10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 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 June 30, 2021

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	59-3551629
(State or other jurisdiction of incorporation or organization)	(IRS 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 July 21, 2021, was 33,417,762.

ZOVIO INC

FORM 10-Q

INDEX

PART I—FINANCIAL INFORMATION		4
Item 1. Financial Statements		4
	Condensed Consolidated Balance Sheets (Unaudited)	4
	Condensed Consolidated Statements of Income (Loss) (Unaudited)	5
	Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)	6
	Condensed Consolidated Statements of Cash Flows (Unaudited)	7
	Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		26
Item 3. Quantitative and Qualitative Disclosures About Market Risk		34
Item 4. Controls and Procedures		35
PART II—OTHER INFORMATION		36
Item 1. Legal Proceedings		36
Item 1A. Risk Factors		36
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3. Defaults Upon Senior Securities		36
Item 4. Mine Safety Disclosures		36
Item 5. Other Information		36
Item 6. Exhibits		37
SIGNATURES		38

2

PART I—FINANCIAL INFORMATION

Item 1.  Financial Statements

ZOVIO INC

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except par value)

	As of June 30, 2021		As of December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	23,981	$	35,462
Restricted cash	13,283		20,035
Investments	1,476		1,515
Accounts receivable, net of allowance for credit losses of $1.8 million and $1.2 million at June 30, 2021 and December 31, 2020, respectively	7,922		7,204
Prepaid expenses and other current assets	13,231		12,617
Total current assets	59,893		76,833
Property and equipment, net	28,615		30,575
Operating lease assets	31,388		20,114
Goodwill and intangibles, net	30,433		31,785
Other long-term assets	3,566		1,999
Total assets	$	153,895	$	161,306
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued liabilities	$	51,439	$	62,693
Deferred revenue and student deposits	10,582		8,090
Total current liabilities	62,021		70,783
Rent liability	36,523		24,125
Other long-term liabilities	8,243		7,181
Total liabilities	106,787		102,089
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 June 30, 2021, and December 31, 2020	—		—
Common stock, $0.01 par value:
300,000 shares authorized; 67,127 and 66,454 issued, and 33,418 and 32,267 outstanding, at June 30, 2021 and December 31, 2020, respectively	674		668
Additional paid-in capital	170,341		179,489
Retained earnings	312,793		326,319
Treasury stock, 33,709 and 34,187 shares at cost at June 30, 2021, and December 31, 2020, respectively	(436,700)		(447,259)
Total stockholders' equity	47,108		59,217
Total liabilities and stockholders' equity	$	153,895	$	161,306

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue	$	66,670	$	5,054	$	140,777	$	9,127
University-related revenue	—		98,886		—		192,685
Other revenue	2,516		—		5,268		—
Revenue and other revenue	$	69,186	$	103,940	$	146,045	$	201,812
Costs and expenses:
Technology and academic services	$	18,056	$	17,209	$	37,200	$	35,737
Counseling services and support	23,173		23,540		48,498		46,859
Marketing and communication	21,729		21,675		47,560		46,743
General and administrative	8,376		11,581		24,272		24,968
University-related expenses	—		24,167		—		49,469
Restructuring and impairment expense	2,341		483		2,341		3,246
Total costs and expenses	73,675		98,655		159,871		207,022
Operating income (loss)	(4,489)		5,285		(13,826)		(5,210)
Other income (loss), net	232		161		159		(101)
Income (loss) before income taxes	(4,257)		5,446		(13,667)		(5,311)
Income tax expense (benefit)	(224)		299		(141)		(12,478)
Net income (loss)	$	(4,033)	$	5,147	$	(13,526)	$	7,167
Income (loss) per share:
Basic	$	(0.12)	$	0.16	$	(0.41)	$	0.23
Diluted	$	(0.12)	$	0.16	$	(0.41)	$	0.23
Weighted average number of common shares outstanding used in computing income (loss) per share:
Basic	33,343		32,137		33,058		31,238
Diluted	33,343		32,501		33,058		31,495

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, 2019	65,695	$	660	$	192,413	$	375,180	$	(469,315)	$	98,938
Adoption of accounting standard (ASU 2016-13)	—	—		—		91		—		91
Stock-based compensation	—	—		4,138		—		—		4,138
Stock issued under stock incentive plan, net of shares held for taxes	338	3		(205)		—		—		(202)
Net income	—	—		—		2,020		—		2,020
Balance at March 31, 2020	66,033	$	663	$	196,346	$	377,291	$	(469,315)	$	104,985
Stock-based compensation	—	—		802		—		—		802
Stock issued under employee stock purchase plan	57	1		111		—		—		112
Stock issued under stock incentive plan, net of shares held for taxes	236	2		(182)		—		—		(180)
Contingent consideration	—	—		1,245		—		—		1,245
Stock issued for acquisition	—	—		(22,162)		—		22,162		—
Repurchase of common stock	—	—		—		—		(106)		(106)
Net income	—	—		—		5,147		—		5,147
Balance at June 30, 2020	66,326	$	666	$	176,160	$	382,438	$	(447,259)	$	112,005

	Common Stock			Additional Paid-in Capital		Retained Earnings		Treasury Stock
	Shares	Par Value								Total
Balance at December 31, 2020	66,454	$	668	$	179,489	$	326,319	$	(447,259)	$	59,217
Stock-based compensation	—	—		2,382		—		—		2,382
Stock issued under stock incentive plan, net of shares held for taxes	563	5		(1,083)		—		—		(1,078)
Contingent consideration	—	—		(122)		—		—		(122)
Issuance of shares for acquisition	—	—		(10,559)		—		10,559		—
Net loss	—	—		—		(9,493)		—		(9,493)
Balance at March 31, 2021	67,017	$	673	$	170,107	$	316,826	$	(436,700)	$	50,906
Stock-based compensation	—	—		247		—		—		247
Stock issued under employee stock purchase plan	31	—		76		—		—		76
Stock issued under stock incentive plan, net of shares held for taxes	79	1		(89)		—		—		(88)
Net loss	—	—		—		(4,033)		—		(4,033)
Balance at June 30, 2021	67,127	$	674	$	170,341	$	312,793	$	(436,700)	$	47,108

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

5

ZOVIO INC

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net income (loss)	$	(13,526)	$	7,167
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for bad debts	911		6,402
Depreciation and amortization	4,262		5,883
Deferred income taxes	—		(4)
Stock-based compensation	2,629		4,940
Noncash lease expense	4,367		6,427
Net loss (gain) on marketable securities	(144)		117
Loss (gain) on disposal or impairment of fixed assets	61		—
Changes in operating assets and liabilities:
Accounts receivable	(1,628)		(13,598)
Prepaid expenses and other current assets	(614)		301
Other long-term assets	(1,568)		6
Accounts payable and accrued liabilities	(9,198)		(9,139)
Deferred revenue and student deposits	2,491		6,781
Operating lease liabilities	(5,243)		(6,409)
Other liabilities	940		(2,158)
Net cash provided by (used in) operating activities	(16,260)		6,716
Cash flows from investing activities:
Capital expenditures	(733)		(1,570)
Purchases of investments	(64)		(684)
Capitalized costs for intangible assets	(333)		(146)
Sale of investments	247		1,818
Net cash used in investing activities	(883)		(582)
Cash flows from financing activities:
Proceeds from the issuance of stock under employee stock purchase plan	76		112
Borrowings from long-term liabilities	—		2,682
Tax withholdings on issuance of stock awards	(1,166)		(382)
Repurchase of common stock	—		(106)
Net cash provided by (used in) financing activities	(1,090)		2,306
Net increase (decrease) in cash, cash equivalents and restricted cash	(18,233)		8,440
Cash, cash equivalents and restricted cash at beginning of period	55,497		92,537
Cash, cash equivalents and restricted cash at end of period	$	37,264	$	100,977
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	$	23,981	$	75,073
Restricted cash	13,283		25,904
Total cash, cash equivalents and restricted cash	$	37,264	$	100,977

Supplemental disclosure of non-cash transactions:
Purchase of equipment included in accounts payable and accrued liabilities	$	14	$	513
Issuance of common stock for vested restricted stock units	$	3,774	$	1,270
Debt extinguishment	$	3,095	$	—
Issuance of notes payable	$	2,809	$	—

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

6

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nature of Business

Zovio Inc (the “Company”) is a Delaware corporation, and is an education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions to help learners and leaders achieve their aspirations. Additionally, in April 2019, the Company acquired both Fullstack Academy, Inc, (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”), each of which became wholly-owned subsidiaries of the Company at that time.

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

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

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

2. Summary of Significant Accounting Policies

Principles of Consolidation

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

Unaudited Interim Financial Information

The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.

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

7

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

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.

Notes Payable

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

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

Revenue and Other Revenue

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

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

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

8

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Technology and Academic Services

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

Counseling Services and Support

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

Marketing and Communication

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

General and Administrative

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

University-Related Expenses

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

Comprehensive Income (Loss)

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

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740. The amendments in this update also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this standard are effective

9

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company applied the new standard, including all applicable updates, effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.

3. Financial Statement Reclassification

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

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

The following table presents our operating expenses as previously reported and as reclassified on our condensed consolidated statements of income (loss) for each of the three and six-months period ended June 30, 2020 (in thousands):

	Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
Costs and expenses:	As Reported		As Reclassified		As Reported		As Reclassified
Technology and academic services	$	—	$	17,209	$	—	$	35,737
Counseling services and support	—		23,540		—		46,859
Marketing and communication	—		21,675		—		46,743
Instructional costs and services	44,874		—		91,255		—
Admissions advisory and marketing	38,802		—		80,535		—
General and administrative	14,496		11,581		31,986		24,968
University-related expenses	—		24,167		—		49,469
Restructuring and impairment expense	483		483		3,246		3,246
Total costs and expenses	$	98,655	$	98,655	$	207,022	$	207,022

4. Revenue, Other Revenue and Deferred Revenue

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Strategic services revenue	$	59,688	$	—	$	126,614	$	—
Transition services income	2,516		—		5,268		—
Tuition revenue, net	6,866		95,316		13,956		184,350
Digital materials revenue, net	—		5,634		—		11,606
Technology fee revenue, net	—		2,514		—		5,000
Other revenue, net (1)	116		476		207		856
Total revenue, net	$	69,186	$	103,940	$	146,045	$	201,812

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

10

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Over time, over period of instruction	$	69,135	$	84,083	$	145,903	$	162,213
Over time, full tuition grant (1)	—		14,642		—		28,843
Point in time (2)	51		5,215		142		10,756
Total revenue, net	$	69,186	$	103,940	$	146,045	$	201,812

(1)Represents revenue generated from the FTG program.

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

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

Deferred Revenue and Student Deposits

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

	As of June 30, 2021		As of December 31, 2020
Deferred revenue	$	9,981	$	7,477
Student deposits	601		613
Total deferred revenue and student deposits	$	10,582	$	8,090

Deferred revenue consists of cash payments that are received or due in advance of the Company’s performance.

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

	2021		2020
Deferred revenue opening balance, January 1	$	7,477	$	23,356
Deferred revenue closing balance, June 30	9,981		32,101
Increase (decrease)	$	2,504	$	8,745

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 services is due prior to services being provided. Under special circumstances, some customers may be offered non-interest bearing payment plan arrangements that can extend for up to 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 six months ended June 30, 2021, the Company recognized $6.1 million of revenue that was included in the deferred revenue balance as of January 1, 2021. For the six months ended June 30, 2020, the Company recognized $22.6 million of revenue that was included in the deferred revenue balance as of

11

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

January 1, 2020. 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 months ended June 30, 2021 and 2020, the Company recognized $2.3 million and $0.5 million, respectively, of restructuring and impairment expense. During the six months ended June 30, 2021 and 2020, the Company recognized $2.3 million and $3.2 million, respectively, of restructuring and impairment expense. The components of these expenses are further described below.

The Company previously relocated its headquarters from California to Arizona. In addition, the Company previously vacated or consolidated properties and subsequently reassessed its obligations on non-cancelable leases. As a result, during the three and six months ended June 30, 2020, the Company recognized relocation and lease reassessment expenses of $0.2 million and $0.3 million, respectively. No such expense was recorded for either the three or six months ended June 30, 2021, respectively.

In May 2021, the Company's implemented a restructuring plan to reduce operating expenses, implement cost reductions and conserve cash resources. The restructuring plan was substantially completed by June 30, 2021. The Company recorded a charge during the second quarter of 2021 as a result of the restructuring, 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. During the three months ended June 30, 2021, the Company recognized severance costs of $2.3 million, all of which related to the University Partners segment. For the three months ended June 30, 2020, the Company recognized $0.3 million of restructuring and impairment expense relating to severance costs for wages and benefits for a prior restructuring plan. During the six months ended June 30, 2021 and 2020, the Company recognized severance costs of $2.3 million and $3.0 million, respectively.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Severance costs	$	2,341	$	250	$	2,341	$	2,972
Lease exit and other costs	—		233		—		274
Total restructuring and impairment expense	$	2,341	$	483	$	2,341	$	3,246

The following table summarizes the changes in the Company's restructuring and impairment liability by type during the six months ended June 30, 2021 (in thousands):

	Student Transfer Costs		Severance Costs		Lease Exit and Other Costs		Total
Balance at December 31, 2020	$	1,282	$	742	$	1,974	$	3,998
Restructuring and impairment expense	—		2,341		—		2,341
Payments and adjustments	—		(1,369)		(1,008)		(2,377)
Balance at June 30, 2021	$	1,282	$	1,714	$	966	$	3,962

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

12

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

6. Fair Value Measurements

The following tables summarize the fair value information as of June 30, 2021 and December 31, 2020, respectively (in thousands):

	As of June 30, 2021
	Level 1		Level 2		Level 3		Total
Mutual funds	$	1,476	$	—	$	—	$	1,476

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

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

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

7. Accounts Receivable, Net

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

	As of June 30, 2021		As of December 31, 2020
Accounts receivable	$	9,750	$	8,420
Less allowance for credit losses	1,828		1,216
Accounts receivable, net	$	7,922	$	7,204

The following table presents the changes in the allowance for credit losses for the six months ended June 30, 2021 (in thousands):

	Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance
Non-FTG related allowance	$	1,216	$	911	$	(299)	$	—	$	1,828
Total allowance for credit losses	$	1,216	$	911	$	(299)	$	—	$	1,828

The following table presents the changes in the allowance for credit losses for the six months ended June 30, 2020 (in thousands):

	Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance
FTG-related allowance	$	1,749	$	1,193	$	(983)	$	234	$	2,193
Non-FTG related allowance	11,963		5,209		(10,833)		3,233		9,572
Total allowance for credit losses	$	13,712	$	6,402	$	(11,816)	$	3,467	$	11,765

13

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

8. Other Significant Balance Sheet Accounts

Prepaid Expenses and Other Current Assets

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

	As of June 30, 2021		As of December 31, 2020
Prepaid expenses	$	3,268	$	3,027
Prepaid licenses	3,036		1,371
Prepaid income taxes	33		48
Income tax receivable	—		1,644
Prepaid insurance	1,707		1,127
Insurance recoverable	360		404
Other current assets (1)	4,827		4,996
Total prepaid expenses and other current assets	$	13,231	$	12,617

(1) Other current assets includes payment of net asset adjustment due from Global Campus related to the Sale Transaction.

