8. Other Significant Balance Sheet Accounts

Prepaid Expenses and Other Current Assets

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

	As of September 30, 2019		As of December 31, 2018
Prepaid expenses	$	5,461	$	5,445
Prepaid licenses	4,973		5,840
Prepaid income taxes	200		—
Income tax receivable	4,121		5,044
Prepaid insurance	1,138		1,077
Insurance recoverable	994		723
Other current assets	7,818		126
Total prepaid expenses and other current assets	$	24,705	$	18,255

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Property and Equipment, Net

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

	As of September 30, 2019			As of December 31, 2018
Buildings, build-to-suit	$	—		$	10,434
Furniture and office equipment	42,815			31,227
Software	7,346			7,517
Leasehold improvements	18,560			3,430
Vehicles	22			22
Total property and equipment	68,743			52,630
Less accumulated depreciation and amortization	(35,748		)	(35,770		)
Total property and equipment, net	$	32,995		$	16,860

For the three months endedSeptember 30, 2019 and 2018, depreciation and amortization expense related to property and equipment was $1.6 million and $1.0 million, respectively. For the nine months endedSeptember 30, 2019 and 2018, depreciation and amortization expense was $3.9 million and $3.2 million, respectively.

Goodwill and Intangibles, Net

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

	September 30, 2019
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Capitalized curriculum costs	$	20,974	$	(19,452	)	$	1,522
Purchased intangible assets	29,185		(9,810		)	19,375
Total definite-lived intangible assets	$	50,159	$	(29,262	)	$	20,897
Goodwill and indefinite-lived intangibles						25,035
Total goodwill and intangibles, net						$	45,932
	December 31, 2018
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Capitalized curriculum costs	$	21,076	$	(19,338	)	$	1,738
Purchased intangible assets	15,850		(7,219		)	8,631
Total definite-lived intangible assets	$	36,926	$	(26,557	)	$	10,369
Goodwill and indefinite-lived intangibles						2,072
Total goodwill and intangibles, net						$	12,441

The increase in goodwill relates to the Company’s acquisitions of Fullstack and TutorMe in the second quarter of 2019. For further information regarding the acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements. The amount of goodwill recognized is subject to change, pending the final determination of the fair value of assets acquired and liabilities assumed in connection with the acquisitions.

During the third quarter of 2019, the Company's qualitative assessment of goodwill and indefinite-lived intangible assets indicated triggering events in one of its reporting units, including a declining stock price, which indicated the fair value of the

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

reporting unit was potentially less than its carrying amount. This analysis is being finalized. For further information on receivables, refer to Note 2, “Summary of Significant Accounting Policies” within the condensed consolidated financial statements.

For the three months endedSeptember 30, 2019 and 2018, amortization expense was $1.3 million and $0.6 million, respectively. For the nine months endedSeptember 30, 2019 and 2018, amortization expense was $3.3 million and $2.0 million, respectively.

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

Year Ended December 31,
Remainder of 2019	$	1,332
2020	5,252
2021	4,069
2022	3,430
2023	3,307
Thereafter	3,507
Total future amortization expense	$	20,897

Accounts Payable and Accrued Liabilities

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

	As of September 30, 2019		As of December 31, 2018
Accounts payable	$	7,747	$	5,313
Accrued salaries and wages	5,449		7,807
Accrued bonus	5,701		8,147
Accrued vacation	4,974		7,929
Accrued litigation and fees	8,041		8,041
Accrued expenses	24,280		17,692
Current leases payable	9,803		5,768
Accrued insurance liability	2,348		2,095
Total accounts payable and accrued liabilities	$	68,343	$	62,792

Deferred Revenue and Student Deposits

Deferredrevenueand studentdeposits consists ofthe following(inthousands):

	As of September 30, 2019		As of December 31, 2018
Deferred revenue	$	22,549	$	21,768
Student deposits	31,912		42,066
Total deferred revenue and student deposits	$	54,461	$	63,834

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Other Long-Term Liabilities

Other long-term liabilities consists ofthe following(inthousands):

	As of September 30, 2019		As of December 31, 2018
Uncertain tax positions	$	679	$	865
Contingent consideration	3,250		—
Other long-term liabilities	2,238		2,570
Total other long-term liabilities	$	6,167	$	3,435

9. Credit Facilities

The Company has issued letters of credit that are collateralized with cash (held in restricted cash) in the aggregate amount of $16.6 million as of September 30, 2019.

As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. The Company has entered into a surety bond facility with an insurance company to provide such bonds when required. As of September 30, 2019, the Company’s total available surety bond facility was $8.5 million, and the surety had issued bonds totaling $8.1 million on the Company’s behalf under such facility.

10. Lease Obligations

Operating Leases

The Company leases various office facilities which expire at various dates through 2023. These facilities are used for academic operations, corporate functions, enrollment services and student support services. The Company does not have any leases other than its office facilities. All of the leases were classified as operating leases for the period ended September 30, 2019, and the Company does not have any finance leases. All of the leases, other than those that may qualify for the short-term scope exception of 12 months or less, are recorded on the Company’s condensed consolidated balance sheets.

During 2018, the Company entered into a lease agreement, which commenced in April 2019, consisting of approximately 131,000 square feet of office space located in Chandler, Arizona, which extends through 2030. The Company is involved in the construction and the build-out of the space, and as such, serves as the construction agent on behalf of the landlord. Under such arrangement, the Company has obligations to fund cost over-runs in its capacity as the construction agent. The Company has determined that under the new lease accounting standard ASC 842, it does not have control during construction, and as such has derecognized the asset and financing obligation as of January 1, 2019.

As of September 30, 2019, the lease amounts on the condensed consolidated balance sheets do not include any options to extend, nor any options for early termination. The Company’s lease agreements do not include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company is not a party to any related party arrangements with respect to its lease transactions.

Some of the more significant assumptions and judgments in determining the amounts to capitalize include the determination of the discount rate, which is discussed below.

Rental expense for the three and nine months endedSeptember 30, 2019 was $5.3 million and $14.9 million, respectively, calculated in accordance with ASC 842, and rental expense for the three and nine months endedSeptember 30, 2018 was $3.7 million and $11.3 million, respectively, calculated in accordance with ASC 840.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company has agreements to sublease certain portions of its office facilities, with three active subleases as of September 30, 2019. The Company’s subleases do not include any options to extend, nor any options for early termination. The Company’s subleases do not contain any residual value guarantees or restrictive covenants. All of the subleases were classified as operating leases for the period ended September 30, 2019. The Company is subleasing approximately 28,400 square feet of office space in San Diego, California with a remaining commitment to lease of 7 months and net lease payments of $0.4 million. The Company is subleasing approximately 72,200 square feet of office space in Denver, Colorado with a remaining commitment to lease of 23 months and net lease payments of $1.9 million. The Company is subleasing additional office space of approximately 21,000 square feet in Denver, Colorado with a remaining commitment to lease of 41 months and net lease payments of $2.0 million. Sublease income for the nine months endedSeptember 30, 2019 and 2018 was $2.2 million (in accordance with ASC 842) and $2.1 million (in accordance with ASC 840), respectively.

The following tables represent the classification and amounts recorded on the condensed consolidated balance sheets as of September 30, 2019 (in thousands):

Operating lease assets:
Arizona	$	8,470
California	4,876
Colorado	7,922
Iowa	128
New York	237
Other	270
Total	$	21,903

Operating lease liabilities:
Accounts payable and accrued liabilities	$	9,804
Rent liability	23,882
Total	$	33,686

The following table represents the classification and amounts recorded on the condensed consolidated statements of income (loss) for the nine months endedSeptember 30, 2019 (in thousands):

Operating lease costs	$	14,287
Short-term lease cost	202
Variable lease costs (1)	455
Less: Sub-lease income	(2,167		)
Total net lease costs	$	12,777

(1) Variable components of the lease payments such as utilities, taxes and insurance, parking and maintenance costs.

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table represents the maturities of lease liabilities as of September 30, 2019 (in thousands):

Remainder of 2019	$	3,900
2020	9,988
2021	6,489
2022	3,915
2023	2,744
2024	2,400
Thereafter	15,265
Total minimum payments	$	44,701
Less: Interest (1)	(11,015		)
Total net lease liabilities	$	33,686

(1) Calculated using an appropriate interest rate for each individual lease. See the weighted-average discount rate noted below.

The following table summarizes the future minimum rental payments under non-cancelable operating lease arrangements in effect at December 31, 2018 (in thousands):

Year Ended December 31,
2019	$	20,382
2020	9,936
2021	6,460
2022	3,826
2023	2,726
Thereafter	17,710
Total minimum payments	$	61,040

The following table represents the lease term and discount rate used in the calculations as of September 30, 2019:

Weighted-average remaining lease term (in years):
Operating leases	6.4 years
Weighted-average discount rate:
Operating leases	7.5	%

The following table represents the cash flow information of operating leases for the nine months endedSeptember 30, 2019 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	17,377

11. Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding for the period.

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Notes to Condensed Consolidated Financial Statements (Unaudited)

Diluted income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the sum of (i) the weighted average number of common shares outstanding for the period, plus (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive securities for the periods presented include stock options, unvested restricted stock units (“RSUs”) and unvested performance stock units (“PSUs”).

The following table sets forth the computation of basic and diluted income (loss) per share for the periods indicated (in thousands, except per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Numerator:
Net income (loss)	$	(7,558	)	$	1,661	$	(31,797	)	$	18,051
Denominator:
Weighted average number of common shares outstanding	30,263			27,061		29,230			27,131
Effect of dilutive options and stock units	—			528		—			401
Diluted weighted average number of common shares outstanding	30,263			27,589		29,230			27,532
Income (loss) per share:
Basic	$	(0.25	)	$	0.06	$	(1.09	)	$	0.67
Diluted	$	(0.25	)	$	0.06	$	(1.09	)	$	0.66

The following table sets forth the number of stock options, RSUs and PSUs, excluded from the computation of diluted income (loss) per share for the periods indicated below because their effect was anti-dilutive (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Stock options	2,141	1,560	1,983	2,709
RSUs and PSUs	3,228	2	1,461	2

12. Stock-Based Compensation

The Company recorded $3.4 million and $1.3 million of stock-based compensation expense for the three months ended September 30, 2019 and 2018, respectively, and $8.7 million and $3.6 million of stock-based compensation expense for the nine months endedSeptember 30, 2019 and 2018, respectively. The related income tax benefit was $0.8 million and $0.3 million for the three months endedSeptember 30, 2019 and 2018, respectively, and $2.1 million and $0.9 million for the nine months endedSeptember 30, 2019 and 2018, respectively.

During the nine months endedSeptember 30, 2019, the Company granted 1.3 million RSUs at a weighted average grant date fair value of $5.68 and 0.4 million RSUs vested. During the nine months endedSeptember 30, 2018, the Company granted 0.8 million RSUs at a grant date fair value of $6.84 and 0.4 million RSUs vested.

During the nine months endedSeptember 30, 2019, 0.8 million market-based PSUs were granted at a weighted average grant date fair value of $6.97 and no performance-based or market-based PSUs vested. During the nine months endedSeptember 30, 2018, no performance-based or market-based PSUs were granted, and no performance-based or market-based PSUs vested.

During the nine months endedSeptember 30, 2019, the Company granted 0.2 million stock options at a grant date fair value of $4.28 and 6,274 stock options were exercised. During the nine months endedSeptember 30, 2018, the Company granted 35,088 stock options at a grant date fair value of $2.97 and 0.8 million stock options were exercised.

25

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

As of September 30, 2019, there was unrecognized compensation cost of $11.5 million related to unvested stock options, RSUs and PSUs.

13. Income Taxes

The Company uses the asset-liability method to account for taxes. Under this method, deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the condensed consolidated financial statements that will result in income and deductions in future years.

The Company recognizes deferred tax assets if realization of such assets is more-likely-than-not. In order to make this determination, the Company evaluates a number of factors including the ability to generate future taxable income from reversing taxable temporary differences, forecasts of financial and taxable income or loss, and the ability to carryback certain operating losses to refund taxes paid in prior years. The cumulative loss incurred over the three-year period ended September 30, 2019 constituted significant negative objective evidence against the Company’s ability to realize a benefit from its federal deferred tax assets. Such objective evidence limited the ability of the Company to consider in its evaluation certain subjective evidence such as the Company’s projections for future growth. On the basis of its evaluation, the Company determined that its deferred tax assets were not more-likely-than-not to be realized and that a valuation allowance against its deferred tax assets should continue to be maintained as of September 30, 2019.

The Company determines the interim income tax provision by applying the estimated effective income tax rate expected to be applicable for the full fiscal year to income before income taxes for the period. In determining the full year estimate, the Company does not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.

The Company’s current effective income tax rate that has been applied to normal, recurring operations for the nine months endedSeptember 30, 2019 was (0.4)%. The Company’s actual effective income tax rate after discrete items was 7.4% for the nine months endedSeptember 30, 2019. The Company released approximately $2.3 million in valuation allowance as a result of tax benefits recorded in connection with its acquisitions during the second quarter of 2019 for which a deferred tax liability was established in purchase accounting.

As of September 30, 2019, and December 31, 2018, the Company had $0.7 million and $0.9 million of gross unrecognized tax benefits, of which $0.6 million and $0.7 million would impact the effective income tax rate if recognized, respectively. Although the Company cannot predict the timing of resolution with taxing authorities, if any, the Company believes it is reasonably possible that the total of the unrecognized tax benefits could change in the next twelve months due to settlement with tax authorities or expiration of the applicable statute of limitations. Although the Company believes the tax accruals provided are reasonable, the final determination of tax returns under review or returns that may be reviewed in the future and any related litigation could result in tax liabilities that materially differ from the Company’s historical income tax provisions and accruals.

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The tax years 2001 through 2017 are open to examination by major taxing jurisdictions to which the Company is subject.

The Company is currently under Internal Revenue Service audit examinations of the Company’s income and payroll tax returns for the years 2013 through 2016.

The Company’s income tax returns for the tax years ended December 31, 2013 through 2015 are under examination by the California Franchise Tax Board. The audit examination is currently on hold until the Internal Revenue Service audit examination has been completed.

14. Regulatory

The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act of 1965, as amended (“Higher Education Act”), and the regulations promulgated thereunder by the U.S. Department of Education (“Department”) subject the Company to significant regulatory scrutiny on the

26

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”). Ashford University is regionally accredited by Western Association of Schools and Colleges Senior College and University Commission (“WSCUC”).

Department of Education Open Program Review of Ashford University

On July 7, 2016, Ashford University was notified by the Department that an off-site program review had been scheduled to assess Ashford University’s administration of the Title IV programs in which it participates. The off-site program review commenced on July 25, 2016 and covered students identified in the 2009-2012 calendar year data previously provided by Ashford University to the Department in response to a request for information received from the Multi-Regional and Foreign School Participation Division of the Department’s Office of Federal Student Aid (“FSA”) on December 10, 2015.

On December 9, 2016, the Department informed Ashford University that it intended to continue the program review on-site at Ashford University. The on-site program review commenced on January 23, 2017 and initially covered the 2015-2016 and 2016-2017 award years, but may be expanded if the Department deems such expansion appropriate.

Department of Education Program Participation Agreement for Ashford University

On April 23, 2018, Ashford University received an updated Program Participation Agreement from the Department. Based on the updated Program Participation Agreement, Ashford University is provisionally certified to participate in Federal Student Financial Aid Programs until March 31, 2021. Ashford University is required to submit its reapplication for continued certification by December 31, 2020.

Department of Education Close Out Audit of University of the Rockies

The Company previously recorded an expense of $1.5 million for the year ended December 31, 2018, in relation to the close out audit of University of the Rockies resulting from its merger with Ashford University in October 2018. The expense was recorded in relation to borrower defense to repayment regulations. On September 26, 2019, the Department of Education sent Ashford University a Final Audit Determination letter for the University of the Rockies. This letter confirmed that with the exception of the borrower defense to repayment regulations, none of the other audit findings resulted in financial liability. The Department also stated that additional liabilities could accrue in the future. The Company continues to assess the borrower defense to repayment regulation audit finding and may submit a request for review to the Department.

WSCUC Accreditation of Ashford University

In July 2013, WSCUC granted Initial Accreditation to Ashford University for five years, until July 15, 2018. Ashford University was notified on June 8, 2018 that the Ashford University Accreditation Visit originally scheduled for fall 2018 had been rescheduled to April 3-5, 2019. The visit took place as scheduled and the WSCUC evaluation team provided a report of the visit. Ashford University then prepared a response to the report. The team report and Ashford University’s response were considered at the June 2019 WSCUC Commission meeting. On July 12, 2019, WSCUC notified Ashford University that it had reaffirmed its accreditation for six years.

WSCUC also visited Ashford University on May 1, 2019 to conduct its federally mandated, six-month post-implementation review, due to the merger of University of the Rockies and into Ashford University which was finalized on October 31, 2018. WSCUC has verified that Ashford University has met all post-implementation requirements related to the merger of the two entities.

In a separate action, Ashford University submitted a change of control and legal status application (the “Change of Control Application”) to convert to a nonprofit California public benefit corporation, and separate from the Company (the “Conversion Transaction”). On July 12, 2019, WSCUC notified Ashford University that it had approved the Change of Control Application for the Conversion Transaction. The approval is subject to certain conditions which must be met prior to the close of the Conversion Transaction, including divestiture of financial and ownership interest in the Company by all Ashford University officers and related parties and submission of a revised services agreement with respect to the Conversion

27

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Transaction, including the incorporation of key performance indicators into that agreement. WSCUC is also requiring a post-implementation site visit of Ashford University within six months of the close of the Conversion Transaction.

U.S. Department of Education Abbreviated Preacquisition Review Letter

On October 7, 2019, the Company announced that in connection with the Conversion Transaction, the Department has provided a response (the “Abbreviated Preacquisition Review Letter”) to the request for review made on July 15, 2019. The request for an abbreviated preacquisition review was made in accordance with Department procedures pursuant to which the Department provides information about conditions it intends to impose in connection with the continued participation in federal Title IV student financial aid programs by the applicant following a change in ownership.

In the Abbreviated Preacquisition Review Letter, along with other conditions, the Department indicated that it would require the posting of an irrevocable letter of credit with the Department within ten days of the Conversion Transaction for approximately $103 million, representing the Department’s determination of 25% of the Title IV funding in fiscal year 2018 (the “25% LOC”). This letter of credit would require coverage until March 31, 2021 unless extended or replaced as determined by the Department.

GI Bill Benefits

On May 20, 2016, the Company received a letter from the Iowa Department of Education (“Iowa DOE”) indicating that, as a result of the planned closure of the Clinton Campus, the Iowa State Approving Agency (“ISAA”) would no longer continue to approve Ashford University’s programs for benefits under the GI Bill after June 30, 2016, and recommending Ashford University seek approval through the State Approving Agency of jurisdiction for any location that meets the definition of a “main campus” or “branch campus.” Ashford University began the process of applying for approval through the State Approving Agency in California (“CSAAVE”), and the Company subsequently disclosed that on June 20, 2016 it received a second letter from the Iowa DOE indicating that the Iowa DOE had issued a stay of the ISAA’s withdrawal of approval of Ashford University’s programs for GI Bill benefits effective immediately until the earlier of (i) 90 days from June 20, 2016 or (ii) the date on which CSAAVE completed its review and issued a decision regarding the approval of Ashford University in California. Ashford University received communication from CSAAVE indicating that additional information and documentation would be required before Ashford University’s application could be considered for CSAAVE approval. Ashford University subsequently withdrew the CSAAVE application and continued working with the U.S. Department of Veterans Affairs (“VA”), the Iowa DOE and the ISAA to obtain continued approval of Ashford University’s programs for GI Bill benefits and to prevent any disruption of educational benefits to Ashford University’s veteran students.

On September 15, 2016, in response to a Petition for Declaratory and Injunctive Relief (“Petition”) filed by Ashford University, the Iowa District Court for Polk County entered a written order (“Order”) staying the Iowa DOE’s announced intention to withdraw the approval of Ashford University as a GI Bill eligible institution until the entry of a final and appealable order and judgment in the action. On June 23, 2017, the Iowa District Court held a hearing on Ashford University’s Petition and on July 17, 2017, the Court ruled in favor of the Iowa DOE and denied the petition. Ashford University filed a motion for reconsideration of this ruling, which was denied on August 17, 2017. On August 23, 2017, Ashford University filed a Petition to Vacate or Modify the Iowa District Court’s July 17, 2017 ruling, based on material evidence, newly discovered, which could not with reasonable diligence have been previously discovered by Ashford University (“First Petition to Vacate”). On September 18, 2017, Ashford University appealed, inter alia, the July 17, 2017 ruling to the Iowa Supreme Court and posted an appeal bond, which stayed this matter pending resolution of Ashford University’s appeal. As a result, Ashford University’s approval was not withdrawn, and Ashford University’s programs remain approved for GI Bill purposes. The Assistant Attorney General handling this matter on behalf of the Iowa DOE also advised Ashford University that the Iowa DOE would take no action pending the post-ruling motions and appeal. On October 12, 2017, Judge Eliza Ovrom, the Iowa District Court Judge who issued the July 17, 2017 ruling, filed a Disclosure Statement revealing family ties to the Iowa Attorney General’s Office. Following motions by Ashford University for her recusal, Judge Ovrom recused herself from all further proceedings. On October 24, 2017, Ashford University filed with the Iowa Supreme Court a Petition to Vacate or, in the Alternative, for Limited Remand (“Second Petition to Vacate”), in which Ashford University argued that the July 17, 2017 ruling and all other material orders entered by Judge Ovrom should be vacated due to her previously undisclosed conflict of interest. On January 8, 2018, the Iowa Supreme Court remanded the Second Petition to Vacate to the District Court, where all proceedings in this matter were consolidated before Judge Michael Huppert. On April 26, 2018, Judge Huppert granted the Second Petition to Vacate and

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

vacated all material rulings by Judge Ovrom, including the July 17, 2017 ruling, thus on June 21, 2018, the Iowa Supreme Court issued a Procedendo stating that the appeal was concluded. Judge Huppert’s decision mooted the First Petition to Vacate and Ashford’s appeal of, inter alia, the July 17, 2017 ruling. The case is now proceeding on the merits de novo before a new judge and Ashford filed its opening brief in support of the Petition on July 25, 2019.

On July 6, 2017, Ashford University received approval from the Arizona State Approving Agency (“ASAA”) to provide GI Bill benefits to its students. On September 13, 2017, the VA accepted the ASAA’s approval, subject to Ashford University's compliance with the approval requirements, and the University subsequently received a facility code from the VA. On November 9, 2017, the VA informed Ashford University that the ASAA had not provided sufficient evidence to establish that it has jurisdictional authority over Ashford University’s online programs. The VA stated that it intends to suspend payment of educational assistance and approval of new student enrollments and student re-enrollments for Ashford University’s online programs in 60 days unless corrective action was taken.

On November 17, 2017, Ashford University filed a petition for review in the United States Court of Appeals for the Federal Circuit challenging the VA’s actions. In response to that petition, the VA agreed to stay the actions with respect to the suspension and reenrollment it had announced on November 9, 2017 through the entry of judgment in the Federal Circuit case, on the condition that Ashford University request and submit an application for approval to CSAAVE on or before January 8, 2018. Ashford University submitted an application to CSAAVE for approval on January 5, 2018. On February 21, 2018, CSAAVE provided notice of its intention not to act on Ashford University’s initial application for approval for the training of veterans and other eligible persons. The notice directed Ashford University to request approval of its application by the VA. Ashford University continues to work in good faith with the VA while its petition for review remains pending with the Federal Circuit. In keeping with this commitment, Ashford University agreed, at the VA’s request, to submit another application to CSAAVE. Ashford University filed that additional application on November 19, 2018. On December 14, 2018, however, CSAAVE again informed Ashford University that it did not intend to act on Ashford University’s application, and again indicated that Ashford University could request approval of its application directly from the VA.

The parties completed all briefing for the petition for review on May 3, 2019 and the Court held oral argument on October 2, 2019. The Court has not yet issued a ruling.

