Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our annual consolidated financial statements and related notes thereto included in Part II, Item 8, “Financial Statements and Supplementary Data” and reflects the effects of the restatement discussed in Note 2 to the consolidated financial statements. In addition to historical information, this discussion includes forward-looking information that involves risks and uncertainties that could cause actual results to differ materially from management's expectations. See Part I, Item 1A, “Risk Factors” and “Special Note Regarding Forward-Looking Statements” at the beginning of this report.
Overview
We are a provider of postsecondary education services through our regionally accredited academic institution, Ashford University
®
. Ashford University offers associate’s, bachelor’s, master’s and doctoral programs. As of
December 31, 2018
, our institution offered approximately
1,250
courses and approximately
80
degree programs. For additional information regarding our business, see Part I, Item 1, “Business.”
Key operating data
In evaluating our operating performance, our management focuses in large part on our revenue and operating income and period-end enrollment at our academic institution. The following table, which should be read in conjunction with our annual consolidated financial statements included elsewhere in this report, presents our key operating data for each of the periods presented (in thousands, except for enrollment data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Consolidated Statement of Income (Loss) Data:
(1)
|
|
|
|
|
|
|
Revenue
|
$
|
443,373
|
|
|
$
|
475,113
|
|
|
$
|
523,518
|
|
|
Operating income (loss)
|
$
|
(3,993
|
)
|
|
$
|
6,426
|
|
|
$
|
(43,232
|
)
|
|
|
|
|
|
|
|
|
Consolidated Other Data:
|
|
|
|
|
|
|
Period-end enrollment
(2)
|
38,153
|
|
|
40,730
|
|
|
45,087
|
|
|
|
|
|
(1)
|
The Company has restated, for immaterial adjustments, its consolidated statements of income (loss) for the years ending December 31, 2017 and 2016.
|
|
|
|
|
(2)
|
We define period-end enrollment as the number of active students on the last day of the financial reporting period. A student is considered active if the student has attended a class within the prior 15 days or is on an institutionally-approved break not to exceed 45 days, unless the student has graduated or provided notice of withdrawal, or for new students who have completed their third week of attendance, and posted attendance in the fourth week.
|
Key enrollment trends
Enrollment at our academic institution decreased to
38,153
at
December 31, 2018
as compared to
40,730
at
December 31, 2017
, representing a decrease of
6.3%
. We believe the decline in enrollment over the past few years is partially attributable to a general strengthening of the economy, thereby driving lower unemployment and increased competition, as well as a general weakening in the overall education industry due in large part to increased regulatory scrutiny. The decline is also partially caused by the initiatives our institution has put in place to help ensure student preparedness, raise academic quality and improve student outcomes, as well as our voluntary decision to stop enrolling new students eligible to use GI Bill benefits in the period from mid-November 2017 through early February 2018.
We also believe new enrollment has been impacted by the deliberate changes in our marketing strategy in which we significantly reduced our spending in the affiliate channel and reinvested some of those savings in other, more cost effective, channels. We have been implementing this updated marketing strategy that reflects a shift in our advertising mix, in an effort to attract prospective students who have a higher probability of being academically successful, while concurrently making meaningful improvements to the efficiency of our advertising, admissions and marketing spend.
We continue to focus our efforts on first stabilizing and then restarting enrollment growth. We have since launched 14 of the 16 new programs that Ashford University had received approval for back in the fourth quarter of 2017. Expanding our course offerings with these new programs will be one factor that will contribute to our goal of stabilizing enrollment and then achieving new enrollment growth, and over time total enrollment growth.
One area in which we are experiencing positive enrollment trends is within the Education Partnerships programs with various employers. These programs include the Corporate Full Tuition Grant (“FTG”) program, which provides companies
with the opportunity to offer their employees a way to pursue and complete a college degree without incurring any student debt. Enrollments in the Education Partnerships programs account for approximately
21%
of our total enrollment as of
December 31, 2018
. Revenue derived from Education Partnerships is cash pay, and is therefore not considered federal student aid for purposes of calculations under the 90/10 rule.
Trends and uncertainties regarding revenue and continuing operations
Merger Agreement with Fullstack Academy, Inc.
On March 12, 2019, we entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) to acquire Fullstack Academy, Inc., a Delaware corporation (“Fullstack”). Fullstack is an award-winning, immersive coding bootcamp, which offers a premier program centered on a series of leading and emerging technologies. The total consideration for the transaction is anticipated to be
$17.5 million
in cash and up to
4.75 million
shares of Bridgepoint common stock, with
2.5 million
shares issued at closing, and the remainder to be issued in the future upon the satisfaction of certain performance milestones. The Merger Agreement contains customary representations, warranties and covenants of Fullstack and the Company, and the acquisition is subject to customary closing conditions. If the acquisition is consummated, Fullstack will be a wholly-owned subsidiary of the Company.
Proposed conversion transaction
As discussed above under "Item 1. Business - Proposed Changes in the Structure of our Operations" we plan to undertake the Proposed Transaction pursuant to which Ashford University will separate from the Company through a series of conversion and merger transactions ultimately resulting in Ashford University being owned and operated by AU NFP, a California nonprofit public benefit corporation that was formed for the purpose of the conversion transaction and is independent of the Company. Following the Proposed Transaction, we plan to operate as an education technology services provider that would provide certain services to AU NFP, and potentially, in the future, to other customers. The services to AU NFP would be provided pursuant to services agreements with the Company.
We are continuing to finalize the terms of the Proposed Transaction with Ashford University and review various federal, state and other regulatory requirements and approvals that could impact the viability and timing of the Proposed Transaction. The Company and the boards of trustees of Ashford University and AU NFP are taking steps to protect Ashford University's and AU NFP’s independence in considering the conversion transaction in order to enable Ashford University and AU NFP to act in the best interests of Ashford University and its students. Neither we nor Ashford University are bound to move forward with the Proposed Transaction at this time.
Restructuring and impairment charges
We have implemented various restructuring plans to better align our resources with our business strategy and the related charges are recorded in the restructuring and impairment expense line item on our consolidated statements of income. Changes to these estimates could have a material impact on our consolidated financial statements. For information regarding the restructuring and impairment charges recorded, refer to Note
4
, “Restructuring and Impairment Charges” to our consolidated financial statements included elsewhere in this report.
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, 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
December 31, 2018
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
December 31, 2018
.
Key Financial Metrics
Revenue
Revenue consists principally of tuition, technology fees, course digital materials and other miscellaneous fees and is shown net of scholarships and refunds. Factors affecting our revenue include (i) the number of students who enroll and remain enrolled in our courses, (ii) our degree and program mix, (iii) changes in our tuition rates and (iv) the amount of scholarships we offer.
Enrollments
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. Our online courses are typically five or six weeks in length and have weekly start dates throughout the year, apart from a two-week break during the holiday period in late December and early January.