Property and Equipment, Net

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

	As of June 30, 2021		As of December 31, 2020
Furniture and office equipment	$	23,511	$	36,146
Software	5,509		7,512
Leasehold improvements	16,772		16,325
Vehicles	22		22
Total property and equipment	45,814		60,005
Less accumulated depreciation and amortization	(17,199)		(29,430)
Total property and equipment, net	$	28,615	$	30,575

For the three months ended June 30, 2021 and 2020, depreciation and amortization expense related to property and equipment was $1.3 million and $1.6 million, respectively. For the six months ended June 30, 2021 and 2020, depreciation and amortization expense related to property and equipment was $2.6 million and $3.2 million, respectively.

14

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Goodwill and Intangibles, Net

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

	June 30, 2021
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	$	13,858	$	(12,764)	$	1,094
Purchased intangible assets	14,185		(8,022)		6,163
Total definite-lived intangible assets	$	28,043	$	(20,786)	$	7,257
Goodwill					23,176
Total goodwill and intangibles, net					$	30,433
	December 31, 2020
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	$	13,745	$	(12,644)	$	1,101
Purchased intangible assets	14,185		(6,677)		7,508
Total definite-lived intangible assets	$	27,930	$	(19,321)	$	8,609
Goodwill					23,176
Total goodwill and intangibles, net					$	31,785

For the three months ended June 30, 2021 and 2020, amortization expense was $0.7 million and $1.3 million, respectively. For the six months ended June 30, 2021 and 2020, amortization expense was $1.7 million and $2.7 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 2021	$	1,319
2022	2,459
2023	2,303
2024	721
2025	117
Thereafter	338
Total future amortization expense	$	7,257

15

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Accounts Payable and Accrued Liabilities

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

	As of June 30, 2021		As of December 31, 2020
Accounts payable	$	10,583	$	11,246
Accrued salaries and wages	7,098		6,149
Accrued bonus	1,661		11,428
Accrued vacation	3,600		3,369
Accrued litigation and fees	8,341		8,341
Minimum residual liability	608		1,216
Accrued expenses	13,395		12,473
Current leases payable	4,847		6,934
Accrued insurance liability	1,297		1,537
Accrued income taxes payable	9		—
Total accounts payable and accrued liabilities	$	51,439	$	62,693

Other Long-Term Liabilities

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

	As of June 30, 2021		As of December 31, 2020
Uncertain tax positions	$	28	$	28
Notes payable	2,847		2,981
Other long-term liabilities	5,368		4,172
Total other long-term liabilities	$	8,243	$	7,181

9. Credit Facilities

The Company has issued letters of credit that are collateralized with cash, in the aggregate amount of $13.2 million as of June 30, 2021. The letters of credit relate primarily to the Company's leased facilities and insurance requirements. The collateralized cash is held in restricted cash on the Company's condensed consolidated balance sheets.

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

10. Lease Obligations

Operating Leases

The Company leases various office and classroom facilities with terms that expire at various dates through 2033. These facilities are used for academic operations, corporate functions, enrollment services and student support services. The Company does not have any leases other than its office facilities and classrooms. All of the leases were classified as operating leases for the period ended June 30, 2021, 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.

16

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company obtained additional right-of-use assets of $14.6 million in exchange for lease obligations related to new classroom and office leases during the period ended June 30, 2021.

The Company has agreements to sublease certain portions of its office facilities, with three active subleases as of June 30, 2021. The Company’s subleases do not include any options to extend or for early termination and do not contain any residual value guarantees or restrictive covenants. All of the subleases were classified as operating leases for the period ended June 30, 2021. The Company is subleasing approximately 37,000 square feet of office space in Denver, Colorado with a remaining commitment to lease of 2 months and net lease payments of $0.2 million. The Company is subleasing additional office space of approximately 21,000 square feet in Denver, Colorado with a remaining commitment to lease of 20 months and net lease payments of $1.0 million. The Company is also subleasing approximately 24,000 square feet of office space in San Diego, California with a remaining commitment to lease of 6 months and net lease payments of $0.5 million. Sublease income for the six months ended June 30, 2021 and 2020 was $1.3 million and $1.0 million, respectively.

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.

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator:
Net income (loss)	$	(4,033)	$	5,147	$	(13,526)	$	7,167
Denominator:
Weighted average number of common shares outstanding	33,343		32,137		33,058		31,238
Effect of dilutive options and stock units	—		364		—		257
Diluted weighted average number of common shares outstanding	33,343		32,501		33,058		31,495
Income (loss) per share:
Basic	$	(0.12)	$	0.16	$	(0.41)	$	0.23
Diluted	$	(0.12)	$	0.16	$	(0.41)	$	0.23

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Stock options	1,308	1,675	1,445	1,720
Stock units	1,269	718	1,094	1,603

17

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

12. Stock-Based Compensation

The Company recorded $0.2 million and $0.8 million of stock-based compensation expense for the three months ended June 30, 2021 and 2020, respectively. The related income tax benefit was $0.1 million and $0.2 million for the three months ended June 30, 2021 and 2020, respectively.

The Company recorded $2.6 million and $4.9 million of stock-based compensation expense for the six months ended June 30, 2021 and 2020, respectively. The related income tax benefit was $0.7 million and $1.2 million for the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021, the Company granted 1.0 million RSUs at a weighted average grant date fair value of $3.39 and 0.9 million RSUs vested. During the six months ended June 30, 2020, the Company granted 1.4 million RSUs at a grant date fair value of $2.15, and 0.8 million RSUs vested.

During the six months ended June 30, 2021, the Company granted 0.8 million performance-based PSUs at a weighted average grant date fair value of 2.73, and no performance-based or market-based PSUs vested. During the six months ended June 30, 2020, 1.1 million market-based PSUs were granted at a weighted average grant date fair value of 2.18 and no performance-based or market-based PSUs vested.

During both the six months ended June 30, 2021, and the six months ended June 30, 2020, the Company did not grant any stock options and no stock options were exercised.

As of June 30, 2021, unrecognized compensation cost was $6.5 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 June 30, 2021 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 June 30, 2021.

The Company’s current effective income tax rate that has been applied to normal, recurring operations for the six months ended June 30, 2021 was (1.0)%. The Company’s actual effective income tax rate for the six months ended June 30, 2021, after discrete items, was 1.0%.

As of both June 30, 2021, and December 31, 2020, the Company had $19 thousand, respectively, of gross unrecognized tax benefits, of which $15 thousand, respectively, would impact the effective income tax rate if recognized. 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 2019 are open to examination by major taxing jurisdictions to which the Company is subject.

18

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

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 and its university partners to significant regulatory scrutiny on the basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”).

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

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

Department of Education Close Out Audit of University of the Rockies

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

WSCUC Accreditation of former Ashford University

Global Campus is regionally accredited by WASC Senior College and University Commission (“WSCUC”). In July 2013, WSCUC granted Initial Accreditation to the University for five years, until July 2018. In December 2013, the University effected its transition to WSCUC accreditation and designated its San Diego, California facilities as its main campus and its Clinton, Iowa campus as an additional location. As part of its institutional review process, WSCUC commenced its comprehensive review of the University with an off-site review in March 2018. As part of the WSCUC Institutional Review Process a Reaffirmation of Accreditation Visit was conducted by an evaluation team in April 2019. At its meeting in June 2019, the Commission acted to reaffirm accreditation through Spring 2025.

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

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

19

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

Department of Education Regulation

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

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

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

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

•Financial Responsibility - The Department calculates an institution’s composite score for financial responsibility based on its (i) equity ratio, which measures the institution’s capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution’s ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution’s ability to operate at a profit. An institution that does not meet the Department’s minimum composite score of 1.5 may demonstrate its financial responsibility by posting a letter of credit in favor of the Department and possibly accepting other conditions on its participation in the Title IV programs. Following the Sale Transaction, the University is no longer owned by the Company, and therefore Global Campus will submit its stand-alone audited financial statements to the Department for the purpose of calculating the institution’s composite score.

Defense to Repayment

On October 28, 2016, the Department published borrower defense to repayment regulations to change processes that assist students in gaining relief under certain provisions of the Direct Loan Program regulations. These defense to repayment regulations allow a borrower to assert a defense to repayment on the basis of a substantial misrepresentation, any other misrepresentation in cases where certain other factors are present, a breach of contract or a favorable nondefault contested judgment against a school for its act or omission relating to the making of the borrower’s loan or the provision of educational services for which the loan was provided. In addition, the financial responsibility standards contained in the new regulations establish the conditions or events that trigger the requirement for an institution to provide the Department with financial protection in the form of a letter of credit or other security against potential institutional liabilities. Triggering conditions or events include, among others, certain state, federal or accrediting agency actions or investigations, and in the case of publicly traded companies, receipt of certain warnings from the SEC or the applicable stock exchange, or the failure to timely file a required annual or quarterly report with the SEC. The new regulations also prohibit schools from requiring that students agree to settle future disputes through arbitration.

On March 15, 2019, the Department issued guidance for the implementation of parts of the regulations. The guidance covers an institution’s responsibility in regard to reporting mandatory and discretionary triggers as part of the financial

20

ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

responsibility standards, class action bans and pre-dispute arbitration agreements, submission of arbitral and judicial records, and repayment rates.

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

On June 8, 2020, President Trump vetoed House Joint Resolution 56, a Congressional Review Act resolution that would block the Trump administration’s rewrite of the Obama administration’s borrower defense to repayment rule. On June 26, 2020, the House of Representatives failed to override President Trump’s veto. The rewritten borrower defense to repayment rule went into effect on July 1, 2020 and will apply to any federal student loans made on that date or after.

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

In July 2020, the Department notified the Company that they would be initiating a preliminary review of borrower defense applications from borrowers who made claims regarding the University. As part of the initial fact-finding process, the Department will send individual student claims to the University and allow the institution the opportunity to submit a response to the borrower’s allegations. The Company received and timely responded to the submitted claims and cannot predict the outcome of the Department's review. The Company has responded to everything received and cannot predict the outcome of this review at this time.

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. Other than the specific liabilities assumed by Global Campus, the Company and AU LLC will generally remain responsible for liabilities of the University relating to periods prior to the closing of the Sale Transaction. Below is a list of material legal proceedings to which the Company or its subsidiaries is a party.

California Attorney General Investigation of For-Profit Educational Institutions

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

21

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 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. A trial is scheduled for October 2021. We cannot predict the outcome at this time. 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 and is recorded on the accounts payable and accrued liabilities line item on the condensed consolidated balance sheets.

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

On July 21, 2014, the Company 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 Global Campus documents and information for the time period January 1, 2006 to present.

While the Company denies the allegations made by the MA Attorney General, the parties have reached a resolution. The resolution does not include an admission or finding of wrongdoing by the Company or any non-compliance with any state or federal law, rule or regulation. The Company will pay $0.3 million to the MA Attorney General and will also cease to collect previously written off balances owed to Ashford University by students who enrolled in Ashford and were Massachusetts residents between 2011 to 2014.

16. Segment Information

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

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

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company’s operating segments are determined based on (i) financial information reviewed by the chief operating decision maker, (ii) internal management and related reporting structure, and (iii) the basis upon which the chief operating decision maker makes resource allocation decisions. During the quarter ended March 31, 2021, in conjunction with the departure of the Company's chief executive officer, the chief operating decision maker transitioned to the Office of the CEO, which is comprised of three executives. The Fullstack and TutorMe operating segments are aggregated into a single reportable segment, the Zovio Growth Segment. The aggregation of the Fullstack and TutorMe operating segments is based on their uniform customer bases and methods of services provided, as well as evaluation of quantitative thresholds as required by ASC 280-10-50-12. Based on these same quantitative tests, the Zovio operating segment is a separate reportable segment, the University Partners Segment. This change in segment reporting did not have any impact on the determination of reporting units used to assess impairment under ASC 350, Intangibles - Goodwill and Other.

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

Segment Performance

The following table summarizes financial information regarding each reportable segment’s results of operations for the periods presented (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue by segment
University Partners	$	62,254	$	98,962	$	131,933	$	192,828
Zovio Growth	6,932		4,978		14,112		8,984
Total revenue and other revenue	$	69,186	$	103,940	$	146,045	$	201,812
Segment profitability
University Partners	$	(654)	$	8,655	$	(6,091)	$	5,073
Zovio Growth	(1,858)		(465)		(3,473)		(4,400)
Total segment profitability(1)	$	(2,512)	$	8,190	$	(9,564)	$	673

(1) Segment profitability represents EBITDA.