15. Commitments and Contingencies

Litigation

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

California Attorney General Investigation of For-Profit Educational Institutions

In January 2013, the Company received from the Attorney General of the State of California (“CA Attorney General”) an Investigative Subpoena relating to the CA Attorney General’s investigation of for-profit educational institutions. Pursuant to the Investigative Subpoena, the CA Attorney General requested documents and detailed information for the time period March 1, 2009 to the date of the Investigative Subpoena. On July 24, 2013, the CA Attorney General filed a petition to enforce certain categories of the Investigative Subpoena related to recorded calls and electronic marketing data. On September 25, 2013, the Company reached an agreement with the CA Attorney General to produce certain categories of the documents requested in the petition and stipulated to continue the hearing on the petition to enforce from October 3, 2013 to January 9, 2014. On January

29

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

13, 2014 and June 19, 2014, the Company received additional Investigative Subpoenas from the CA Attorney General, each requesting additional documents and information for the time period March 1, 2009 through each such date.

Representatives from the Company met with representatives from the CA Attorney General’s office on several occasions to discuss the status of the investigation, additional information requests, and specific concerns related to possible unfair business practices in connection with the Company’s recruitment of students and debt collection practices.

The parties also discussed a potential resolution involving injunctive relief, other non-monetary remedies and a payment to the CA Attorney General and in the third quarter of 2016, the Company recorded an expense of $8.0 million related to the cost of resolving this matter.

The parties did not reach a resolution and on November 29, 2017, the CA Attorney General filed suit against Ashford University and the Company.

The Company intends to vigorously defend this case and emphatically denies the allegations made by the CA Attorney General that it ever deliberately misled its students, falsely advertised its programs, or in any way was not fully accurate in its statements to investors. However, the outcome of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise. At present, the Company cannot reasonably estimate any updated range of loss for this action based on currently available information and as such, the prior accrual of $8.0 million remains.

Massachusetts Attorney General Investigation of Bridgepoint Education, Inc. and Ashford University

On July 21, 2014, the Company and Ashford University received from the Attorney General of the State of Massachusetts (“MA Attorney General”) a Civil Investigative Demand (“MA CID”) relating to the MA Attorney General’s investigation of for-profit educational institutions and whether the university’s business practices complied with Massachusetts consumer protection laws. Pursuant to the MA CID, the MA Attorney General has requested from the Company and Ashford University documents and information for the time period January 1, 2006 to present. The Company is cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time. The Company has not accrued any liability associated with this action.

Department of Justice Civil Investigative Demand

On July 7, 2016, the Company received from the U.S. Department of Justice (“DOJ”) a Civil Investigative Demand (“DOJ CID”) related to the DOJ's investigation concerning allegations that the Company may have misstated Title IV refund revenue or overstated revenue associated with private secondary loan programs and thereby misrepresented its compliance with the 90/10 rule of the Higher Education Act. Pursuant to the DOJ CID, the DOJ has requested from the Company documents and information for fiscal years 2011 to 2015. The Company is cooperating with the DOJ and cannot predict the eventual scope, duration or outcome of the investigation at this time. The Company has not accrued any liability associated with this action.

Shareholder Derivative Actions

In re Bridgepoint, Inc. Shareholder Derivative Action

On July 24, 2012, a shareholder derivative complaint was filed in California Superior Court by Alonzo Martinez. In the complaint, the plaintiff asserts a derivative claim on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned Martinez v. Clark, et al. and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement on behalf of the Company, as well as other equitable relief and attorneys’ fees.On September 28, 2012, a substantially similar shareholder derivative complaint was filed in California Superior Court by David Adolph-Laroche. In the complaint, the plaintiff asserts a derivative claim on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned Adolph-Laroche v. Clark, et al. and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched.

30

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

On October 11, 2012, the Adolph-Laroche action was consolidated with the Martinez action and the case is now captioned In re Bridgepoint, Inc. Shareholder Derivative Action. A consolidated complaint was filed on December 18, 2012 and the defendants filed a motion to stay the case while the underlying securities class action is pending. The motion was granted by the Court on April 11, 2013. A status conference was held on October 10, 2013, during which the Court ordered the stay continued for the duration of discovery in the underlying securities class action, but permitted the plaintiff to receive copies of any discovery responses served in the underlying securities class action. The stay was lifted following the settlement of the underlying securities class action and all defendants filed demurrers on October 3, 2016, which were granted with leave to amend on October 6, 2017. On October 17, 2017, the plaintiff submitted a litigation demand to the Company's Board of Directors, which appointed a working group to evaluate the demand. The Board refused the demand and the Plaintiff filed a Second Amended Complaint on October 3, 2018. All defendants filed demurrers on December 21, 2018, which were granted by the Court on June 14, 2019. As a result, the Court entered a final order dismissing the case on July 8, 2019. The plaintiff subsequently filed a notice of appeal. Based on information available to the Company at present, it cannot reasonably estimate a range of loss and accordingly has not accrued any liability associated with this action.

Stein Securities Class Action

On March 8, 2019, a securities class action complaint (the “Stein Complaint”) was filed in the U.S. District Court for the Southern District of California by Shiva Stein naming the Company, Andrew Clark, Kevin Royal, and Joseph D’Amico as defendants (the “Defendants”). The Stein Complaint alleges that Defendants made false and materially misleading statements and failed to disclose material adverse facts regarding the Company's business, operations and prospects, specifically that the Company had applied an improper revenue recognition methodology to students enrolled in the FTG program. The Stein Complaint asserts a putative class period stemming from March 8, 2016 to March 7, 2019. The Stein Complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Plaintiff Stein was appointed lead plaintiff by the Court and filed a substantially similar amended complaint on October 1, 2019.

The Company is evaluating the amended complaint and intends to vigorously defend against it. However, because of the many questions of fact and law that may arise, the outcome of the legal proceeding is uncertain at this point. Based on information available to the Company at present, the Company cannot reasonably estimate a range of loss and accordingly has not accrued any liability associated with this action.

SEC Informal Inquiry

On March 27, 2019, the Company received notice that the SEC Division of Enforcement began an informal inquiry regarding the Company, requesting various documents relating to the Company’s accounting practices, including FTG revenue recognition, receivables and other matters relating to the Company’s previously disclosed intention to restate its condensed financial statements for the three and nine months ended September 30, 2018.

Based on these requests, the eventual scope, duration and outcome of the inquiry cannot be predicted at this time. We are cooperating fully with the SEC in connection with the inquiry.

16. Subsequent Events

On October 7, 2019, the Company announced that in connection with the potential change of ownership and conversion of Ashford University to a nonprofit California public benefit corporation, the Department has provided a response to the request for review made on July 15, 2019. For further information, refer to Note 14, “Regulatory - U.S. Department of Education Abbreviated Preacquisition Review Letter” to the condensed consolidated financial statements.

In October 2019, the Company approved and executed upon a plan of restructuring, which includes the elimination of approximately 300 current positions as well as other cost-saving measures. The Company expects to record a restructuring charge of approximately $11.0 million in the fourth quarter of 2019, consisting of one-time termination benefits for employee severance, benefits and related costs.  This charge is expected to result in equivalent cash expenditures paid out over the next 12 months.

The Company evaluated events occurring between the end of its most recent fiscal year and the date of filing, noting no additional subsequent events.

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

The following Management’s Discussions and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this report. For additional information regarding our financial condition and results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018 (“Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on March 12, 2019, as well as our consolidated financial statements and related notes thereto included in Part II, Item 8 of the Form 10-K.

Unless the context indicates otherwise, in this report the terms “Zovio,” “the Company,” “we,” “us” and “our” refer to Zovio Inc, a Delaware corporation, and its wholly owned and indirect subsidiaries.

Forward-Looking Statements

This Quarterly Report on Form 10-Q (the “Form 10-Q”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements may include, among others, statements regarding future events, future financial and operating results, strategies, expectations, the competitive environment, regulation and the availability of financial resources, including, without limitation, statements regarding:

• our ability to either (a) successfully convert Ashford University to a nonprofit California public benefit corporation and for Ashford University to separate from the Company, including meeting all required conditions and obtaining all required approvals, or (b) consummate another strategic opportunity regarding Ashford University;

• our ability to post and the impact of posting a letter of credit and meeting other conditions of the Department with respect to the potential conversion and separation of Ashford University;

• our ability to comply with the extensive and continually evolving regulatory framework applicable to us and Ashford University, including Title IV of the Higher Education Act of 1965, as amended (“Higher Education Act”), and its implementing regulations, the gainful employment regulations, defense to repayment regulations, state authorization regulations, state laws and regulatory requirements, and accrediting agency requirements;

• projections, predictions and expectations regarding our business, financial position, results of operations, liquidity and capital resources, and enrollment trends at Ashford University;

• our anticipated seasonal fluctuations in enrollment and operating results;

• our ability to obtain continued approval of Ashford’s programs for GI Bill benefits through the Iowa State Approving Agency (“ISAA”), the Arizona State Approving Agency (“ASAA”), or the California State Approving Agency for Veteran's Education (“CSAAVE”), and to prevent any disruption of educational benefits to Ashford’s veteran students;

• the ability of Ashford to continue participating in the U.S. Department of Defense Tuition Assistance Program for active duty military personnel and to prevent any disruption of educational benefits to Ashford’s active duty military students;

• the outcome of various lawsuits, claims and legal proceedings;

• initiatives focused on student success, retention and academic quality;

• expectations regarding the adequacy of our cash and cash equivalents and other sources of liquidity for ongoing operations, planned capital expenditures and working capital requirements;

• expectations regarding capital expenditures;

• our ability to remediate control deficiencies in our disclosure controls and procedures;

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• the impact of accounting standards on our financial statements;

• the reasonableness and acceptance of our tax accruals;

• management's goals and objectives; and

• other similar matters that are not historical facts.

Forward-looking statements may generally be identified by the use of words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in the future tense.

Forward-looking statements should not be interpreted as a guarantee of future performance or results and will not necessarily be accurate indications of the times at or by which such performance or results will be achieved. Forward-looking statements are based on information available at the time such statements are made and the current good faith beliefs, expectations and assumptions of management regarding future events. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. For a discussion of some of these risks and uncertainties, see Part II, Item 1A, “Risk Factors” as well as the discussion of such risks and uncertainties contained in our other filings with the SEC, including the Form 10-K.

All forward-looking statements in this report are qualified in their entirety by the cautionary statements included in this report, and you should not place undue reliance on any forward-looking statements. These forward-looking statements speak only as of the date of this report. We assume no obligation to update or revise any forward-looking statements contained herein to reflect actual results or any changes in our assumptions or expectations or any other factors affecting such forward-looking statements, except to the extent required by applicable securities laws. If we do update or revise one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

Overview

Zovio Inc is an education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions to help learners and leaders achieve their aspirations. We were formerly known as Bridgepoint Education, Inc. Our wholly-owned subsidiary, Ashford University^® is a regionally accredited academic institution, which delivers programs primarily online. Ashford University offers associate’s, bachelor’s, master’s and doctoral programs primarily online. As of September 30, 2019, Ashford University offered approximately 1,220 courses and approximately 90 degree programs.

Key operating data

In evaluating our operating performance, management focuses in large part on our (i) revenue, (ii) operating income (loss) and (iii) period-end enrollment at Ashford University. The following table, which should be read in conjunction with our condensed consolidated financial statements included in Part I, Item 1 of this report, presents our key operating data for each of the periods presented (in thousands, except for enrollment data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Consolidated Statement of Income Data:
Revenue	$	104,251		$	112,846	$	321,510		$	348,660
Operating income (loss)	$	(7,849	)	$	879	$	(35,373	)	$	9,605
Consolidated Other Data:
Period-end enrollment (1)	36,349			39,584		36,349			39,584

(1) We define period-end enrollment as the number of active students on the last day of the financial reporting period. A student is considered active if the student has attended a class within the prior 15 days or is on an institutionally-approved break not to exceed 45

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days, unless the student has graduated or provided notice of withdrawal, or for new students who have completed their third week of attendance, and posted attendance in the fourth week.

Key enrollment trends

Enrollment at Ashford University decreased8.2% to 36,349 students at September 30, 2019 as compared to 39,584 students at September 30, 2018. Enrollment decreased by 4.7% since the end of the preceding fiscal year, from 38,153 students at December 31, 2018 to 36,349 students at September 30, 2019.

We believe new enrollment has been impacted by the deliberate changes in our marketing strategy in which we significantly reduced our spending in the affiliate channel and reinvested some of those savings in other channels. We have been implementing this updated marketing strategy that reflects a shift in our advertising mix, in an effort to attract prospective students who have a higher probability of being academically successful, with the goal of making meaningful improvements to the efficiency of our advertising, admissions and marketing spend.

We believe the decline in enrollment is partially attributable to a general weakening in the overall education industry due in large part to increased regulatory scrutiny, as well as due to general strengthening of the economy which drives lower unemployment and increased competition. Additionally, as described below, we generally experience a seasonal increase in new enrollments during the first quarter of each year, subsequent to holiday break.

We continue to focus our efforts on first stabilizing and then restarting enrollment growth. We are also making investments in the workflow along the student lifecycle to better support our incoming and current students. One area in which we are experiencing positive enrollment trends is within the Education Partnerships programs with various employers. These programs include the Corporate Full Tuition Grant (“FTG”) program, which provides companies with the opportunity to offer their employees a way to pursue and complete a college degree without incurring any student debt. Enrollments in the Education Partnerships programs account for approximately 30% of our total enrollment as of September 30, 2019. Revenue derived from Education Partnerships is cash pay, and is therefore not considered federal student aid for purposes of calculations under the 90/10 rule.

Trends and uncertainties regarding revenue and continuing operations

Restructuring and impairment charges

We have implemented various restructuring plans to better align our resources with our business strategy and the related charges are recorded in the restructuring and impairment expense line item on our condensed consolidated statements of income (loss). Changes to these estimates could have a material impact on the Company’s condensed consolidated financial statements. For information regarding the restructuring and impairment charges recorded, refer to Note 5, “Restructuring and Impairment Expense” to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

In October 2019, the Company approved and executed upon a plan of restructuring, which includes the elimination of approximately 300 current positions as well as other cost-saving measures. The Company expects to record a restructuring charge of approximately $11.0 million in the fourth quarter of 2019, consisting of one-time termination benefits for employee severance, benefits and related costs. This charge is expected to result in equivalent cash expenditures paid out over the next 12 months. This restructuring plan is anticipated to reduce expenses by approximately $51 million in 2020.

Proposed conversion transaction

Ashford University submitted a change in control and legal status application (the “Change of Control Application”) to the Western Association of Schools and Colleges Senior College and University Commission (“WSCUC”) seeking approval to convert to a nonprofit California public benefit corporation, and separate from the Company (the “Conversion Transaction”).

On July 12, 2019, WSCUC notified Ashford University that it had approved the Change of Control Application for the Conversion Transaction. The approval is subject to certain conditions which must be met prior to the close of the Conversion Transaction, including divestiture of financial and ownership interest in the Company by all Ashford University officers and related parties and submission of a revised services agreement with respect to the Conversion Transaction, including the incorporation of key performance indicators into that agreement. WSCUC is also requiring a post-implementation site visit of Ashford University within six months of the close of the Conversion Transaction. As part of the Conversion Transaction, Ashford University would become an independent, self-governed, nonprofit institution. Following the Conversion Transaction,

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the Company plans to operate as an education technology services company that will provide certain services to Ashford University and potentially, in the future, to other customers. On the same date, WSCUC also notified Ashford University that it had reaffirmed its accreditation for six years.

On October 7, 2019, the Company announced that in connection with the Conversion Transaction, the Department has provided a response (the “Abbreviated Preacquisition Review Letter”) to the request for review made on July 15, 2019. The request for an abbreviated preacquisition review was made in accordance with Department procedures pursuant to which the Department provides information about conditions it intends to impose in connection with the continued participation in federal Title IV student financial aid programs by the applicant following a change in ownership.

In the Abbreviated Preacquisition Review Letter, along with other conditions, the Department indicated that it would require the posting of an irrevocable letter of credit with the Department within ten days of the Conversion Transaction for approximately $103 million, representing the Department’s determination of 25% of the Title IV funding in fiscal year 2018 (the “25% LOC”). This letter of credit would require coverage until March 31, 2021 unless extended or replaced as determined by the Department.

The Company is considering various financial and insurance instruments that will allow the Company’s cash on the balance sheet to remain unrestricted. Once finalized, we may continue to pursue the Conversion Transaction with Ashford University. We are also exploring other strategic opportunities regarding Ashford University, including the possible sale of the university to another institution where we would enter into an education technology services agreement with the acquirer. Such an arrangement may likely not require the posting of the 25% LOC with the Department. It may also likely not require the Company to make a substantial cash contribution to Ashford University which is currently contemplated by the Conversion Transaction.

Acquisition of Fullstack Academy

On April 1, 2019, we acquired Fullstack Academy, Inc. (“Fullstack”), a Delaware corporation, pursuant to an Agreement and Plan of Reorganization entered into by the parties on March 12, 2019 (the “Fullstack Acquisition”). Following the Fullstack Acquisition, Fullstack became a wholly-owned subsidiary of the Company.

For information refer to Note 3, “Business Combinations” to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Acquisition of TutorMe

On April 3, 2019, we acquired TutorMe.com, Inc., a California corporation (“TutorMe”) pursuant to an Agreement and Plan of Reorganization entered into by the parties on April 3, 2019 (“TutorMe Acquisition”). TutorMe is an online education platform that provides on-demand tutoring and online courses. Following the TutorMe Acquisition, TutorMe became a wholly-owned subsidiary of the Company.

For information refer to Note 3, “Business Combinations” to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Valuation allowance

We recognize deferred tax assets if realization of such assets is more-likely-than-not. In order to make this determination, we evaluate factors including the ability to generate future taxable income from reversing taxable temporary differences, forecasts of financial and taxable income or loss. The cumulative loss incurred over the three-year period ended September 30, 2019 constituted significant negative objective evidence against our ability to realize a benefit from our federal deferred tax assets. Such objective evidence limited our ability to consider in our evaluation other subjective evidence such as our projections for future growth. On the basis of our evaluation, we determined that our deferred tax assets were not more-likely-than-not to be realized and that a valuation allowance against our deferred tax assets should continue to be maintained as of September 30, 2019.

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Recent Regulatory Developments

Negotiated Rulemaking

On July 31, 2018, the Department published a notice in the Federal Register announcing its intention to establish a negotiated rulemaking committee (the “Rulemaking Committee”) to prepare proposed regulations for the Federal Student Aid programs authorized under Title IV of the Higher Education Act of 1965, as amended. In September 2018, interested parties commented at three public hearings on the topics suggested by the Department in the notice, and suggested additional topics for consideration for action by the Rulemaking Committee.

The Rulemaking Committee met from January through March of 2019 on topics related to accreditation, competency-based education, state approval of online programs, and distance learning. The Rulemaking Committee reached consensus on all topics and the Department issued proposed regulations based on that consensus on June 12, 2019 to be effective on July 1, 2020.

The Department proposes, among other things to: (1) define the roles and responsibilities of accrediting agencies, States, and the Department in oversight of institutions participating in the Federal Student Aid programs authorized under Title IV of the Higher Education Act of 1965, as amended (Title IV, Higher Education Act programs); (2) establish ‘‘substantial compliance’’ as the standard for agency recognition; (3) modify ‘‘substantive change’’ requirements to provide greater flexibility to institutions to innovate and respond to the needs of students and employers, while maintaining strict agency oversight in instances of more complicated or higher risk changes in institutional mission, program mix, or level of credential offered; (4) clarify the Department’s accrediting agency recognition process, including accurate recognition of the geographic area within which an agency conducts business; and (5) modify the requirements for state authorization.

For additional information regarding state authorization, see the “State Authorization for Distance Education Rules” section below. For information regarding additional negotiated rulemaking, see also the “Gainful Employment” and “Defense to Repayment” sections below.

Gainful Employment

In October 2014, the Department published gainful employment regulations impacting programs required to prepare graduates for gainful employment in a recognized occupation. The gainful employment regulations became effective July 1, 2015, with certain institutional disclosure requirements which became effective early 2017.

On July 1, 2019, the Department of Education published a final rule rescinding the Department’s 2014 gainful employment regulations. The Higher Education Act (“HEA”) requires that regulations affecting programs under Title IV of the HEA be published in final form by November 1, prior to the start of the award year (July 1) to which they become effective. This section also permits the Secretary to designate any regulation as one that an entity subject to the regulations may choose to implement earlier, as well as conditions for early implementation. The Department designated the regulatory changes for early implementation, and an institution that early implements the rescission must document its early implementation internally. Ashford University has chosen and documented early implementation.

Institutions that have early implemented the rescission of the gainful employment rule are not required to report gainful employment data to the National Student Loan Data System (“NSLDS”). Additionally, those institutions that have early implemented are not required to include the disclosure template, or a link thereto, in their gainful employment program promotional materials and directly distribute the disclosure template to prospective students. Institutions that have early implemented are no longer required to post the gainful employment disclosure template and may remove the template and any other gainful employment disclosures from their web pages. Finally, an institution that has early implemented is not required to comply with the certification requirements for gainful employment programs.

Defense to Repayment

On October 28, 2016, the Department published borrower defense to repayment regulations to change processes that assist students in gaining relief under certain provisions of the Direct Loan Program regulations. The defense to repayment provisions then in effect allowed a student to assert as a defense against repayment of federal direct loans any commission of fraud or other violation of applicable state law by the school related to such loans or the educational services for which the loans were provided. The borrower defense to repayment regulations were to become effective July 1, 2017.

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On June 14, 2017, the Department announced a postponement of the 2016 defense to repayment regulations and its intention to resubmit the regulations through the negotiated rulemaking process. The Department announced an additional postponement on October 24, 2017. On February 14, 2018, the Department announced that it was postponing the effective date of this rule until July 1, 2019, so that it could complete the negotiated rulemaking process and develop the new regulations. Because the negotiated rulemaking committee did not reach consensus, the Department published a proposed regulation through a notice of proposed rulemaking (“NPRM”), took public comment, and planned to issue final regulations by November 1, 2018, effective July 1, 2019. This did not occur.

In September and October of 2018, the U.S. District Court for the District of Columbia issued a series of orders and opinions holding these procedural delays by the Department to be improper. The Court reinstated the 2016 repayment regulations as of October 16, 2018.

The 2016 defense to repayment regulations allow a borrower to assert a defense to repayment on the basis of a substantial misrepresentation, any other misrepresentation in cases where certain other factors are present, a breach of contract or a favorable nondefault contested judgment against a school for its act or omission relating to the making of the borrower’s loan or the provision of educational services for which the loan was provided. In addition, the financial responsibility standards contained in the new regulations establish the conditions or events that trigger the requirement for an institution to provide the Department with financial protection in the form of a letter of credit or other security against potential institutional liabilities. Triggering conditions or events include, among others, certain state, federal or accrediting agency actions or investigations, and in the case of publicly traded companies, receipt of certain warnings from the SEC or the applicable stock exchange, or the failure to timely file a required annual or quarterly report with the SEC. The new regulations also prohibit schools from requiring that students agree to settle future disputes through arbitration.

On March 15, 2019, the Department issued guidance for the implementation of parts of the regulations. The guidance covers an institution's responsibility in regard to reporting mandatory and discretionary triggers as part of the financial responsibility standards, class action bans and pre-dispute arbitration agreements, submission of arbitral and judicial records, and repayment rates. We will continue to monitor guidance on or changes to these 2016 regulations that are currently in effect subject to the early implementation of the 2019 regulations described below.

On August 30, 2019, the Department finalized the regulations derived from the 2017-2018 negotiated rulemaking process and subsequent public comments. This version of the borrower defense regulations applies to all federal student loans made on or after July 1, 2020, and, among other things: grants borrowers the right to assert borrower defense to repayment claims against institutions, regardless of whether the loan is in default or in collection proceedings; allows borrowers to file defense to repayment claims three years from either the student's date of graduation or withdrawal from the institution; and gives students the ability to allege a specific amount of financial harm and to obtain relief in an amount determined by the Department, which may be greater or lesser than their original claim amount. It also includes financial triggers and other factors for recalculating an institution's financial responsibility composite score that differ from those in the 2016 regulations.

The regulations will take effect July 1, 2020; however, the regulations relating to financial responsibility will be available for early implementation. We are currently considering the costs and benefits of the early implementation option.

State Authorization for Distance Education Rules

On December 19, 2016, the Department of Education published regulations related to state authorization of distance education effective July 1, 2018. On July 3, 2018, the Department published a notice delaying the effective date of the regulations until July 1, 2020, and proceeded to develop alternative regulations through consensus language which was achieved during a 2019 negotiated rulemaking process. However, the National Education Association and others filed a legal challenge to the delay in the United States District Court, Northern District of California, asking that the 2016 state authorization regulations be allowed to go into effect. On April 26, 2019, the Court vacated the Department’s delay of the 2016 state authorization regulations and reinstated the regulations effective May 26, 2019. Although the Department has stated that it intends to publish the alternative regulations for early implementation as soon as possible, we are currently evaluating the impact of the 2016 state authorization regulations and may incur additional costs and regulatory burdens and risks during the interim period.