Costs and expenses
The following is a description of the costs included in each of our current expense categories:
Instructional costs and services consist primarily of costs related to the administration and delivery of our institution's educational programs. This expense category includes compensation for online faculty and administrative personnel, curriculum and new program development costs, financial aid processing costs, technology license costs, bad debt expense and costs associated with other support groups that provide services directly to the students. Instructional costs and services also include an allocation of information technology, facility, depreciation and amortization costs.
Admissions advisory and marketing costs include compensation of personnel engaged in marketing and recruitment, as well as costs associated with advertising media, purchasing leads and producing marketing materials. Our admissions advisory and marketing expenses are generally affected by the cost of advertising media and leads, the efficiency of our marketing and recruiting efforts, salaries and benefits for our enrollment personnel, and expenditures on advertising initiatives for new and existing academic programs. Advertising costs, which consist primarily of the cost of marketing leads, are expensed as incurred or the first time the advertising takes place, depending on the type of advertising activity. Admissions advisory and marketing costs also include an allocation of information technology, facility, depreciation and amortization costs.
General and administrative expenses include compensation of employees engaged in corporate management, finance, human resources, legal and compliance and other corporate functions. General and administrative expenses also include professional services fees, travel and entertainment expenses, and an allocation of information technology, facility, depreciation and amortization costs.
Legal settlement expense has primarily been comprised of (i) the cost to settle a wage and hour dispute, (ii) charges related to the cost of resolution of the previously disclosed civil investigative demands and (iii) the estimate of amounts to resolve the previously disclosed investigative subpoenas from the Attorney General of the State of California.
Restructuring and impairment charges are primarily comprised of (i) charges related to the write-off of certain fixed assets, (ii) student transfer costs relating to the closure of our Iowa residential campus, (iii) severance costs related to headcount reductions and (iv) estimated lease losses related to facilities vacated or consolidated.
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:
Seasonality
Our operations are generally subject to seasonal trends. We generally experience a seasonal increase in new enrollments during the first quarter of each year, subsequent to holiday break, as well as during the third quarter each year, when most other colleges and universities begin their fall semesters. While we enroll students throughout the year, our fourth quarter revenue generally is lower than other quarters due to the holiday break in December, with an increase in the first quarter of each year
Adoption of new accounting standards
As discussed in Part II, Item 8. Financial Statements, Note 2 “Recent Accounting Pronouncements,” we changed our method of accounting for revenue from contracts with customers in fiscal year 2018 due to the adoption of the new revenue standard. We adopted the new revenue standard using a modified retrospective approach.
Critical Accounting Policies and Use of Estimates
Critical accounting policies are those policies that, in management's view, are most important in the portrayal of our financial condition and results of operations. The footnotes to our annual consolidated financial statements included elsewhere in this report include disclosure of significant accounting policies. The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our financial statements. These critical accounting policies require us to make difficult and subjective judgments, often as a result of the need to make estimates regarding matters that are inherently uncertain.
The discussion of our financial condition and results of operations is based upon our annual consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, costs and expenses. We evaluate our estimates and assumptions on an ongoing basis. These estimates are based on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making assumptions about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements.
Revenue recognition
Revenues are recognized when control of the promised goods or services are transferred to the institutions’ students, in an amount that reflects the consideration we expect 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. We perform 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.
Our contracts with customers generally include multiple performance obligations, which we identify by assessing whether each good and service promised in the contract is distinct. For each performance obligation, we allocate the transaction price, including fixed and variable consideration, on the basis of the relative standalone selling prices of each good and service in the contract, which is determined using observable prices.
We generate the majority of our revenue from tuition, technology fees, and digital materials related to students whose primary funding source is governmental funding. Tuition represents amounts charged for course instruction, and technology fees represent amounts charged for the students’ use of the technology platform on which course instruction is delivered. Digital materials fees represent amounts charged for the digital textbooks that accompany the majority of courses taught at our institution. With the exception of students attending courses within the three-week conditional admission period at Ashford University, the majority of tuition and technology fees are recognized as revenue as control of the services is transferred to the student, which occurs over the applicable period of instruction. Similarly, the majority of digital materials fees are recognized as revenue when control of the product has been transferred to the student, which occurs when the student is granted unrestricted access to the digital textbook, generally, on the first day of the course. Revenue generated from students within the conditional admission period is deferred and recognized when the student matriculates into the institution, which occurs in the fourth week of the course.
Our institutions' online students generally enroll in a program that encompasses a series of five to six-week courses that are taken consecutively over the length of the program. With the exception of those students under conditional admission and students enrolled under the FTG program, online students are billed on a payment period basis on the first day of a course. Students under conditional admission are billed for the payment period upon matriculation.
If a student's attendance in a class precedes the receipt of cash from the student's source of funding, we establish an account receivable and corresponding deferred revenue in the amount of the tuition due for that payment period. Cash received either directly from the student or from the student's source of funding reduces the balance of accounts receivable due from the student. Financial aid from sources such as the federal government's Title IV programs pertains to the online student's award year and is generally divided into two disbursement periods. As such, each disbursement period may contain funding for up to four courses. Financial aid disbursements are typically received during the online student's attendance in the first or second course. Since the majority of disbursements cover more courses than for which a student is currently enrolled, the amount received in excess effectively represents a prepayment from the online student for up to four courses. At the end of each accounting period, the deferred revenue and related account receivable balances are reduced to present amounts attributable to the current course.
In certain cases, our institution provides scholarships to students who qualify under various programs. These scholarships are recognized as direct reductions of revenue consistent with the timing of recognition associated with the related performance
obligations. Also, for some customers, we do not expect to collect 100% of the consideration to which we are contractually entitled and, as a result, those customers may receive discounts or price adjustments that, based on historical practice, represent implied price concessions and are accounted for as variable consideration. The majority of these price concessions relate to amounts charged to students for goods and services, which management has determined will not be covered by the student’s primary funding source (generally, government aid) and, as a result, the student will become directly financially responsible for them. The reduction in the transaction price that results from this estimate of variable consideration reflects the amount we do not expect to be entitled to in exchange for the goods and services it will transfer to the students, as determined using historical experience and current factors, and includes performing a constraint analysis. These estimates of variable consideration are recorded as direct reductions of revenue consistent with the timing of recognition associated with the related performance obligation.
A portion of tuition revenue, technology fee revenue, and digital materials revenue is generated from contracts with students enrolled under the corporate FTG program, which is a 12-month grant that, when combined with a corporate partner’s annual tuition assistance program, enables eligible students to earn their degree without incurring student loan debt. Students enrolled under this program are eligible to take up to ten undergraduate or eight graduate courses per 12-month grant period and must first utilize 100% of the funds awarded under their employer’s annual tuition assistance program before they can be awarded the FTG grant. The grants awarded by Ashford University under the FTG program are considered a material right, and, as such, we record a contract liability for a portion of the consideration received or due under these contracts. The contract liability is recorded in deferred revenue and student deposits on our consolidated balance sheets, and further discussed in the paragraph on deferred revenue below. The standalone selling price of the material right is determined based on the observable standalone selling price of the courses. The transaction price in each FTG contract is allocated to this material right on a relative standalone selling price basis. The contract liability is recognized as revenue at the earlier of satisfaction of the future obligation or contract termination. There are no material differences between the timing of the products and services transferred and the payment terms.