The following table reconciles total loss before income taxes to total segment profitability (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Income (loss) before income taxes	$	(4,257)	$	5,446	$	(13,667)	$	(5,311)
Adjustments:
Other expense, net	(232)		(161)		(159)		101
Depreciation and amortization expense	1,977		2,905		4,262		5,883
Total segment profitability	$	(2,512)	$	8,190	$	(9,564)	$	673

During both the six months ended June 30, 2021 and June 30, 2020, Global Campus accounted for the entire amount of the University Partners segment revenue, respectively.

During both the six months ended June 30, 2021 or 2020, there were no customers or individual university clients which accounted for 10% or more of the Zovio Growth segment revenue.

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ZOVIO INC

Notes to Condensed Consolidated Financial Statements (Unaudited)

The Company’s total assets by segment are as follows (in thousands):

	As of June 30, 2021		As of December 31, 2020
University Partners	$	91,587	$	111,830
Zovio Growth	62,308		49,476
Total assets	$	153,895	$	161,306

The Company’s accounts receivable and deferred revenue in each segment are as follows (in thousands):

	As of June 30, 2021		As of December 31, 2020
University Partners accounts receivable	$	2	$	45
Zovio Growth accounts receivable	7,920		7,159
Total accounts receivable	$	7,922	$	7,204
University Partners deferred revenue	$	—	$	10
Zovio Growth deferred revenue	10,582		8,080
Total deferred revenue	$	10,582	$	8,090

As of each June 30, 2021 and December 31, 2020, there were no individual partners or customers which accounted for 10% or more of the University Partners segment net accounts receivable balance. Additionally, as of each June 30, 2021 and December 31, 2020, there were no individual partners or customers which accounted for 10% or more of the Zovio Growth segment net accounts receivable balance, as customers are individual students or third parties paying on their behalf, rather than university clients.

The Company’s goodwill amounts as of June 30, 2021 and December 31, 2020, respectively, are fully attributable to the Zovio Growth Segment. For additional information on goodwill, see Note 8, “Other Significant Balance Sheet Accounts - Goodwill and intangibles, net.”

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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, 2020 (“Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021, 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 (“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 and the ability of our current or any future university partners to comply with the extensive and continually evolving regulatory framework, applicable to such partners, including but not limited to 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;

•our ability to meet any conditions of the U.S. Department of Education (the “Department”) with respect to the Asset Purchase and Sale Agreement (the “Purchase Agreement”) with the Arizona Board of Regents, for and on behalf of the University of Arizona (“University of Arizona”) and the University of Arizona Global Campus, a newly formed Arizona nonprofit corporation (“Global Campus”);

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

•the ability of our current or any future university partners to obtain continued approval of programs for educational benefits to active duty military students or to veteran students;

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

•the impact of COVID-19 on the economy, and the demand for our services and the collectibility of our receivables;

•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;

•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.

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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 herein, 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 a suite of innovative, personalized solutions and learning experiences to help learners and leaders achieve their aspirations and help institutions grow. Zovio’s expertise across academic disciplines, credential levels, learning experiences, and modalities has powered student and partner success through a tailored, customer-focused approach bolstered by data analytics. The Company provides student recruitment and enrollment systems, retention strategies, educational tools and curriculums.

In April 2019, the Company acquired both Fullstack Academy, Inc (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”), each of which became wholly-owned subsidiaries of the Company. Fullstack is an innovative web development school offering immersive technology bootcamps, and TutorMe is an online education platform that provides 24/7 on-demand tutoring and online courses. Fullstack and TutorMe are both contributors to Zovio's strategy of becoming a best-in-class education technology services company.

Key Financial Metrics

In evaluating our operating performance, our management focuses in large part on our revenue and operating income (loss). The following table, which should be read in conjunction with our condensed consolidated financial statements included elsewhere in this report, presents our key operating data for each of the periods presented (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
Consolidated Statement of Income Data:	2021		2020		2021		2020
Revenue and other revenue	$	69,186	$	103,940	$	146,045	$	201,812
Operating income (loss)	$	(4,489)	$	5,285	$	(13,826)	$	(5,210)

Revenue and other revenue

On December 1, 2020, the Company entered into the Services Agreement with Global Campus whereby the Company will provide certain educational technology and support services, which has an initial term of fifteen years, subject to renewal options and certain early termination provisions. The amounts earned from the Services Agreement are denoted as revenue on the condensed consolidated statements of income (loss). On December 1, 2020, the Company also entered into a transition services agreement with Global Campus whereby the Company will provide certain temporary transition services (the “Transition Services Agreement”), which has a term of three years. The amounts earned from the Transition Services Agreement are denoted as other revenue on the condensed consolidated statements of income (loss). Subsequent to December 1, 2020, revenue is primarily derived from service revenue from our university partners.

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Prior to December 1, 2020, the majority of the amounts earned by the Company were from tuition, technology fees, and digital materials related to students whose primary funding source is governmental funding. The amounts earned from these streams is denoted as university-related revenue on the condensed consolidated statements of income (loss). Factors affecting this revenue include (i) the number of students who enroll and remain enrolled in courses, (ii) degree and program mix, (iii) changes in tuition rates and (iv) the amount of scholarships offered. Enrollments are a function of the number of continuing students at the beginning of each period and new enrollments during the period, offset by students who either graduated or withdrew during the period.

Costs and expenses

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

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

Marketing and communication costs consist primarily of lead acquisition, digital communication strategies, brand identity advertising, media planning and strategy, video, data science and analysis, marketing to potential students and other promotional and communication services. This category was primarily from our historical captions of advertising and marketing and promotional. This expense category includes salaries, benefits and share-based compensation for marketing and communication personnel, brand advertising, marketing leads and other promotional and communication expenses. This category also includes an allocation of depreciation, amortization, rent, and occupancy costs attributable to the provision of these services. Advertising costs are expensed as incurred.

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

University-related expenses represent those costs that were transferred to Global Campus in the Sale Transaction and that are no longer incurred by the Company. These costs were previously primarily components of instructional costs and services, with some costs from admissions advisory and marketing and some general and administrative.

Restructuring and impairment expenses have historically been primarily comprised of (i) charges related to the write off and impairment of certain assets, (ii) severance costs related to headcount reductions made in connection with restructuring plans and (iii) estimated lease losses related to facilities vacated or consolidated under restructuring plans.

Factors Affecting Comparability

We believe the following factors have had, or can be expected to have, a significant effect on the comparability of recent or future results of operations:

Sale transaction

The results of operations prior to December 1, 2020 are not comparable to those following that date. On December 1, 2020, the Company entered into the Services Agreement with Global Campus whereby the Company will provide certain educational technology and support services. On December 1, 2020, the Company also entered into the Transition Services Agreement with Global Campus whereby the Company will provide certain temporary transition services. Subsequent to December 1, 2020, revenue is primarily derived from service revenue from our university partners.

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Cost reductions

We recently took actions to reduce our cost structure to more appropriately align it with both our revenue expectations and the nature of our business following the Sale Transaction. As we moved through the second quarter of 2021, our enrollment began to stabilize at levels slightly lower than anticipated, causing us to further reduce our planned spending. Our total year-to-date cost reduction efforts will yield approximately $40.0 million of savings in calendar 2021, and approximately $60 million in annualized savings going forward, compared to planned spending levels.

Seasonality

Our operations are generally subject to seasonal trends. Our university partners 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 our university partners enroll students throughout the year, fourth quarter revenue is generally lower than other quarters due to the holiday break in December, with an increase in the first quarter of each year.

Trends and uncertainties regarding continuing operations

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 June 30, 2021 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 June 30, 2021.

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.

There were no material changes to these critical accounting policies and estimates during the six months ended June 30, 2021.

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Results of Operations

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue and other revenue	100.0	%	100.0	%	100.0	%	100.0	%
Costs and expenses:
Technology and academic services	26.1		16.6		25.5		17.7
Counseling services and support	33.5		22.6		33.2		23.2
Marketing and communication	31.4		20.9		32.6		23.2
General and administrative	12.2		11.1		16.6		12.4
University-related expenses	—		23.2		—		24.4
Restructuring and impairment expense	3.4		0.5		1.6		1.6
Total costs and expenses	106.6		94.9		109.5		102.5
Operating income (loss)	(6.6)		5.1		(9.5)		(2.5)
Other income (loss), net	0.3		0.2		0.1		(0.1)
Income (loss) before income taxes	(6.3)		5.3		(9.4)		(2.6)
Income tax expense (benefit)	(0.3)		0.3		(0.1)		(6.2)
Net income (loss)	(5.8)	%	5.0	%	(9.3)	%	3.6	%

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Total revenue and other revenue. Total revenue and other revenue for the three months ended June 30, 2021 and 2020, was $69.2 million and $103.9 million, respectively, a decrease of $34.7 million, or 33.4%. For the three months ended June 30, 2021 and 2020, University Partners segment revenue was $62.3 million and $99.0 million, respectively, representing a decrease of 37.1%, and the Zovio Growth segment revenue was $6.9 million and $5.0 million, respectively, representing an increase of 39.3%.

The decrease in revenue in the University Partners segment of $36.7 million between periods was primarily due to the change in business model in December 2020, and the related decrease in university-related revenue as compared to the prior year. This decrease was also due to a decrease in average weekly enrollment for the three month period ended June 30, 2021, as compared to the three month period ended June 30, 2020. Partially offsetting the decrease in the University Partners segment was the new service revenue from the Services Agreement entered into in December 2020, as well as other revenue generated from the Transition Services Agreement of approximately $2.5 million.

The increase in revenue in the Zovio Growth segment between periods was primarily due to the growth in new customer contracts within the related subsidiaries, Fullstack Academy and TutorMe.com.

Technology and academic services. Technology and academic services for the three months ended June 30, 2021 and 2020, were $18.1 million and $17.2 million, respectively, an increase of $0.9 million, or 4.9%. Specific increases between periods primarily include other technology and academic services of $2.3 million and license fees of $0.7 million, partially offset by decreases in consulting and outside services of $1.2 million, employee costs of $0.5 million, and amortization of $0.3 million. Technology and academic services, as a percentage of revenue, for the three months ended June 30, 2021 and 2020, were 26.1% and 16.6%, respectively, an increase of 9.5%. This increase primarily included increases in employee costs of 3.6%, other technology and academic services of 3.4%, license fees of 1.8%, and instructional supplies of 0.7%, partially offset by a decrease in consulting and other outside services of 0.4%.

Counseling services and support. Counseling services and support for the three months ended June 30, 2021 and 2020, were $23.2 million and $23.5 million, respectively, a decrease of $0.3 million, or 1.6%. Specific factors contributing to the overall decrease between periods were a decrease in other counseling services and support expenses of $0.2 million. Counseling services and support, as a percentage of revenue, for the three months ended June 30, 2021 and 2020, were 33.5% and 22.6%,

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respectively, an increase of 10.9%. This increase primarily included increases in employee costs of 9.2%, depreciation of 0.6%, and facilities costs of 0.5%.

Marketing and communication. Marketing and communication for the three months ended June 30, 2021 and 2020, were both $21.7 million, respectively. Specific factors contributing to the overall increase between periods were increases in employee costs of $0.5 million, partially offset by a decrease in advertising of $0.4 million. Marketing and communication, as a percentage of revenue, for the three months ended June 30, 2021 and 2020, were 31.4% and 20.9%, respectively, an increase of 10.5%. This increase primarily included increases in advertising of 7.6%, employee costs of 2.1%, and consulting and outside services of 0.7%.

General and administrative. General and administrative expenses for the three months ended June 30, 2021 and 2020, were $8.4 million and $11.6 million, respectively, a decrease of $3.2 million, or 27.7%. The decrease between periods was primarily due to decreases in employee costs of $1.7 million, professional fees of $1.2 million and other general and administrative expenses of $0.9 million, partially offset by increases in human resources costs of $0.5 million and insurance of $0.3 million. General and administrative expenses, as a percentage of revenue, for the three months ended June 30, 2021 and 2020, were 12.2% and 11.1%, respectively, an increase of 1.1%. This increase was primarily due to increases in insurance of 0.7%, consulting and outside services of 0.5%, legal fees of 0.4%, and employee costs of 0.3%, partially offset by decreases in professional fees of 0.8% and other general and administrative expenses of 0.5%.

University-related expenses. We did not record any charges to university-related expenses for the three months ended June 30, 2021. Charges incurred for the three months ended June 30, 2020 related to the legacy University.

Restructuring and impairment expense. For the three months ended June 30, 2021, we recorded $2.3 million of restructuring and impairment expense. For the three months ended June 30, 2020, we recorded a charge of approximately $0.5 million to restructuring and impairment expense. These charges were comprised primarily of a reduction in force and revised estimates of lease charges.

Other expense, net. Other expense, net, was $0.2 million for the three months ended June 30, 2021 and $0.2 million for the three months ended June 30, 2020, respectively. The amounts recognized during the three months ended June 30, 2021 relate primarily to interest expense.

Income tax expense (benefit). We recognized an income tax benefit of $0.2 million and an income tax expense of $0.3 million for the three months ended June 30, 2021 and June 30, 2020, respectively, at effective tax rates of 5.3% and 5.5%, respectively. The income tax benefit for the three months ended June 30, 2021 was mainly attributable to the tax refunds received from the federal and FTB audit examinations.

Net income (loss). Net loss was $4.0 million for the three months ended June 30, 2021, compared to net income of $5.1 million for the three months ended June 30, 2020, a $9.1 million decrease as a result of the factors discussed above.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Total revenue and other revenue. Total revenue and other revenue for the six months ended June 30, 2021 and 2020, was $146.0 million and $201.8 million, respectively, a decrease of $55.8 million, or 27.6%. For the six months ended June 30, 2021 and 2020, University Partners segment revenue was $131.9 million and $192.8 million, respectively, representing a decrease of 31.6%, and the Zovio Growth segment revenue was $14.1 million and $9.0 million, respectively, representing an increase of 57.1%.