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Cohort Default Rate

For each federal fiscal year, the Department calculates a rate of student defaults over a three-year measuring period for each educational institution, which is known as a “cohort default rate.” An institution may lose its eligibility to participate in the Direct Loan Program and the Federal Pell Grant Program if, for each of the three most recent federal fiscal years, 30% or more of its students who became subject to a repayment obligation in that federal fiscal year defaulted on such obligation by the end of the following federal fiscal year.

The most recent official three-year cohort default rates for Ashford University for the 2016, 2015 and 2014 federal fiscal years were 13.7%, 13.5% and 14.9%, respectively.

For additional information regarding the regulatory environment and related risks, see Part I, Item 1, “Business” and Part I, Item 1A, “Risk Factors” of the Form 10-K.

Seasonality

Our operations are generally subject to seasonal trends. We generally experience a seasonal increase in new enrollments during the first quarter of each year, subsequent to holiday break, as well as during the third quarter each year, when most other colleges and universities begin their fall semesters. While we enroll students throughout the year, our fourth quarter revenue generally is lower than other quarters due to the holiday break in December, with an increase in the first quarter of each year.

Critical Accounting Policies and Use of Estimates

The critical accounting policies and estimates used in the preparation of our consolidated financial statements are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Use of Estimates” included in Part II, Item 7 of the Form 10-K.

On January 1, 2019, the Company adopted ASU 2016-02, Leases (ASC 842), using the modified retrospective method. For information regarding the impact of this recent accounting pronouncements, refer to Note 2, “Summary of Significant Accounting Policies - Recent Accounting Pronouncements” as well as Note 10, “Lease Obligations” to our condensed consolidated financial statements included elsewhere in this report.

Business Combinations

We use the acquisition method of accounting for business combinations. This method requires the use of significant estimates, assumptions and judgments in the determination of the estimated fair value of assets acquired and liabilities assumed in order to properly allocate the purchase price at the acquisition date. The allocation of the purchase price for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the identifiable tangible and intangible assets acquired and liabilities assumed based on their respective fair values. The estimates, assumptions and judgments are based in part on historical experience, industry data, information obtained from the management of the acquired companies and assistance from independent third-party appraisal firms. Examples of critical estimates include assigning values to the acquired identifiable intangible assets and valuing contingent consideration and earnout liabilities. For further information regarding the acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements.

There were no other material changes to these critical accounting policies and estimates during the nine months endedSeptember 30, 2019.

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Results of Operations

The following table sets forth our condensed consolidated statements of income data as a percentage of revenue for each of the periods indicated:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Instructional costs and services	49.2		48.8		49.2		47.6
Admissions advisory and marketing	39.1		37.1		41.9		37.3
General and administrative	16.7		12.2		17.4		11.2
Legal settlement expense	—		—		—		0.0
Restructuring and impairment expense	2.4		1.1		2.5		1.1
Total costs and expenses	107.4		99.2		111.0		97.2
Operating income (loss)	(7.4	)	0.8		(11.0	)	2.8
Other income, net	0.1		0.3		0.3		0.3
Income (loss) before income taxes	(7.3	)	1.1		(10.7	)	3.1
Income tax benefit	(0.1	)	(0.4	)	(0.8	)	(2.1	)
Net income (loss)	(7.2	)%	1.5	%	(9.9	)%	5.2	%

Three Months Ended September 30, 2019 Compared to Three Months Ended September 30, 2018

Revenue. Our revenue for the three months ended September 30, 2019 and 2018, was $104.3 million and $112.8 million, respectively, representing adecrease of $8.5 million, or 7.6%. The decrease between periods was primarily due to adecrease of 6.4% in average weekly enrollment from 39,107 students for the three month period ended September 30, 2018 to 36,590 students for the three month period ended September 30, 2019. As a result of the decrease in enrollments, tuition revenue decreased by approximately $5.7 million. The decrease in revenue between periods was also due to higher scholarships for the period, anincrease of $5.5 million. The overall revenue decrease was partially offset by net revenue from subsidiaries of $3.6 million, as well as anincrease in net revenue generated from course digital materials of approximately $1.2 million, and a tuition increase, effective as of January 1, 2019.

Instructional costs and services. Our instructional costs and services for the three months ended September 30, 2019 and 2018, were $51.4 million and $55.1 million, respectively, representing adecrease of $3.7 million, or 6.7%. Specific decreases between periods primarily include bad debt of $4.5 million and corporate support services of $2.0 million, partially offset by an increase in direct compensation of $1.0 million, instructional supplies of $0.9 million, and other subsidiary costs of $0.8 million. Instructional costs and services, as a percentage of revenue, for the three months ended September 30, 2019 and 2018, were 49.2% and 48.8%, respectively, representing anincrease of 0.4%. This increase primarily included increases in direct compensation of 2.4%, instructional supplies of 0.9%, and other subsidiary costs of 0.8%, partially offset by a decrease in bad debt of 3.8%. As a percentage of revenue, bad debt expense was 2.9% for the three months endedSeptember 30, 2019, compared to 6.6% for three months endedSeptember 30, 2018.

Admissions advisory and marketing. Our admissions advisory and marketing expenses for the three months ended September 30, 2019 and 2018, were $40.8 million and $41.9 million, respectively, representing adecrease of $1.1 million, or 2.5%. Specific factors contributing to the overall decrease between periods were decreases in advertising costs of $2.4 million, compensation of $1.5 million, and transaction costs of $0.3 million. These decreases were partially offset by increases in corporate support services of $1.8 million and other subsidiary costs of $1.4 million. Admissions advisory and marketing, as a percentage of revenue, for the three months ended September 30, 2019 and 2018, were 39.1% and 37.1%, respectively, representing anincrease of 2.0%. This increase primarily included increases in corporate support services of 1.6% and other subsidiary costs of 1.3%, partially offset by decreases in advertising costs of 0.9% and compensation of 0.3%.

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General and administrative. Our general and administrative expenses for the three months ended September 30, 2019 and 2018, were $17.4 million and $13.7 million, respectively, representing anincrease of $3.7 million, or 26.6%. The increase between periods was primarily due to increases in administrative compensation of $3.9 million and professional fees of $0.8 million, partially offset by adecrease in transaction costs of $1.2 million. General and administrative expenses, as a percentage of revenue, for the three months ended September 30, 2019 and 2018, were 16.7% and 12.2%, respectively, representing anincrease of 4.5%. This increase was primarily due to increases in administrative compensation of 4.4%, and professional fees of 1.0%, partially offset by adecrease in transaction costs of 1.0%.

Restructuring and impairment charges. We recorded a charge of approximately $2.5 million to restructuring and impairment for the three months ended September 30, 2019, comprised primarily of severance costs resulting from a previous reduction in force, and costs associated with the Company relocating its headquarters from San Diego, California to Chandler, Arizona. For the three months ended September 30, 2018, we recorded a charge of $1.2 million to restructuring and impairment, comprised primarily of revised estimates of lease charges as well as severance costs resulting from a reduction in force.

Other income, net. Our other income, net, was approximately $0.1 million for the three months ended September 30, 2019 and approximately $0.4 million for the three months ended September 30, 2018. The decrease between periods was primarily due to decreased interest income on average cash balances.

Income tax benefit. We recognized an income tax benefit of $0.1 million and $0.4 million, for the three months ended September 30, 2019 and 2018, respectively, at effective tax rates of 1.9% and (33.3)%, respectively.

Net income (loss). Our net loss was $7.6 million for the three months ended September 30, 2019, compared to net income of $1.7 million for the three months ended September 30, 2018, a $9.3 million decrease in net income as a result of the factors discussed above.

Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018

Revenue. Our revenue for the nine months endedSeptember 30, 2019 and 2018, was $321.5 million and $348.7 million, respectively, representing adecrease of $27.2 million, or 7.8%. The decrease between periods was primarily due to adecrease of 6.5% in average weekly enrollment from 40,420 students for the nine month period ended September 30, 2018 to 37,794 students for the nine month period ended September 30, 2019. As a result of the decrease in enrollments, tuition revenue decreased by approximately $14.0 million. The decrease in revenue between periods was also due to higher scholarships for the period, anincrease of $18.8 million. The overall revenue decrease was partially offset by net revenue from subsidiaries of $6.2 million, a tuition increase, effective as of January 1, 2019, as well as anincrease in net revenue generated from course digital materials of approximately $0.4 million.

Instructional costs and services. Our instructional costs and services for the nine months endedSeptember 30, 2019 and 2018, were $158.4 million and $166.1 million, respectively, representing adecrease of $7.7 million, or 4.6%. In addition to the decline in enrollment, specific decreases between periods include bad debt of $8.8 million, corporate support services of $3.0 million, and instructor fees of $0.9 million. These decreases were partially offset by increases in instructional supplies of $2.7 million and other subsidiary costs of $1.9 million. Instructional costs and services, as a percentage of revenue, for the nine months endedSeptember 30, 2019 and 2018, were 49.2% and 47.6%, respectively, representing anincrease of 1.6%. This increase primarily included increases in direct compensation costs of 1.3%, instructional supplies of 0.9%, other subsidiary costs of 0.6%, information technology costs of 0.6%, and facilities costs of 0.4%. These increases were partially offset by a decrease in bad debt of 2.3%. As a percentage of revenue, bad debt expense was 3.3% for the nine months endedSeptember 30, 2019, compared to 5.5% for the nine months endedSeptember 30, 2018.

Admissions advisory and marketing. Our admissions advisory and marketing expenses for the nine months endedSeptember 30, 2019 and 2018, were $134.7 million and $130.0 million, respectively, representing anincrease of $4.7 million, or 3.7%. Specific factors contributing to the overall increase between periods include increases in corporate support services of $3.2 million, other subsidiary costs of $2.8 million, consulting and professional fees of $1.3 million, advertising costs of $0.8 million, and license fees of $0.3 million. These increases were partially offset by decreases in compensation costs of $4.1 million. Our admissions advisory and marketing expenses, as a percentage of revenue, for the nine months endedSeptember 30, 2019 and 2018, were 41.9% and 37.3%, respectively, representing anincrease of 4.6%. This increase primarily included increases in advertising costs of 1.7%, other subsidiary costs of 0.9%, corporate support services of 0.8%, consulting and professional fees of 0.5%, license fees of 0.2%, and facilities costs of 0.2%.

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General and administrative. Our general and administrative expenses for the nine months endedSeptember 30, 2019 and 2018, were $55.8 million and $39.0 million, respectively, representing anincrease of $16.8 million, or 43.1%. The increase between periods was primarily due to increases in administrative compensation of $9.1 million, acquisition costs of $6.7 million, and consulting and professional fees of $1.3 million, partially offset by decreases in corporate support services of $0.2 million. Our general and administrative expenses, as a percentage of revenue, for the nine months endedSeptember 30, 2019 and 2018, were 17.4% and 11.2%, respectively, representing anincrease of 6.2%. This increase was primarily due to increases in administrative compensation of 3.5%, acquisition costs of 2.1%, and other administrative costs of 0.7%.

Legal settlement expense. For the nine months endedSeptember 30, 2019, there were no legal settlement expenses. There were $0.1 million of legal settlement expenses for the nine months endedSeptember 30, 2018.

Restructuring and impairment charges. We recognized $7.9 million of restructuring and impairment charges for the nine months endedSeptember 30, 2019, comprised primarily of severance costs resulting from a reduction in force, as well as revised estimates of lease charges, and costs associated with the Company relocating its headquarters from San Diego, California to Chandler, Arizona. For the nine months endedSeptember 30, 2018, we recognized $3.8 million of restructuring and impairment charges, comprised primarily of revised estimates of lease charges as well as severance costs resulting from a reduction in force.

Other income, net. Our other income, net, was $1.0 million for the nine months endedSeptember 30, 2019, as compared to $0.9 million for the nine months endedSeptember 30, 2018, representing anincrease of $0.1 million. The increase between periods was primarily due to increased interest income on average cash balances.

Income tax benefit. We recognized an income tax benefit of $2.5 million and $7.5 million for the nine months endedSeptember 30, 2019 and 2018, respectively, at effective tax rates of 7.4% and (71.8)%, respectively.

Net income (loss). Our net loss was $31.8 million for the nine months endedSeptember 30, 2019 compared to net income of $18.1 million for the nine months endedSeptember 30, 2018, representing a $49.9 million decrease as a result of the factors discussed above.

Liquidity and Capital Resources

We finance our operating activities and capital expenditures primarily through cash on hand. At September 30, 2019 and December 31, 2018, our cash and cash equivalents were $79.1 million and $166.3 million, respectively. At September 30, 2019 and December 31, 2018, we had total restricted cash of $25.7 million and $24.3 million. The balances at September 30, 2019 and December 31, 2018 had investments of $2.4 million and $2.1 million, respectively. At September 30, 2019, we had no long-term debt.

We manage our excess cash pursuant to the quantitative and qualitative operational guidelines of our cash investment policy. Our cash investment policy, which is managed by our Chief Financial Officer, has the following primary objectives: (i) preserving principal, (ii) meeting our liquidity needs, (iii) minimizing market and credit risk, and (iv) providing after-tax returns. Under the policy’s guidelines, we invest our excess cash exclusively in high-quality, U.S. dollar-denominated financial instruments. For a discussion of the measures we use to mitigate the exposure of our cash investments to market risk, credit risk and interest rate risk, see Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk” in this Form 10-Q.

There was a slight increase in the fair value of our investments at September 30, 2019 as compared to December 31, 2018. We believe that any fluctuations we have recently experienced are temporary in nature and that while some of our securities are classified as available-for-sale, we have the ability and intent to hold them until maturity, if necessary, to recover their full value.

Title IV and other governmental funding

Ashford University derives the substantial majority of its respective revenues from students who enroll and are eligible for various federal student financial assistance programs authorized under Title IV of the Higher Education Act. Ashford University is subject to significant regulatory scrutiny as a result of numerous standards that must be satisfied in order to participate in Title IV programs. For additional information regarding Title IV programs and the regulation thereof, see “Business—Regulation” included in Part I, Item 1 of the Form 10-K. The balance of revenues derived by Ashford University is from government tuition assistance programs for military personnel, including veterans, payments made in cash by individuals, reimbursement from corporate affiliates and private loans.

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If we were to become ineligible to receive Title IV funding or other governmental funding, our liquidity would be significantly impacted. The timing of disbursements under Title IV programs is based on federal regulations and our ability to successfully and timely arrange financial aid for Ashford University’s students. Title IV funds are generally provided in multiple disbursements before we earn a significant portion of tuition and fees and incur related expenses over the period of instruction. Students must apply for new loans and grants each academic year. These factors, together with the timing at which Ashford University’s students begin their programs, affect our revenues and operating cash flow.

Stock repurchase programs

The Company's board of directors may authorize us to repurchase outstanding shares of its common stock from time to time in the open market through block trades or otherwise depending on market conditions and other considerations, pursuant to the applicable rules of the SEC. The Company's policy is to retain these repurchased shares as treasury shares and not to retire them. The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant. The timing and extent of any repurchases will depend upon market conditions, the trading price of our shares and other factors, and subject to the restrictions relating to volume, price and timing under applicable law. We may commence or suspend share repurchases at any time or from time to time.

Operating activities

Net cash used in operating activities was $38.2 million for the nine months endedSeptember 30, 2019, compared to net cash used in operating activities of $10.7 million for the nine months endedSeptember 30, 2018, an overall increase between periods in net cash used in operating activities of $27.6 million. This increase in cash used in operating activities is primarily attributable to the $49.8 million decrease in net income between periods. The decrease in net income is partially offset by the net changes in operating assets and liabilities, including a $13.6 million smaller decrease in accounts payable and accrued liabilities balances and an $11.9 million smaller decrease in the accounts receivable balances, in current year versus prior year, due to changes in enrollment.

Investing activities

Net cash used in investing activities was $46.8 million for the nine months endedSeptember 30, 2019, compared to net cash used in investing activities of $2.5 million for the nine months endedSeptember 30, 2018. During the nine months endedSeptember 30, 2019, we paid net cash for acquisitions of $19.3 million, whereas there were no acquisitions in the prior year. Capital expenditures for the nine months endedSeptember 30, 2019 were $27.0 million, compared to $1.7 million for the nine months endedSeptember 30, 2018. During the nine months endedSeptember 30, 2019, we capitalized costs for intangibles of $0.5 million, and purchases of investments of approximately $0.1 million. This is compared to capitalized costs for intangibles of $0.7 million, purchases of investments of $1.1 million, and sales of investments of $1.0 million for the nine months endedSeptember 30, 2018. We expect our capital expenditures to be approximately $33.0 million for the year ending December 31, 2019.

Financing activities

Net cash used in financing activities was $0.7 million for the nine months endedSeptember 30, 2019, compared to net cash used in financing activities of $3.9 million for the nine months endedSeptember 30, 2018. During each of the nine months endedSeptember 30, 2019 and 2018, net cash used included tax withholdings related to the issuance of restricted stock units vesting, proceeds from the issuance of stock under employee stock purchase plan, and cash provided by stock option exercises. During the nine months endedSeptember 30, 2018, there was also tax withholdings related to net issuance of stock options and a repurchase of common stock.

Based on our current level of operations, we believe that our future cash flows from operating activities and our existing cash and cash equivalents will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months. However, changes could occur that would consume our available capital resources before that time. Our capital requirements depend on numerous factors, including our ability to continue to generate revenue. There can be no assurance that additional funding, if necessary, will be available to us on favorable terms, if at all.

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Off-Balance Sheet Arrangements

As part of our normal business operations, we are required to provide surety bonds in certain states where we do business. In May 2009, we entered into a surety bond facility with an insurance company to provide such bonds when required. As of September 30, 2019, our total available surety bond facility was $8.5 million, and the surety had issued bonds totaling $8.1 million on our behalf under such facility.

Significant Contractual Obligations

The following table sets forth, as of September 30, 2019, certain significant cash and contractual obligations that will affect our future liquidity:

	Payments Due by Period
(In thousands)	Total		2019		2020		2021		2022		2023		Thereafter
Operating lease obligations	$	44,364	$	3,874	$	9,891	$	6,394	$	3,820	$	2,721	$	17,664
Other contractual obligations	47,926		5,774		15,205		9,074		7,319		5,554		5,000
Uncertain tax positions	679		—		679		—		—		—		—
Total	$	92,969	$	9,648	$	25,775	$	15,468	$	11,139	$	8,275	$	22,664

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, refer to Note 2, “Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

Market and Credit Risk

Pursuant to our cash investment policy, we attempt to mitigate the exposure of our cash and investments to market and credit risk by (i) diversifying concentration to ensure we are not overly concentrated in a limited number of financial institutions, (ii) monitoring and managing the risks associated with the national banking and credit markets, (iii) investing in U.S. dollar-denominated assets and instruments only, (iv) diversifying account structures so that we maintain a decentralized account portfolio with numerous stable, highly rated and liquid financial institutions and (v) ensuring that our investment procedures maintain a defined and specific scope such that we will not invest in higher-risk investment accounts, including financial swaps or derivative and corporate equities. Accordingly, pursuant to the guidelines established by our cash investment policy, we invest our excess cash exclusively in high-quality, U.S. dollar-denominated financial instruments.

Despite the investment risk mitigation strategies we employ, we may incur investment losses as a result of unusual and unpredictable market developments, and we may experience reduced investment earnings if the yields on investments that are deemed to be low risk remain low or decline further in this time of economic uncertainty. Unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio.

We have no derivative financial instruments or derivative commodity instruments.

Interest Rate Risk

To the extent we borrow funds, we would be subject to fluctuations in interest rates. As of September 30, 2019, we had no outstanding borrowings.

Our future investment income may fall short of expectations due to changes in interest rates. At September 30, 2019, a hypothetical 10% increase or decrease in interest rates would not have a material impact on our future earnings, fair value or cash flows related to interest earned on our cash, cash equivalents or investments.

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Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of any possible controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Financial Officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report pursuant to Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act. Based on this evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level as of September 30, 2019.

Material weaknesses in internal control over financial reporting

Management has concluded that there were matters that constituted material weaknesses in our internal control over financial reporting. These material weaknesses relate to (i) control design in the accounting of the student contracts for the FTG program whereby revenue was misstated due to allowances that had not been properly determined and contained computational errors, which also resulted in misstatements in accounts receivable and its provision for bad debts and deferred revenue and student deposits; and (ii) operating effectiveness of review controls in the determination of the accounting for nonrecurring transactions and new accounting standards. Specifically, our controls were not effective as management misapplied accounting guidance and did not arrive at the proper accounting conclusions, resulting in misstatement of restricted cash and other long-term assets as of September 30, 2018 related to a long-term letter of credit issued as collateral for the build-to-suit lease; and management incorrectly applied ASC 606 upon adoption on January 1, 2018 as it relates to the FTG program, specifically the period of time for which to recognize revenue in the fiscal year 2018 related to FTG students that become inactive. These material weaknesses resulted in the restatement of the Company’s financial statements. Accordingly, management has determined that the Company's internal control over financial reporting was not effective as of September 30, 2019 due to material weaknesses.

Management's Remediation Efforts

We are committed to remediating the material weaknesses by implementing changes to our internal control over financial reporting. Our Principal Financial Officer is responsible for implementing changes and improvements in internal control over financial reporting and for remediating the control deficiencies that gave rise to the material weaknesses.

Throughout the first three quarters of 2019, we have implemented measures to remediate the underlying causes of the control deficiencies. These measures include (i) improving the internal communication procedures between operations and accounting personnel; (ii) enhancing our controls over the FTG accounting models, including more detailed steps to evaluate and revise critical assumptions and estimates to be more precise; (iii) implementing enhanced analytical controls to compensate for the manual processes; (iv) technical accounting training for key financial management; and (v) engaging external consultants, as needed, to provide support related to more complex applications of GAAP related to nonrecurring transactions and new accounting standards.

We believe these measures will remediate the underlying control deficiencies that gave rise to the material weaknesses. We are committed to continuing to improve our internal control processes and will continue to review, optimize and enhance our financial reporting controls and procedures. As we continue to evaluate and work to improve our internal control over financial reporting, we may take additional measures to address control deficiencies, or we may modify, or in appropriate circumstances not complete, certain of the remediation measures described above. These material weaknesses will not be

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considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.

Changes in Internal Control Over Financial Reporting

We continually assess the adequacy of our internal control over financial reporting and make improvements as deemed appropriate. As discussed above, during the three months ended September 30, 2019, management implemented certain remediation measures to improve our internal control over financial reporting and to remediate the previously identified material weaknesses.

Additionally, in April 2019, we completed our acquisitions of both Fullstack Academy, Inc. (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”). As the acquisitions occurred in the second quarter of 2019, the scope of our evaluation of the effectiveness of internal control over financial reporting does not include Fullstack or TutorMe. This exclusion is in accordance with the SEC's general guidance that an assessment of a recently acquired business may be omitted from our scope for a period not to exceed one year from the date of the acquisition.

Aside from the above, there were no changes in internal control over financial reporting, during the three months ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1.  Legal Proceedings.

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

Item 1A.  Risk Factors.

Investing in our common stock involves risk. Before making an investment in our common stock, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of the Form 10-K. The risks described in the Form 10-K are those which we believe are the material risks we face, and such risks could materially adversely affect our business, prospects, financial condition, cash flows and results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may impact us. Except as set forth below, there have been no material changes in our risk factors from those previously disclosed in the Form 10-K.

Our financial results may suffer if we fail to successfully implement our restructuring plans and/or cost reduction initiatives aimed at right-sizing our operations to match revenue streams.

We have described elsewhere in this Form 10-Q our planned reduction in force which is intended to strengthen our business by right-sizing our operations to match revenue streams. We also described various restructuring charges related to this plan. If we fail to complete our restructuring plans timely and successfully, or if we fail to achieve the intended cost savings, our financial condition, results of operations and cash flows may be further impacted. This plan also may have an adverse impact upon the morale or motivation of our employees and may result in further distractions to our management. In addition, management will continue to evaluate our cost structure, and additional restructuring plans may be needed. Any cost-saving measures could impact employee retention. In addition, we cannot be sure that the cost reduction will be successful in reducing our overall expenses as we expect or that additional costs, or reduced revenue, will not offset any such reductions. If our operating costs are higher than we expect or if we do not maintain adequate control of our costs and expenses, our results of operations may be adversely affected.