Deferred revenue consists of cash payments that are received or due in advance of performance as well as deferrals associated with certain contracts that include a material right. For the majority of our customers, payment for products and services is due at the beginning of each course. Billing of products and services transferred under an FTG student contract generally occurs after the conclusion of a course. Under special circumstances, some customers may be offered non-interest bearing payment plan arrangements that can extend for up to a maximum of three years. These payment plan arrangements give rise to significant financing components. However, since we historically collect substantially all 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.
Allowance for doubtful accounts
Accounts receivable consists of student accounts receivable, which represent amounts due for tuition, course digital materials, technology fees and other fees from currently enrolled and former students. Students generally fund their education through grants and/or loans under various Title IV programs, tuition assistance from military or corporate employers, or personal funds. Except for those students under conditional admission, payments are due on the respective course start date and will be considered past due depending on the student's payment terms. In general, an account is considered delinquent 120 days after the course start date.
Accounts receivable are stated at the amount management expects to collect from outstanding balances. For accounts receivable, an allowance for doubtful accounts is estimated by management and is principally based on historical collection experience as well as (i) an assessment of individual accounts receivable over a specific aging and amount, (ii) consideration of the nature of the receivable accounts and (iii) potential changes in the business or economic environment. The provision for bad debt is recorded within instructional costs and services in our consolidated statements of income (loss). We charge off uncollectable accounts receivable when the student account is deemed uncollectable by internal collection efforts or by a third-party collection agency.
Impairment of intangible assets
We test indefinite-lived intangible assets for impairment annually in the fourth quarter of each fiscal year, or more frequently if events and circumstances warrant. To evaluate the impairment of the indefinite-lived intangible assets, we assess the fair value of the assets to determine whether they are in excess of the carrying values. Determining the fair value of indefinite-lived intangible assets is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are inherently uncertain, and can include such items as growth rates used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and a determination of appropriate market comparables. Our assessment of indefinite-lived intangible assets during the fourth quarter of fiscal
2018
resulted in certain impairment of goodwill and intangibles.
We also have definite-lived intangible assets, which primarily consist of purchased intangibles and capitalized curriculum development costs. The definite-lived intangible assets are recognized at cost less accumulated amortization. Amortization is computed using the straight-line method based on estimated useful lives of the related assets unless there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We estimate that the useful life of the capitalized curriculum development costs is three years and the useful life of the purchased intangibles is the life of the related contract.
Impairment of long-lived assets
We assess potential impairment to our long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Factors we consider important that could cause us to assess potential impairment include significant changes in the manner of our use of the acquired assets or the strategy for our overall business and significant negative industry or economic trends. An impairment loss is recorded when the carrying amount of the long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds its fair value, and is recorded as a reduction in the carrying value of the related asset and an expense to operating results.
We use various assumptions in determining undiscounted cash flows expected to result from the use and eventual disposition of an asset, which could include assumptions regarding revenue growth rates, operating costs, certain capital additions, assumed discount rates, disposition or terminal value and other economic factors. These variables require management to make judgments and include inherent uncertainties such as continuing acceptance of our institution's education offerings by prospective students, our ability to manage operating costs and the impact of changes in the economy on our business. Variations in the assumptions used could lead to a different conclusion regarding the realizability of an asset and, thus, could have a significant effect on our conclusions regarding whether an asset is impaired and the amount of impairment loss recorded in the consolidated financial statements.
Income taxes
We utilize the asset-liability method of accounting for income taxes. Significant judgments are required in determining the consolidated provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax settlement is uncertain. As a result, we recognize tax liabilities based on estimates of whether additional taxes and interest will be due. These tax liabilities are recognized when, despite our belief that our tax return positions are supportable, we believe that it is more-likely-than-not that those positions may not be fully sustained upon review by tax authorities. We believe that our accruals for tax liabilities are adequate for all open audit years based on our assessment of many factors, including past experience and interpretations of tax law. This assessment relies on estimates and assumptions and may involve a series of complex judgments about future events. To the extent that the final tax outcome of these matters differs from our expectations, such differences will impact income tax expense in the period in which such determination is made.
We evaluate and account for uncertain tax positions using a two-step approach. Recognition (step one) occurs when we conclude that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when we subsequently determine that a tax position no longer meets the more-likely-than- not threshold of being sustained.
We are required to file income tax returns in the United States that includes various state and local tax jurisdictions. The preparation of these income tax returns requires us to interpret the applicable tax laws and regulations in effect in such jurisdictions, which could affect the amount of tax paid by us. The income tax returns are subject to audits by the applicable
federal and state taxing authorities. As part of these audits, the taxing authorities may disagree with our tax positions. The ultimate resolution of these tax positions is often uncertain until the audit is complete and any disagreements are resolved. We therefore record an amount for our estimate of the additional tax liability, including interest and penalties, for any uncertain tax positions taken or expected to be taken in an income tax return. We review and update the accrual for uncertain tax positions as more definitive information becomes available from taxing authorities, and upon completion of tax audits and expiration of statutes of limitations. We record interest and penalties related to income tax matters in income tax expense.
In addition to estimates inherent in the recognition of current taxes payable, we estimate the likelihood that we will be able to recover our deferred tax assets each reporting period. Realization of our deferred tax assets is dependent upon future taxable income. To the extent we believe it is more-likely-than-not that all or some portion of our net deferred tax assets will not be realized, we establish a valuation allowance against deferred tax assets. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, we consider all available evidence, including past operating results, estimates of future taxable income and the feasibility of ongoing tax planning strategies.
Stock-based compensation
We have granted options to purchase our common stock, restricted stock units (“RSUs”) and performance stock units (“PSUs”) to eligible persons under our 2009 Stock Incentive Plan. The benefits provided by these grants are share-based payments and are recorded in our consolidated statement of income (loss) based upon their fair values.
Stock-based compensation cost is measured using the grant date fair value of the award and is expensed over the vesting period. The fair value of RSUs is the stock price on the date of grant multiplied by the number of units awarded. The fair value of PSUs was estimated based on our stock price as of the date of grant using a Monte Carlo simulation model. We estimate the fair value of stock options on the grant date using the Black-Scholes option pricing model. Determining the fair value of stock options and PSUs at the grant date under these models requires judgment, including estimating our volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock options and PSUs represent our best estimates, but these estimates involve inherent uncertainties and the application of management judgment.