The decrease in revenue in the University Partners segment of $60.9 million between periods was primarily due to the decrease in university-related revenue as compared to the prior year. The decrease between periods was primarily due to a decrease in average weekly enrollment from the six month period ended June 30, 2020 to the six month period ended June 30, 2021. Partially offsetting the decrease in the University Partners segment was an increase of service revenue due to the Services Agreement entered into in December 2020, as well as an increase in other revenue generated from the Transition Services Agreement of approximately $5.3 million.

The increase in revenue in the Zovio Growth segment between periods was primarily due to the growth in customer contracts experienced this year within the related subsidiaries, Fullstack Academy and TutorMe.com.

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Technology and academic services. Technology and academic services for the six months ended June 30, 2021 and 2020, were $37.2 million and $35.7 million, respectively, an increase of $1.5 million, or 4.1%. Specific increases between periods include other technology and academic services expenses of $2.8 million, license fees of $1.4 million, bad debt expense of $0.6 million, and instructional supplies of $0.5 million, partially offset by decreases in consulting and outside services of $2.1 million, employee costs of $0.6 million, facilities costs of $0.6 million, and professional fees of $0.4 million. Technology and academic services, as a percentage of revenue, for the six months ended June 30, 2021 and 2020, were 25.5% and 17.7%, respectively, an increase of 7.8%. This increase primarily included increases in employee costs of 3.0%, other technology and academic services expenses of 2.2%, license fees of 1.6%, instructional supplies of 0.8%, and bad debt expense of 0.5%, partially offset by a decrease in consulting and outside services of 0.4%.

Counseling services and support. Counseling services and support for the six months ended June 30, 2021 and 2020, were $48.5 million and $46.9 million, respectively, an increase of $1.6 million, or 3.5%. Specific factors contributing to the overall increase between periods include increases in employee costs of $3.6 million and human resources costs of $0.3 million, partially offset by decreases in facilities costs of $1.6 million and other counseling services and support expenses of $0.8 million. Counseling services and support, as a percentage of revenue, for the six months ended June 30, 2021 and 2020, were 33.2% and 23.2%, respectively, an increase of 10.0%. This increase primarily included increases in employee costs of 9.5% and human resources costs of 0.5%, partially offset by a decrease in facilities costs of 0.3%.

Marketing and communication. Marketing and communication for the three months ended June 30, 2021 and 2020, were $47.6 million and $46.7 million, respectively, an increase of $0.9 million, or 1.7%. Specific factors contributing to the overall increase between periods were increases in employee costs of $1.3 million and consulting and outside services of $0.6 million, partially offset by decreases in license fees of $0.7 million and other marketing and communication expenses of $0.5 million. Marketing and communication, as a percentage of revenue, for the six months ended June 30, 2021 and 2020, were 32.6% and 23.2%, respectively, an increase of 9.4%. This increase primarily included increases in advertising of 7.0%, employee costs of 1.9%, and consulting and outside services of 0.8%.

General and administrative. General and administrative expenses for the six months ended June 30, 2021 and 2020, were $24.3 million and $25.0 million, respectively, a decrease of $0.7 million, or 2.8%. The decrease between periods was primarily due to decreases in employee costs of $1.6 million, non-recurring stock compensation of $1.5 million, professional fees of $1.4 million and legal fees of $0.7 million, partially offset by increases in executive severance of $3.6 million and insurance of $0.5 million. Our general and administrative expenses, as a percentage of revenue, for the six months ended June 30, 2021 and 2020, were 16.6% and 12.4%, respectively, an increase of 4.2%. This increase was primarily due to increases in executive severance of 2.5%, employee costs of 1.2%, and insurance of 0.6%, partially offset by decreases in non-recurring stock compensation of 0.6% and professional fees of 0.4%.

University-related expenses. We did not record any charges to university-related expenses for the six months ended June 30, 2021. Charges incurred for the six months ended June 30, 2020 related to the legacy University.

Restructuring and impairment expense. For the six months ended June 30, 2021, we recorded $2.3 million of restructuring and impairment expense. For the six months ended June 30, 2020, there were $3.2 million of similar restructuring and impairment expenses.

Other (expense) income, net. Other expense, net was $0.2 million for the six months ended June 30, 2021, as compared to other income, net of $0.1 million for the six months ended June 30, 2020, an increase of $0.3 million. The amounts recognized during the six months ended June 30, 2021 relate primarily to interest expense.

Income tax benefit. We recognized an income tax benefit of $0.1 million and $12.5 million for the six months ended June 30, 2021 and 2020, respectively, at effective tax rates of 1.0% and 234.9%, respectively. The income tax benefit for the six months ended June 30, 2021 was mainly attributable to the tax refunds received from the federal and FTB audit examinations.

Net income (loss). Our net loss was $13.5 million for the six months ended June 30, 2021 compared to net income of $7.2 million for the six months ended June 30, 2020, a $20.7 million increase in net loss as a result of the factors discussed above.

31

Liquidity and Capital Resources

We finance our operating activities and capital expenditures primarily through cash on hand. At June 30, 2021 and December 31, 2020, our cash and cash equivalents were $24.0 million and $35.5 million, respectively. At June 30, 2021 and December 31, 2020, total restricted cash was $13.3 million and $20.0 million, respectively, and investments were $1.5 million and $1.5 million, respectively. At June 30, 2021, we had $2.8 million of long-term notes payable.

There was a slight decrease in the fair value of our investments at June 30, 2021 as compared to December 31, 2020. We believe that any fluctuations we have experienced are temporary in nature and, while 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. Additionally, our income tax receivable decreased from December 31, 2020 to June 30, 2021 primarily due to $1.9 million tax refunds received from the federal and FTB audit examinations.

We manage our 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.

Operating activities

Net cash used in operating activities was $16.3 million for the six months ended June 30, 2021, compared to net cash provided by operating activities of $6.7 million for the six months ended June 30, 2020, an overall decrease between periods in net cash provided by operating activities of $23.0 million. The decrease in cash provided by operating activities is primarily attributable to the increase in net loss of $20.7 million between periods, including the minimum residual payment of $12.2 million to Global Campus during the period, as well as the decreases in non-cash expenses, partially offset by the net increases in the working capital accounts due to changes in the business model since the prior year.

Investing activities

Net cash used in investing activities was $0.9 million for the six months ended June 30, 2021, compared to net cash used in investing activities of $0.6 million for the six months ended June 30, 2020. Capital expenditures for the six months ended June 30, 2021 were $0.7 million, compared to $1.6 million for the six months ended June 30, 2020. During the six months ended June 30, 2021 and 2020, we capitalized costs for intangibles of $0.3 million and $0.1 million, respectively. We expect our capital expenditures to be approximately $3.0 million for the year ending December 31, 2021.

Financing activities

Net cash used in financing activities was $1.1 million for the six months ended June 30, 2021, compared to net cash provided by financing activities of $2.3 million for the six months ended June 30, 2020. During each of the six months ended June 30, 2021 and 2020, net cash used included tax withholdings related to the issuance of restricted stock units vesting. For the six months ended June 30, 2020, we received $2.7 million of cash which was for long-term debt to be repaid as a function of generating future revenue.

Agreements with Global Campus

Our largest university partner, Global Campus, derives the majority of its respective cash revenues from students who enroll and are eligible for various federal student financial assistance programs authorized under Title IV of the Higher Education Act. An institution 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 Global Campus is from government tuition assistance programs for military personnel, including veterans, payments made in cash by individuals, reimbursement from corporate partnerships and private loans from third parties.

The majority of our cash comes from our Services Agreement with Global Campus. The service fees in the Services Agreement are subject to certain minimum residual liability adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend

32

upon the Company’s performance during each service period. In June 2021, the Company made a minimum residual payment of $12.2 million to Global Campus. In connection with the Services Agreement, the minimum residual payment will be paid annually in June. If the Company's restructuring efforts and enrollment initiatives do not occur as planned, then the Company will need to find alternative sources to fund operations.

Based on our current level of operations, and based upon recent cost reductions throughout the organization, we believe that our future cash flows from operating activities and our existing cash and cash equivalents will provide adequate funds for ongoing operations, minimum residual payments, 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.

Significant Contractual Obligations

The following table sets forth, as of June 30, 2021, certain significant cash and contractual obligations that may affect our future liquidity:

	Payments Due by Period
(In thousands)	Total		2021		2022		2023		2024		2025		Thereafter
Operating lease obligations	$	57,643	$	4,039	$	7,009	$	5,316	$	5,022	$	4,759	$	31,498
Other contractual obligations	15,393		4,735		6,314		4,322		22		—		—
Uncertain tax positions	28		—		28		—		—		—		—
Total	$	73,064	$	8,774	$	13,351	$	9,638	$	5,044	$	4,759	$	31,498

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 June 30, 2021, we had $2.8 million in long-term notes payable.

Our future investment income may fall short of expectations due to changes in interest rates. At June 30, 2021, 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.

33

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.

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 the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2021.

Changes in Internal Control Over Financial Reporting

There have been no changes in internal control over financial reporting, during the three months ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

34

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.

Changes to the 90/10 rule or related Title IV regulation could adversely impact our university partners, which in turn could adversely affect our revenues or our ability to grow.

In March 2021, President Biden signed the American Rescue Plan Act (“ARPA”) of 2021. The ARPA includes a major change in the 90/10 revenue test that provides for-profit institutions and their students access to the FSA programs. Under the ARPA, the Higher Education Act would be modified to change the formula from counting only Title IV program funds on the '90 side' to instead include all “federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution” or collectively “federal education assistance funds.” The 90/10 provision will be subject to negotiated rulemaking after October 2021, with an earliest effective date on or after January 1, 2023. Additionally, in June 2021, the Department held virtual public hearings to receive stakeholder feedback on potential issues for the upcoming negotiated rulemaking sessions. These issues include borrower defense to repayment for students, gainful employment requirements, and change in ownership and change in control of institutions of higher education among other topics. If these changes were to go into effect, it could adversely impact our university partners, which in turn could adversely affect our revenues or our ability to grow.

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

None.

35

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 Christopher L. Spohn, Office of the 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 June 30, 2021, filed with the SEC on July 28, 2021, formatted in Extensible Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Income (Loss); (iii) the Condensed Consolidated Statements of Stockholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

36

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
July 28, 2021	/s/ KEVIN ROYAL
	Kevin Royal Chief Financial Officer (Principal financial officer and duly authorized to sign on behalf of the registrant)

37

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, Christopher L. Spohn, 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: July 28, 2021

/s/ CHRISTOPHER L. SPOHN

Christopher L. Spohn

Office of the 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: July 28, 2021

/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 June 30, 2021 (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: July 28, 2021

/s/ CHRISTOPHER L. SPOHN

Christopher L. Spohn

Office of the Chief Executive Officer

(Principal Executive Officer)

Dated: July 28, 2021

/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.

XML

Cover - shares	6 Months Ended
	Jun. 30, 2021	Jul. 21, 2021
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2021
Document Transition Report	false
Entity File Number	001-34272
Entity Registrant Name	ZOVIO INC
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	59-3551629
Entity Address, Address Line One	1811 E. Northrop Blvd,
Entity Address, City or Town	Chandler
Entity Address, State or Province	AZ
Entity Address, Postal Zip Code	85286
City Area Code	858
Local Phone Number	668-2586
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Shell Company	false
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	ZVO
Security Exchange Name	NASDAQ
Entity Common Stock, Shares Outstanding		33,417,762
Entity Central Index Key	0001305323
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 23,981	$ 35,462
Restricted cash	13,283	20,035
Investments	1,476	1,515
Accounts receivable, net of allowance for credit losses of $1.8 million and $1.2 million at June 30, 2021 and December 31, 2020, respectively	7,922	7,204
Prepaid expenses and other current assets	13,231	12,617
Total current assets	59,893	76,833
Property and equipment, net	28,615	30,575
Operating lease assets	31,388	20,114
Goodwill and intangibles, net	30,433	31,785
Other long-term assets	3,566	1,999
Total assets	153,895	161,306
Current liabilities:
Accounts payable and accrued liabilities	51,439	62,693
Deferred revenue and student deposits	10,582	8,090
Total current liabilities	62,021	70,783
Rent liability	36,523	24,125
Other long-term liabilities	8,243	7,181
Total liabilities	106,787	102,089
Commitments and contingencies (see Note 15)
Preferred stock, $0.01 par value:
Preferred stock issued	0	0
Common stock, $0.01 par value:
Common stock issued	674	668
Additional paid-in capital	170,341	179,489
Retained earnings	312,793	326,319
Treasury stock	(436,700)	(447,259)
Total stockholders' equity	47,108	59,217
Total liabilities and stockholders' equity	$ 153,895	$ 161,306

XML

Condensed Consolidated Balance Sheets - Parenthetical - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020	Jun. 30, 2020
Statement of Financial Position [Abstract]
Less allowance for credit losses	$ 1,828	$ 1,216
Preferred Stock, Par or Stated Value Per Share	$ 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 or Stated Value Per Share	$ 0.01	$ 0.01
Common Stock, Shares Authorized		300,000,000
Common Stock, Shares, Issued	67,127,000	66,454,000
Common Stock, Shares, Outstanding	33,418,000	32,267,000
Treasury Stock, Shares		34,187,000	33,709,000