As we transition to become an education technology services company, the separation of Ashford University, either by sale to another university or via the Conversion Transaction, may not be completed on the terms or timeline currently contemplated and failure to complete, or any delay of, the separation of Ashford University from Zovio Inc may negatively impact our planned business, financial condition or results of operations.

We are planning the separation of Ashford University from Zovio Inc by either a sale to another university or the Conversion Transaction, either of which may be subject to a number of conditions including, among other things, regulatory approval. There can be no assurance that a sale of the university will be on what investors may consider to be reasonable terms or that the conditions to the completion of the Conversion Transaction will be satisfied, or that the separation will be completed on the terms or timeline currently contemplated, if at all. Other unanticipated developments could further delay, prevent or otherwise adversely affect the separation of the university, including disruptions in the capital and other financial markets, among other things. If the separation of the university is not completed or is delayed, we will be subject to several risks, including but not limited to:

• a failure to complete the separation and transition or a delay in such events could result in a negative perception by the market of the Company generally and a resulting decline in the market price of our common stock;

• the Company and Ashford University may experience negative reactions from its employees and business partners; and

• there may be substantial disruption to our business and a distraction of our management team and employees from day-to-day operations, because matters related to the separation and transition have required substantial commitments of time and financial and other resources, which could otherwise have been devoted to other opportunities that might have been beneficial.

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If we fail to effectively identify, pursue and consummate acquisitions, either in the U.S. or outside of the U.S., our ability to grow could be impacted and our profitability may be adversely affected.

Acquisitions are one component of our overall long-term growth strategy. The successful implementation of this strategy depends upon the Company’s ability to identify suitable domestic and international acquisition candidates, acquire such businesses on acceptable terms and finance such acquisitions. There can be no assurance that such candidates will be available or, if such candidates are available, that the price will be attractive or that the Company will be able to identify, acquire or finance such businesses successfully. In addition, in pursuing such acquisition opportunities, the Company may compete with other entities with similar growth strategies; these competitors may be larger and have greater financial and other resources than the Company. Competition for these acquisition targets could also result in increased prices of acquisition targets and/or a diminished pool of companies available for acquisition. There may be particular difficulties and complexities (regulatory or otherwise) associated with our expansion into international markets, and our strategies may not succeed beyond our current markets. If we are unable to effectively address these challenges, our ability to execute this component of our long-term strategy will be impaired, which could have an adverse effect on our ability to grow and our profitability.

The acquisition, integration and growth of acquired businesses may present challenges that could harm our business.

The successful integration and profitable operation of an acquired institution or business, including the realization of anticipated cost savings and additional revenue opportunities, can present challenges, and the failure to overcome these challenges can have an adverse effect on our business, financial condition, cash flows and results of operations. Some of these challenges include:

• the inability to maintain uniform standards, controls, policies and procedures;

• distraction of management's attention from normal business operations during the integration process;

• the inability to attract and/or retain key management personnel to operate the acquired entity;

• the inability to obtain, or delay in obtaining, regulatory or other approvals necessary to operate the business;

• the inability to correctly estimate the size of a target market or accurately assess market dynamics;

• the inability to retain the clients of the acquired entity;

• the lingering effects of poor client relations or service performance by the acquired entity, which also may negatively affect the Company’s existing business;

• the inability to fully realize the desired efficiencies and economies of scale;

• expenses associated with the integration efforts; and

• unidentified issues not discovered in the due diligence process, including legal contingencies.

An acquisition related to an institution or other educational business often requires one or multiple regulatory approvals. If we are unable to obtain such approvals, or we obtain them on unfavorable terms, our ability to consummate a transaction may be impaired or we may be unable to operate the acquired entity in a manner that is favorable to us. If we fail to properly evaluate an acquisition, we may be required to incur costs in excess of what we anticipated, and we may not achieve the anticipated benefits of such acquisition.

Ashford University is approved by California’s Bureau for Private Postsecondary Education (BPPE), which may subject the university to increased regulatory or political scrutiny.

To be eligible to participate in Title IV programs, an institution must be legally authorized to offer its educational programs by a state in which it is physically located, often called “home state authorization.” Ashford University is approved by the California BPPE to operate in California and for its home state authorization. As a result, Ashford University is subject to laws and regulations applicable to private, postsecondary educational institutions located in California, and there is current legislation that may significantly increase that regulatory burden. Compliance with the existing or increased regulations arising as a result of Ashford University's operation as a BPPE-approved institution may result in material additional costs of Ashford University which could have a material, adverse effect on our profitability.

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

None.

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures.

None.

Item 5.  Other Information.

Costs Associated with Exit or Disposal Activities.

Following a review of the operations and cost structure of the Company, on October 29, 2019, the Company’s management committed to a plan to reduce operating expenses and conserve cash resources (the “Restructuring Plan”). The Restructuring Plan will result in a reduction in force of approximately 300 of our approximate 1,900 current full-time employees across the Company. The Restructuring Plan is expected to be substantially completed by December 31, 2019.

The Company plans to offer severance benefits to the affected employees, including cash severance payments and outplacement services.  Each affected employee’s eligibility for the severance benefits is contingent upon such employee’s execution of a general release of claims against the Company.

The Company currently expects to record a restructuring charge of approximately $11.0 million in the fourth quarter of 2019 as a result of the Restructuring Plan, consisting of one-time termination benefits for employee severance, benefits and related costs, all of which are expected to result in cash expenditures and substantially all of which will be paid out over the next 12 months.

This Item 5 contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations, and may relate to, among other things, statements regarding the Company’s current expectations and beliefs as to the timing and scope of the reduction in force plan and the amount and timing of the related costs. These forward-looking statements speak only as of the date they are made, and the Company does not undertake any obligation to revise or update such statements to reflect future events or circumstances, except as required by law.

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Item 6.  Exhibits.

Exhibit	Description
31.1	Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Securities and Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, executed by Andrew S. Clark, President and Chief Executive Officer, and Kevin Royal, Chief Financial Officer.
101	The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2019, filed with the SEC on October 30, 2019, formatted in Extensible Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Income (Loss); (iii) the Condensed Consolidated Statements of Stockholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	ZOVIO INC
October 30, 2019	/s/ KEVIN ROYAL
	Kevin Royal Chief Financial Officer (Principal financial officer and duly authorized to sign on behalf of the registrant)

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Andrew S. Clark, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Zovio Inc;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2019

/s/ ANDREW S. CLARK

Andrew S. Clark

President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934,

as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Kevin Royal, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Zovio Inc;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2019

/s/ KEVIN ROYAL

Kevin Royal

Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2019 (the “Report”) of Zovio Inc (the “Company”), each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”); and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: October 30, 2019

/s/ ANDREW S. CLARK

Andrew S. Clark

President and Chief Executive Officer

(Principal Executive Officer)

Dated: October 30, 2019

/s/ KEVIN ROYAL

Kevin Royal

Chief Financial Officer

(Principal Financial Officer)

        This certification shall not be deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent the Company specifically incorporates it by reference into such a filing.

        A signed original of this certification has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Fair Value Information of Short and Long-term Investments

The following tables summarize the fair value information as of September 30, 2019 and December 31, 2018, respectively (in thousands):

	As of September 30, 2019
	Level 1		Level 2		Level 3		Total
Mutual funds	$	2,385	$	—	$	—	$	2,385
Contingent consideration	$	—	$	—	$	3,250	$	3,250

	As of December 31, 2018
	Level 1		Level 2		Level 3		Total
Mutual funds	$	2,068	$	—	$	—	$	2,068

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Regulatory

9 Months Ended

Sep. 30, 2019

Regulatory [Abstract]

Regulatory

Regulatory

The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act of 1965, as amended (“Higher Education Act”), and the regulations promulgated thereunder by the U.S. Department of Education (“Department”) subject the Company to significant regulatory scrutiny on the basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”). Ashford University is regionally accredited by Western Association of Schools and Colleges Senior College and University Commission (“WSCUC”).

Department of Education Open Program Review of Ashford University

On July 7, 2016, Ashford University was notified by the Department that an off-site program review had been scheduled to assess Ashford University’s administration of the Title IV programs in which it participates. The off-site program review commenced on July 25, 2016 and covered students identified in the 2009-2012 calendar year data previously provided by Ashford University to the Department in response to a request for information received from the Multi-Regional and Foreign School Participation Division of the Department’s Office of Federal Student Aid (“FSA”) on December 10, 2015.

On December 9, 2016, the Department informed Ashford University that it intended to continue the program review on-site at Ashford University. The on-site program review commenced on January 23, 2017 and initially covered the 2015-2016 and 2016-2017 award years, but may be expanded if the Department deems such expansion appropriate.

Department of Education Program Participation Agreement for Ashford University

On April 23, 2018, Ashford University received an updated Program Participation Agreement from the Department. Based on the updated Program Participation Agreement, Ashford University is provisionally certified to participate in Federal Student Financial Aid Programs until March 31, 2021. Ashford University is required to submit its reapplication for continued certification by December 31, 2020.

Department of Education Close Out Audit of University of the Rockies

The Company previously recorded an expense of $1.5 million for the year ended December 31, 2018, in relation to the close out audit of University of the Rockies resulting from its merger with Ashford University in October 2018. The expense was recorded in relation to borrower defense to repayment regulations. On September 26, 2019, the Department of Education sent Ashford University a Final Audit Determination letter for the University of the Rockies. This letter confirmed that with the exception of the borrower defense to repayment regulations, none of the other audit findings resulted in financial liability. The Department also stated that additional liabilities could accrue in the future. The Company continues to assess the borrower defense to repayment regulation audit finding and may submit a request for review to the Department.

WSCUC Accreditation of Ashford University

In July 2013, WSCUC granted Initial Accreditation to Ashford University for five years, until July 15, 2018. Ashford University was notified on June 8, 2018 that the Ashford University Accreditation Visit originally scheduled for fall 2018 had been rescheduled to April 3-5, 2019. The visit took place as scheduled and the WSCUC evaluation team provided a report of the visit. Ashford University then prepared a response to the report. The team report and Ashford University’s response were considered at the June 2019 WSCUC Commission meeting. On July 12, 2019, WSCUC notified Ashford University that it had reaffirmed its accreditation for six years.

WSCUC also visited Ashford University on May 1, 2019 to conduct its federally mandated, six-month post-implementation review, due to the merger of University of the Rockies and into Ashford University which was finalized on October 31, 2018. WSCUC has verified that Ashford University has met all post-implementation requirements related to the merger of the two entities.

In a separate action, Ashford University submitted a change of control and legal status application (the “Change of Control Application”) to convert to a nonprofit California public benefit corporation, and separate from the Company (the “Conversion Transaction”). On July 12, 2019, WSCUC notified Ashford University that it had approved the Change of Control Application for the Conversion Transaction. The approval is subject to certain conditions which must be met prior to the close of the Conversion Transaction, including divestiture of financial and ownership interest in the Company by all Ashford University officers and related parties and submission of a revised services agreement with respect to the Conversion Transaction, including the incorporation of key performance indicators into that agreement. WSCUC is also requiring a post-implementation site visit of Ashford University within six months of the close of the Conversion Transaction.

U.S. Department of Education Abbreviated Preacquisition Review Letter

On October 7, 2019, the Company announced that in connection with the Conversion Transaction, the Department has provided a response (the “Abbreviated Preacquisition Review Letter”) to the request for review made on July 15, 2019. The request for an abbreviated preacquisition review was made in accordance with Department procedures pursuant to which the Department provides information about conditions it intends to impose in connection with the continued participation in federal Title IV student financial aid programs by the applicant following a change in ownership.

In the Abbreviated Preacquisition Review Letter, along with other conditions, the Department indicated that it would require the posting of an irrevocable letter of credit with the Department within ten days of the Conversion Transaction for approximately $103 million, representing the Department’s determination of 25% of the Title IV funding in fiscal year 2018 (the “25% LOC”). This letter of credit would require coverage until March 31, 2021 unless extended or replaced as determined by the Department.

GI Bill Benefits

On May 20, 2016, the Company received a letter from the Iowa Department of Education (“Iowa DOE”) indicating that, as a result of the planned closure of the Clinton Campus, the Iowa State Approving Agency (“ISAA”) would no longer continue to approve Ashford University’s programs for benefits under the GI Bill after June 30, 2016, and recommending Ashford University seek approval through the State Approving Agency of jurisdiction for any location that meets the definition of a “main campus” or “branch campus.” Ashford University began the process of applying for approval through the State Approving Agency in California (“CSAAVE”), and the Company subsequently disclosed that on June 20, 2016 it received a second letter from the Iowa DOE indicating that the Iowa DOE had issued a stay of the ISAA’s withdrawal of approval of Ashford University’s programs for GI Bill benefits effective immediately until the earlier of (i) 90 days from June 20, 2016 or (ii) the date on which CSAAVE completed its review and issued a decision regarding the approval of Ashford University in California. Ashford University received communication from CSAAVE indicating that additional information and documentation would be required before Ashford University’s application could be considered for CSAAVE approval. Ashford University subsequently withdrew the CSAAVE application and continued working with the U.S. Department of Veterans Affairs (“VA”), the Iowa DOE and the ISAA to obtain continued approval of Ashford University’s programs for GI Bill benefits and to prevent any disruption of educational benefits to Ashford University’s veteran students.

On September 15, 2016, in response to a Petition for Declaratory and Injunctive Relief (“Petition”) filed by Ashford University, the Iowa District Court for Polk County entered a written order (“Order”) staying the Iowa DOE’s announced intention to withdraw the approval of Ashford University as a GI Bill eligible institution until the entry of a final and appealable order and judgment in the action. On June 23, 2017, the Iowa District Court held a hearing on Ashford University’s Petition and on July 17, 2017, the Court ruled in favor of the Iowa DOE and denied the petition. Ashford University filed a motion for reconsideration of this ruling, which was denied on August 17, 2017. On August 23, 2017, Ashford University filed a Petition to Vacate or Modify the Iowa District Court’s July 17, 2017 ruling, based on material evidence, newly discovered, which could not with reasonable diligence have been previously discovered by Ashford University (“First Petition to Vacate”). On September 18, 2017, Ashford University appealed, inter alia, the July 17, 2017 ruling to the Iowa Supreme Court and posted an appeal bond, which stayed this matter pending resolution of Ashford University’s appeal. As a result, Ashford University’s approval was not withdrawn, and Ashford University’s programs remain approved for GI Bill purposes. The Assistant Attorney General handling this matter on behalf of the Iowa DOE also advised Ashford University that the Iowa DOE would take no action pending the post-ruling motions and appeal. On October 12, 2017, Judge Eliza Ovrom, the Iowa District Court Judge who issued the July 17, 2017 ruling, filed a Disclosure Statement revealing family ties to the Iowa Attorney General’s Office. Following motions by Ashford University for her recusal, Judge Ovrom recused herself from all further proceedings. On October 24, 2017, Ashford University filed with the Iowa Supreme Court a Petition to Vacate or, in the Alternative, for Limited Remand (“Second Petition to Vacate”), in which Ashford University argued that the July 17, 2017 ruling and all other material orders entered by Judge Ovrom should be vacated due to her previously undisclosed conflict of interest. On January 8, 2018, the Iowa Supreme Court remanded the Second Petition to Vacate to the District Court, where all proceedings in this matter were consolidated before Judge Michael Huppert. On April 26, 2018, Judge Huppert granted the Second Petition to Vacate and vacated all material rulings by Judge Ovrom, including the July 17, 2017 ruling, thus on June 21, 2018, the Iowa Supreme Court issued a Procedendo stating that the appeal was concluded. Judge Huppert’s decision mooted the First Petition to Vacate and Ashford’s appeal of, inter alia, the July 17, 2017 ruling. The case is now proceeding on the merits de novo before a new judge and Ashford filed its opening brief in support of the Petition on July 25, 2019.

On July 6, 2017, Ashford University received approval from the Arizona State Approving Agency (“ASAA”) to provide GI Bill benefits to its students. On September 13, 2017, the VA accepted the ASAA’s approval, subject to Ashford University's compliance with the approval requirements, and the University subsequently received a facility code from the VA. On November 9, 2017, the VA informed Ashford University that the ASAA had not provided sufficient evidence to establish that it has jurisdictional authority over Ashford University’s online programs. The VA stated that it intends to suspend payment of educational assistance and approval of new student enrollments and student re-enrollments for Ashford University’s online programs in 60 days unless corrective action was taken.

On November 17, 2017, Ashford University filed a petition for review in the United States Court of Appeals for the Federal Circuit challenging the VA’s actions. In response to that petition, the VA agreed to stay the actions with respect to the suspension and reenrollment it had announced on November 9, 2017 through the entry of judgment in the Federal Circuit case, on the condition that Ashford University request and submit an application for approval to CSAAVE on or before January 8, 2018. Ashford University submitted an application to CSAAVE for approval on January 5, 2018. On February 21, 2018, CSAAVE provided notice of its intention not to act on Ashford University’s initial application for approval for the training of veterans and other eligible persons. The notice directed Ashford University to request approval of its application by the VA. Ashford University continues to work in good faith with the VA while its petition for review remains pending with the Federal Circuit. In keeping with this commitment, Ashford University agreed, at the VA’s request, to submit another application to CSAAVE. Ashford University filed that additional application on November 19, 2018. On December 14, 2018, however, CSAAVE again informed Ashford University that it did not intend to act on Ashford University’s application, and again indicated that Ashford University could request approval of its application directly from the VA.

The parties completed all briefing for the petition for review on May 3, 2019 and the Court held oral argument on October 2, 2019. The Court has not yet issued a ruling.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Schedule of New Accounting Pronouncements

Adoption of the standard impacted the Company’s previously reported results on January 1, 2019, as follows (in thousands):

	Closing balance at December 31, 2018		Adjustments due to ASC 842			Opening balance at January 1, 2019
Assets
Prepaid and other current assets	$	18,255	$	(1,745	)	$	16,510
Property and equipment, net	$	16,860	$	(8,634	)	$	8,226
Operating lease assets (1) (2)	$	—	$	25,165		$	25,165
Liabilities and stockholder’s equity
Accounts payable and accrued liabilities	$	62,792	$	13,177		$	75,969
Noncurrent operating lease liabilities (3)	$	3,183	$	10,243		$	13,426
Lease financing obligation	$	8,634	$	(8,634	)	$	—

⁽¹⁾  Represents the reclassification of prepaid rent to operating lease assets

⁽²⁾  Represents capitalization of operating lease assets

⁽³⁾  Represents recognition of operating lease liabilities; Previously disclosed as rent liability for the portion related to accrued rent.

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Subsequent Events Subsequent Events (Details) - Subsequent Event $ in Millions	3 Months Ended
	Dec. 31, 2019 USD ($)
Subsequent Event [Line Items]
Restructuring and Related Cost, Number of Positions Eliminated, Inception to Date	300
Severance Costs
Subsequent Event [Line Items]
Restructuring Charges	$ 11

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Other Significant Balance Sheet Accounts (Property and Equipment, Net) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Jan. 01, 2019	Dec. 31, 2018
Property, Plant and Equipment [Line Items]
Amortization of Intangible Assets	$ 1,300	$ 600	$ 3,300	$ 2,000
Property and equipment, gross	68,743		68,743			$ 52,630
Less accumulated depreciation and amortization	(35,748)		(35,748)			(35,770)
Total property and equipment, net	32,995		32,995		$ 8,226	16,860
Depreciation	1,600	$ 1,000	3,900	$ 3,200
Buildings, build-to-suit
Property, Plant and Equipment [Line Items]
Property and equipment, gross	0		0			10,434
Furniture and office equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	42,815		42,815			31,227
Software
Property, Plant and Equipment [Line Items]
Property and equipment, gross	7,346		7,346			7,517
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	18,560		18,560			3,430
Vehicles
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 22		$ 22			$ 22

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Fair Value Measurements (Details) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Reclassification from Accumulated Other Comprehensive Income, Current Period, before Tax	$ 0	$ 0
Contingent consideration	3,250,000		$ 0
Mutual funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	2,385,000		2,068,000
Contingent consideration	3,250,000
Mutual funds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	2,385,000		2,068,000
Contingent consideration	0
Mutual funds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0		0
Contingent consideration	0
Mutual funds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale securities	0		$ 0
Contingent consideration	$ 3,250,000

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Other Significant Balance Sheet Accounts (Deferred Revenue) (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Deferred Revenue [Abstract]
Deferred revenue	$ 22,549	$ 21,768
Student deposits	31,912	42,066
Total deferred revenue and student deposits	$ 54,461	$ 63,834

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Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (“SEC”) on March 12, 2019. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.

Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP for complete annual financial statements.

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. Actual results could differ from those estimates.

Comprehensive Income (Loss)

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

Goodwill and Indefinite-Lived Intangible Assets

The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each fiscal year, or more frequently if events and circumstances warrant. To evaluate the impairment of goodwill, the Company first assesses qualitative factors, such as deterioration in general economic conditions or negative company financial performance, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. To evaluate the impairment of the indefinite-lived intangible assets, the Company assesses the fair value of the assets to determine whether they were greater or less than the carrying values. Determining the fair value of indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are inherently uncertain and may include such items as growth rates used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and a determination of appropriate market comparables.

The Company has reassessed its reporting units in 2019, noting that it has three distinct reporting units including i) Zovio which includes Ashford, ii) Fullstack and iii) TutorMe. During the third quarter of 2019, the Company's qualitative assessment of goodwill and indefinite-lived intangible assets under ASC 350, Intangibles - Goodwill and Other, indicated triggering events in its Zovio reporting unit. There were no impairment indicators in the Fullstack or TutorMe reporting units. The impairment indicator for Zovio included a sustained declining stock price, which indicated the fair value of the Zovio reporting unit was potentially less than the carrying amount. Consequently, the Company then performed Step 1 of the impairment test and assessed the fair value of that reporting unit and determined that it was less than its carrying value.

Preliminary analysis indicated potential impairment of the goodwill within the Zovio reporting unit. However, due to the time and effort required to determine the implied fair value of goodwill (i.e. Step 2 of the impairment assessment), the analysis is not complete at this time. As of September 30, 2019, Zovio’s reporting unit carrying value of goodwill is $0.7 million and its carrying value of other indefinite-lived intangible assets is $1.4 million. The Company's valuation to determine the amount of impairment will be completed in the fourth quarter of 2019.

Impairment of Long-Lived Assets

The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded if the carrying amount of the long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results.

During the third quarter of 2019, the Company's qualitative assessment of long-lived assets under ASC 360, Property and Equipment, indicated impairment indicators. The Company then performed an undiscounted cash flow analysis, noting that the related assets were recoverable. As such, no impairment in the Company’s long-lived assets is deemed necessary as of September 30, 2019.

Leases

In accordance with Accounting Standard Update (“ASU”) 2016-02, Leases (ASC 842) (“ASC 842”), leases are evaluated and classified as either operating or finance leases. The Company does not have any finance leases. The Company’s operating leases are included in operating lease assets, accounts payable and accrued liabilities, and noncurrent lease liabilities on the condensed consolidated balance sheets. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on information available at the date of adoption in calculating the present value of its existing lease payments. The incremental borrowing rate is determined using the U.S. Treasury rate adjusted to account for the Company’s credit rating and the collateralized nature of operating leases. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line method over the term of the lease.

Leased property and equipment meeting certain criteria are capitalized as finance lease assets, and the present value of the related lease payments is recognized as a finance lease liability on the condensed consolidated balance sheets. Amortization of capitalized leased assets is computed on the straight-line method over the term of the lease or the life of the related asset, whichever is shorter.

Business Combinations

The Company uses the acquisition method of accounting for business combinations. This method requires the use of significant estimates, assumptions and judgments in the determination of the estimated fair value of assets acquired and liabilities assumed in order to properly allocate the purchase price at the acquisition date. The estimates, assumptions and judgments are based in part on historical experience, industry data, information obtained from the management of the acquired companies and assistance from independent third-party appraisal firms. Examples of critical estimates include assigning values to the acquired identifiable intangible assets and valuing contingent consideration and earnout liabilities. For further information regarding the acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements.

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update 2018-15 (“ASU 2018-15”), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Specifically, ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract and which costs to expense. This guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019; early adoption is permitted. Entities are permitted to apply a retrospective or a prospective transition approach to adopt the guidance.  The Company early adopted ASU 2018-15 during the period ended March 31, 2019, on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.