Stock options awarded under our 2009 Stock Incentive Plan have an exercise price that equals or exceeds the closing price of our common stock on the date of grant. The risk-free interest rate is based on the U.S. Treasury yield of those maturities that are consistent with the expected term of the stock option or PSUs in effect on the date of grant. Dividend rates are based upon historical dividend trends and expected future dividends. As we have never declared or paid any cash dividends and do not presently plan to pay cash dividends in the foreseeable future, a zero-dividend rate is assumed in our calculation. We have sufficient historical stock option exercise information to compute an expected term for use as an assumption in the Black-Scholes option pricing and Monte Carlo simulation models, and as such, our computation of expected term was calculated using our own historical data. We also have sufficient historical data on the volatility of our stock to use as a direct assumption in the option pricing models.
The amount of stock-based compensation expense we recognize during a period is based on the portion of the awards that are ultimately expected to vest. We estimate stock option forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The effect of a 10% change in estimates to any of the individual inputs to the Black-Scholes option pricing model or the Monte Carlo simulation model would not have a material impact on our consolidated financial statements.
Results of Operations
The following table sets forth our consolidated statements of income (loss) data as a percentage of revenue for each of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Revenue
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
Costs and expenses:
|
|
|
|
|
|
|
Instructional costs and services
|
49.1
|
%
|
|
49.5
|
%
|
|
50.3
|
%
|
|
Admissions advisory and marketing
|
38.1
|
%
|
|
36.9
|
%
|
|
38.6
|
%
|
|
General and administrative
|
11.9
|
%
|
|
10.0
|
%
|
|
9.3
|
%
|
|
Legal settlement expense
|
0.0
|
%
|
|
0.4
|
%
|
|
6.3
|
%
|
|
Restructuring and impairment charges
|
1.8
|
%
|
|
1.8
|
%
|
|
3.7
|
%
|
|
Total costs and expenses
|
100.9
|
%
|
|
98.6
|
%
|
|
108.2
|
%
|
|
Operating income (loss)
|
(0.9
|
)%
|
|
1.4
|
%
|
|
(8.2
|
)%
|
|
Other income, net
|
0.2
|
%
|
|
0.3
|
%
|
|
0.4
|
%
|
|
Income (loss) before income taxes
|
(0.7
|
)%
|
|
1.7
|
%
|
|
(7.8
|
)%
|
|
Income tax expense (benefit)
|
(1.7
|
)%
|
|
(0.2
|
)%
|
|
(1.5
|
)%
|
|
Net income (loss)
|
1.0
|
%
|
|
1.9
|
%
|
|
(6.3
|
)%
|
Year Ended
December 31, 2018
Compared to Year Ended
December 31, 2017
Revenue.
Our revenue for the year ended
December 31, 2018
and
2017
, was
$443.4 million
and
$475.1 million
, respectively, representing
a
decrease
of
$31.7 million
, or
6.7%
. The
decrease
between periods was primarily due to
a
decrease
of
8.5%
in average weekly enrollment from
43,872
students for the year ended
December 31, 2017
to
40,133
students for the year ended
December 31, 2018
. As a result of the
decrease
in enrollments, tuition revenue for the year ended
December 31, 2018
decreased
by approximately
$25.1 million
or
4.6%
, as compared to the year ended
December 31, 2017
. The
decrease
in revenue between periods was also due to higher scholarships for the period,
an
increase
of
$14.8 million
, year over year. In addition, the implementation of the new revenue recognition standards in 2018, accounted for approximately
$6.6 million
of the
decrease
in revenue for the year. The overall decrease was partially offset by the approximate
5.0%
tuition increase on February 6, 2018, as well as an
increase
in net revenue generated from course digital materials of approximately
$6.9 million
.
Instructional costs and services.
Our instructional costs and services for the year ended
December 31, 2018
and
2017
, were
$217.7 million
and
$235.4 million
, respectively, representing
a
decrease
of
$17.7 million
, or
7.5%
. In addition to the decline in enrollment, headcount within instructional costs and services decreased year over year, and the overall decrease in expense is consistent with the continued efforts to improve operating expense management. Specific
decrease
s between periods primarily include
bad debt expense
of
$7.5 million
,
direct compensation
of
$3.6 million
,
license fees
of
$2.3 million
,
instructor fees
of
$1.9 million
,
corporate support services
of
$1.3 million
and
amortization of intangible assets
of
$0.8 million
. The change in bad debt which included the impact from implementing the new revenue recognition standards in 2018, was approximately
$6.5 million
for the year ended
December 31, 2018
.
Our instructional costs and services, as a percentage of revenue, for the year ended
December 31, 2018
and
2017
, were
49.1%
and
49.5%
, respectively, representing
a
decrease
of
0.4%
. This
decrease
primarily included
decrease
s in
bad debt expense
of
1.2%
and
license fees
of
0.4%
, partially offset by
increase
s in
corporate support services
of
0.2%
,
direct compensation
of
0.4%
and
instructional supplies
of
0.2%
. As a percentage of revenue, bad debt expense
decreased
to
5.2%
for the year ended
December 31, 2018
, compared to
6.4%
for the year ended
December 31, 2017
. We continue to implement changes in our processes which we believe will help us to continue reducing this expense as a percentage of revenue.
Admissions advisory and marketing.
Our admissions advisory and marketing expenses for the year ended
December 31, 2018
and
2017
, were
$168.8 million
and
$175.4 million
, respectively, representing
a
decrease
of
$6.6 million
, or
3.8%
. Specific factors contributing to the overall
decrease
between periods were primarily due to
decrease
s in
compensation
of
$7.5 million
due to a reduction in headcount,
facilities costs
of
$1.2 million
,
advertising costs
of
$0.9 million
, and
information technology costs
of
$0.4 million
. The overall
decrease
was partially offset by
increase
s in
professional fees
of
$1.7 million
,
transaction costs
of
$1.0 million
(relating to the conversion and separation of Ashford University), and
license fees
of
$0.7 million
.
Our admissions advisory and marketing expenses, as a percentage of revenue, for the year ended
December 31, 2018
and
2017
, were
38.1%
and
36.9%
, respectively, representing
an
increase
of
1.2%
. This
increase
primarily included
increase
s in
advertising costs
of
0.9%
,
professional fees
of
0.4%
, and
license fees
of
0.2%
, partially offset by a
decrease
in
compensation
of
0.5%
.
General and administrative.
Our general and administrative expenses for the year ended
December 31, 2018
and
2017
, were
$53.0 million
and
$47.4 million
, respectively, representing
an
increase
of
$5.6 million
, or
11.8%
. The
increase
between periods was primarily due to
transaction costs
of
$6.9 million
(relating to the conversion and separation of Ashford University),
corporate support services
of
$2.1 million
, and
other administrative costs
of
$0.5 million
. These
increase
s were partially offset by
decrease
s in
administrative compensation
of
$2.1 million
and
professional fees
of
$1.9 million
.