XML

Condensed Consolidated Statements of Income (Loss) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Revenue and other revenue	$ 69,186	$ 103,940	$ 146,045	$ 201,812
Costs and expenses:
TechnologyAndAcademicServices	18,056	17,209	37,200	35,737
CounselingServicesAndSupport	23,173	23,540	48,498	46,859
Marketing Expense	21,729	21,675	47,560	46,743
General and administrative	8,376	11,581	24,272	24,968
UniversityRelatedExpenses	0	24,167	0	49,469
Restructuring and impairment expense	2,341	483	2,341	3,246
Total costs and expenses	73,675	98,655	159,871	207,022
Operating income (loss)	(4,489)	5,285	(13,826)	(5,210)
Other income (loss), net	232	161	159	(101)
Income (loss) before income taxes	(4,257)	5,446	(13,667)	(5,311)
Income tax expense (benefit)	(224)	299	(141)	(12,478)
Net income (loss)	$ (4,033)	$ 5,147	$ (13,526)	$ 7,167
Income (loss) per share:
Earnings Per Share, Basic (in dollars per share)	$ (0.12)	$ 0.16	$ (0.41)	$ 0.23
Earnings Per Share, Diluted (in dollars per share)	$ (0.12)	$ 0.16	$ (0.41)	$ 0.23
Weighted average number of common shares outstanding used in computing income (loss) per share:
Basic (in shares)	33,343	32,137	33,058	31,238
Diluted (in shares)	33,343	32,501	33,058	31,495
Revenue, Product and Service Benchmark
Revenue and other revenue	$ 66,670	$ 5,054	$ 140,777	$ 9,127
University-related revenue
Revenue and other revenue	0	98,886	0	192,685
Transition Service Agreement
Revenue and other revenue	$ 2,516	$ 0	$ 5,268	$ 0

XML

Condensed Consolidated Statement of Stockholders' Equity - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of accounting standards	$ 98,938	$ 660	$ 192,413	$ 375,180	$ (469,315)
Balance (in shares) at Dec. 31, 2019		65,695
Balance at Dec. 31, 2019	98,938	$ 660	192,413	375,180	(469,315)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	4,138		4,138
Stock repurchase	(106)
Stock issued under stock incentive plan, net of shares held for taxes (in shares)		338
Stock issued under stock incentive plan, net of shares held for taxes	(202)	$ 3	(205)
Net income (loss)	2,020			2,020
Balance (in shares) at Mar. 31, 2020		66,033
Balance at Mar. 31, 2020	104,985	$ 663	196,346	377,291	(469,315)
Balance (in shares) at Dec. 31, 2019		65,695
Balance at Dec. 31, 2019	98,938	$ 660	192,413	375,180	(469,315)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	7,167
Balance (in shares) at Jun. 30, 2020		66,326
Balance at Jun. 30, 2020	112,005	$ 666	176,160	382,438	(447,259)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of accounting standards	104,985	$ 663	196,346	377,291	(469,315)
Balance (in shares) at Mar. 31, 2020		66,033
Balance at Mar. 31, 2020	104,985	$ 663	196,346	377,291	(469,315)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	802		802
Stock issued under employee stock purchase plan	112	1	111
Stock issued for acquisition	0	$ 0	(22,162)		22,162
Stock repurchase					(106)
Stock issued under employee stock purchase plan (in shares)		57
Stock issued under stock incentive plan, net of shares held for taxes (in shares)		236
Stock issued under stock incentive plan, net of shares held for taxes	(180)	$ 2	(182)
Business Combination, Consideration Transferred, Equity Interests Issued and Issuable	1,245		1,245
Net income (loss)	5,147			5,147
Balance (in shares) at Jun. 30, 2020		66,326
Balance at Jun. 30, 2020	112,005	$ 666	176,160	382,438	(447,259)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of accounting standards	112,005	666	176,160	382,438	(447,259)
Adoption of accounting standards	59,217	$ 668	179,489	326,319	(447,259)
Balance (in shares) at Dec. 31, 2020		66,454
Balance at Dec. 31, 2020	59,217	$ 668	179,489	326,319	(447,259)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	2,382		2,382
Stock issued under stock incentive plan, net of shares held for taxes (in shares)		563
Stock issued under stock incentive plan, net of shares held for taxes	(1,078)	$ 5	(1,083)
Contingent consideration	(122)		(122)
Adjustments to Additional Paid in Capital, Other			(10,559)		10,559
Net income (loss)	(9,493)			(9,493)
Balance (in shares) at Mar. 31, 2021		67,017
Balance at Mar. 31, 2021	50,906	$ 673	170,107	316,826	(436,700)
Balance (in shares) at Dec. 31, 2020		66,454
Balance at Dec. 31, 2020	59,217	$ 668	179,489	326,319	(447,259)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)	(13,526)
Balance (in shares) at Jun. 30, 2021		67,127
Balance at Jun. 30, 2021	47,108	$ 674	170,341	312,793	(436,700)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of accounting standards	50,906	$ 673	170,107	316,826	(436,700)
Balance (in shares) at Mar. 31, 2021		67,017
Balance at Mar. 31, 2021	50,906	$ 673	170,107	316,826	(436,700)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Stock-based compensation	247		247
Stock issued under employee stock purchase plan	76	$ 0	76
Stock issued under employee stock purchase plan (in shares)		31
Stock issued under stock incentive plan, net of shares held for taxes (in shares)		79
Stock issued under stock incentive plan, net of shares held for taxes	(88)	$ 1	(89)
Net income (loss)	(4,033)			(4,033)
Balance (in shares) at Jun. 30, 2021		67,127
Balance at Jun. 30, 2021	47,108	$ 674	170,341	312,793	(436,700)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of accounting standards	$ 47,108	$ 674	$ 170,341	$ 312,793	$ (436,700)

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Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Cash flows from operating activities:
Net income (loss)	$ (13,526)	$ 7,167
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Provision for bad debts	911	6,402
Depreciation and amortization	4,262	5,883
Deferred income taxes	0	(4)
Stock-based compensation	2,629	4,940
Noncash lease expense	4,367	6,427
Net loss (gain) on marketable securities	(144)	117
Loss (gain) on disposal or impairment of fixed assets	61	0
Changes in operating assets and liabilities:
Accounts receivable	(1,628)	(13,598)
Prepaid expenses and other current assets	(614)	301
Other long-term assets	(1,568)	6
Accounts payable and accrued liabilities	(9,198)	(9,139)
Deferred revenue and student deposits	2,491	6,781
Operating lease liabilities	(5,243)	(6,409)
Other liabilities	940	(2,158)
Net cash provided by (used in) operating activities	(16,260)	6,716
Cash flows from investing activities:
Capital expenditures	(733)	(1,570)
Purchases of investments	(64)	(684)
Capitalized costs for intangible assets	(333)	(146)
Sale of investments	247	1,818
Net cash used in investing activities	(883)	(582)
Cash flows from financing activities:
Proceeds from the issuance of stock under employee stock purchase plan	76	112
Borrowings from long-term liabilities	0	2,682
Tax withholdings on issuance of stock awards	(1,166)	(382)
Payments for Repurchase of Common Stock	0	(106)
Net cash provided by (used in) financing activities	(1,090)	2,306
Net increase (decrease) in cash, cash equivalents and restricted cash	(18,233)	8,440
Cash, cash equivalents and restricted cash at beginning of period	55,497	92,537
Cash, cash equivalents and restricted cash at end of period	37,264	100,977
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents	23,981	75,073
Restricted cash	13,283	25,904
Total cash, cash equivalents and restricted cash	37,264	100,977
Supplemental disclosure of non-cash transactions:
Purchase of equipment included in accounts payable and accrued liabilities	14	513
Issuance of common stock for vested restricted stock units	3,774	1,270
Debt extinguishment	3,095	0
Issuance of notes payable	$ 2,809	$ 0

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Restatement of Previously Issued Financial Statement Statement - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Reclassification [Line Items]
TechnologyAndAcademicServices	$ 18,056	$ 17,209	$ 37,200	$ 35,737
CounselingServicesAndSupport	23,173	23,540	48,498	46,859
Marketing Expense	21,729	21,675	47,560	46,743
Technology and academic services		0		0
Counseling services and support		0		0
General and administrative	8,376	11,581	24,272	24,968
UniversityRelatedExpenses	0	24,167	0	49,469
Restructuring and impairment expense	2,341	483	2,341	3,246
Total costs and expenses	$ 73,675	98,655	$ 159,871	207,022
Previously Reported
Reclassification [Line Items]
TechnologyAndAcademicServices		0		0
CounselingServicesAndSupport		0		0
Marketing Expense		0		0
Technology and academic services		44,874		91,255
Counseling services and support		38,802		80,535
General and administrative		14,496		31,986
UniversityRelatedExpenses		0		0
Restructuring and impairment expense		483		3,246
Total costs and expenses		$ 98,655		$ 207,022

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Nature of Business

6 Months Ended

Jun. 30, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Business

Nature of Business

Zovio Inc (the “Company”) is a Delaware corporation, and is an education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions to help learners and leaders achieve their aspirations. Additionally, in April 2019, the Company acquired both Fullstack Academy, Inc, (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”), each of which became wholly-owned subsidiaries of the Company at that time.

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

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

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

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Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2021

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, 2020, which was filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.

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

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.

Notes Payable

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

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

Revenue and Other Revenue

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

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

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

Technology and Academic Services

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

Counseling Services and Support

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

Marketing and Communication

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

General and Administrative

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

University-Related Expenses

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

Comprehensive Income (Loss)

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

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740. The amendments in this update also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this standard are effective

for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company applied the new standard, including all applicable updates, effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.

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Revenue Recognition

6 Months Ended

Jun. 30, 2021

Revenue Recognition [Abstract]

Revenue Recognition

Revenue, Other Revenue and Deferred Revenue

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Strategic services revenue	$	59,688	$	—	$	126,614	$	—
Transition services income	2,516		—		5,268		—
Tuition revenue, net	6,866		95,316		13,956		184,350
Digital materials revenue, net	—		5,634		—		11,606
Technology fee revenue, net	—		2,514		—		5,000
Other revenue, net (1)	116		476		207		856
Total revenue, net	$	69,186	$	103,940	$	146,045	$	201,812

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Over time, over period of instruction	$	69,135	$	84,083	$	145,903	$	162,213
Over time, full tuition grant (1)	—		14,642		—		28,843
Point in time (2)	51		5,215		142		10,756
Total revenue, net	$	69,186	$	103,940	$	146,045	$	201,812

(1)Represents revenue generated from the FTG program.

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

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

Deferred Revenue and Student Deposits

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

	As of June 30, 2021		As of December 31, 2020
Deferred revenue	$	9,981	$	7,477
Student deposits	601		613
Total deferred revenue and student deposits	$	10,582	$	8,090

Deferred revenue consists of cash payments that are received or due in advance of the Company’s performance.

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

	2021		2020
Deferred revenue opening balance, January 1	$	7,477	$	23,356
Deferred revenue closing balance, June 30	9,981		32,101
Increase (decrease)	$	2,504	$	8,745

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 services is due prior to services being provided. Under special circumstances, some customers may be offered non-interest bearing payment plan arrangements that can extend for up to 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 six months ended June 30, 2021, the Company recognized $6.1 million of revenue that was included in the deferred revenue balance as of January 1, 2021. For the six months ended June 30, 2020, the Company recognized $22.6 million of revenue that was included in the deferred revenue balance as of

January 1, 2020. 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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Restructuring and Impairment Expense

6 Months Ended

Jun. 30, 2021

Restructuring and Related Activities [Abstract]

Restructuring, Impairment, and Other Activities Disclosure

Restructuring and Impairment Expense

During the three months ended June 30, 2021 and 2020, the Company recognized $2.3 million and $0.5 million, respectively, of restructuring and impairment expense. During the six months ended June 30, 2021 and 2020, the Company recognized $2.3 million and $3.2 million, respectively, of restructuring and impairment expense. The components of these expenses are further described below.

The Company previously relocated its headquarters from California to Arizona. In addition, the Company previously vacated or consolidated properties and subsequently reassessed its obligations on non-cancelable leases. As a result, during the three and six months ended June 30, 2020, the Company recognized relocation and lease reassessment expenses of $0.2 million and $0.3 million, respectively. No such expense was recorded for either the three or six months ended June 30, 2021, respectively.

In May 2021, the Company's implemented a restructuring plan to reduce operating expenses, implement cost reductions and conserve cash resources. The restructuring plan was substantially completed by June 30, 2021. The Company recorded a charge during the second quarter of 2021 as a result of the restructuring, 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. During the three months ended June 30, 2021, the Company recognized severance costs of $2.3 million, all of which related to the University Partners segment. For the three months ended June 30, 2020, the Company recognized $0.3 million of restructuring and impairment expense relating to severance costs for wages and benefits for a prior restructuring plan. During the six months ended June 30, 2021 and 2020, the Company recognized severance costs of $2.3 million and $3.0 million, respectively.