The Company adopted ASU 2016-02, Leases (ASC 842), as of January 1, 2019, using the modified retrospective approach. The Company elected the ‘comparatives under ASC 840 option’ as a transitional practical expedient, which allows the Company to initially apply the new lease requirements at the effective date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. It also allows the Company to report comparative periods in the financial statements under previous GAAP under ASC 840, Leases (“ASC 840”). The Company also elected the ‘package of practical expedients’ permitted under the transition guidance, which allowed the Company to (i) carry forward the historical lease classification, (ii) forgo reassessment of whether any expired or existing contracts contain leases, and (iii) forgo reassessment of whether any previously unamortized initial direct costs continue to meet the definition of initial direct costs under ASC 842. The Company did not, however, elect the ‘hindsight’ practical expedient to reassess the lease term for existing leases. Additionally, the Company does not have land easements, therefore, practical expedients pertaining to land easements are not applicable to the Company.

For the accounting policy practical expedients, the Company elected the short-term lease exemption, under which any lease less than 12 months is excluded from recognition on the balance sheet. The Company elected not to recognize right of use assets and lease liabilities for short term leases, which has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Additionally, the Company elected the non-separation of lease and non-lease components, and as a result, the Company does not need to account for lease components (e.g., fixed payments including rent) separately from the non-lease components (e.g., common-area maintenance costs).

Upon adoption of ASC 842, the Company recorded right-of-use assets of approximately $25.2 million, with corresponding operating lease liabilities of approximately $31.8 million, respectively, with an offset to accounts payable and accrued liabilities and other long-term liabilities of approximately $8.4 million to eliminate accrued rent and an offset to prepaid and other current assets of $1.7 million on the consolidated balance sheet as of January 1, 2019. The Company also derecognized an existing construction-in-process of approximately $8.6 million, with a corresponding debt obligation of the same amount for an asset under construction in build-to-suit lease arrangements. However, when the Company completed the related build-to-suit construction in April 2019, the Company recognized a right-of-use asset and lease liability on its balance sheet for the associated lease.

There was no adjustment to the opening balance of retained earnings upon adoption of the new standard given the nature of the impacts and the other transition practical expedients elected by the Company. Adoption of the standard impacted the Company’s previously reported results on January 1, 2019, as follows (in thousands):

	Closing balance at December 31, 2018		Adjustments due to ASC 842			Opening balance at January 1, 2019
Assets
Prepaid and other current assets	$	18,255	$	(1,745	)	$	16,510
Property and equipment, net	$	16,860	$	(8,634	)	$	8,226
Operating lease assets (1) (2)	$	—	$	25,165		$	25,165
Liabilities and stockholder’s equity
Accounts payable and accrued liabilities	$	62,792	$	13,177		$	75,969
Noncurrent operating lease liabilities (3)	$	3,183	$	10,243		$	13,426
Lease financing obligation	$	8,634	$	(8,634	)	$	—

⁽¹⁾  Represents the reclassification of prepaid rent to operating lease assets

⁽²⁾  Represents capitalization of operating lease assets

⁽³⁾  Represents recognition of operating lease liabilities; Previously disclosed as rent liability for the portion related to accrued rent.

The standard did not materially impact the Company’s consolidated net earnings and had no material impact on the condensed consolidated statement of cash flows. For further information regarding leases, refer to Note 10, “Lease Obligations” to the condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The update requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The update requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. The update is effective for SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company will adopt this standard on January 1, 2020 and does not believe the adoption of ASU 2016-13 will have a material impact on the Company’s consolidated financial statements.

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Oct. 25, 2019
Document and Entity Information [Abstract]
Entity Registrant Name	ZOVIO INC
Entity Central Index Key	0001305323
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Current Reporting Status	No
Entity Shell Company	false
Entity Interactive Data Current	No
Entity Common Stock, Shares Outstanding		30,267,821

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Condensed Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Statement of Comprehensive Income [Abstract]
Net income (loss)	$ (7,558)	$ 1,661	$ (31,797)	$ 18,051
Earnings Per Share, Basic (in dollars per share)	$ (0.25)	$ 0.06	$ (1.09)	$ 0.67
Other comprehensive income, net of tax:
Unrealized gains on investments	$ 0	$ 0	$ 0	$ 0
Comprehensive income (loss)	$ (7,558)	$ 1,661	$ (31,797)	$ 18,051

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Stock-Based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 3.4	$ 1.3	$ 8.7	$ 3.6
Income tax benefit of stock-based compensation expense	0.8	$ 0.3	2.1	$ 0.9
Unrecognized compensation cost related to unvested options and RSUs	$ 11.5		$ 11.5
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-option equity instruments granted during the period (in units)			1,300,000	800,000
Grant date fair value (in dollars per share)			$ 5.68	$ 6.84
Equity instruments other than options vested during period (in units)			400,000	400,000
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value (in dollars per share)			$ 6.97
Equity instruments other than options vested during period (in units)			0	0
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period			845,180	0
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value (in dollars per share)			$ 4.28	$ 2.97
Stock options granted (in shares)			231,406	35,088
Stock options exercised (in shares)			0	800,000

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Lease Obligations (Details) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($) ft²	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) ft²	Sep. 30, 2018 USD ($)
Lessee, Lease, Description [Line Items]
Operating Lease, Expense	$ 5.3	$ 3.7	$ 14.9	$ 11.3
Net sublease value	$ 2.2	$ 2.1
Build To Suit Leases
Lessee, Lease, Description [Line Items]
Net Rentable Area | ft²	131,000		131,000
CALIFORNIA
Lessee, Lease, Description [Line Items]
Area of Real Estate Property | ft²	28,400		28,400
Commitment to lease			7 months
Net sublease value			$ 0.4
COLORADO
Lessee, Lease, Description [Line Items]
Area of Real Estate Property | ft²	72,200		72,200
Commitment to lease			23 months
Net sublease value			$ 1.9
COLORADO, Commencing on April 1, 2019 [Member]
Lessee, Lease, Description [Line Items]
Area of Real Estate Property | ft²	21,000		21,000
Commitment to lease			41 months
Net sublease value			$ 2.0

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Lease Obligations - Schedule of Other Information (Details) $ in Thousands	3 Months Ended
	Sep. 30, 2019 USD ($)
Leases [Abstract]
Weighted-average remaining lease term (in years):	6 years 5 months
Weighted-average discount rate:	7.50%
Operating cash flows from operating leases	$ 17,377

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Label	Element	Value
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ (1,000,000)
Restricted Cash, Noncurrent	us-gaap_RestrictedCashNoncurrent	5,658,000
Restricted Cash, Noncurrent	us-gaap_RestrictedCashNoncurrent	0
Retained Earnings [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ (1,000,000)

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Summary of Significant Accounting Policies Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Jan. 01, 2019	Dec. 31, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Prepaid expenses and other current assets	$ (24,705)						$ (24,705)		$ (16,510)	$ (18,255)
Retained earnings	398,195						398,195			429,992
Revenues	104,251			$ 112,846			321,510	$ 348,660
Instructional costs and services	51,406			55,109			158,432	166,120
Net income (loss)	(7,558)	$ (17,597)	$ (6,642)	$ 1,661	$ 15,080	$ 1,310	(31,797)	$ 18,051
Property and equipment, net	(32,995)						(32,995)		(8,226)	(16,860)
Operating lease assets	21,903						21,903		25,165	0
Accounts payable and accrued liabilities									75,969	62,792
Noncurrent operating lease liabilities	23,882						23,882		13,426	3,183
Lease financing obligation									0	$ 8,634
Operating lease liabilities	$ 33,686						$ 33,686		31,800
Accounting Standards Update 2016-02 [Member]
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Prepaid expenses and other current assets									1,745
Property and equipment, net									8,634
Operating lease assets									25,165
Accounts payable and accrued liabilities									13,177
Noncurrent operating lease liabilities									10,243
Lease financing obligation									(8,634)
Finance Lease, Liability									$ 8,400

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Accounts Receivable, Net (Tables)

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Schedule of Accounts Receivable, Net

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

	As of September 30, 2019		As of December 31, 2018
Accounts receivable	$	45,835	$	39,195
Less allowance for doubtful accounts	10,160		12,180
Accounts receivable, net	$	35,675	$	27,015

Changes in Allowance for Doubtful Accounts, Accounts Receivable

The following table presents the changes in the allowance for doubtful accounts for accounts receivable for the periods indicated (in thousands):

	Beginning Balance		Charged to Expense		Deductions (1)			Ending Balance
Allowance for doubtful accounts receivable:
For the nine months ended September 30, 2019	$	12,180	$	10,508	$	(12,528	)	$	10,160
For the nine months ended September 30, 2018	$	15,189	$	19,339	$	(20,194	)	$	14,334

(1) Deductions represent accounts written off, net of recoveries.

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Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Jan. 01, 2019	Jan. 01, 2018
Disaggregation of Revenue [Line Items]
Revenues	$ 104,251	$ 112,846	$ 321,510	$ 348,660
Deferred revenue, opening balance	22,549	23,833	22,549	23,833	$ 21,768	$ 22,001
Deferred revenue, ending balance	22,549	23,833	22,549	23,833	$ 21,768	$ 22,001
Deferred revenue, increase (decrease)	781	1,832
Deferred revenue, revenue recognized			21,800	21,900
Over time, over period of instruction
Disaggregation of Revenue [Line Items]
Revenues	85,110	96,735	264,555	301,905
Over time, full tuition grant
Disaggregation of Revenue [Line Items]
Revenues	13,599	9,986	38,908	27,825
Point in time
Disaggregation of Revenue [Line Items]
Revenues	5,542	6,125	18,047	18,930
Tuition revenue, net
Disaggregation of Revenue [Line Items]
Revenues	95,043	102,352	291,729	317,353
Digital materials revenue, net
Disaggregation of Revenue [Line Items]
Revenues	5,890	6,284	18,947	18,951
Technology fee revenue, net
Disaggregation of Revenue [Line Items]
Revenues	2,856	3,777	9,381	10,861
Other revenue, net
Disaggregation of Revenue [Line Items]
Revenues	$ 462	$ 433	$ 1,453	$ 1,495

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Fair Value Measurements

9 Months Ended

Sep. 30, 2019

Fair Value Disclosures [Abstract]

Investments

Fair Value Measurements

The following tables summarize the fair value information as of September 30, 2019 and December 31, 2018, respectively (in thousands):

	As of September 30, 2019
	Level 1		Level 2		Level 3		Total
Mutual funds	$	2,385	$	—	$	—	$	2,385
Contingent consideration	$	—	$	—	$	3,250	$	3,250

	As of December 31, 2018
	Level 1		Level 2		Level 3		Total
Mutual funds	$	2,068	$	—	$	—	$	2,068

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

There were no differences between amortized cost and fair value of investments as of September 30, 2019 and December 31, 2018, respectively. There were no reclassifications out of accumulated other comprehensive income during either the nine months endedSeptember 30, 2019 and 2018.

The contingent consideration represents the shares to be issued as part of the acquisition of Fullstack. The contingent consideration is recorded in the other long-term liabilities line item on the Company’s condensed consolidated balance sheets, and are classified as Level 3 securities. For further information regarding acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements. The fair value of accrued contingent consideration is remeasured each reporting period. Increases or decreases in projected revenue and the related probabilities of achieving the forecast results, may result in a higher or lower fair value measurement. Changes in fair value resulting from changes in the likelihood of contingent payments are included in the condensed consolidated statements of income (loss).

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Lease Obligations

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Lease Obligations

Lease Obligations

Operating Leases

The Company leases various office facilities which expire at various dates through 2023. These facilities are used for academic operations, corporate functions, enrollment services and student support services. The Company does not have any leases other than its office facilities. All of the leases were classified as operating leases for the period ended September 30, 2019, and the Company does not have any finance leases. All of the leases, other than those that may qualify for the short-term scope exception of 12 months or less, are recorded on the Company’s condensed consolidated balance sheets.

During 2018, the Company entered into a lease agreement, which commenced in April 2019, consisting of approximately 131,000 square feet of office space located in Chandler, Arizona, which extends through 2030. The Company is involved in the construction and the build-out of the space, and as such, serves as the construction agent on behalf of the landlord. Under such arrangement, the Company has obligations to fund cost over-runs in its capacity as the construction agent. The Company has determined that under the new lease accounting standard ASC 842, it does not have control during construction, and as such has derecognized the asset and financing obligation as of January 1, 2019.

As of September 30, 2019, the lease amounts on the condensed consolidated balance sheets do not include any options to extend, nor any options for early termination. The Company’s lease agreements do not include rental payments adjusted periodically for inflation. The Company’s lease agreements do not contain any residual value guarantees or restrictive covenants. The Company is not a party to any related party arrangements with respect to its lease transactions.

Some of the more significant assumptions and judgments in determining the amounts to capitalize include the determination of the discount rate, which is discussed below.

Rental expense for the three and nine months endedSeptember 30, 2019 was $5.3 million and $14.9 million, respectively, calculated in accordance with ASC 842, and rental expense for the three and nine months endedSeptember 30, 2018 was $3.7 million and $11.3 million, respectively, calculated in accordance with ASC 840.

The Company has agreements to sublease certain portions of its office facilities, with three active subleases as of September 30, 2019. The Company’s subleases do not include any options to extend, nor any options for early termination. The Company’s subleases do not contain any residual value guarantees or restrictive covenants. All of the subleases were classified as operating leases for the period ended September 30, 2019. The Company is subleasing approximately 28,400 square feet of office space in San Diego, California with a remaining commitment to lease of 7 months and net lease payments of $0.4 million. The Company is subleasing approximately 72,200 square feet of office space in Denver, Colorado with a remaining commitment to lease of 23 months and net lease payments of $1.9 million. The Company is subleasing additional office space of approximately 21,000 square feet in Denver, Colorado with a remaining commitment to lease of 41 months and net lease payments of $2.0 million. Sublease income for the nine months endedSeptember 30, 2019 and 2018 was $2.2 million (in accordance with ASC 842) and $2.1 million (in accordance with ASC 840), respectively.

The following tables represent the classification and amounts recorded on the condensed consolidated balance sheets as of September 30, 2019 (in thousands):

Operating lease assets:
Arizona	$	8,470
California	4,876
Colorado	7,922
Iowa	128
New York	237
Other	270
Total	$	21,903

Operating lease liabilities:
Accounts payable and accrued liabilities	$	9,804
Rent liability	23,882
Total	$	33,686

The following table represents the classification and amounts recorded on the condensed consolidated statements of income (loss) for the nine months endedSeptember 30, 2019 (in thousands):

Operating lease costs	$	14,287
Short-term lease cost	202
Variable lease costs (1)	455
Less: Sub-lease income	(2,167		)
Total net lease costs	$	12,777

(1) Variable components of the lease payments such as utilities, taxes and insurance, parking and maintenance costs.

The following table represents the maturities of lease liabilities as of September 30, 2019 (in thousands):

Remainder of 2019	$	3,900
2020	9,988
2021	6,489
2022	3,915
2023	2,744
2024	2,400
Thereafter	15,265
Total minimum payments	$	44,701
Less: Interest (1)	(11,015		)
Total net lease liabilities	$	33,686

(1) Calculated using an appropriate interest rate for each individual lease. See the weighted-average discount rate noted below.

The following table summarizes the future minimum rental payments under non-cancelable operating lease arrangements in effect at December 31, 2018 (in thousands):

Year Ended December 31,
2019	$	20,382
2020	9,936
2021	6,460
2022	3,826
2023	2,726
Thereafter	17,710
Total minimum payments	$	61,040

The following table represents the lease term and discount rate used in the calculations as of September 30, 2019:

Weighted-average remaining lease term (in years):
Operating leases	6.4 years
Weighted-average discount rate:
Operating leases	7.5	%

The following table represents the cash flow information of operating leases for the nine months endedSeptember 30, 2019 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	17,377

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Condensed Consolidated Statements of Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenues	$ 104,251	$ 112,846	$ 321,510	$ 348,660
Costs and expenses:
Instructional costs and services	51,406	55,109	158,432	166,120
Admissions advisory and marketing	40,838	41,902	134,720	129,971
General and administrative	17,389	13,731	55,841	39,028
Legal settlement expense	0	0	0	141
Restructuring and impairment expense (credit)	2,467	1,225	7,890	3,795
Total costs and expenses	112,100	111,967	356,883	339,055
Operating income (loss)	(7,849)	879	(35,373)	9,605
Other income, net	144	367	1,040	899
Income (loss) before income taxes	(7,705)	1,246	(34,333)	10,504
Income tax benefit	(147)	(415)	(2,536)	(7,547)
Net income (loss)	$ (7,558)	$ 1,661	$ (31,797)	$ 18,051
Income (loss) per share:
Earnings Per Share, Basic (in dollars per share)	$ (0.25)	$ 0.06	$ (1.09)	$ 0.67
Earnings Per Share, Diluted (in dollars per share)	$ (0.25)	$ 0.06	$ (1.09)	$ 0.66
Comprehensive Income (Loss), Net of Tax, Attributable to Parent	$ (7,558)	$ 1,661	$ (31,797)	$ 18,051
Weighted average number of common shares outstanding used in computing income (loss) per share:
Basic (in shares)	30,263	27,061	29,230	27,131
Diluted (in shares)	30,263	27,589	29,230	27,532

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Nature of Business

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Business

Nature of Business

Zovio Inc (the “Company”), formerly known as Bridgepoint Education, Inc., is a Delaware corporation, and is an education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions to help learners and leaders achieve their aspirations. One of its wholly owned subsidiaries, Ashford University^®, is a regionally accredited academic institution, which delivers programs primarily online. Ashford University offers associate’s, bachelor’s, master’s and doctoral programs.

On April 1, 2019, the Company acquired Fullstack Academy, Inc (“Fullstack”) and on April 3, 2019, the Company acquired TutorMe.com, Inc. (“TutorMe”), which became wholly-owned subsidiaries of the Company. The operating results of Fullstack and TutorMe subsequent to the acquisition dates have been included in the Company's condensed consolidated results of operations. For further information regarding the acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements.

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Credit Facilities (Details) $ in Millions	Sep. 30, 2019 USD ($)
Line of Credit Facility [Line Items]
Revolving line of credit, letters of credit outstanding	$ 16.6
Surety Bond Facility [Abstract]
Surety bond facility, available amount	8.5
Surety bond facility, issued amount	$ 8.1

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Lease Obligations - Schedule of Future Minimum Lease Payments (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Leases [Abstract]
Remainder of 2019	$ 3,900
2020	9,988
2021	6,489
2022	3,915
2023	2,744
2024	2,400
After 2024	15,265
Total minimum payments	44,701
Less: Interest (1)	(11,015)
Operating lease liabilities	$ 33,686	$ 31,800
Operating Leases, Future Minimum Payments Due, Next Twelve Months			$ 20,382
Operating Leases, Future Minimum Payments, Due in Two Years			9,936
Operating Leases, Future Minimum Payments, Due in Three Years			6,460
Operating Leases, Future Minimum Payments, Due in Four Years			3,826
Operating Leases, Future Minimum Payments, Due in Five Years			2,726
Operating Leases, Future Minimum Payments, Due Thereafter			17,710
Operating Leases, Future Minimum Payments Due			$ 61,040

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Stock Repurchase Program Stock Repurchase Program (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Stock Repurchase Programs [Abstract]
Repurchase of common stock	$ 0	$ 2,424

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Restructuring and Impairment Expense (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Restructuring Reserve [Roll Forward]
Restructuring reserve at beginning of period				$ 4,634
Restructuring and impairment expense (credit)	$ 2,467		$ 1,225	7,890	$ 3,795
Restructuring and Related Cost, Expected Cost Remaining	100			100
Payments and adjustments				(9,005)
Restructuring reserve at end of period	3,519	$ 4,634		3,519
Asset Impairment for Regulatory Action [Member]
Restructuring Reserve [Roll Forward]
Restructuring and impairment expense (credit)	0		0	0	325
Service Agreements [Member]
Restructuring Reserve [Roll Forward]
Restructuring reserve at beginning of period				1,503
Restructuring and impairment expense (credit)	(32)	1,500	(268)	(171)	(268)
Payments and adjustments				(22)
Restructuring reserve at end of period	1,310	1,503		1,310
Severance Costs
Restructuring Reserve [Roll Forward]
Restructuring reserve at beginning of period				267
Restructuring and impairment expense (credit)	1,220		855	6,231	1,874
Payments and adjustments				(5,606)
Restructuring reserve at end of period	892	267		892
Lease Exit and Other Costs
Restructuring Reserve [Roll Forward]
Restructuring reserve at beginning of period				2,864
Restructuring and impairment expense (credit)	1,279		$ 638	1,830	$ 1,864
Payments and adjustments				(3,377)
Restructuring reserve at end of period	$ 1,317	$ 2,864		$ 1,317

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Summary of Significant Accounting Policies Restatement of Previously Issued Financial Statements (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018	Dec. 31, 2017
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Revenues	$ 104,251			$ 112,846			$ 321,510	$ 348,660
Instructional costs and services	51,406			55,109			158,432	166,120
Total costs and expenses	112,100			111,967			356,883	339,055
Operating income	(7,849)			879			(35,373)	9,605
Income before income taxes	(7,705)			1,246			(34,333)	10,504
Income tax benefit	(147)			(415)			(2,536)	(7,547)
Net income (loss)	$ (7,558)	$ (17,597)	$ (6,642)	$ 1,661	$ 15,080	$ 1,310	$ (31,797)	$ 18,051
Earnings Per Share, Basic (in dollars per share)	$ (0.25)			$ 0.06			$ (1.09)	$ 0.67
Earnings Per Share, Diluted (in dollars per share)	$ (0.25)			$ 0.06			$ (1.09)	$ 0.66
Provision for bad debts							$ 10,508	$ 19,339
Accounts receivable							(13,517)	(25,418)
Prepaid expenses and other current assets							(306)	1,962
Deferred revenue and student deposits							(11,923)	(12,034)
Cash flows used in operating activities							(38,243)	(10,668)
Retained earnings	$ 398,195						398,195		$ 429,992
Total stockholders’ equity	118,256	122,390	121,983	$ 139,785	137,632	123,766	118,256	139,785	127,614	$ 122,996
Retained Earnings
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Net income (loss)	(7,558)	(17,597)	(6,642)	1,661	15,080	1,310
Total stockholders’ equity	$ 398,195	$ 405,753	$ 423,350	$ 443,407	$ 441,746	$ 426,666	$ 398,195	$ 443,407	$ 429,992	$ 426,356

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Other Significant Balance Sheet Accounts (Tables)

9 Months Ended

Sep. 30, 2019

Balance Sheet Related Disclosures [Abstract]

Prepaid Expenses and Other Current Assets

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

	As of September 30, 2019		As of December 31, 2018
Prepaid expenses	$	5,461	$	5,445
Prepaid licenses	4,973		5,840
Prepaid income taxes	200		—
Income tax receivable	4,121		5,044
Prepaid insurance	1,138		1,077
Insurance recoverable	994		723
Other current assets	7,818		126
Total prepaid expenses and other current assets	$	24,705	$	18,255

Property and Equipment, Net

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

	As of September 30, 2019			As of December 31, 2018
Buildings, build-to-suit	$	—		$	10,434
Furniture and office equipment	42,815			31,227
Software	7,346			7,517
Leasehold improvements	18,560			3,430
Vehicles	22			22
Total property and equipment	68,743			52,630
Less accumulated depreciation and amortization	(35,748		)	(35,770		)
Total property and equipment, net	$	32,995		$	16,860

Goodwill and Intangibles, Net

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

	September 30, 2019
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Capitalized curriculum costs	$	20,974	$	(19,452	)	$	1,522
Purchased intangible assets	29,185		(9,810		)	19,375
Total definite-lived intangible assets	$	50,159	$	(29,262	)	$	20,897
Goodwill and indefinite-lived intangibles						25,035
Total goodwill and intangibles, net						$	45,932
	December 31, 2018
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Capitalized curriculum costs	$	21,076	$	(19,338	)	$	1,738
Purchased intangible assets	15,850		(7,219		)	8,631
Total definite-lived intangible assets	$	36,926	$	(26,557	)	$	10,369
Goodwill and indefinite-lived intangibles						2,072
Total goodwill and intangibles, net						$	12,441

Intangibles, Estimated Remaining Amortization Expense

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

Year Ended December 31,
Remainder of 2019	$	1,332
2020	5,252
2021	4,069
2022	3,430
2023	3,307
Thereafter	3,507
Total future amortization expense	$	20,897

Accounts Payable and Accrued Liabilities

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

	As of September 30, 2019		As of December 31, 2018
Accounts payable	$	7,747	$	5,313
Accrued salaries and wages	5,449		7,807
Accrued bonus	5,701		8,147
Accrued vacation	4,974		7,929
Accrued litigation and fees	8,041		8,041
Accrued expenses	24,280		17,692
Current leases payable	9,803		5,768
Accrued insurance liability	2,348		2,095
Total accounts payable and accrued liabilities	$	68,343	$	62,792

Deferred Revenue and Student Deposits

Deferredrevenueand studentdeposits consists ofthe following(inthousands):

	As of September 30, 2019		As of December 31, 2018
Deferred revenue	$	22,549	$	21,768
Student deposits	31,912		42,066
Total deferred revenue and student deposits	$	54,461	$	63,834

Other Long-Term Liabilities

Other long-term liabilities consists ofthe following(inthousands):

	As of September 30, 2019		As of December 31, 2018
Uncertain tax positions	$	679	$	865
Contingent consideration	3,250		—
Other long-term liabilities	2,238		2,570
Total other long-term liabilities	$	6,167	$	3,435

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Restructuring and Impairment Expense

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

Restructuring and Impairment Expense (Credit)

Restructuring and Impairment Expense

During the three and nine months endedSeptember 30, 2019, the Company recognized $2.5 million and $7.9 million, respectively, of restructuring and impairment expense. During the three and nine months endedSeptember 30, 2018, the Company recognized $1.2 million and $3.8 million, respectively, of restructuring and impairment expense. These restructuring and impairment charges were comprised of the components described below.