Our general and administrative expenses, as a percentage of revenue, for the year ended
December 31, 2018
and
2017
, were
11.9%
and
10.0%
, respectively, representing
an
increase
of
1.9%
. This
increase
is mainly due to
transaction costs
of
1.6%
(relating to the conversion and separation of Ashford University) and
other administrative costs
of
0.3%
, partially offset by a
decrease
in
professional fees
of
0.2%
.
Legal settlement expense.
For the year ended
December 31, 2018
, we recorded a legal settlement expense of
$0.1 million
as compared to
$1.8 million
for the year ended December 31,
2017
, that was related to costs to settle a wage and hour dispute.
Restructuring and impairment charges.
Our restructuring and impairment charges for the year ended
December 31, 2018
were
$7.8 million
, as compared to
$8.7 million
for the year ended
December 31, 2017
, representing a decrease of
$0.9 million
. The charges for the year ended
December 31, 2018
were comprised of
$2.9 million
of lease exit costs for properties in San Diego,
$1.9 million
relating to severance costs for wages and benefits resulting from a reduction in force and
$1.7 million
for asset impairments, and net student agreement costs of
$1.2 million
.
Other income, net.
Our other income, net, for the year ended
December 31, 2018
was
$1.0 million
,
a
decrease
of
$0.5 million
as compared to other income, net, of
$1.5 million
for the year ended
December 31, 2017
. The decrease between periods was primarily a result of
decrease
d interest income due to changes in the levels of average cash and cash equivalents and investment balances.
Income tax benefit.
Income tax benefit for the year ended
December 31, 2018
was
$7.6 million
as compared to income tax benefit of
$1.2 million
for the year ended December 31,
2017
, or
an
increase
of
$6.4 million
in income tax benefit. Income tax benefit was recognized at effective tax rates of
257.4%
and
(14.8)%
for the years ended December 31,
2018
and
2017
, respectively. The change in the income tax benefit is mainly attributable to a tax benefit of $5.7 million associated with a reduction in uncertain tax position mainly associated with the California audit examination settlement for the tax years ended December 31, 2008 through 2012, and $1.8 million income tax benefit including interest associated with refund claims for qualified production activities tax deductions for the tax years ended December 31, 2013 and 2014.
Net income.
Our net income for the year ended
December 31, 2018
was
$4.6 million
compared to net income of
$9.1 million
for the year ended
December 31, 2017
, a
$4.5 million
decrease
in net income as a result of the factors discussed above.
Year Ended
December 31, 2017
Compared to Year Ended
December 31, 2016
Revenue.
Our revenue for the year ended
December 31, 2017
was
$475.1 million
,
a
decrease
of
$48.4 million
, or
9.2%
, as compared to
$523.5 million
for the year ended
December 31, 2016
. The
decrease
between periods was primarily due to the 9.8%
decrease
in average weekly student enrollment at our academic institution from 48,647 students during the year ended
December 31, 2016
to 43,872 students for the year ended
December 31, 2017
. Tuition revenue for the year ended
December 31, 2017
was $544.1 million, a decrease of $46.4 million, or 7.9%, as compared to $590.5 million for the year ended
December 31, 2016
. The decrease between periods was primarily due to the decrease in average weekly enrollment, partially offset by the approximate 2.0% tuition increase on April 1, 2017. Additionally, revenue generated from course digital materials and related fees for the year ended
December 31, 2017
was $17.7 million, a decrease of $1.8 million, or 9.2%, as compared to $19.5 million for the year ended
December 31, 2016
. The decrease in revenue between periods was also partially due to an increase in institutional scholarships. Institutional scholarships for the year ended
December 31, 2017
was $103.6 million, an increase of $3.6 million, or 3.6%, as compared to $99.9 million for the year ended
December 31, 2016
.
Instructional costs and services.
Our instructional costs and services for the year ended
December 31, 2017
were
$235.4 million
,
a
decrease
of
$27.9 million
, or
10.6%
, as compared to instructional costs and services of
$263.3 million
for the year ended
December 31, 2016
. The decrease between periods was reflective of the decrease in student enrollment at our academic institutions as discussed above. Specific decreases between periods include decreases in direct compensation (a reduction in cost driven by financial aid processing activities being brought in-house) of $9.3 million, corporate support services of $5.6 million, instructor fees of $4.5 million, facilities costs of $4.2 million, license fees of $2.5 million, bad debt expense of $1.7
million, and amortization of intangible assets of $1.3 million. These decreases were partially offset by an increase in information technology costs of $1.2 million.
Our instructional costs and services decreased as a percentage of revenue to
49.5%
for the year ended
December 31, 2017
, as compared to
50.3%
for the year ended
December 31, 2016
. The decrease of 0.8% as a percentage of revenue primarily resulted from decreases in facilities costs of 0.6%, corporate support services of 0.4%, license fees of 0.3%, instructor fees of 0.3% and amortization of intangible assets of 0.2%, partially offset by increases in information technology costs of 0.6% and bad debt expense of 0.3%. As a percentage of revenue, bad debt expense increased to 6.4% for the year ended
December 31, 2017
, compared to 6.1% for the year ended
December 31, 2016
. We continue to implement changes in our processes which we believe will help us reach our goal of reducing this expense as a percentage of revenue over time.
Admissions advisory and marketing.
Our admissions advisory and marketing expenses for the year ended
December 31, 2017
were
$175.4 million
, a decrease of
$26.8 million
, or
13.3%
, as compared to admissions advisory and marketing expenses of $
202.2 million
for the year ended
December 31, 2016
. As a result of our change in marketing strategy and the shift in advertising mix, specific factors contributing to the overall decrease between periods were primarily due to a decrease in compensation expense of $18.4 million, net facilities costs of $7.0 million, advertising costs of $6.0 million, and information technology costs of $2.9 million, partially offset by increases in corporate support services of $5.9 million, and consulting and professional fees of $0.8 million.
Our admissions advisory and marketing expenses decreased as a percentage of revenue to
36.9%
for the year ended
December 31, 2017
from
38.6%
for the year ended
December 31, 2016
. The decrease of
1.7%
as a percentage of revenue was primarily due to decreases in compensation expense of 2.0%, facilities costs of 1.1% and information technology costs of 0.4%, partially offset by increases as a percentage of revenue in corporate support services of 1.0%, and advertising costs of 0.3%.
General and administrative.
Our general and administrative expenses for the year ended
December 31, 2017
were
$47.4 million
, a decrease of
$1.5 million
, or
3.0%
, as compared to general and administrative expenses of
$48.8 million
for the year ended
December 31, 2016
. The
decrease
between periods was primarily due to decreases in other administrative costs of $2.2 million, administrative compensation of $2.0 million, and facilities costs of $1.6 million, partially offset by increases in professional fees of $4.3 million.