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Severance costs	$	2,341	$	250	$	2,341	$	2,972
Lease exit and other costs	—		233		—		274
Total restructuring and impairment expense	$	2,341	$	483	$	2,341	$	3,246

The following table summarizes the changes in the Company's restructuring and impairment liability by type during the six months ended June 30, 2021 (in thousands):

	Student Transfer Costs		Severance Costs		Lease Exit and Other Costs		Total
Balance at December 31, 2020	$	1,282	$	742	$	1,974	$	3,998
Restructuring and impairment expense	—		2,341		—		2,341
Payments and adjustments	—		(1,369)		(1,008)		(2,377)
Balance at June 30, 2021	$	1,282	$	1,714	$	966	$	3,962

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

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Fair Value Measurements

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

The following tables summarize the fair value information as of June 30, 2021 and December 31, 2020, respectively (in thousands):

	As of June 30, 2021
	Level 1		Level 2		Level 3		Total
Mutual funds	$	1,476	$	—	$	—	$	1,476

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

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

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

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Accounts Receivable, Net

6 Months Ended

Jun. 30, 2021

Receivables [Abstract]

Accounts Receivable, Net

Accounts Receivable, Net

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

	As of June 30, 2021		As of December 31, 2020
Accounts receivable	$	9,750	$	8,420
Less allowance for credit losses	1,828		1,216
Accounts receivable, net	$	7,922	$	7,204

The following table presents the changes in the allowance for credit losses for the six months ended June 30, 2021 (in thousands):

	Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance
Non-FTG related allowance	$	1,216	$	911	$	(299)	$	—	$	1,828
Total allowance for credit losses	$	1,216	$	911	$	(299)	$	—	$	1,828

The following table presents the changes in the allowance for credit losses for the six months ended June 30, 2020 (in thousands):

	Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance
FTG-related allowance	$	1,749	$	1,193	$	(983)	$	234	$	2,193
Non-FTG related allowance	11,963		5,209		(10,833)		3,233		9,572
Total allowance for credit losses	$	13,712	$	6,402	$	(11,816)	$	3,467	$	11,765

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Other Significant Balance Sheet Accounts

6 Months Ended

Jun. 30, 2021

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 consisted of the following (in thousands):

	As of June 30, 2021		As of December 31, 2020
Prepaid expenses	$	3,268	$	3,027
Prepaid licenses	3,036		1,371
Prepaid income taxes	33		48
Income tax receivable	—		1,644
Prepaid insurance	1,707		1,127
Insurance recoverable	360		404
Other current assets (1)	4,827		4,996
Total prepaid expenses and other current assets	$	13,231	$	12,617

(1) Other current assets includes payment of net asset adjustment due from Global Campus related to the Sale Transaction.

Property and Equipment, Net

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

	As of June 30, 2021		As of December 31, 2020
Furniture and office equipment	$	23,511	$	36,146
Software	5,509		7,512
Leasehold improvements	16,772		16,325
Vehicles	22		22
Total property and equipment	45,814		60,005
Less accumulated depreciation and amortization	(17,199)		(29,430)
Total property and equipment, net	$	28,615	$	30,575

For the three months ended June 30, 2021 and 2020, depreciation and amortization expense related to property and equipment was $1.3 million and $1.6 million, respectively. For the six months ended June 30, 2021 and 2020, depreciation and amortization expense related to property and equipment was $2.6 million and $3.2 million, respectively.

Goodwill and Intangibles, Net

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

	June 30, 2021
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	$	13,858	$	(12,764)	$	1,094
Purchased intangible assets	14,185		(8,022)		6,163
Total definite-lived intangible assets	$	28,043	$	(20,786)	$	7,257
Goodwill					23,176
Total goodwill and intangibles, net					$	30,433
	December 31, 2020
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	$	13,745	$	(12,644)	$	1,101
Purchased intangible assets	14,185		(6,677)		7,508
Total definite-lived intangible assets	$	27,930	$	(19,321)	$	8,609
Goodwill					23,176
Total goodwill and intangibles, net					$	31,785

For the three months ended June 30, 2021 and 2020, amortization expense was $0.7 million and $1.3 million, respectively. For the six months ended June 30, 2021 and 2020, amortization expense was $1.7 million and $2.7 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 2021	$	1,319
2022	2,459
2023	2,303
2024	721
2025	117
Thereafter	338
Total future amortization expense	$	7,257

Accounts Payable and Accrued Liabilities

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

	As of June 30, 2021		As of December 31, 2020
Accounts payable	$	10,583	$	11,246
Accrued salaries and wages	7,098		6,149
Accrued bonus	1,661		11,428
Accrued vacation	3,600		3,369
Accrued litigation and fees	8,341		8,341
Minimum residual liability	608		1,216
Accrued expenses	13,395		12,473
Current leases payable	4,847		6,934
Accrued insurance liability	1,297		1,537
Accrued income taxes payable	9		—
Total accounts payable and accrued liabilities	$	51,439	$	62,693

Other Long-Term Liabilities

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

	As of June 30, 2021		As of December 31, 2020
Uncertain tax positions	$	28	$	28
Notes payable	2,847		2,981
Other long-term liabilities	5,368		4,172
Total other long-term liabilities	$	8,243	$	7,181

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Credit Facilities

6 Months Ended

Jun. 30, 2021

Debt Disclosure [Abstract]

Credit Facilities

Credit Facilities

The Company has issued letters of credit that are collateralized with cash, in the aggregate amount of $13.2 million as of June 30, 2021. The letters of credit relate primarily to the Company's leased facilities and insurance requirements. The collateralized cash is held in restricted cash on the Company's condensed consolidated balance sheets.

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

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Lease Obligations

6 Months Ended

Jun. 30, 2021

Leases [Abstract]

Lease Obligations

Lease Obligations

Operating Leases

The Company leases various office and classroom facilities with terms that expire at various dates through 2033. These facilities are used for academic operations, corporate functions, enrollment services and student support services. The Company does not have any leases other than its office facilities and classrooms. All of the leases were classified as operating leases for the period ended June 30, 2021, 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.

The Company obtained additional right-of-use assets of $14.6 million in exchange for lease obligations related to new classroom and office leases during the period ended June 30, 2021.

The Company has agreements to sublease certain portions of its office facilities, with three active subleases as of June 30, 2021. The Company’s subleases do not include any options to extend or for early termination and do not contain any residual value guarantees or restrictive covenants. All of the subleases were classified as operating leases for the period ended June 30, 2021. The Company is subleasing approximately 37,000 square feet of office space in Denver, Colorado with a remaining commitment to lease of 2 months and net lease payments of $0.2 million. The Company is subleasing additional office space of approximately 21,000 square feet in Denver, Colorado with a remaining commitment to lease of 20 months and net lease payments of $1.0 million. The Company is also subleasing approximately 24,000 square feet of office space in San Diego, California with a remaining commitment to lease of 6 months and net lease payments of $0.5 million. Sublease income for the six months ended June 30, 2021 and 2020 was $1.3 million and $1.0 million, respectively.

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Income Per Share

6 Months Ended

Jun. 30, 2021

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator:
Net income (loss)	$	(4,033)	$	5,147	$	(13,526)	$	7,167
Denominator:
Weighted average number of common shares outstanding	33,343		32,137		33,058		31,238
Effect of dilutive options and stock units	—		364		—		257
Diluted weighted average number of common shares outstanding	33,343		32,501		33,058		31,495
Income (loss) per share:
Basic	$	(0.12)	$	0.16	$	(0.41)	$	0.23
Diluted	$	(0.12)	$	0.16	$	(0.41)	$	0.23

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Stock options	1,308	1,675	1,445	1,720
Stock units	1,269	718	1,094	1,603

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2021

Share-based Payment Arrangement [Abstract]

Stock-Based Compensation

Stock-Based Compensation

The Company recorded $0.2 million and $0.8 million of stock-based compensation expense for the three months ended June 30, 2021 and 2020, respectively. The related income tax benefit was $0.1 million and $0.2 million for the three months ended June 30, 2021 and 2020, respectively.

The Company recorded $2.6 million and $4.9 million of stock-based compensation expense for the six months ended June 30, 2021 and 2020, respectively. The related income tax benefit was $0.7 million and $1.2 million for the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021, the Company granted 1.0 million RSUs at a weighted average grant date fair value of $3.39 and 0.9 million RSUs vested. During the six months ended June 30, 2020, the Company granted 1.4 million RSUs at a grant date fair value of $2.15, and 0.8 million RSUs vested.

During the six months ended June 30, 2021, the Company granted 0.8 million performance-based PSUs at a weighted average grant date fair value of 2.73, and no performance-based or market-based PSUs vested. During the six months ended June 30, 2020, 1.1 million market-based PSUs were granted at a weighted average grant date fair value of 2.18 and no performance-based or market-based PSUs vested.

During both the six months ended June 30, 2021, and the six months ended June 30, 2020, the Company did not grant any stock options and no stock options were exercised.

As of June 30, 2021, unrecognized compensation cost was $6.5 million related to unvested stock options, RSUs and PSUs.

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Income Taxes

6 Months Ended

Jun. 30, 2021

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 June 30, 2021 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 June 30, 2021.

The Company’s current effective income tax rate that has been applied to normal, recurring operations for the six months ended June 30, 2021 was (1.0)%. The Company’s actual effective income tax rate for the six months ended June 30, 2021, after discrete items, was 1.0%.

As of both June 30, 2021, and December 31, 2020, the Company had $19 thousand, respectively, of gross unrecognized tax benefits, of which $15 thousand, respectively, would impact the effective income tax rate if recognized. 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 2019 are open to examination by major taxing jurisdictions to which the Company is subject.

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Regulatory

6 Months Ended

Jun. 30, 2021

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 and its university partners to significant regulatory scrutiny on the basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”).

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

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

Department of Education Close Out Audit of University of the Rockies

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

WSCUC Accreditation of former Ashford University

Global Campus is regionally accredited by WASC Senior College and University Commission (“WSCUC”). In July 2013, WSCUC granted Initial Accreditation to the University for five years, until July 2018. In December 2013, the University effected its transition to WSCUC accreditation and designated its San Diego, California facilities as its main campus and its Clinton, Iowa campus as an additional location. As part of its institutional review process, WSCUC commenced its comprehensive review of the University with an off-site review in March 2018. As part of the WSCUC Institutional Review Process a Reaffirmation of Accreditation Visit was conducted by an evaluation team in April 2019. At its meeting in June 2019, the Commission acted to reaffirm accreditation through Spring 2025.

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

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

Department of Education Regulation

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

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

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

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

•Financial Responsibility - The Department calculates an institution’s composite score for financial responsibility based on its (i) equity ratio, which measures the institution’s capital resources, ability to borrow and financial viability; (ii) primary reserve ratio, which measures the institution’s ability to support current operations from expendable resources; and (iii) net income ratio, which measures the institution’s ability to operate at a profit. An institution that does not meet the Department’s minimum composite score of 1.5 may demonstrate its financial responsibility by posting a letter of credit in favor of the Department and possibly accepting other conditions on its participation in the Title IV programs. Following the Sale Transaction, the University is no longer owned by the Company, and therefore Global Campus will submit its stand-alone audited financial statements to the Department for the purpose of calculating the institution’s composite score.

Defense to Repayment

On October 28, 2016, the Department published borrower defense to repayment regulations to change processes that assist students in gaining relief under certain provisions of the Direct Loan Program regulations. These defense to repayment regulations allow a borrower to assert a defense to repayment on the basis of a substantial misrepresentation, any other misrepresentation in cases where certain other factors are present, a breach of contract or a favorable nondefault contested judgment against a school for its act or omission relating to the making of the borrower’s loan or the provision of educational services for which the loan was provided. In addition, the financial responsibility standards contained in the new regulations establish the conditions or events that trigger the requirement for an institution to provide the Department with financial protection in the form of a letter of credit or other security against potential institutional liabilities. Triggering conditions or events include, among others, certain state, federal or accrediting agency actions or investigations, and in the case of publicly traded companies, receipt of certain warnings from the SEC or the applicable stock exchange, or the failure to timely file a required annual or quarterly report with the SEC. The new regulations also prohibit schools from requiring that students agree to settle future disputes through arbitration.

On March 15, 2019, the Department issued guidance for the implementation of parts of the regulations. The guidance covers an institution’s responsibility in regard to reporting mandatory and discretionary triggers as part of the financial

responsibility standards, class action bans and pre-dispute arbitration agreements, submission of arbitral and judicial records, and repayment rates.

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

On June 8, 2020, President Trump vetoed House Joint Resolution 56, a Congressional Review Act resolution that would block the Trump administration’s rewrite of the Obama administration’s borrower defense to repayment rule. On June 26, 2020, the House of Representatives failed to override President Trump’s veto. The rewritten borrower defense to repayment rule went into effect on July 1, 2020 and will apply to any federal student loans made on that date or after.

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

In July 2020, the Department notified the Company that they would be initiating a preliminary review of borrower defense applications from borrowers who made claims regarding the University. As part of the initial fact-finding process, the Department will send individual student claims to the University and allow the institution the opportunity to submit a response to the borrower’s allegations. The Company received and timely responded to the submitted claims and cannot predict the outcome of the Department's review. The Company has responded to everything received and cannot predict the outcome of this review at this time.

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Commitments and Contingencies

6 Months Ended

Jun. 30, 2021

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. Other than the specific liabilities assumed by Global Campus, the Company and AU LLC will generally remain responsible for liabilities of the University relating to periods prior to the closing of the Sale Transaction. Below is a list of material legal proceedings to which the Company or its subsidiaries is a party.

California Attorney General Investigation of For-Profit Educational Institutions

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

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

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

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

The parties did not reach a resolution and on November 29, 2017, the CA Attorney General filed suit against Ashford and the Company. The Company intends to vigorously defend 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. A trial is scheduled for October 2021. We cannot predict the outcome at this time. 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 and is recorded on the accounts payable and accrued liabilities line item on the condensed consolidated balance sheets.

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

On July 21, 2014, the Company 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 Global Campus documents and information for the time period January 1, 2006 to present.

While the Company denies the allegations made by the MA Attorney General, the parties have reached a resolution. The resolution does not include an admission or finding of wrongdoing by the Company or any non-compliance with any state or federal law, rule or regulation. The Company will pay $0.3 million to the MA Attorney General and will also cease to collect previously written off balances owed to Ashford University by students who enrolled in Ashford and were Massachusetts residents between 2011 to 2014.