The Company had previously vacated or consolidated properties in San Diego and Denver, and subsequently reassessed its obligations on non-cancelable leases. In addition, the Company relocated its headquarters from San Diego, California to Chandler, Arizona. As a result of these lease reassessments and relocation, during the three and nine months endedSeptember 30, 2019 the Company recognized expense of approximately $1.3 million and $1.8 million, respectively. During the three and nine months endedSeptember 30, 2018, the Company recognized expense of approximately $0.6 million and $1.9 million, respectively.

For the three and nine months endedSeptember 30, 2019, the Company recognized $1.2 million and $6.2 million, respectively, as restructuring and impairment expense relating to severance costs for wages and benefits. There is an additional $0.1 million of related costs that will be recognized in the remainder of 2019, relating to employees that are required to render service. For the three and nine months endedSeptember 30, 2018, the Company recognized $0.9 million and $1.9 million, respectively, as restructuring and impairment expense relating to severance costs for wages and benefits, due to the Company’s execution of a strategic reorganization resulting in reductions in force. The reorganization was part of the Company’s overall reassessment of resources based upon benchmarking activities with competitors in the Company’s industry.

For the three and nine months endedSeptember 30, 2019, the Company recognized a credit of approximately $32,000, and $0.2 million respectively, as a reversal to restructuring and impairment, relating to the closure of a component of the Company's business, which was originally recorded in the fourth quarter of 2018. For the three and nine months endedSeptember 30, 2018, the Company recognized a credit of $0.3 million, respectively, as a reversal to restructuring and impairment, relating to student transfer agreements.

During the nine months endedSeptember 30, 2018, as a result of the Company vacating certain leased space, the Company retired $0.3 million of assets. There were no such charges during the nine months endedSeptember 30, 2019.

The following table summarizes the amounts recorded in the restructuring and impairment charges line item on the Company’s condensed consolidated statements of income (loss) for each of the periods presented (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Asset impairment	$	—		$	—		$	—		$	325
Student transfer agreement costs (credit)	(32		)	(268		)	(171		)	(268		)
Severance costs	1,220			855			6,231			1,874
Lease exit and other costs	1,279			638			1,830			1,864
Total restructuring and impairment expense	$	2,467		$	1,225		$	7,890		$	3,795

The following table summarizes the changes in the Company's restructuring and impairment liability by type during the nine months endedSeptember 30, 2019 (in thousands):

	Student Transfer Agreement Costs			Severance Costs			Lease Exit and Other Costs			Total
Balance at December 31, 2018	$	1,503		$	267		$	2,864		$	4,634
Restructuring and impairment expense (credit)	(171		)	6,231			1,830			7,890
Payments and adjustments	(22		)	(5,606		)	(3,377		)	(9,005		)
Balance at September 30, 2019	$	1,310		$	892		$	1,317		$	3,519

The restructuring liability amounts are recorded within either the (i) accounts payable and accrued liabilities account, (ii) lease liability account or (iii) other long-term liabilities account on the condensed consolidated balance sheets.

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Credit Facilities

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Credit Facilities

Credit Facilities

The Company has issued letters of credit that are collateralized with cash (held in restricted cash) in the aggregate amount of $16.6 million as of September 30, 2019.

As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. The Company has entered into a surety bond facility with an insurance company to provide such bonds when required. As of September 30, 2019, the Company’s total available surety bond facility was $8.5 million, and the surety had issued bonds totaling $8.1 million on the Company’s behalf under such facility.

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The Company uses the asset-liability method to account for taxes. Under this method, deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the condensed consolidated financial statements that will result in income and deductions in future years.

The Company recognizes deferred tax assets if realization of such assets is more-likely-than-not. In order to make this determination, the Company evaluates a number of factors including the ability to generate future taxable income from reversing taxable temporary differences, forecasts of financial and taxable income or loss, and the ability to carryback certain operating losses to refund taxes paid in prior years. The cumulative loss incurred over the three-year period ended September 30, 2019 constituted significant negative objective evidence against the Company’s ability to realize a benefit from its federal deferred tax assets. Such objective evidence limited the ability of the Company to consider in its evaluation certain subjective evidence such as the Company’s projections for future growth. On the basis of its evaluation, the Company determined that its deferred tax assets were not more-likely-than-not to be realized and that a valuation allowance against its deferred tax assets should continue to be maintained as of September 30, 2019.

The Company determines the interim income tax provision by applying the estimated effective income tax rate expected to be applicable for the full fiscal year to income before income taxes for the period. In determining the full year estimate, the Company does not include the estimated impact of unusual and/or infrequent items, which may cause significant variations in the customary relationship between income tax expense and income before income taxes.

The Company’s current effective income tax rate that has been applied to normal, recurring operations for the nine months endedSeptember 30, 2019 was (0.4)%. The Company’s actual effective income tax rate after discrete items was 7.4% for the nine months endedSeptember 30, 2019. The Company released approximately $2.3 million in valuation allowance as a result of tax benefits recorded in connection with its acquisitions during the second quarter of 2019 for which a deferred tax liability was established in purchase accounting.

As of September 30, 2019, and December 31, 2018, the Company had $0.7 million and $0.9 million of gross unrecognized tax benefits, of which $0.6 million and $0.7 million would impact the effective income tax rate if recognized, respectively. Although the Company cannot predict the timing of resolution with taxing authorities, if any, the Company believes it is reasonably possible that the total of the unrecognized tax benefits could change in the next twelve months due to settlement with tax authorities or expiration of the applicable statute of limitations. Although the Company believes the tax accruals provided are reasonable, the final determination of tax returns under review or returns that may be reviewed in the future and any related litigation could result in tax liabilities that materially differ from the Company’s historical income tax provisions and accruals.

The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The tax years 2001 through 2017 are open to examination by major taxing jurisdictions to which the Company is subject.

The Company is currently under Internal Revenue Service audit examinations of the Company’s income and payroll tax returns for the years 2013 through 2016.

The Company’s income tax returns for the tax years ended December 31, 2013 through 2015 are under examination by the California Franchise Tax Board. The audit examination is currently on hold until the Internal Revenue Service audit examination has been completed.

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Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Accounting Policies [Abstract]

Principles of Consolidation

Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

Unaudited Interim Financial Information

The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (“SEC”) on March 12, 2019. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.

Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP for complete annual financial statements.

Use of Estimates

Use of Estimates

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. Actual results could differ from those estimates.

Comprehensive Income, Policy [Policy Text Block]

Comprehensive Income (Loss)

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

Goodwill and Intangible Assets, Policy [Policy Text Block]

Goodwill and Indefinite-Lived Intangible Assets

The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each fiscal year, or more frequently if events and circumstances warrant. To evaluate the impairment of goodwill, the Company first assesses qualitative factors, such as deterioration in general economic conditions or negative company financial performance, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. To evaluate the impairment of the indefinite-lived intangible assets, the Company assesses the fair value of the assets to determine whether they were greater or less than the carrying values. Determining the fair value of indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are inherently uncertain and may include such items as growth rates used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and a determination of appropriate market comparables.

The Company has reassessed its reporting units in 2019, noting that it has three distinct reporting units including i) Zovio which includes Ashford, ii) Fullstack and iii) TutorMe. During the third quarter of 2019, the Company's qualitative assessment of goodwill and indefinite-lived intangible assets under ASC 350, Intangibles - Goodwill and Other, indicated triggering events in its Zovio reporting unit. There were no impairment indicators in the Fullstack or TutorMe reporting units. The impairment indicator for Zovio included a sustained declining stock price, which indicated the fair value of the Zovio reporting unit was potentially less than the carrying amount. Consequently, the Company then performed Step 1 of the impairment test and assessed the fair value of that reporting unit and determined that it was less than its carrying value.

Preliminary analysis indicated potential impairment of the goodwill within the Zovio reporting unit. However, due to the time and effort required to determine the implied fair value of goodwill (i.e. Step 2 of the impairment assessment), the analysis is not complete at this time. As of September 30, 2019, Zovio’s reporting unit carrying value of goodwill is $0.7 million and its carrying value of other indefinite-lived intangible assets is $1.4 million. The Company's valuation to determine the amount of impairment will be completed in the fourth quarter of 2019.

Impairment of Long-Lived Assets

The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded if the carrying amount of the long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results.

During the third quarter of 2019, the Company's qualitative assessment of long-lived assets under ASC 360, Property and Equipment, indicated impairment indicators. The Company then performed an undiscounted cash flow analysis, noting that the related assets were recoverable. As such, no impairment in the Company’s long-lived assets is deemed necessary as of September 30, 2019.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded if the carrying amount of the long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results.

During the third quarter of 2019, the Company's qualitative assessment of long-lived assets under ASC 360, Property and Equipment, indicated impairment indicators. The Company then performed an undiscounted cash flow analysis, noting that the related assets were recoverable. As such, no impairment in the Company’s long-lived assets is deemed necessary as of September 30, 2019.

Lessee, Leases [Policy Text Block]

Leases

In accordance with Accounting Standard Update (“ASU”) 2016-02, Leases (ASC 842) (“ASC 842”), leases are evaluated and classified as either operating or finance leases. The Company does not have any finance leases. The Company’s operating leases are included in operating lease assets, accounts payable and accrued liabilities, and noncurrent lease liabilities on the condensed consolidated balance sheets. Operating lease assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its estimated incremental borrowing rate based on information available at the date of adoption in calculating the present value of its existing lease payments. The incremental borrowing rate is determined using the U.S. Treasury rate adjusted to account for the Company’s credit rating and the collateralized nature of operating leases. The operating lease asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line method over the term of the lease.

Leased property and equipment meeting certain criteria are capitalized as finance lease assets, and the present value of the related lease payments is recognized as a finance lease liability on the condensed consolidated balance sheets. Amortization of capitalized leased assets is computed on the straight-line method over the term of the lease or the life of the related asset, whichever is shorter.

Business Combinations Policy [Policy Text Block]

Business Combinations

The Company uses the acquisition method of accounting for business combinations. This method requires the use of significant estimates, assumptions and judgments in the determination of the estimated fair value of assets acquired and liabilities assumed in order to properly allocate the purchase price at the acquisition date. The estimates, assumptions and judgments are based in part on historical experience, industry data, information obtained from the management of the acquired companies and assistance from independent third-party appraisal firms. Examples of critical estimates include assigning values to the acquired identifiable intangible assets and valuing contingent consideration and earnout liabilities. For further information regarding the acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update 2018-15 (“ASU 2018-15”), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which amends ASC 350-40 to address a customer’s accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract. The amendments in ASU 2018-15 align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Specifically, ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract and which costs to expense. This guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2019; early adoption is permitted. Entities are permitted to apply a retrospective or a prospective transition approach to adopt the guidance.  The Company early adopted ASU 2018-15 during the period ended March 31, 2019, on a prospective basis. The adoption of ASU 2018-15 did not have a material impact on the Company’s condensed consolidated financial statements.

The Company adopted ASU 2016-02, Leases (ASC 842), as of January 1, 2019, using the modified retrospective approach. The Company elected the ‘comparatives under ASC 840 option’ as a transitional practical expedient, which allows the Company to initially apply the new lease requirements at the effective date and recognize a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. It also allows the Company to report comparative periods in the financial statements under previous GAAP under ASC 840, Leases (“ASC 840”). The Company also elected the ‘package of practical expedients’ permitted under the transition guidance, which allowed the Company to (i) carry forward the historical lease classification, (ii) forgo reassessment of whether any expired or existing contracts contain leases, and (iii) forgo reassessment of whether any previously unamortized initial direct costs continue to meet the definition of initial direct costs under ASC 842. The Company did not, however, elect the ‘hindsight’ practical expedient to reassess the lease term for existing leases. Additionally, the Company does not have land easements, therefore, practical expedients pertaining to land easements are not applicable to the Company.

For the accounting policy practical expedients, the Company elected the short-term lease exemption, under which any lease less than 12 months is excluded from recognition on the balance sheet. The Company elected not to recognize right of use assets and lease liabilities for short term leases, which has a lease term of 12 months or less and does not include an option to purchase the underlying asset that the Company is reasonably certain to exercise. Additionally, the Company elected the non-separation of lease and non-lease components, and as a result, the Company does not need to account for lease components (e.g., fixed payments including rent) separately from the non-lease components (e.g., common-area maintenance costs).

Upon adoption of ASC 842, the Company recorded right-of-use assets of approximately $25.2 million, with corresponding operating lease liabilities of approximately $31.8 million, respectively, with an offset to accounts payable and accrued liabilities and other long-term liabilities of approximately $8.4 million to eliminate accrued rent and an offset to prepaid and other current assets of $1.7 million on the consolidated balance sheet as of January 1, 2019. The Company also derecognized an existing construction-in-process of approximately $8.6 million, with a corresponding debt obligation of the same amount for an asset under construction in build-to-suit lease arrangements. However, when the Company completed the related build-to-suit construction in April 2019, the Company recognized a right-of-use asset and lease liability on its balance sheet for the associated lease.

There was no adjustment to the opening balance of retained earnings upon adoption of the new standard given the nature of the impacts and the other transition practical expedients elected by the Company. Adoption of the standard impacted the Company’s previously reported results on January 1, 2019, as follows (in thousands):

	Closing balance at December 31, 2018		Adjustments due to ASC 842			Opening balance at January 1, 2019
Assets
Prepaid and other current assets	$	18,255	$	(1,745	)	$	16,510
Property and equipment, net	$	16,860	$	(8,634	)	$	8,226
Operating lease assets (1) (2)	$	—	$	25,165		$	25,165
Liabilities and stockholder’s equity
Accounts payable and accrued liabilities	$	62,792	$	13,177		$	75,969
Noncurrent operating lease liabilities (3)	$	3,183	$	10,243		$	13,426
Lease financing obligation	$	8,634	$	(8,634	)	$	—

⁽¹⁾  Represents the reclassification of prepaid rent to operating lease assets

⁽²⁾  Represents capitalization of operating lease assets

⁽³⁾  Represents recognition of operating lease liabilities; Previously disclosed as rent liability for the portion related to accrued rent.

The standard did not materially impact the Company’s consolidated net earnings and had no material impact on the condensed consolidated statement of cash flows. For further information regarding leases, refer to Note 10, “Lease Obligations” to the condensed consolidated financial statements.

In June 2018, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The update requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The update requires enhanced disclosures to help investors and other financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. The update is effective for SEC filers for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company will adopt this standard on January 1, 2020 and does not believe the adoption of ASU 2016-13 will have a material impact on the Company’s consolidated financial statements.

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Restructuring and Impairment Expense Restructuring and Impairment Expense (Tables)

9 Months Ended

Sep. 30, 2019

Restructuring and Related Activities [Abstract]

Restructuring and impairment charges

The following table summarizes the amounts recorded in the restructuring and impairment charges line item on the Company’s condensed consolidated statements of income (loss) for each of the periods presented (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Asset impairment	$	—		$	—		$	—		$	325
Student transfer agreement costs (credit)	(32		)	(268		)	(171		)	(268		)
Severance costs	1,220			855			6,231			1,874
Lease exit and other costs	1,279			638			1,830			1,864
Total restructuring and impairment expense	$	2,467		$	1,225		$	7,890		$	3,795

Schedule of restructuring reserve by type of cost

The following table summarizes the changes in the Company's restructuring and impairment liability by type during the nine months endedSeptember 30, 2019 (in thousands):

	Student Transfer Agreement Costs			Severance Costs			Lease Exit and Other Costs			Total
Balance at December 31, 2018	$	1,503		$	267		$	2,864		$	4,634
Restructuring and impairment expense (credit)	(171		)	6,231			1,830			7,890
Payments and adjustments	(22		)	(5,606		)	(3,377		)	(9,005		)
Balance at September 30, 2019	$	1,310		$	892		$	1,317		$	3,519

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Commitments and Contingencies (Details) $ in Millions	Sep. 30, 2019 USD ($)
CALIFORNIA
Loss Contingencies [Line Items]
Estimated litigation liability	$ 8.0

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Other Significant Balance Sheet Accounts (Other Long-term Liabilities) (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Contingent consideration	$ 3,250	$ 0
Uncertain tax positions	679	865
Other long-term liabilities	2,238	2,570
Total other long-term liabilities	6,167	3,435
Capital Lease Obligations, Noncurrent	$ 0	$ 8,634

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Other Significant Balance Sheet Accounts (Goodwill and Intangibles, Net) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Goodwill and Intangibles, Net
Definite-lived intangible assets, gross carrying amount	$ 50,159		$ 50,159		$ 36,926
Definite-lived intangible assets, accumulated amortization	(29,262)		(29,262)		(26,557)
Definite-lived intangible assets, net carrying amount	20,897		20,897		10,369
Goodwill and indefinite-lived intangibles	25,035		25,035		2,072
Total goodwill and intangibles, net	45,932		45,932		12,441
Amortization of intangible Assets	1,300	$ 600	3,300	$ 2,000
Capitalized Curriculum Costs
Goodwill and Intangibles, Net
Definite-lived intangible assets, gross carrying amount	20,974		20,974		21,076
Definite-lived intangible assets, accumulated amortization	(19,452)		(19,452)		(19,338)
Definite-lived intangible assets, net carrying amount	1,522		1,522		1,738
Purchased Intangible Assets
Goodwill and Intangibles, Net
Definite-lived intangible assets, gross carrying amount	29,185		29,185		15,850
Definite-lived intangible assets, accumulated amortization	(9,810)		(9,810)		(7,219)
Definite-lived intangible assets, net carrying amount	$ 19,375		$ 19,375		$ 8,631

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Accounts Receivable, Net (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Receivables [Abstract]
Accounts receivable	$ 45,835	$ 39,195
Less allowance for doubtful accounts	10,160	12,180
Accounts receivable, net	$ 35,675	$ 27,015

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Lease Obligations - Schedule of Classification and Amounts Recorded on Balance Sheet (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Lessee, Lease, Description [Line Items]
Operating lease assets	$ 21,903	$ 25,165	$ 0
Accounts payable and accrued liabilities	9,804
Noncurrent operating lease liabilities	23,882	13,426	$ 3,183
Total lease liabilties	33,686	$ 31,800
ARIZONA
Lessee, Lease, Description [Line Items]
Operating lease assets	8,470
CALIFORNIA
Lessee, Lease, Description [Line Items]
Operating lease assets	4,876
COLORADO
Lessee, Lease, Description [Line Items]
Operating lease assets	7,922
IOWA
Lessee, Lease, Description [Line Items]
Operating lease assets	128
NEW YORK
Lessee, Lease, Description [Line Items]
Operating lease assets	237
Other Property [Member]
Lessee, Lease, Description [Line Items]
Operating lease assets	$ 270

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Income Per Share (Basic and Diluted Earnings Per Share) (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Numerator:
Net income (loss)	$ (7,558)	$ (17,597)	$ (6,642)	$ 1,661	$ 15,080	$ 1,310	$ (31,797)	$ 18,051
Denominator:
Weighted average number of common shares outstanding (in shares)	30,263			27,061			29,230	27,131
Effect of dilutive options and stock units (in shares)	0			528			0	401
Diluted weighted average number of common shares outstanding (in shares)	30,263			27,589			29,230	27,532
Income (loss) per share:
Earnings Per Share, Basic (in dollars per share)	$ (0.25)			$ 0.06			$ (1.09)	$ 0.67
Earnings Per Share, Diluted (in dollars per share)	$ (0.25)			$ 0.06			$ (1.09)	$ 0.66
Comprehensive Income (Loss), Net of Tax, Attributable to Parent	$ (7,558)			$ 1,661			$ (31,797)	$ 18,051

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 79,145	$ 166,307
Restricted cash	25,744	18,619
Investments	2,385	2,068
Accounts receivable, net	35,675	27,015
Prepaid expenses and other current assets	24,705	18,255
Total current assets	167,654	232,264
Property and equipment, net	32,995	16,860
Operating lease assets	21,903	0
Goodwill and intangibles, net	45,932	12,441
Other long-term assets	2,625	7,927
Total assets	271,109	269,492
Current liabilities:
Accounts payable and accrued liabilities	68,343	62,792
Deferred revenue and student deposits	54,461	63,834
Total current liabilities	122,804	126,626
Rent liability	23,882	3,183
Capital Lease Obligations, Noncurrent	0	8,634
Other long-term liabilities	6,167	3,435
Total liabilities	152,853	141,878
Commitments and contingencies (see Note 15)
Preferred stock, $0.01 par value:
20,000 shares authorized; zero shares issued and outstanding at both September 30, 2019, and December 31, 2018	0	0
Common stock, $0.01 par value:
300,000 shares authorized; 65,636 and 65,289 issued, and 30,268 and 27,168 outstanding, at September 30, 2019 and December 31, 2018, respectively	659	653
Additional paid-in capital	188,717	205,157
Retained earnings	398,195	429,992
Treasury stock, 35,368 and 38,121 shares at cost at September 30, 2019, and at December 31, 2018, respectively	(469,315)	(508,188)
Total stockholders' equity	118,256	127,614
Total liabilities and stockholders' equity	$ 271,109	$ 269,492

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Condensed Consolidated Statement of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock
Balance, shares at Dec. 31, 2017		64,887
Balance at Dec. 31, 2017	$ 122,996	$ 649	$ 201,755	$ 426,356	$ (505,764)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	1,165		1,165
Stock issued under stock incentive plan, net of shares held for taxes, shares		186
Stock issued under stock incentive plan, net of shares held for taxes	(705)	$ 2	(707)
Net income (loss)	1,310			1,310
Balance, shares at Mar. 31, 2018		65,073
Balance at Mar. 31, 2018	123,766	$ 651	202,213	426,666	(505,764)
Balance, shares at Dec. 31, 2017		64,887
Balance at Dec. 31, 2017	122,996	$ 649	201,755	426,356	(505,764)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	18,051
Balance, shares at Sep. 30, 2018		65,257
Balance at Sep. 30, 2018	139,785	$ 653	203,913	443,407	(508,188)
Balance, shares at Mar. 31, 2018		65,073
Balance at Mar. 31, 2018	123,766	$ 651	202,213	426,666	(505,764)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	1,160		1,160
Stock issued under employee stock purchase plan (in shares)		16
Stock issued under employee stock purchase plan	98	$ 0	98
Stock issued under stock incentive plan, net of shares held for taxes, shares		20
Stock issued under stock incentive plan, net of shares held for taxes	(48)	$ 0	(48)
Stock repurchase	(2,424)				(2,424)
Net income (loss)	15,080			15,080
Balance, shares at Jun. 30, 2018		65,109
Balance at Jun. 30, 2018	137,632	$ 651	203,423	441,746	(508,188)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	1,265		1,265
Exercise of stock options (in shares)		122
Exercise of stock options	455	$ 2	453
Stock issued under stock incentive plan, net of shares held for taxes, shares		26
Stock issued under stock incentive plan, net of shares held for taxes	(131)	$ 0	(131)
Net income (loss)	1,661			1,661
Balance, shares at Sep. 30, 2018		65,257
Balance at Sep. 30, 2018	139,785	$ 653	203,913	443,407	(508,188)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adjustment to Additional Paid in Capital, Income Tax Effect from Share-based Compensation, Net	(1,097)		(1,097)
Balance, shares at Dec. 31, 2018		65,289
Balance at Dec. 31, 2018	127,614	$ 653	205,157	429,992	(508,188)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	1,706		1,706
Exercise of stock options (in shares)		6
Exercise of stock options	60	$ 1	59
Stock issued under stock incentive plan, net of shares held for taxes, shares		284
Stock issued under stock incentive plan, net of shares held for taxes	(755)	$ 2	(757)
Net income (loss)	(6,642)			(6,642)
Balance, shares at Mar. 31, 2019		65,579
Balance at Mar. 31, 2019	121,983	$ 656	206,165	423,350	(508,188)
Balance, shares at Dec. 31, 2018		65,289
Balance at Dec. 31, 2018	127,614	$ 653	205,157	429,992	(508,188)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(31,797)
Balance, shares at Sep. 30, 2019		65,636
Balance at Sep. 30, 2019	118,256	$ 659	188,717	398,195	(469,315)
Balance, shares at Mar. 31, 2019		65,579
Balance at Mar. 31, 2019	121,983	$ 656	206,165	423,350	(508,188)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	3,596		3,596
Stock issued under employee stock purchase plan (in shares)		29
Stock issued under employee stock purchase plan	96	$ 0	96
Stock issued under stock incentive plan, net of shares held for taxes, shares		20
Stock issued under stock incentive plan, net of shares held for taxes	(51)	$ 0	(51)
Stock issued under acquisition	14,363	$ 3	(24,513)		38,873
Net income (loss)	(17,597)			(17,597)
Balance, shares at Jun. 30, 2019		65,628
Balance at Jun. 30, 2019	122,390	$ 659	185,293	405,753	(469,315)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	3,428		3,428
Stock issued under stock incentive plan, net of shares held for taxes, shares		8
Stock issued under stock incentive plan, net of shares held for taxes	(4)	$ 0	(4)
Net income (loss)	(7,558)			(7,558)
Balance, shares at Sep. 30, 2019		65,636
Balance at Sep. 30, 2019	$ 118,256	$ 659	$ 188,717	$ 398,195	$ (469,315)

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Income Per Share

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Income Per Share

Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding for the period.