Our general and administrative expenses increased as a percentage of revenue to
10.0%
for the year ended
December 31, 2017
from
9.3%
for the year ended
December 31, 2016
. The increase of
0.7%
as a percentage of revenue included increases in professional fees of 1.1%, and administrative compensation of 0.3%, partially offset by a decrease in corporate support services of 0.6% and net facilities costs of 0.3%.
Legal settlement expense.
For the year ended
December 31, 2017
, we recorded a legal settlement expense of $1.8 million related to the costs to settle a wage and hour dispute. For the year ended
December 31, 2016
. we recorded a legal settlement expense of $33.1 million, which includes the cost of resolution of the previously disclosed civil investigative demands from the CFPB, as well as an estimate of amounts to resolve the previously disclosed investigative subpoenas from the Attorney General of the State of California.
Restructuring and impairment charges.
Our restructuring and impairment charges for the year ended
December 31, 2017
were
$8.7 million
, comprised of
$5.8 million
of lease exit costs for properties in San Diego,
$2.2 million
relating to severance costs for wages and benefits resulting from a reduction in force and
$0.8 million
for asset impairments. The costs were partially offset by a decrease in student transfer costs
$0.1 million
. Our restructuring and impairment charges for the year ended
December 31, 2016
were
$19.3 million
, comprised of
$14.5 million
of lease exit costs for properties in San Diego,
$2.7 million
relating to severance costs for wages and benefits resulting from a reduction in force to help better align personnel resources with the decline in student enrollment and
$2.2 million
for asset impairments, partially offset by a decrease in student transfer costs of
$0.1 million
.
Other income, net.
Our other income, net, for the year ended
December 31, 2017
was
$1.5 million
,
a
decrease
of
$0.8 million
as compared to other income, net, of
$2.3 million
for the year ended
December 31, 2016
. The decrease between periods was primarily a result of
decrease
d interest income due to changes in the levels of average cash and cash equivalents and investment balances.
Income tax benefit.
Income tax benefit for the year ended
December 31, 2017
was
$1.2 million
as compared to income tax benefit of
$7.9 million
for the year ended
December 31, 2016
, or a
decrease
of
$6.7 million
in income tax benefit. Income tax benefit was recognized at effective tax rates of
(14.8)%
and
19.2%
for the years ended
December 31, 2017
and
2016
, respectively. The change in the income tax benefit is mainly attributable to the tax refund claims associated with the 2016 net operating loss carryback to the tax year 2014.
Net income (loss).
Our net income for the year ended
December 31, 2017
was
$9.1 million
compared to net loss of
$33.1 million
for the year ended
December 31, 2016
, a
$42.2 million
increase in net loss as a result of the factors discussed above.
Liquidity and Capital Resources
Liquidity
We financed our operating activities and capital expenditures during the years ended
December 31, 2018
and
2017
either through cash provided by operating activities or through cash on hand. Our cash and cash equivalents at
December 31, 2018
and
2017
, were
$166.3 million
and
$185.1 million
, respectively, which can be used for operating activities or capital expenditures. Additionally, at
December 31, 2018
and
2017
, we had restricted cash of
$24.3 million
and
$20.4 million
, respectively, as well as investments of
$2.1 million
and
$2.1 million
, respectively.
We manage our excess cash pursuant to the quantitative and qualitative operational guidelines of our cash investment policy. Our cash investment policy, which is managed by our Chief Financial Officer, has the following primary objectives: (i) preserving principal, (ii) meeting our liquidity needs, (iii) minimizing market and credit risk, and (iv) providing after-tax returns. Under the policy's guidelines, we invest our excess cash exclusively in high-quality, U.S. dollar-denominated financial instruments. For a discussion of the measures we use to mitigate the exposure of our cash investments to market risk, credit risk and interest rate risk, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk.”
Stock repurchase programs
The Company's board of directors (the “board”) may authorize us to repurchase outstanding shares of its common stock from time to time in the open market through block trades or otherwise depending on market conditions and other considerations, pursuant to the applicable rules of the SEC. The Company's policy is to retain these repurchased shares as treasury shares and not to retire them. The amount and timing of future share repurchases, if any, will be made as market and business conditions warrant. The timing and extent of any repurchases will depend upon market conditions, the trading price of our shares and other factors, and subject to the restrictions relating to volume, price and timing under applicable law. We may commence or suspend share repurchases at any time or from time to time. For information regarding share repurchases, refer to Note
17
, “Stock Repurchase Programs” to our consolidated financial statements included elsewhere in this report.
Available borrowing facilities
We had
no
borrowings outstanding as of
December 31, 2018
. The Company had issued letters of credit that are collateralized with cash in the aggregate amount of
$14.9 million
, which is included as restricted cash as of
December 31, 2018
.
As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. As of
December 31, 2018
, the Company's total available surety bond facility was
$6.5 million
and the surety had issued bonds under the facility totaling
$4.2 million
on the Company's behalf.
Title IV and other governmental funding
Our institution derives the substantial 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. In the year ended
December 31, 2018
, Ashford University derived
78.6%
of their respective cash revenues from Title IV program funds, calculated in accordance with applicable Department regulations. Our 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 “Regulation” in Item 1, “Business”. The balance of revenues derived by our institution 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. For additional information, see the section entitled “Student Financing” in Item 1, “Business”.
If we were to become ineligible to receive Title IV and other governmental funding, our liquidity would be significantly impacted. The timing of disbursements under Title IV programs is based on federal regulations and our ability to successfully and timely arrange financial aid for our institution's students. Title IV funds are generally provided in multiple disbursements before we earn a significant portion of tuition and fees and incur related expenses over the period of instruction. Students must apply for new loans and grants each academic year. These factors, together with the timing at which our institution's students begin their programs, affect our revenues and operating cash flow.
Financial responsibility
For the fiscal year ended
December 31, 2017
, the consolidated composite score calculated was
2.3
, satisfying the composite score requirement of the Department's financial responsibility test, which institutions must satisfy in order to participate in Title IV programs. We expect the consolidated composite score to be
2.2
for the year ended
December 31, 2018
. However, the consolidated calculation is subject to determination by the Department once it receives and reviews our audited financial statements for the year ended
December 31, 2018
. Additionally, for the year ended
December 31, 2018
, the composite score at our institution is higher than the consolidated score. For additional information, see “Regulation — Department Regulation of Title IV Programs — Financial responsibility” in Part I, “Business.”