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Segment Reporting

6 Months Ended

Jun. 30, 2021

Segment Reporting [Abstract]

Segment Reporting Disclosure

Segment Information

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

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

The Company’s operating segments are determined based on (i) financial information reviewed by the chief operating decision maker, (ii) internal management and related reporting structure, and (iii) the basis upon which the chief operating decision maker makes resource allocation decisions. During the quarter ended March 31, 2021, in conjunction with the departure of the Company's chief executive officer, the chief operating decision maker transitioned to the Office of the CEO, which is comprised of three executives. The Fullstack and TutorMe operating segments are aggregated into a single reportable segment, the Zovio Growth Segment. The aggregation of the Fullstack and TutorMe operating segments is based on their uniform customer bases and methods of services provided, as well as evaluation of quantitative thresholds as required by ASC 280-10-50-12. Based on these same quantitative tests, the Zovio operating segment is a separate reportable segment, the University Partners Segment. This change in segment reporting did not have any impact on the determination of reporting units used to assess impairment under ASC 350, Intangibles - Goodwill and Other.

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

Segment Performance

The following table summarizes financial information regarding each reportable segment’s results of operations for the periods presented (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue by segment
University Partners	$	62,254	$	98,962	$	131,933	$	192,828
Zovio Growth	6,932		4,978		14,112		8,984
Total revenue and other revenue	$	69,186	$	103,940	$	146,045	$	201,812
Segment profitability
University Partners	$	(654)	$	8,655	$	(6,091)	$	5,073
Zovio Growth	(1,858)		(465)		(3,473)		(4,400)
Total segment profitability(1)	$	(2,512)	$	8,190	$	(9,564)	$	673

(1) Segment profitability represents EBITDA.

The following table reconciles total loss before income taxes to total segment profitability (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Income (loss) before income taxes	$	(4,257)	$	5,446	$	(13,667)	$	(5,311)
Adjustments:
Other expense, net	(232)		(161)		(159)		101
Depreciation and amortization expense	1,977		2,905		4,262		5,883
Total segment profitability	$	(2,512)	$	8,190	$	(9,564)	$	673

During both the six months ended June 30, 2021 and June 30, 2020, Global Campus accounted for the entire amount of the University Partners segment revenue, respectively.

During both the six months ended June 30, 2021 or 2020, there were no customers or individual university clients which accounted for 10% or more of the Zovio Growth segment revenue.

The Company’s total assets by segment are as follows (in thousands):

	As of June 30, 2021		As of December 31, 2020
University Partners	$	91,587	$	111,830
Zovio Growth	62,308		49,476
Total assets	$	153,895	$	161,306

The Company’s accounts receivable and deferred revenue in each segment are as follows (in thousands):

	As of June 30, 2021		As of December 31, 2020
University Partners accounts receivable	$	2	$	45
Zovio Growth accounts receivable	7,920		7,159
Total accounts receivable	$	7,922	$	7,204
University Partners deferred revenue	$	—	$	10
Zovio Growth deferred revenue	10,582		8,080
Total deferred revenue	$	10,582	$	8,090

As of each June 30, 2021 and December 31, 2020, there were no individual partners or customers which accounted for 10% or more of the University Partners segment net accounts receivable balance. Additionally, as of each June 30, 2021 and December 31, 2020, there were no individual partners or customers which accounted for 10% or more of the Zovio Growth segment net accounts receivable balance, as customers are individual students or third parties paying on their behalf, rather than university clients.

The Company’s goodwill amounts as of June 30, 2021 and December 31, 2020, respectively, are fully attributable to the Zovio Growth Segment. For additional information on goodwill, see Note 8, “Other Significant Balance Sheet Accounts - Goodwill and intangibles, net.”

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

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, 2020, which was filed with the Securities and Exchange Commission (“SEC”) on February 24, 2021. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.

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

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.

Revenue

Revenue and Other Revenue

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

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

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

TechnologyAndAcademicServices

Technology and Academic Services

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

CounselingServicesAndSupport

Counseling Services and Support

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

Marketing and Promotional Costs, Policy

Marketing and Communication

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

Selling, General and Administrative Expenses, Policy

General and Administrative

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

Comprehensive Income (Loss)

Comprehensive Income (Loss)

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

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12, Income Taxes (Topic 740) Simplifying the Accounting for Income Taxes (“ASU 2019-12”), which removes certain exceptions to the general principles in Topic 740. The amendments in this update also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. For public business entities, the amendments in this standard are effective

for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company applied the new standard, including all applicable updates, effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on the Company’s condensed consolidated financial statements.

UniversityRelatedExpenses

University-Related Expenses

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

Debt

Notes Payable

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

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

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Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2021

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Strategic services revenue	$	59,688	$	—	$	126,614	$	—
Transition services income	2,516		—		5,268		—
Tuition revenue, net	6,866		95,316		13,956		184,350
Digital materials revenue, net	—		5,634		—		11,606
Technology fee revenue, net	—		2,514		—		5,000
Other revenue, net (1)	116		476		207		856
Total revenue, net	$	69,186	$	103,940	$	146,045	$	201,812

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

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Over time, over period of instruction	$	69,135	$	84,083	$	145,903	$	162,213
Over time, full tuition grant (1)	—		14,642		—		28,843
Point in time (2)	51		5,215		142		10,756
Total revenue, net	$	69,186	$	103,940	$	146,045	$	201,812

(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):

	2021		2020
Deferred revenue opening balance, January 1	$	7,477	$	23,356
Deferred revenue closing balance, June 30	9,981		32,101
Increase (decrease)	$	2,504	$	8,745

Deferred Revenue and Student Deposits

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

	As of June 30, 2021		As of December 31, 2020
Deferred revenue	$	9,981	$	7,477
Student deposits	601		613
Total deferred revenue and student deposits	$	10,582	$	8,090

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Restructuring and Impairment Expense Restructuring and Impairment Expense (Tables)

6 Months Ended

Jun. 30, 2021

Restructuring and Related Activities [Abstract]

Restructuring and impairment charges

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

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Severance costs	$	2,341	$	250	$	2,341	$	2,972
Lease exit and other costs	—		233		—		274
Total restructuring and impairment expense	$	2,341	$	483	$	2,341	$	3,246

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 six months ended June 30, 2021 (in thousands):

	Student Transfer Costs		Severance Costs		Lease Exit and Other Costs		Total
Balance at December 31, 2020	$	1,282	$	742	$	1,974	$	3,998
Restructuring and impairment expense	—		2,341		—		2,341
Payments and adjustments	—		(1,369)		(1,008)		(2,377)
Balance at June 30, 2021	$	1,282	$	1,714	$	966	$	3,962

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2021

Fair Value Disclosures [Abstract]

Fair Value Information of Short and Long-term Investments

The following tables summarize the fair value information as of June 30, 2021 and December 31, 2020, respectively (in thousands):

	As of June 30, 2021
	Level 1		Level 2		Level 3		Total
Mutual funds	$	1,476	$	—	$	—	$	1,476

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

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Accounts Receivable, Net (Tables)

6 Months Ended

Jun. 30, 2021

Receivables [Abstract]

Schedule of Accounts Receivable, Net

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

	As of June 30, 2021		As of December 31, 2020
Accounts receivable	$	9,750	$	8,420
Less allowance for credit losses	1,828		1,216
Accounts receivable, net	$	7,922	$	7,204

Changes in Allowance for Doubtful Accounts, Accounts Receivable

The following table presents the changes in the allowance for credit losses for the six months ended June 30, 2021 (in thousands):

	Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance
Non-FTG related allowance	$	1,216	$	911	$	(299)	$	—	$	1,828
Total allowance for credit losses	$	1,216	$	911	$	(299)	$	—	$	1,828

The following table presents the changes in the allowance for credit losses for the six months ended June 30, 2020 (in thousands):

	Beginning Balance		Charged to Expense		Write-offs		Recoveries of amounts		Ending Balance
FTG-related allowance	$	1,749	$	1,193	$	(983)	$	234	$	2,193
Non-FTG related allowance	11,963		5,209		(10,833)		3,233		9,572
Total allowance for credit losses	$	13,712	$	6,402	$	(11,816)	$	3,467	$	11,765

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Other Significant Balance Sheet Accounts (Tables)

6 Months Ended

Jun. 30, 2021

Balance Sheet Related Disclosures [Abstract]

Prepaid Expenses and Other Current Assets

Prepaid Expenses and Other Current Assets

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

	As of June 30, 2021		As of December 31, 2020
Prepaid expenses	$	3,268	$	3,027
Prepaid licenses	3,036		1,371
Prepaid income taxes	33		48
Income tax receivable	—		1,644
Prepaid insurance	1,707		1,127
Insurance recoverable	360		404
Other current assets (1)	4,827		4,996
Total prepaid expenses and other current assets	$	13,231	$	12,617

(1) Other current assets includes payment of net asset adjustment due from Global Campus related to the Sale Transaction.

Property and Equipment, Net

Property and Equipment, Net

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

	As of June 30, 2021		As of December 31, 2020
Furniture and office equipment	$	23,511	$	36,146
Software	5,509		7,512
Leasehold improvements	16,772		16,325
Vehicles	22		22
Total property and equipment	45,814		60,005
Less accumulated depreciation and amortization	(17,199)		(29,430)
Total property and equipment, net	$	28,615	$	30,575

For the three months ended June 30, 2021 and 2020, depreciation and amortization expense related to property and equipment was $1.3 million and $1.6 million, respectively. For the six months ended June 30, 2021 and 2020, depreciation and amortization expense related to property and equipment was $2.6 million and $3.2 million, respectively.

Goodwill and Intangibles, Net

Goodwill and Intangibles, Net

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

	June 30, 2021
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	$	13,858	$	(12,764)	$	1,094
Purchased intangible assets	14,185		(8,022)		6,163
Total definite-lived intangible assets	$	28,043	$	(20,786)	$	7,257
Goodwill					23,176
Total goodwill and intangibles, net					$	30,433
	December 31, 2020
Definite-lived intangible assets:	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Capitalized curriculum costs	$	13,745	$	(12,644)	$	1,101
Purchased intangible assets	14,185		(6,677)		7,508
Total definite-lived intangible assets	$	27,930	$	(19,321)	$	8,609
Goodwill					23,176
Total goodwill and intangibles, net					$	31,785

For the three months ended June 30, 2021 and 2020, amortization expense was $0.7 million and $1.3 million, respectively. For the six months ended June 30, 2021 and 2020, amortization expense was $1.7 million and $2.7 million, respectively.

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 2021	$	1,319
2022	2,459
2023	2,303
2024	721
2025	117
Thereafter	338
Total future amortization expense	$	7,257

Accounts Payable and Accrued Liabilities

Accounts Payable and Accrued Liabilities

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

	As of June 30, 2021		As of December 31, 2020
Accounts payable	$	10,583	$	11,246
Accrued salaries and wages	7,098		6,149
Accrued bonus	1,661		11,428
Accrued vacation	3,600		3,369
Accrued litigation and fees	8,341		8,341
Minimum residual liability	608		1,216
Accrued expenses	13,395		12,473
Current leases payable	4,847		6,934
Accrued insurance liability	1,297		1,537
Accrued income taxes payable	9		—
Total accounts payable and accrued liabilities	$	51,439	$	62,693

Deferred Revenue and Student Deposits

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

	As of June 30, 2021		As of December 31, 2020
Deferred revenue	$	9,981	$	7,477
Student deposits	601		613
Total deferred revenue and student deposits	$	10,582	$	8,090

Other Long-Term Liabilities

Other Long-Term Liabilities

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

	As of June 30, 2021		As of December 31, 2020
Uncertain tax positions	$	28	$	28
Notes payable	2,847		2,981
Other long-term liabilities	5,368		4,172
Total other long-term liabilities	$	8,243	$	7,181

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Income Per Share (Tables)

6 Months Ended

Jun. 30, 2021

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator:
Net income (loss)	$	(4,033)	$	5,147	$	(13,526)	$	7,167
Denominator:
Weighted average number of common shares outstanding	33,343		32,137		33,058		31,238
Effect of dilutive options and stock units	—		364		—		257
Diluted weighted average number of common shares outstanding	33,343		32,501		33,058		31,495
Income (loss) per share:
Basic	$	(0.12)	$	0.16	$	(0.41)	$	0.23
Diluted	$	(0.12)	$	0.16	$	(0.41)	$	0.23

Antidilutive Securities

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

	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Stock options	1,308	1,675	1,445	1,720
Stock units	1,269	718	1,094	1,603

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Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2021

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment

The following table summarizes financial information regarding each reportable segment’s results of operations for the periods presented (in thousands):

	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Revenue by segment
University Partners	$	62,254	$	98,962	$	131,933	$	192,828
Zovio Growth	6,932		4,978		14,112		8,984
Total revenue and other revenue	$	69,186	$	103,940	$	146,045	$	201,812
Segment profitability
University Partners	$	(654)	$	8,655	$	(6,091)	$	5,073
Zovio Growth	(1,858)		(465)		(3,473)		(4,400)
Total segment profitability(1)	$	(2,512)	$	8,190	$	(9,564)	$	673

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Summary of Significant Accounting Policies (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2021
Accounting Policies [Abstract]
Interest Expense	$ 3,100	$ 3,100
Gain (Loss) on Extinguishment of Debt	$ 2,800	$ 2,800