Diluted income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the sum of (i) the weighted average number of common shares outstanding for the period, plus (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive securities for the periods presented include stock options, unvested restricted stock units (“RSUs”) and unvested performance stock units (“PSUs”).

The following table sets forth the computation of basic and diluted income (loss) per share for the periods indicated (in thousands, except per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Numerator:
Net income (loss)	$	(7,558	)	$	1,661	$	(31,797	)	$	18,051
Denominator:
Weighted average number of common shares outstanding	30,263			27,061		29,230			27,131
Effect of dilutive options and stock units	—			528		—			401
Diluted weighted average number of common shares outstanding	30,263			27,589		29,230			27,532
Income (loss) per share:
Basic	$	(0.25	)	$	0.06	$	(1.09	)	$	0.67
Diluted	$	(0.25	)	$	0.06	$	(1.09	)	$	0.66

The following table sets forth the number of stock options, RSUs and PSUs, excluded from the computation of diluted income (loss) per share for the periods indicated below because their effect was anti-dilutive (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Stock options	2,141	1,560	1,983	2,709
RSUs and PSUs	3,228	2	1,461	2

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Business Combinations (Notes)

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Business Combination

Business Combinations

Acquisition of Fullstack Academy, Inc.

On April 1, 2019, the Company acquired Fullstack, a coding academy headquartered in New York, by acquiring all of its outstanding shares, pursuant to an Agreement and Plan of Reorganization (the “Fullstack Merger Agreement”). As of March 31, 2019, Fullstack had a carrying value of approximately $7.1 million of assets, excluding goodwill. At the closing of the Fullstack acquisition, the equityholders of Fullstack received consideration consisting of $17.5 million in cash (less purchase price adjustments of approximately $2.0 million, plus third-party expenses of approximately $2.0 million), and an aggregate of approximately 2,443,260 shares of the Company’s common stock, subject to escrow adjustments. Additionally, under the Fullstack Merger Agreement, the equityholders of Fullstack will be entitled to receive up to 2,250,000 contingent shares of the Company’s common stock (the “Fullstack Contingent Consideration”). The Fullstack Merger Agreement contains an employee incentive retention pool of up to $5.0 million in cash, payable at times over a two-year period.

The assets and liabilities of Fullstack were recorded on the Company’s condensed consolidated balance sheets at their preliminary estimated fair values as of April 1, 2019, the acquisition date. Fullstack’s results of operations are included in the Company’s condensed consolidated statements of income (loss) from that date. Fullstack recognized revenue of $3.3 million, had an operating loss of $3.0 million, and net loss of $3.0 million for the three months ended September 30, 2019. For the nine months endedSeptember 30, 2019, the Company recorded acquisition-related expenses of $4.1 million, in general and administrative on the condensed consolidated statement of income (loss), associated with the Fullstack acquisition. The Company accounts for business combinations using the acquisition method of accounting.

The following table summarizes the preliminary purchase price, as well as the preliminary allocation of the purchase price relating to the assets and liabilities purchased (in thousands):

Estimated cash consideration for acquired assets	$	17,540
Estimated fair value of equity	12,336
Preliminary fair value of contingent consideration payable	3,250
Total estimated purchase price	$	33,126

Preliminary Purchase Price Allocation:
Cash and cash equivalents	$	585
Accounts receivable	5,604
Prepaid and other assets	665
Property and equipment	167
Operating lease assets	1,297
Intangible assets	11,605
Other long-term assets	20
Accounts payable and accrued liabilities	(496		)
Deferred revenue	(2,350		)
Long-term liabilities	(1,297		)
Total identifiable net assets acquired	$	15,800
Deferred tax liability	(2,165		)
Goodwill	19,491
Total estimated purchase consideration	$	33,126

The fair value of the consideration to be paid exceeded the fair value of the net assets acquired and liabilities assumed, resulting in goodwill being recorded. Goodwill arising from the acquisition consists largely of future performance expected to be generated from new university and student relationships. None of the goodwill recognized is expected to be deductible for income tax purposes. The above purchase price and purchase price allocation are preliminary and subject to future revision as the acquired assets and liabilities assumed are dependent upon the finalization of the related valuations. The fair values assigned to assets acquired and liabilities assumed for Fullstack are based upon managements best estimates and assumptions as of the reporting date and are considered preliminary pending finalization of the valuations pertaining to tax liabilities assumed, including the calculation of deferred tax assets and liabilities.

The fair value of the common shares issued as part of the consideration paid was determined on the basis of the closing market price of the Company’s shares on the acquisition date, and also incorporated a discount for lack of marketability rates for various holding periods.

The Fullstack Contingent Consideration will become issuable, subject to the terms and conditions of the Fullstack Merger Agreement. Of the total contingent 2,250,000 shares, (i) 1,250,000 are based upon final determination of the achievement of certain employee retention requirements and is being expensed over the retention period, (ii) 500,000 shares are based upon revenue performance in 2019 and 2020, earned on a sliding scale, in the event that the revenues for Fullstack are between $25.0 million and $35.0 million, and (iii) 500,000 shares are based upon contract performance milestones in 2019 and 2020, earned on a sliding scale, in the event that Fullstack obtains between 4 and 8 new university contracts. The fair value of the performance based Fullstack Contingent Consideration arrangements was estimated by applying a Monte Carlo simulation, based upon the result of forecast information. These measures are based upon significant inputs that are not observable by the market, and are therefore deemed to be Level 3 inputs. At each subsequent reporting date, the Company will remeasure the contingent consideration and recognize any changes in value, if necessary. If the probability of achieving the performance target significantly changes from what was initially anticipated, the change could have a significant impact on the Company’s financial statements in the period recognized. No changes in the value of contingent consideration were necessary for the quarter ended September 30, 2019.

Acquisition of TutorMe.com, Inc.

On April 3, 2019, the Company acquired TutorMe, a provider of on-demand tutoring and online courses, headquartered in California, by acquiring all of its outstanding shares, pursuant to an Agreement and Plan of Reorganization (the “TutorMe Merger Agreement”). As of March 31, 2019, TutorMe had a carrying value of approximately $0.6 million of assets, excluding goodwill. At the closing of the TutorMe acquisition, in exchange for all outstanding shares of TutorMe capital stock and other rights to acquire or receive capital stock of TutorMe, the Company (i) paid a total of approximately $2.8 million in cash, subject to certain purchase price adjustments, (ii) issued a total of 309,852 shares of the Company’s common stock, and (iii) assumed all issued and outstanding options of TutorMe (the “Assumed Options”), of which a total of 231,406 shares of the Company’s common stock are underlying the Assumed Options that are subject to certain time-based vesting requirements and a total of 79,199 shares of the Company’s common stock are underlying the Assumed Options that are subject to certain performance-based vesting requirements. In addition, as part of the transactions contemplated by the TutorMe Merger Agreement, the Company (x) paid a total of approximately $1.2 million in cash to certain service providers of TutorMe as a transaction bonus and (y) issued a total of 293,621 Performance Stock Units (“PSUs”) to certain continuing service providers of TutorMe pursuant to the Company’s 2009 Stock Incentive Plan (as amended) and a restricted stock unit agreement.

The assets and liabilities of TutorMe were recorded on the Company’s condensed consolidated balance sheets at their preliminary estimated fair values as of April 3, 2019, the acquisition date. TutorMe’s results of operations are included in the Company’s condensed consolidated statements of income (loss) from that date. TutorMe recognized revenue of $0.2 million, had an operating loss of $0.5 million, and net loss of $0.5 million for the three months ended September 30, 2019. For the nine months endedSeptember 30, 2019, the Company recorded acquisition-related expenses of $2.6 million, in general and administrative on the condensed consolidated statement of income (loss), associated with the TutorMe Acquisition. The Company accounts for business combinations using the acquisition method of accounting.

The following table summarizes the preliminary purchase price, as well as the preliminary allocation of the purchase price relating to the assets and liabilities purchased (in thousands):

Estimated cash consideration for acquired assets	$	3,028
Estimated fair value of equity	2,026
Total estimated purchase price	$	5,054

Preliminary Purchase Price Allocation:
Cash and cash equivalents	$	214
Accounts receivable	46
Intangible assets	1,730
Accounts payable and accrued liabilities	(35		)
Deferred revenue	(200		)
Long-term liabilities	(3		)
Total identifiable net assets acquired	$	1,752
Deferred tax liability	(260		)
Goodwill	3,562
Total estimated purchase consideration	$	5,054

The fair value of the consideration to be paid exceeded the fair value of the net assets acquired and liabilities assumed, resulting in goodwill being recorded. Goodwill arising from the acquisition consists largely of future performance expected to be generated from new university and student relationships, as well as the developed technology. None of the goodwill recognized is expected to be deductible for income tax purposes. The above purchase price and purchase price allocation are preliminary and subject to future revision as the acquired assets and liabilities assumed are dependent upon the finalization of the related valuations. The fair values assigned to assets acquired and liabilities assumed for TutorMe are based upon managements best estimates and assumptions as of the reporting date, and are considered preliminary pending finalization of the valuations pertaining to tax liabilities assumed, including the calculation of deferred tax assets and liabilities.

The fair value of equity includes the common shares issued as part of the consideration paid was determined on the basis of the closing market price of the Company’s shares on the acquisition date, which also incorporated a discount for lack of marketability rates for various holding periods.

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Accounts Receivable, Net

9 Months Ended

Sep. 30, 2019

Receivables [Abstract]

Accounts Receivable, Net

Accounts Receivable, Net

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

	As of September 30, 2019		As of December 31, 2018
Accounts receivable	$	45,835	$	39,195
Less allowance for doubtful accounts	10,160		12,180
Accounts receivable, net	$	35,675	$	27,015

There is an immaterial amount of accounts receivable, net, at each balance sheet date with a payment due date of greater than one year.

The following table presents the changes in the allowance for doubtful accounts for accounts receivable for the periods indicated (in thousands):

	Beginning Balance		Charged to Expense		Deductions (1)			Ending Balance
Allowance for doubtful accounts receivable:
For the nine months ended September 30, 2019	$	12,180	$	10,508	$	(12,528	)	$	10,160
For the nine months ended September 30, 2018	$	15,189	$	19,339	$	(20,194	)	$	14,334

(1) Deductions represent accounts written off, net of recoveries.

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Business Combinations (Details)			3 Months Ended						9 Months Ended
	Apr. 03, 2019 USD ($) shares	Apr. 01, 2019 USD ($) university_contract shares	Sep. 30, 2019 USD ($)	Jun. 30, 2019 USD ($)	Mar. 31, 2019 USD ($)	Sep. 30, 2018 USD ($)	Jun. 30, 2018 USD ($)	Mar. 31, 2018 USD ($)	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Dec. 31, 2018 USD ($)
Business Acquisition [Line Items]
Carrying value of assets			$ 271,109,000						$ 271,109,000		$ 269,492,000
Business Combination, Contingent consideration, liability, period		2 years
Revenues			104,251,000			$ 112,846,000			321,510,000	$ 348,660,000
Operating income			(7,849,000)			879,000			(35,373,000)	9,605,000
Net income (loss)			(7,558,000)	$ (17,597,000)	$ (6,642,000)	$ 1,661,000	$ 15,080,000	$ 1,310,000	(31,797,000)	18,051,000
Estimated cash consideration for acquired assets	$ 3,028,000
Estimated fair value of equity	2,026,000
Preliminary fair value of contingent consideration payable									483,000	$ 0
Total estimated purchase price	5,054,000
Cash and cash equivalents	214,000
Accounts receivable	46,000
Intangible assets	1,730,000
Accounts payable	(35,000)
Deferred revenue	(200,000)
Long-term liabilities	(3,000)
Total identifiable net assets acquired	1,752,000
Deferred tax liability	(260,000)
Goodwill	3,562,000
Fullstack Academy [Domain]
Business Acquisition [Line Items]
Carrying value of assets					7,100,000
Consideration received		$ 17,500,000
Purchase price adjustments		2,000,000
Third-party adjustments		$ 2,000,000
Shares of the Company's stock | shares		2,443,260
Contingently issuable shares | shares		2,250,000
Incentive retention pool		$ 5,000,000
Revenues			3,300,000
Operating income			3,000,000
Net income (loss)			3,000,000
Acquisition related costs									4,100,000
Estimated cash consideration for acquired assets		17,540,000
Estimated fair value of equity		12,336,000
Preliminary fair value of contingent consideration payable		3,250,000
Total estimated purchase price		33,126,000
Cash and cash equivalents		585,000
Accounts receivable		5,604,000
Prepaid and other assets		665,000
Property and equipment		167,000
Operating lease assets		1,297,000
Intangible assets		11,605,000
Other long-term assets		20,000
Accounts payable		(496,000)
Deferred revenue		(2,350,000)
Long-term liabilities		(1,297,000)
Total identifiable net assets acquired		15,800,000
Deferred tax liability		(2,165,000)
Goodwill		$ 19,491,000
TutorMe [Domain] [Domain]
Business Acquisition [Line Items]
Carrying value of assets					$ 600,000
Consideration received	2,800,000
Third-party adjustments	$ 1,200,000
Shares of the Company's stock | shares	309,852
Revenues			200,000
Operating income			500,000
Net income (loss)			$ 500,000
Acquisition related costs									$ 2,600,000
TutorMe [Domain] [Domain] | Performance Shares
Business Acquisition [Line Items]
Estimated fair value of equity	$ 293,621
Options assumed | shares	79,199
TutorMe [Domain] [Domain] | Service Requirement Awards [Member]
Business Acquisition [Line Items]
Options assumed | shares	231,406
Customer Contracts [Member] | Fullstack Academy [Domain]
Business Acquisition [Line Items]
Contingently issuable shares | shares		500,000
Revenue Benchmark [Member] | Fullstack Academy [Domain]
Business Acquisition [Line Items]
Contingently issuable shares | shares		500,000
Service Requirement Awards [Member] | Fullstack Academy [Domain]
Business Acquisition [Line Items]
Contingently issuable shares | shares		1,250,000
Minimum | Revenue Benchmark [Member] | Fullstack Academy [Domain]
Business Acquisition [Line Items]
Revenue sliding scale		$ 25,000,000
New university contract threshold | university_contract		4
Maximum | Revenue Benchmark [Member] | Fullstack Academy [Domain]
Business Acquisition [Line Items]
Revenue sliding scale		$ 35,000,000
New university contract threshold | university_contract		8

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Income Per Share (Tables)

9 Months Ended

Sep. 30, 2019

Earnings Per Share [Abstract]

Computation of Basic and Diluted Earnings Per Common Share

The following table sets forth the computation of basic and diluted income (loss) per share for the periods indicated (in thousands, except per share data):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2019			2018		2019			2018
Numerator:
Net income (loss)	$	(7,558	)	$	1,661	$	(31,797	)	$	18,051
Denominator:
Weighted average number of common shares outstanding	30,263			27,061		29,230			27,131
Effect of dilutive options and stock units	—			528		—			401
Diluted weighted average number of common shares outstanding	30,263			27,589		29,230			27,532
Income (loss) per share:
Basic	$	(0.25	)	$	0.06	$	(1.09	)	$	0.67
Diluted	$	(0.25	)	$	0.06	$	(1.09	)	$	0.66

Antidilutive Securities

The following table sets forth the number of stock options, RSUs and PSUs, excluded from the computation of diluted income (loss) per share for the periods indicated below because their effect was anti-dilutive (in thousands):

	Three Months Ended September 30,		Nine Months Ended September 30,
	2019	2018	2019	2018
Stock options	2,141	1,560	1,983	2,709
RSUs and PSUs	3,228	2	1,461	2

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Litigation

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

California Attorney General Investigation of For-Profit Educational Institutions

In January 2013, the Company received from the Attorney General of the State of California (“CA Attorney General”) an Investigative Subpoena relating to the CA Attorney General’s investigation of for-profit educational institutions. Pursuant to the Investigative Subpoena, the CA Attorney General requested documents and detailed information for the time period March 1, 2009 to the date of the Investigative Subpoena. On July 24, 2013, the CA Attorney General filed a petition to enforce certain categories of the Investigative Subpoena related to recorded calls and electronic marketing data. On September 25, 2013, the Company reached an agreement with the CA Attorney General to produce certain categories of the documents requested in the petition and stipulated to continue the hearing on the petition to enforce from October 3, 2013 to January 9, 2014. On January 13, 2014 and June 19, 2014, the Company received additional Investigative Subpoenas from the CA Attorney General, each requesting additional documents and information for the time period March 1, 2009 through each such date.

Representatives from the Company met with representatives from the CA Attorney General’s office on several occasions to discuss the status of the investigation, additional information requests, and specific concerns related to possible unfair business practices in connection with the Company’s recruitment of students and debt collection practices.

The parties also discussed a potential resolution involving injunctive relief, other non-monetary remedies and a payment to the CA Attorney General and in the third quarter of 2016, the Company recorded an expense of $8.0 million related to the cost of resolving this matter.

The parties did not reach a resolution and on November 29, 2017, the CA Attorney General filed suit against Ashford University and the Company.

The Company intends to vigorously defend this case and emphatically denies the allegations made by the CA Attorney General that it ever deliberately misled its students, falsely advertised its programs, or in any way was not fully accurate in its statements to investors. However, the outcome of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise. At present, the Company cannot reasonably estimate any updated range of loss for this action based on currently available information and as such, the prior accrual of $8.0 million remains.

Massachusetts Attorney General Investigation of Bridgepoint Education, Inc. and Ashford University

On July 21, 2014, the Company and Ashford University received from the Attorney General of the State of Massachusetts (“MA Attorney General”) a Civil Investigative Demand (“MA CID”) relating to the MA Attorney General’s investigation of for-profit educational institutions and whether the university’s business practices complied with Massachusetts consumer protection laws. Pursuant to the MA CID, the MA Attorney General has requested from the Company and Ashford University documents and information for the time period January 1, 2006 to present. The Company is cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time. The Company has not accrued any liability associated with this action.

Department of Justice Civil Investigative Demand

On July 7, 2016, the Company received from the U.S. Department of Justice (“DOJ”) a Civil Investigative Demand (“DOJ CID”) related to the DOJ's investigation concerning allegations that the Company may have misstated Title IV refund revenue or overstated revenue associated with private secondary loan programs and thereby misrepresented its compliance with the 90/10 rule of the Higher Education Act. Pursuant to the DOJ CID, the DOJ has requested from the Company documents and information for fiscal years 2011 to 2015. The Company is cooperating with the DOJ and cannot predict the eventual scope, duration or outcome of the investigation at this time. The Company has not accrued any liability associated with this action.

Shareholder Derivative Actions

In re Bridgepoint, Inc. Shareholder Derivative Action

On July 24, 2012, a shareholder derivative complaint was filed in California Superior Court by Alonzo Martinez. In the complaint, the plaintiff asserts a derivative claim on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned Martinez v. Clark, et al. and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement on behalf of the Company, as well as other equitable relief and attorneys’ fees.On September 28, 2012, a substantially similar shareholder derivative complaint was filed in California Superior Court by David Adolph-Laroche. In the complaint, the plaintiff asserts a derivative claim on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned Adolph-Laroche v. Clark, et al. and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched.

On October 11, 2012, the Adolph-Laroche action was consolidated with the Martinez action and the case is now captioned In re Bridgepoint, Inc. Shareholder Derivative Action. A consolidated complaint was filed on December 18, 2012 and the defendants filed a motion to stay the case while the underlying securities class action is pending. The motion was granted by the Court on April 11, 2013. A status conference was held on October 10, 2013, during which the Court ordered the stay continued for the duration of discovery in the underlying securities class action, but permitted the plaintiff to receive copies of any discovery responses served in the underlying securities class action. The stay was lifted following the settlement of the underlying securities class action and all defendants filed demurrers on October 3, 2016, which were granted with leave to amend on October 6, 2017. On October 17, 2017, the plaintiff submitted a litigation demand to the Company's Board of Directors, which appointed a working group to evaluate the demand. The Board refused the demand and the Plaintiff filed a Second Amended Complaint on October 3, 2018. All defendants filed demurrers on December 21, 2018, which were granted by the Court on June 14, 2019. As a result, the Court entered a final order dismissing the case on July 8, 2019. The plaintiff subsequently filed a notice of appeal. Based on information available to the Company at present, it cannot reasonably estimate a range of loss and accordingly has not accrued any liability associated with this action.

Stein Securities Class Action

On March 8, 2019, a securities class action complaint (the “Stein Complaint”) was filed in the U.S. District Court for the Southern District of California by Shiva Stein naming the Company, Andrew Clark, Kevin Royal, and Joseph D’Amico as defendants (the “Defendants”). The Stein Complaint alleges that Defendants made false and materially misleading statements and failed to disclose material adverse facts regarding the Company's business, operations and prospects, specifically that the Company had applied an improper revenue recognition methodology to students enrolled in the FTG program. The Stein Complaint asserts a putative class period stemming from March 8, 2016 to March 7, 2019. The Stein Complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. Plaintiff Stein was appointed lead plaintiff by the Court and filed a substantially similar amended complaint on October 1, 2019.

The Company is evaluating the amended complaint and intends to vigorously defend against it. However, because of the many questions of fact and law that may arise, the outcome of the legal proceeding is uncertain at this point. Based on information available to the Company at present, the Company cannot reasonably estimate a range of loss and accordingly has not accrued any liability associated with this action.

SEC Informal Inquiry

On March 27, 2019, the Company received notice that the SEC Division of Enforcement began an informal inquiry regarding the Company, requesting various documents relating to the Company’s accounting practices, including FTG revenue recognition, receivables and other matters relating to the Company’s previously disclosed intention to restate its condensed financial statements for the three and nine months ended September 30, 2018.

Based on these requests, the eventual scope, duration and outcome of the inquiry cannot be predicted at this time. We are cooperating fully with the SEC in connection with the inquiry.