Operating activities
Net cash
used in
operating activities was
$7.6 million
for
2018
, compared to net cash
used in
operating activities of
$4.1 million
for
2017
, and net cash
provided by
operating activities of
$11.1 million
for
2016
. The increase in the net cash
used in
operating activities of
$3.5 million
from
2017
to
2018
was primarily due to a decrease in net income of
$4.5 million
, decrease in provisions for bad debt (partially due to the impact of ASC 606) of $4.2 million (net of the change in accounts receivable), and the release of uncertain tax positions during the current year, captured in the change in other liabilities year over year. These changes were offset by a greater decrease in prepaids and other current assets during current year versus prior year, resulting in an increase in cash provided by operating activities of
$3.9 million
, and a decrease in other assets (net of long-term restricted cash included in other assets) as a result of a decrease in long term prepaids, resulting in an increase in cash provided by operating activities of $2.8 million. In addition, there was a lower decrease in accounts payable and accrued liabilities than in prior year of
$0.7 million
, due to overall operating expense decreasing year over year. The decrease of
$15.2 million
from 2016 to 2017 was primarily due to a relative decrease in the changes in accounts payable and accrued liabilities of $17.7 million due to the timing of lease termination costs, decrease in prepaids and other current assets of $12.9 million due to the timing of income tax receivables, and decrease in other long-term assets of $6.3 million. In addition, there was a loss on student loans receivable of $7.5 million in 2016, whereas there was none in 2017. There was also a decrease in the loss on termination of leased space of $7.4 million, and lower depreciation and amortization by $4.2 million. These decreases were mainly offset by an increase in net income of $42.2 million. We expect to generate cash from our operating activities in the foreseeable future.
Investing activities
Net cash
used in
investing activities was
$3.5 million
for
2018
, compared to net cash
provided by
investing activities of
$43.7 million
and
$14.7 million
for
2017
and
2016
, respectively. During
2018
, there were
no
maturities of investments and we purchased
$1.1 million
of investments. This is compared to maturities of investments of
$47.7 million
and purchases of investments of
$0.3 million
in
2017
, as well as maturities of investments of
$37.8 million
and purchases of investments of
$20.3 million
in
2016
. Capital expenditures were
$2.6 million
,
$3.4 million
and
$1.9 million
for
2018
,
2017
and
2016
, respectively. For the year ending
December 31, 2019
, we expect our capital expenditures to be approximately
$26.0 million
.
Financing activities
Net cash
used in
financing activities was
$3.8 million
,
$166.4 million
and
$0.3 million
for
2018
,
2017
and
2016
, respectively. During
2018
, net cash
used in
financing activities was primarily due to the repurchases of common stock of
$2.4 million
, tax withholdings related to the net exercise of stock options of
$1.1 million
, as well as cash used for the tax withholdings related to vesting of restricted stock awards of
$0.9 million
. During
2017
, net cash
used in
financing activities was primarily due to the repurchases of common stock of
$168.7 million
, as well as cash used for the tax withholdings related to vesting of restricted stock awards of
$1.9 million
, partially offset by the cash provided by option exercises of
$3.8 million
. During
2016
, cash
used in
financing activities primarily reflects the cash used for the tax withholdings related to vesting of restricted stock awards of
$1.9 million
, partially offset by the cash provided by option exercises of
$1.3 million
.
Based on our current level of operations, we believe that our future cash flows from operating activities and our existing cash and cash equivalents will provide adequate funds for ongoing operations, planned capital expenditures and working capital requirements for at least the next 12 months. However, changes could occur that would consume our available capital resources before that time. Our capital requirements depend on numerous factors, including our ability to continue to generate revenue. There can be no assurance that additional funding, if necessary, will be available to us on favorable terms, if at all. For additional information, see Part I, Item 1A, “Risk Factors” which also discuss material risks and uncertainties.
Off-Balance Sheet Arrangements and Significant Contractual Obligations
As part of our normal business operations, we are required to provide surety bonds in certain states where we do business. We entered into a surety bond facility with an insurance company to provide such bonds when required. As of
December 31, 2018
, our total available surety bond facility was
$6.5 million
and the surety had issued bonds totaling
$4.2 million
on our behalf under such facility.
The following table sets forth, as of
December 31, 2018
, certain significant cash and contractual obligations that will affect our future liquidity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
Total
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
Thereafter
|
|
|
(In thousands)
|
|
Operating lease obligations
|
$
|
61,040
|
|
|
$
|
20,382
|
|
|
$
|
9,936
|
|
|
$
|
6,460
|
|
|
$
|
3,826
|
|
|
$
|
2,726
|
|
|
$
|
17,710
|
|
|
Other contractual obligations
|
43,146
|
|
|
18,531
|
|
|
10,410
|
|
|
4,050
|
|
|
2,620
|
|
|
2,535
|
|
|
5,000
|
|
|
Uncertain tax positions
|
865
|
|
|
—
|
|
|
865
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Total
|
$
|
105,051
|
|
|
$
|
38,913
|
|
|
$
|
21,211
|
|
|
$
|
10,510
|
|
|
$
|
6,446
|
|
|
$
|
5,261
|
|
|
$
|
22,710
|
|
Segment Information
We operate in one reportable segment as a single educational delivery operation using a core infrastructure that serves the curriculum and educational delivery needs of our institution's students regardless of geography. Our chief operating decision maker, our CEO and President, manages our operations as a whole, and our chief operating decision maker does not evaluate expenses or operating income information on a component level.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2, “Summary of Significant Accounting Policies” to our annual consolidated financial statements included elsewhere in this report.
Item 7A. 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
December 31, 2018
, we had no outstanding borrowings.
Our future investment income may fall short of expectations due to changes in interest rates. At
December 31, 2018
, 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.
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BRIDGEPOINT EDUCATION, INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
To the stockholders and the Board of Directors of Bridgepoint Education, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Bridgepoint Education, Inc. and subsidiaries (the "Company") as of December 31, 2018 and 2017, the related consolidated statements of income (loss), comprehensive income (loss), stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2018, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2018, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2019, expressed an adverse opinion on the Company's internal control over financial reporting because of material weaknesses.
Change in Accounting Principle
As discussed in Note 2 to the financial statements, the Company changed its method of accounting for revenue from contracts with customers in fiscal year 2018 due to the adoption of the new revenue standard. The Company adopted the new revenue standard using a modified retrospective approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
March 12, 2019
We have served as the Company's auditor since 2016.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
BRIDGEPOINT EDUCATION, INC.