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Revenue Recognition (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021 USD ($)	Jun. 30, 2020 USD ($)	Jun. 30, 2021 USD ($) reportableSegment	Jun. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)	Jan. 01, 2020 USD ($)	Jan. 01, 2019 USD ($)
Disaggregation of Revenue [Line Items]
Number of reportable segments | reportableSegment			2
Payment plan extension period			3 years
Revenue and other revenue	$ 69,186	$ 103,940	$ 146,045	$ 201,812
Contract with Customer, Liability, Current	9,981		9,981		$ 7,477
Contract with Customer, Refund Liability, Current	601		601		613
Deferred revenue and student deposits	10,582		10,582		$ 8,090
Deferred revenue, opening balance	9,981	32,101	9,981	32,101		$ 7,477	$ 23,356
Deferred revenue, ending balance	9,981	32,101	9,981	32,101		$ 7,477	$ 23,356
Deferred revenue, increase (decrease)			2,504	8,745
Deferred revenue, revenue recognized			6,100	22,600
Over time, over period of instruction
Disaggregation of Revenue [Line Items]
Revenue and other revenue	69,135	84,083	145,903	162,213
Over time, full tuition grant
Disaggregation of Revenue [Line Items]
Revenue and other revenue	0	14,642	0	28,843
Point in time
Disaggregation of Revenue [Line Items]
Revenue and other revenue	51	5,215	142	10,756
Tuition revenue, net
Disaggregation of Revenue [Line Items]
Revenue and other revenue	6,866	95,316	13,956	184,350
Digital materials revenue, net
Disaggregation of Revenue [Line Items]
Revenue and other revenue	0	5,634	0	11,606
Technology fee revenue, net
Disaggregation of Revenue [Line Items]
Revenue and other revenue	0	2,514	0	5,000
Other revenue, net
Disaggregation of Revenue [Line Items]
Revenue and other revenue	116	476	207	856
Strategic Services Agreement
Disaggregation of Revenue [Line Items]
Revenue and other revenue	59,688	0	126,614	0
Transition Service Agreement
Disaggregation of Revenue [Line Items]
Revenue and other revenue	$ 2,516	$ 0	$ 5,268	$ 0

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Restructuring and Impairment Expense (Details) - USD ($)	3 Months Ended			6 Months Ended
	Jun. 30, 2021	Sep. 30, 2020	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Restructuring Reserve [Roll Forward]
Restructuring reserve at beginning of period				$ 3,998,000
Restructuring and impairment expense	$ 2,341,000		$ 483,000	2,341,000	$ 3,246,000
Payments and adjustments				(2,377,000)
Restructuring reserve at end of period	3,962,000			3,962,000
Student Transfer Costs
Restructuring Reserve [Roll Forward]
Restructuring reserve at beginning of period				1,282,000
Restructuring and impairment expense		$ 1,500,000		0
Payments and adjustments				0
Restructuring reserve at end of period	1,282,000			1,282,000
Lease Exit and Other Costs
Restructuring Reserve [Roll Forward]
Restructuring reserve at beginning of period				1,974,000
Restructuring and impairment expense	0		233,000	0	274,000
Payments and adjustments				(1,008,000)
Restructuring reserve at end of period	966,000			966,000
Severance Costs
Restructuring Reserve [Roll Forward]
Restructuring reserve at beginning of period				742,000
Restructuring and impairment expense	2,341,000		$ 250,000	2,341,000	$ 2,972,000
Payments and adjustments				(1,369,000)
Restructuring reserve at end of period	$ 1,714,000			$ 1,714,000

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Fair Value Measurements (Details) - USD ($)	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
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
Mutual funds
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mutual funds	1,476,000		$ 1,515,000
Mutual funds | Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mutual funds	1,476,000		1,515,000
Mutual funds | Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mutual funds	0		0
Mutual funds | Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Mutual funds	$ 0		$ 0

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Accounts Receivable, Net (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Receivables [Abstract]
Accounts receivable	$ 9,750	$ 8,420
Less allowance for credit losses	1,828	1,216
Accounts receivable, net	$ 7,922	$ 7,204

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Accounts Receivable, Net (Change in Allowance) (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Balance	$ 1,216	$ 13,712
Charged to Expense	911	6,402
Write-offs	(299)	(11,816)
Recoveries of amounts	0	3,467
Ending Balance	1,828	11,765
FTG-related allowance
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Balance		1,749
Charged to Expense		1,193
Write-offs		(983)
Recoveries of amounts		234
Ending Balance		2,193
Non-FTG related allowance
Accounts, Notes, Loans and Financing Receivable [Line Items]
Beginning Balance	1,216	11,963
Charged to Expense	911	5,209
Write-offs	(299)	(10,833)
Recoveries of amounts	0	3,233
Ending Balance	$ 1,828	$ 9,572

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Other Significant Balance Sheet Accounts (Prepaid Expenses and Other Current Assets) (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Prepaid Expense and Other Assets, Current [Abstract]
Prepaid expenses	$ 3,268	$ 3,027
Prepaid licenses	3,036	1,371
Prepaid income taxes	33	48
Income tax receivable	0	1,644
Prepaid insurance	1,707	1,127
Insurance recoverable	360	404
Other current assets (1)	4,827	4,996
Total prepaid expenses and other current assets	$ 13,231	$ 12,617

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Other Significant Balance Sheet Accounts (Property and Equipment, Net) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 45,814		$ 45,814		$ 60,005
Accumulated Depreciation, Depletion and Amortization, Property, Plant, and Equipment	(17,199)		(17,199)		(29,430)
Property, Plant and Equipment, Net, Total	28,615		28,615		30,575
Depreciation	1,300	$ 1,600	2,600	$ 3,200
Furniture and office equipment
Property, Plant and Equipment [Line Items]
Property and equipment, gross	23,511		23,511		36,146
Software
Property, Plant and Equipment [Line Items]
Property and equipment, gross	5,509		5,509		7,512
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	16,772		16,772		16,325
Vehicles
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 22		$ 22		$ 22

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Other Significant Balance Sheet Accounts (Goodwill and Intangibles, Net) (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Goodwill and Intangibles, Net
Definite-lived intangible assets, gross carrying amount	$ 28,043		$ 28,043		$ 27,930
Definite-lived intangible assets, accumulated amortization	(20,786)		(20,786)		(19,321)
Total future amortization expense	7,257		7,257		8,609
Goodwill	23,176		23,176		23,176
Total goodwill and intangibles, net	30,433		30,433		31,785
Amortization of intangible Assets	700	$ 1,300	1,700	$ 2,700
Capitalized curriculum costs
Goodwill and Intangibles, Net
Definite-lived intangible assets, gross carrying amount	13,858		13,858		13,745
Definite-lived intangible assets, accumulated amortization	(12,764)		(12,764)		(12,644)
Total future amortization expense	1,094		1,094		1,101
Purchased intangible assets
Goodwill and Intangibles, Net
Definite-lived intangible assets, gross carrying amount	14,185		14,185		14,185
Definite-lived intangible assets, accumulated amortization	(8,022)		(8,022)		(6,677)
Total future amortization expense	$ 6,163		$ 6,163		$ 7,508

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Other Significant Balance Sheet Accounts (Remaining Amortization Expense) (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
Remainder of 2021	$ 1,319
2022	2,459
2023	2,303
2024	721
2025	117
Thereafter	338
Total future amortization expense	$ 7,257	$ 8,609

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Other Significant Balance Sheet Accounts (Accounts Payable and Accrued Liabilities) (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Balance Sheet Related Disclosures [Abstract]
Accounts payable	$ 10,583	$ 11,246
Accrued salaries and wages	7,098	6,149
Accrued bonus	1,661	11,428
Accrued vacation	3,600	3,369
Accrued litigation and fees	8,341	8,341
Minimum residual liability	608	1,216
Accrued expenses	13,395	12,473
Current leases payable	4,847	6,934
Accrued insurance liability	1,297	1,537
Accrued income taxes payable	9	0
Total accounts payable and accrued liabilities	$ 51,439	$ 62,693

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Other Significant Balance Sheet Accounts (Other Long-term Liabilities) (Details) - USD ($) $ in Thousands	Jun. 30, 2021	Dec. 31, 2020
Balance Sheet Related Disclosures [Abstract]
Uncertain tax positions	$ 28	$ 28
Notes payable	2,847	2,981
Other long-term liabilities	5,368	4,172
Total other long-term liabilities	$ 8,243	$ 7,181

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Credit Facilities (Details) $ in Millions	Jun. 30, 2021 USD ($)
Debt Disclosure [Abstract]
Revolving line of credit, letters of credit outstanding	$ 13.2
Surety bond facility, issued amount	$ 0.0

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Lease Obligations (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2021 USD ($) ft² sublease	Jun. 30, 2020 USD ($)	Dec. 31, 2020 USD ($)
Lessee, Lease, Description [Line Items]
Number of subleases | sublease	3
Net sublease value	$ 1,300	$ 1,000
Operating lease assets	31,388		$ 20,114
Fullstack Academy
Lessee, Lease, Description [Line Items]
Operating lease assets	$ 14,600
CALIFORNIA
Lessee, Lease, Description [Line Items]
Area of Real Estate Property | ft²	24,000
Commitment to lease	6 months
Net sublease value	$ 500
COLORADO
Lessee, Lease, Description [Line Items]
Area of Real Estate Property | ft²	37,000
Commitment to lease	2 months
Net sublease value	$ 200
COLORADO, Commencing on April 1, 2019 [Member]
Lessee, Lease, Description [Line Items]
Area of Real Estate Property | ft²	21,000
Commitment to lease	20 months
Net sublease value	$ 1,000

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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				6 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Jun. 30, 2020	Mar. 31, 2020	Jun. 30, 2021	Jun. 30, 2020
Numerator:
Net income (loss)	$ (4,033)	$ (9,493)	$ 5,147	$ 2,020	$ (13,526)	$ 7,167
Denominator:
Weighted average number of common shares outstanding (in shares)	33,343		32,137		33,058	31,238
Effect of dilutive options and stock units (in shares)	0		364		0	257
Diluted weighted average number of common shares outstanding (in shares)	33,343		32,501		33,058	31,495
Income (loss) per share:
Earnings Per Share, Basic (in dollars per share)	$ (0.12)		$ 0.16		$ (0.41)	$ 0.23
Earnings Per Share, Diluted (in dollars per share)	$ (0.12)		$ 0.16		$ (0.41)	$ 0.23

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Income Per Share (Anti-dilutive Securities) (Details) - shares shares in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Stock options
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of dilutive common shares outstanding	1,308	1,675	1,445	1,720
Stock units
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of dilutive common shares outstanding	1,269	718	1,094	1,603

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Stock-Based Compensation (Details) - USD ($) $ / shares in Units, $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 0.2	$ 0.8	$ 2.6	$ 4.9
Income tax benefit of stock-based compensation expense	0.1	$ 0.2	0.7	$ 1.2
Unrecognized compensation cost related to unvested options and RSUs	$ 6.5		$ 6.5
Restricted Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-option equity instruments granted during the period (in shares)			1,000,000.0	1,400,000
Grant date fair value (in dollars per share)			$ 3.39	$ 2.15
Equity instruments other than options vested during period (in units)			900,000	800,000
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Grant date fair value (in dollars per share)			$ 2.73	$ 2.18
Equity instruments other than options vested during period (in units)			0	0
Other than option equity instruments granted during the period (in shares)			800,000	1,100,000
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Options granted during the period (in shares)			0	0
Exercise of stock options (in shares)			0	0

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Income Taxes (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2021	Dec. 31, 2020
Income Tax Contingency [Line Items]
Effective tax rate	1.00%
Unrecognized tax benefits	$ 19	$ 19
Gross unrecognized tax benefits that would impact effective tax rate if recognized	$ 15	$ 15
Settlement with taxing authority
Income Tax Contingency [Line Items]
Effective tax rate	(1.00%)

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Regulatory US Department of Education (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2021	Sep. 30, 2020	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020
Regulatory Liabilities [Line Items]
Restructuring and impairment expense	$ 2,341		$ 483	$ 2,341	$ 3,246
Revenue, Regulatory Terms, Title 4 Eligibility, Maximum Allowable Percentage of Revenue Over Two Consecutive Fiscal Years From Title 4 Programs				90.00%
Revenue, Regulatory Terms, Title 4 Eligibility, Minimum Term of Ineligibility Once Noncompliant				2 years
Accreditation, Regulatory Terms, Maximum Cohort Default Rate over Prior Three Years				30.00%
Student Transfer Costs
Regulatory Liabilities [Line Items]
Restructuring and impairment expense		$ 1,500		$ 0
Minimum
Regulatory Liabilities [Line Items]
Eligibility for Title 4 Programs, Regulatory Compliance, Composite Score				1.5

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Commitments and Contingencies (Details) $ in Millions	Jun. 30, 2021 USD ($)
CALIFORNIA
Loss Contingencies [Line Items]
Estimated litigation liability	$ 8.0
MASSACHUSETTS
Loss Contingencies [Line Items]
Estimated litigation liability	$ 0.3

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Segment Reporting (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2021	Jun. 30, 2020	Jun. 30, 2021	Jun. 30, 2020	Dec. 31, 2020
Segment Reporting Information [Line Items]
Revenue and other revenue	$ 69,186	$ 103,940	$ 146,045	$ 201,812
ProfitLossFromSegmentOperations	(2,512)	8,190	(9,564)	673
Interest Revenue (Expense), Net	(232)	(161)	(159)	101
Depreciation and amortization	1,977	2,905	4,262	5,883
Income (Loss) from Continuing Operations before Income Taxes, Noncontrolling Interest	(4,257)	5,446	(13,667)	(5,311)
Carrying value of assets	153,895		153,895		$ 161,306
Accounts and Other Receivables, Net, Current	7,922		7,922		7,204
Deferred Revenue	10,582		10,582		8,090
University partnerships segment
Segment Reporting Information [Line Items]
Revenue and other revenue	62,254	98,962	131,933	192,828
ProfitLossFromSegmentOperations	(654)	8,655	(6,091)	5,073
Carrying value of assets	91,587		91,587		111,830
Accounts and Other Receivables, Net, Current	2		2		45
Deferred Revenue	0		0		10
Growth segment
Segment Reporting Information [Line Items]
Revenue and other revenue	6,932	4,978	14,112	8,984
ProfitLossFromSegmentOperations	(1,858)	$ (465)	(3,473)	$ (4,400)
Carrying value of assets	62,308		62,308		49,476
Accounts and Other Receivables, Net, Current	7,920		7,920		7,159
Deferred Revenue	$ 10,582		$ 10,582		$ 8,080

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Label	Element	Value
Retained Earnings [Member]
Cumulative effect of adoption new accounting principle	zvo_CumulativeEffectOfAdoptionNewAccountingPrinciple	$ 91,000