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Business Combinations (Tables)

9 Months Ended

Sep. 30, 2019

Business Combinations [Abstract]

Schedule of Business Acquisitions, by Acquisition

The following table summarizes the preliminary purchase price, as well as the preliminary allocation of the purchase price relating to the assets and liabilities purchased (in thousands):

Estimated cash consideration for acquired assets	$	17,540
Estimated fair value of equity	12,336
Preliminary fair value of contingent consideration payable	3,250
Total estimated purchase price	$	33,126

Preliminary Purchase Price Allocation:
Cash and cash equivalents	$	585
Accounts receivable	5,604
Prepaid and other assets	665
Property and equipment	167
Operating lease assets	1,297
Intangible assets	11,605
Other long-term assets	20
Accounts payable and accrued liabilities	(496		)
Deferred revenue	(2,350		)
Long-term liabilities	(1,297		)
Total identifiable net assets acquired	$	15,800
Deferred tax liability	(2,165		)
Goodwill	19,491
Total estimated purchase consideration	$	33,126

The following table summarizes the preliminary purchase price, as well as the preliminary allocation of the purchase price relating to the assets and liabilities purchased (in thousands):

Estimated cash consideration for acquired assets	$	3,028
Estimated fair value of equity	2,026
Total estimated purchase price	$	5,054

Preliminary Purchase Price Allocation:
Cash and cash equivalents	$	214
Accounts receivable	46
Intangible assets	1,730
Accounts payable and accrued liabilities	(35		)
Deferred revenue	(200		)
Long-term liabilities	(3		)
Total identifiable net assets acquired	$	1,752
Deferred tax liability	(260		)
Goodwill	3,562
Total estimated purchase consideration	$	5,054

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Other Significant Balance Sheet Accounts (Accounts Payable and Accrued Liabilities) (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Balance Sheet Related Disclosures [Abstract]
Accounts payable	$ 7,747	$ 5,313
Accrued salaries and wages	5,449	7,807
Accrued bonus	5,701	8,147
Accrued vacation	4,974	7,929
Accrued litigation and fees	8,041	8,041
Accrued expenses	24,280	17,692
Current leases payable	9,803	5,768
Accrued insurance liability	2,348	2,095
Total accounts payable and accrued liabilities	$ 68,343	$ 62,792

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Other Significant Balance Sheet Accounts (Prepaid Expenses and Other Current Assets) (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Prepaid Expense and Other Assets, Current [Abstract]
Prepaid expenses	$ 5,461		$ 5,445
Prepaid licenses	4,973		5,840
Prepaid Taxes	200		0
Income tax receivable	4,121		5,044
Prepaid insurance	1,138		1,077
Insurance recoverable	994		723
Other current assets	7,818		126
Total prepaid expenses and other current assets	$ 24,705	$ 16,510	$ 18,255

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Income Taxes (Details) - USD ($) $ in Millions	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019	Dec. 31, 2018
Income Tax Contingency [Line Items]
Effective tax rate		7.40%
Valuation Allowance, Deferred Tax Asset, Increase (Decrease), Amount	$ 2.3
Unrecognized tax benefits	0.7	$ 0.7	$ 0.9
Gross unrecognized tax benefits that would impact effective tax rate if recognized	$ 0.6	$ 0.6	$ 0.7
Settlement with taxing authority
Income Tax Contingency [Line Items]
Effective tax rate		(0.40%)

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Subsequent Events

9 Months Ended

Sep. 30, 2019

Subsequent Events [Abstract]

Subsequent Events

Subsequent Events

On October 7, 2019, the Company announced that in connection with the potential change of ownership and conversion of Ashford University to a nonprofit California public benefit corporation, the Department has provided a response to the request for review made on July 15, 2019. For further information, refer to Note 14, “Regulatory - U.S. Department of Education Abbreviated Preacquisition Review Letter” to the condensed consolidated financial statements.

In October 2019, the Company approved and executed upon a plan of restructuring, which includes the elimination of approximately 300 current positions as well as other cost-saving measures. The Company expects to record a restructuring charge of approximately $11.0 million in the fourth quarter of 2019, consisting of one-time termination benefits for employee severance, benefits and related costs.  This charge is expected to result in equivalent cash expenditures paid out over the next 12 months.

The Company evaluated events occurring between the end of its most recent fiscal year and the date of filing, noting no additional subsequent events.

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Revenue Recognition (Tables)

9 Months Ended

Sep. 30, 2019

Revenue Recognition [Abstract]

Disaggregation of revenue

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Tuition revenue, net	$	95,043	$	102,352	$	291,729	$	317,353
Digital materials revenue, net	5,890		6,284		18,947		18,951
Technology fee revenue, net	2,856		3,777		9,381		10,861
Other revenue, net (1)	462		433		1,453		1,495
Total revenue, net	$	104,251	$	112,846	$	321,510	$	348,660

(1) Primarily consists of revenues generated from services such as graduation fees, transcript fees, and other miscellaneous services.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Over time, over period of instruction	$	85,110	$	96,735	$	264,555	$	301,905
Over time, full tuition grant (1)	13,599		9,986		38,908		27,825
Point in time (2)	5,542		6,125		18,047		18,930
Total revenue, net	$	104,251	$	112,846	$	321,510	$	348,660

(1) Represents revenue generated from the FTG program.

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

Deferred revenue of Company's contracts with customers

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

	Nine Months Ended September 30,
	2019		2018
Deferred revenue opening balance, January 1	$	21,768	$	22,001
Deferred revenue closing balance, September 30	22,549		23,833
Increase (Decrease)	$	781	$	1,832

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Other Significant Balance Sheet Accounts (Remaining Amortization Expense) (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Remainder of 2019	$ 1,332
2019	5,252
2020	4,069
2021	3,430
2022	3,307
Thereafter	3,507
Definite-lived intangible assets, net carrying amount	$ 20,897	$ 10,369

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Accounts Receivable, Net (Change in Allowance) (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Receivables [Abstract]
Beginning Balance	$ 12,180	$ 15,189
Provision for bad debts	10,508	19,339
Deductions	(12,528)	(20,194)
Ending Balance	$ 10,160	$ 14,334

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Regulatory US Department of Education (Details) - USD ($) $ in Thousands	3 Months Ended			9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018	Oct. 07, 2019
Restructuring Cost and Reserve [Line Items]
Restructuring and impairment expense (credit)	$ 2,467		$ 1,225	$ 7,890	$ 3,795
Service Agreements [Member]
Restructuring Cost and Reserve [Line Items]
Regulatory Liabilities	900			900
Restructuring and impairment expense (credit)	$ (32)	$ 1,500	$ (268)	$ (171)	$ (268)
Subsequent Event
Restructuring Cost and Reserve [Line Items]
Regulatory Capital Requirements under Banking Regulations						$ 103,000
Capital Required for Capital Adequacy to Risk Weighted Assets						25.00%

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Lease Obligations - Schedule of Lease Costs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Leases [Abstract]
Operating Lease, Expense	$ 5,300	$ 3,700	$ 14,900	$ 11,300
Operating lease costs	14,287
Short-term lease cost	202
Variable lease costs (1)	455
Less: Sub-lease income	2,167
Total net lease costs	$ 12,777

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Income Per Share (Anti-dilutive Securities) (Details) - shares shares in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of dilutive common shares outstanding	2,141	1,560	1,983	2,709
RSUs and PSUs
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of dilutive common shares outstanding	3,228	2	1,461	2

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Condensed Consolidated Balance Sheets - Parenthetical - $ / shares	Sep. 30, 2019	Dec. 31, 2018
Stockholders' equity:
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	20,000,000	20,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	300,000,000	300,000,000
Common stock, shares issued	65,636,000	65,289,000
Common stock, shares outstanding	30,268,000	27,168,000
Treasury stock, shares at cost	35,368,000	38,121,000

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Net income (loss)	$ (31,797)	$ 18,051
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Provision for bad debts	10,508	19,339
Depreciation and amortization	7,171	5,200
Deferred income taxes	67	54
Stock-based compensation	8,730	3,590
Noncash lease expense	14,287	0
Net gain on marketable securities	(216)	(63)
Reassessment of lease charges	558	1,864
Loss on disposal or impairment of fixed assets	0	334
Changes in operating assets and liabilities:
Accounts receivable	(13,517)	(25,418)
Prepaid expenses and other current assets	(306)	1,962
Other long-term assets	(336)	2,082
Accounts payable and accrued liabilities	(1,170)	(14,743)
Deferred revenue and student deposits	(11,923)	(12,034)
Operating lease liabilities	(17,377)
Other liabilities	(2,922)	(10,886)
Net cash used in operating activities	(38,243)	(10,668)
Cash flows from investing activities:
Capital expenditures	(26,956)	(1,696)
Purchases of investments	(102)	(1,050)
Capitalized costs for intangible assets	(454)	(700)
Cash paid in acquisition, net of cash acquired	(19,286)	0
Sale of investments	0	975
Net cash used in investing activities	(46,798)	(2,471)
Cash flows from financing activities:
Proceeds from exercise of stock options	60	455
Proceeds from the issuance of stock under employee stock purchase plan	96	98
Repurchase of common stock	0	2,424
Net cash used in financing activities	(654)	(3,852)
Net decrease in cash, cash equivalents and restricted cash	(85,695)	(16,991)
Cash, cash equivalents and restricted cash at beginning of period	190,584	205,526
Cash, cash equivalents and restricted cash at end of period	104,889	188,535
Supplemental disclosure of non-cash transactions:
Purchase of equipment included in accounts payable and accrued liabilities	1,582	462
Issuance of common stock for vested restricted stock units	2,650	2,569
Consideration for acquisition in accounts payable and accrued liabilities	483	0
Other Significant Noncash Transaction, Value of Consideration Given	14,363	0
Fair Value of Assets Acquired	0	6,076
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents [Abstract]
Total cash, cash equivalents and restricted cash	190,584	205,526
Options Held [Member]
Cash flows from financing activities:
Tax withholdings on issuance of stock awards	0	(1,097)
Restricted Stock [Member]
Cash flows from financing activities:
Tax withholdings on issuance of stock awards	$ (810)	$ (884)

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Revenue Recognition

9 Months Ended

Sep. 30, 2019

Revenue Recognition [Abstract]

Revenue Recognition

Revenue Recognition

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

The Company’s contracts with customers generally include multiple performance obligations, which it identifies by assessing whether each good and service promised in the contract is distinct. For each performance obligation, the Company allocates the transaction price, including fixed and variable consideration, on the basis of the relative standalone selling prices of each good and service in the contract, which is determined using observable prices.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Tuition revenue, net	$	95,043	$	102,352	$	291,729	$	317,353
Digital materials revenue, net	5,890		6,284		18,947		18,951
Technology fee revenue, net	2,856		3,777		9,381		10,861
Other revenue, net (1)	462		433		1,453		1,495
Total revenue, net	$	104,251	$	112,846	$	321,510	$	348,660

(1) Primarily consists of revenues generated from services such as graduation fees, transcript fees, and other miscellaneous services.

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Over time, over period of instruction	$	85,110	$	96,735	$	264,555	$	301,905
Over time, full tuition grant (1)	13,599		9,986		38,908		27,825
Point in time (2)	5,542		6,125		18,047		18,930
Total revenue, net	$	104,251	$	112,846	$	321,510	$	348,660

(1) Represents revenue generated from the FTG program.

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

The Company operates under one reportable segment. The Company generates the majority of its revenue from tuition, technology fees, and digital materials related to students whose primary funding source is governmental funding. Tuition represents amounts charged for course instruction, and technology fees represent amounts charged for the students’ use of the technology platform on which course instruction is delivered. Digital materials fees represent amounts charged for the digital textbooks that accompany the majority of courses taught at Ashford University. With the exception of students attending courses within the three-week conditional admission, the majority of tuition and technology fees are recognized as revenue as control of the services is transferred to the student, which occurs over the applicable period of instruction. Similarly, the majority of digital materials fees are recognized as revenue when control of the product has been transferred to the student, which occurs when the student is granted unrestricted access to the digital textbook, generally, on the first day of the course. Revenue generated from students within the conditional admission period is deferred and recognized when the student matriculates into Ashford University, which occurs in the fourth week of the course.

Ashford University’s online students generally enroll in a program that encompasses a series of five to six-week courses that are taken consecutively over the length of the program. With the exception of those students under conditional admission and students enrolled under the FTG program, online students are billed on a payment period basis on the first day of a course. Students under conditional admission are billed for the payment period upon matriculation.

If a student's attendance in a class precedes the receipt of cash from the student's source of funding, the Company establishes an account receivable and corresponding deferred revenue in the amount of the tuition due for that payment period. Cash received either directly from the student or from the student's source of funding reduces the balance of accounts receivable due from the student. Financial aid from sources such as the federal government's Title IV programs pertains to the online student's award year and is generally divided into two disbursement periods. As such, each disbursement period may contain funding for up to four courses. Financial aid disbursements are typically received during the online student's attendance in the first or second course. Since the majority of disbursements cover more courses than for which a student is currently enrolled, the amount received in excess effectively represents a prepayment from the online student for up to four courses. At the end of each accounting period, the deferred revenue and related account receivable balances are reduced to present amounts attributable to the current course.

In certain cases, Ashford University provides scholarships to students who qualify under various programs. These scholarships are recognized as direct reductions of revenue consistent with the timing of recognition associated with the related performance obligations. Also, for some customers, we do not expect to collect 100% of the consideration to which we are contractually entitled and, as a result, those customers may receive discounts or price adjustments that, based on historical Company practice, represent implied price concessions and are accounted for as variable consideration. The majority of these price concessions relate to amounts charged to students for goods and services, which management has determined will not be covered by the student’s primary funding source (generally, government aid) and, as a result, the student will become directly financially responsible for them. The reduction in the transaction price that results from this estimate of variable consideration reflects the amount the Company does not expect to be entitled to in exchange for the goods and services it will transfer to the students, as determined using historical experience and current factors, and includes performing a constraint analysis. These estimates of variable consideration are recorded as direct reductions of revenue consistent with the timing of recognition associated with the related performance obligation.

A portion of tuition revenue, technology fee revenue, and digital materials revenue is generated from contracts with students enrolled under the FTG program, which is a 12-month grant that, when combined with a corporate partner’s annual tuition assistance program, enables eligible students to earn their degree without incurring student loan debt. Students enrolled under this program are eligible to take up to ten undergraduate or eight graduate courses per 12-month grant period and must first utilize 100% of the funds awarded under their employer’s annual tuition assistance program before they can be awarded the FTG grant. The grants awarded by Ashford University under the FTG program are considered a material right, and, as such, the Company records a contract liability for a portion of the consideration received or due under these contracts. The contract liability is recorded in deferred revenue and student deposits on the Company’s condensed consolidated balance sheets, and further discussed in the deferred revenue section below. The standalone selling price of the material right is determined based on the observable standalone selling price of the courses. The transaction price in each FTG contract is allocated to this material right on a relative standalone selling price basis. The contract liability is recognized as revenue at the earlier of satisfaction of the future obligation or its expiration. Billing of products and services transferred under an FTG student contract generally occurs after the conclusion of a course. There are no material differences between the timing of the products and services transferred and the payment terms.

Deferred Revenue

Deferred revenue consists of cash payments that are received or due in advance of the Company’s performance as well as deferrals associated with certain contracts that include a material right.

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

	Nine Months Ended September 30,
	2019		2018
Deferred revenue opening balance, January 1	$	21,768	$	22,001
Deferred revenue closing balance, September 30	22,549		23,833
Increase (Decrease)	$	781	$	1,832

For further information on deferred revenue and student deposits, refer to Note 8, “Other Significant Balance Sheet Accounts - Deferred Revenue and Student Deposits” and for further information on receivables, refer to Note 7, “Accounts Receivable, Net” within the condensed consolidated financial statements.

For the majority of the Company’s customers, payment for products and services is due at the beginning of each course. Under special circumstances, some customers may be offered non-interest bearing payment plan arrangements that can extend for up to a maximum of three years. These payment plan arrangements give rise to significant financing components. However, since the Company historically collects substantially all of the consideration to which it expects to be entitled under such payment plans within one year or less, the impact of these significant financing components is not material to any period presented.

The difference between the opening and closing balances of deferred revenue primarily results from the timing difference between the Company’s performance and the customer’s payment. For the nine months endedSeptember 30, 2019, the Company recognized $21.8 million of revenue that was included in the deferred revenue balance as of January 1, 2019. For the nine months endedSeptember 30, 2018, the Company recognized $21.9 million of revenue that was included in the deferred revenue balance as of January 1, 2018. Amounts reported in the closing balance of deferred revenue are expected to be recognized as revenue within the next 12 months.

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Other Significant Balance Sheet Accounts

9 Months Ended

Sep. 30, 2019

Balance Sheet Related Disclosures [Abstract]

Other Significant Balance Sheet Accounts

Other Significant Balance Sheet Accounts

Prepaid Expenses and Other Current Assets

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

	As of September 30, 2019		As of December 31, 2018
Prepaid expenses	$	5,461	$	5,445
Prepaid licenses	4,973		5,840
Prepaid income taxes	200		—
Income tax receivable	4,121		5,044
Prepaid insurance	1,138		1,077
Insurance recoverable	994		723
Other current assets	7,818		126
Total prepaid expenses and other current assets	$	24,705	$	18,255

Property and Equipment, Net

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

	As of September 30, 2019			As of December 31, 2018
Buildings, build-to-suit	$	—		$	10,434
Furniture and office equipment	42,815			31,227
Software	7,346			7,517
Leasehold improvements	18,560			3,430
Vehicles	22			22
Total property and equipment	68,743			52,630
Less accumulated depreciation and amortization	(35,748		)	(35,770		)
Total property and equipment, net	$	32,995		$	16,860

For the three months endedSeptember 30, 2019 and 2018, depreciation and amortization expense related to property and equipment was $1.6 million and $1.0 million, respectively. For the nine months endedSeptember 30, 2019 and 2018, depreciation and amortization expense was $3.9 million and $3.2 million, respectively.

Goodwill and Intangibles, Net

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

	September 30, 2019
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Capitalized curriculum costs	$	20,974	$	(19,452	)	$	1,522
Purchased intangible assets	29,185		(9,810		)	19,375
Total definite-lived intangible assets	$	50,159	$	(29,262	)	$	20,897
Goodwill and indefinite-lived intangibles						25,035
Total goodwill and intangibles, net						$	45,932
	December 31, 2018
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Capitalized curriculum costs	$	21,076	$	(19,338	)	$	1,738
Purchased intangible assets	15,850		(7,219		)	8,631
Total definite-lived intangible assets	$	36,926	$	(26,557	)	$	10,369
Goodwill and indefinite-lived intangibles						2,072
Total goodwill and intangibles, net						$	12,441

The increase in goodwill relates to the Company’s acquisitions of Fullstack and TutorMe in the second quarter of 2019. For further information regarding the acquisitions, refer to Note 3, “Business Combinations” to the condensed consolidated financial statements. The amount of goodwill recognized is subject to change, pending the final determination of the fair value of assets acquired and liabilities assumed in connection with the acquisitions.

During the third quarter of 2019, the Company's qualitative assessment of goodwill and indefinite-lived intangible assets indicated triggering events in one of its reporting units, including a declining stock price, which indicated the fair value of the reporting unit was potentially less than its carrying amount. This analysis is being finalized. For further information on receivables, refer to Note 2, “Summary of Significant Accounting Policies” within the condensed consolidated financial statements.

For the three months endedSeptember 30, 2019 and 2018, amortization expense was $1.3 million and $0.6 million, respectively. For the nine months endedSeptember 30, 2019 and 2018, amortization expense was $3.3 million and $2.0 million, respectively.

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

Year Ended December 31,
Remainder of 2019	$	1,332
2020	5,252
2021	4,069
2022	3,430
2023	3,307
Thereafter	3,507
Total future amortization expense	$	20,897

Accounts Payable and Accrued Liabilities

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

	As of September 30, 2019		As of December 31, 2018
Accounts payable	$	7,747	$	5,313
Accrued salaries and wages	5,449		7,807
Accrued bonus	5,701		8,147
Accrued vacation	4,974		7,929
Accrued litigation and fees	8,041		8,041
Accrued expenses	24,280		17,692
Current leases payable	9,803		5,768
Accrued insurance liability	2,348		2,095
Total accounts payable and accrued liabilities	$	68,343	$	62,792

Deferred Revenue and Student Deposits

Deferredrevenueand studentdeposits consists ofthe following(inthousands):

	As of September 30, 2019		As of December 31, 2018
Deferred revenue	$	22,549	$	21,768
Student deposits	31,912		42,066
Total deferred revenue and student deposits	$	54,461	$	63,834

Other Long-Term Liabilities

Other long-term liabilities consists ofthe following(inthousands):

	As of September 30, 2019		As of December 31, 2018
Uncertain tax positions	$	679	$	865
Contingent consideration	3,250		—
Other long-term liabilities	2,238		2,570
Total other long-term liabilities	$	6,167	$	3,435

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Stock-Based Compensation

9 Months Ended

Sep. 30, 2019

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

Stock-Based Compensation

The Company recorded $3.4 million and $1.3 million of stock-based compensation expense for the three months ended September 30, 2019 and 2018, respectively, and $8.7 million and $3.6 million of stock-based compensation expense for the nine months endedSeptember 30, 2019 and 2018, respectively. The related income tax benefit was $0.8 million and $0.3 million for the three months endedSeptember 30, 2019 and 2018, respectively, and $2.1 million and $0.9 million for the nine months endedSeptember 30, 2019 and 2018, respectively.

During the nine months endedSeptember 30, 2019, the Company granted 1.3 million RSUs at a weighted average grant date fair value of $5.68 and 0.4 million RSUs vested. During the nine months endedSeptember 30, 2018, the Company granted 0.8 million RSUs at a grant date fair value of $6.84 and 0.4 million RSUs vested.

During the nine months endedSeptember 30, 2019, 0.8 million market-based PSUs were granted at a weighted average grant date fair value of $6.97 and no performance-based or market-based PSUs vested. During the nine months endedSeptember 30, 2018, no performance-based or market-based PSUs were granted, and no performance-based or market-based PSUs vested.

During the nine months endedSeptember 30, 2019, the Company granted 0.2 million stock options at a grant date fair value of $4.28 and 6,274 stock options were exercised. During the nine months endedSeptember 30, 2018, the Company granted 35,088 stock options at a grant date fair value of $2.97 and 0.8 million stock options were exercised.

As of September 30, 2019, there was unrecognized compensation cost of $11.5 million related to unvested stock options, RSUs and PSUs.

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Summary of Significant Accounting Policies Goodwill and Intangibles (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Apr. 03, 2019
Goodwill [Line Items]
Goodwill		$ 3,562
Zovio/Ashford Reporting Unit [Member]
Goodwill [Line Items]
Indefinite-lived Intangible Assets (Excluding Goodwill)	$ 1,400
Goodwill	$ 700

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Lease Obligations (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Schedule of Classification and Amounts Recorded on Balance Sheet

The following tables represent the classification and amounts recorded on the condensed consolidated balance sheets as of September 30, 2019 (in thousands):

Operating lease assets:
Arizona	$	8,470
California	4,876
Colorado	7,922
Iowa	128
New York	237
Other	270
Total	$	21,903

Operating lease liabilities:
Accounts payable and accrued liabilities	$	9,804
Rent liability	23,882
Total	$	33,686

Schedule of Lease Costs and Other Information

The following table represents the lease term and discount rate used in the calculations as of September 30, 2019:

Weighted-average remaining lease term (in years):
Operating leases	6.4 years
Weighted-average discount rate:
Operating leases	7.5	%

The following table represents the cash flow information of operating leases for the nine months endedSeptember 30, 2019 (in thousands):

Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	17,377

The following table represents the classification and amounts recorded on the condensed consolidated statements of income (loss) for the nine months endedSeptember 30, 2019 (in thousands):

Operating lease costs	$	14,287
Short-term lease cost	202
Variable lease costs (1)	455
Less: Sub-lease income	(2,167		)
Total net lease costs	$	12,777

(1) Variable components of the lease payments such as utilities, taxes and insurance, parking and maintenance costs.

Schedule of Future Minimum Rental Payments for Operating Leases

The following table represents the maturities of lease liabilities as of September 30, 2019 (in thousands):

Remainder of 2019	$	3,900
2020	9,988
2021	6,489
2022	3,915
2023	2,744
2024	2,400
Thereafter	15,265
Total minimum payments	$	44,701
Less: Interest (1)	(11,015		)
Total net lease liabilities	$	33,686

(1) Calculated using an appropriate interest rate for each individual lease.

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

The following table summarizes the future minimum rental payments under non-cancelable operating lease arrangements in effect at December 31, 2018 (in thousands):

Year Ended December 31,
2019	$	20,382
2020	9,936
2021	6,460
2022	3,826
2023	2,726
Thereafter	17,710
Total minimum payments	$	61,040