Consolidated Balance Sheets
(In thousands, except par value)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
|
ASSETS
|
|
|
|
|
Current assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
166,307
|
|
|
$
|
185,098
|
|
|
Restricted cash
|
18,619
|
|
|
20,428
|
|
|
Investments
|
2,068
|
|
|
2,065
|
|
|
Accounts receivable, net
|
27,015
|
|
|
24,174
|
|
|
Prepaid expenses and other current assets
|
18,255
|
|
|
22,388
|
|
|
Total current assets
|
232,264
|
|
|
254,153
|
|
|
Property and equipment, net
|
16,860
|
|
|
10,434
|
|
|
Goodwill and intangibles, net
|
12,441
|
|
|
14,593
|
|
|
Other long-term assets
|
7,927
|
|
|
5,456
|
|
|
Total assets
|
$
|
269,492
|
|
|
$
|
284,636
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
Current liabilities:
|
|
|
|
|
Accounts payable and accrued liabilities
|
62,792
|
|
|
71,165
|
|
|
Deferred revenue and student deposits
|
63,834
|
|
|
70,766
|
|
|
Total current liabilities
|
126,626
|
|
|
141,931
|
|
|
Rent liability
|
3,183
|
|
|
7,001
|
|
|
Lease financing obligation
|
8,634
|
|
|
—
|
|
|
Other long-term liabilities
|
3,435
|
|
|
12,708
|
|
|
Total liabilities
|
141,878
|
|
|
161,640
|
|
|
Commitments and contingencies (see Note 21)
|
|
|
|
|
Stockholders' equity:
|
|
|
|
|
Preferred stock, $0.01 par value:
|
|
|
|
|
20,000 shares authorized; zero shares issued and outstanding at December 31, 2018 and 2017
|
—
|
|
|
—
|
|
|
Common stock, $0.01 par value:
|
|
|
|
|
300,000 shares authorized; 65,289 and 64,887 issued, and 27,168 and 27,158 outstanding, at December 31, 2018 and 2017, respectively
|
653
|
|
|
649
|
|
|
Additional paid-in capital
|
205,157
|
|
|
201,755
|
|
|
Retained earnings
|
429,992
|
|
|
426,356
|
|
|
Treasury stock, 38,121 and 37,729 shares at cost at December 31, 2018 and 2017, respectively
|
(508,188
|
)
|
|
(505,764
|
)
|
|
Total stockholders' equity
|
127,614
|
|
|
122,996
|
|
|
Total liabilities and stockholders' equity
|
$
|
269,492
|
|
|
$
|
284,636
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BRIDGEPOINT EDUCATION, INC.
Consolidated Statements of Income (Loss)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Revenue
|
$
|
443,373
|
|
|
$
|
475,113
|
|
|
$
|
523,518
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
Instructional costs and services
|
217,700
|
|
|
235,390
|
|
|
263,337
|
|
|
Admissions advisory and marketing
|
168,751
|
|
|
175,389
|
|
|
202,206
|
|
|
General and administrative
|
52,980
|
|
|
47,381
|
|
|
48,843
|
|
|
Legal settlement expense
|
141
|
|
|
1,845
|
|
|
33,088
|
|
|
Restructuring and impairment charges
|
7,794
|
|
|
8,682
|
|
|
19,276
|
|
|
Total costs and expenses
|
447,366
|
|
|
468,687
|
|
|
566,750
|
|
|
Operating income (loss)
|
(3,993
|
)
|
|
6,426
|
|
|
(43,232
|
)
|
|
Other income, net
|
1,047
|
|
|
1,511
|
|
|
2,306
|
|
|
Income (loss) before income taxes
|
(2,946
|
)
|
|
7,937
|
|
|
(40,926
|
)
|
|
Income tax benefit
|
(7,582
|
)
|
|
(1,174
|
)
|
|
(7,875
|
)
|
|
Net income (loss)
|
$
|
4,636
|
|
|
$
|
9,111
|
|
|
$
|
(33,051
|
)
|
|
|
|
|
|
|
|
|
Income (loss) per share:
|
|
|
|
|
|
|
Basic
|
$
|
0.17
|
|
|
$
|
0.28
|
|
|
$
|
(0.71
|
)
|
|
Diluted
|
$
|
0.17
|
|
|
$
|
0.28
|
|
|
$
|
(0.71
|
)
|
|
Weighted average number of common shares outstanding used in computing income (loss) per share:
|
|
|
|
|
|
|
Basic
|
27,135
|
|
|
32,058
|
|
|
46,228
|
|
|
Diluted
|
27,563
|
|
|
32,794
|
|
|
46,228
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BRIDGEPOINT EDUCATION, INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Net income (loss)
|
$
|
4,636
|
|
|
$
|
9,111
|
|
|
$
|
(33,051
|
)
|
|
Other comprehensive gain, net of tax:
|
|
|
|
|
|
|
Unrealized gains on investments
|
—
|
|
|
1
|
|
|
98
|
|
|
Comprehensive income (loss)
|
$
|
4,636
|
|
|
$
|
9,112
|
|
|
$
|
(32,953
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
BRIDGEPOINT EDUCATION, INC.
Consolidated Statements of Stockholders' Equity
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated Other
Comprehensive
Gain/(Loss)
|
|
Treasury
Stock
|
|
|
|
|
Shares
|
|
Par Value
|
|
Total
|
|
Balance at January 1, 2016 (as restated, see Note 2)
|
63,407
|
|
|
$
|
634
|
|
|
$
|
188,863
|
|
|
$
|
450,296
|
|
|
$
|
(99
|
)
|
|
$
|
(337,069
|
)
|
|
$
|
302,625
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
7,317
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7,317
|
|
|
Exercise of stock options
|
306
|
|
|
3
|
|
|
1,328
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,331
|
|
|
Stock issued under employee stock purchase plan
|
35
|
|
|
1
|
|
|
245
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
246
|
|
|
Stock issued under restricted stock plan, net of shares held for taxes
|
287
|
|
|
3
|
|
|
(1,899
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,896
|
)
|
|
Net loss
|
—
|
|
|
—
|
|
|
—
|
|
|
(33,051
|
)
|
|
—
|
|
|
—
|
|
|
(33,051
|
)
|
|
Unrealized gains on investments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
98
|
|
|
—
|
|
|
98
|
|
|
Balance at December 31, 2016
|
64,035
|
|
|
641
|
|
|
195,854
|
|
|
417,245
|
|
|
(1
|
)
|
|
(337,069
|
)
|
|
276,670
|
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
3,632
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,632
|
|
|
Exercise of stock options
|
537
|
|
|
5
|
|
|
3,843
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,848
|
|
|
Stock issued under employee stock purchase plan
|
34
|
|
|
1
|
|
|
288
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
289
|
|
|
Stock issued under restricted stock plan, net of shares held for taxes
|
281
|
|
|
2
|
|
|
(1,862
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,860
|
)
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(168,695
|
)
|
|
(168,695
|
)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
9,111
|
|
|
—
|
|
|
—
|
|
|
9,111
|
|
|
Unrealized gains on investments, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
Balance at December 31, 2017
|
64,887
|
|
|
649
|
|
|
201,755
|
|
|
426,356
|
|
|
—
|
|
|
(505,764
|
)
|
|
122,996
|
|
|
Adoption of accounting standards (Note 2)
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,000
|
)
|
|
—
|
|
|
—
|
|
|
(1,000
|
)
|
|
Stock-based compensation
|
—
|
|
|
—
|
|
|
4,787
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,787
|
|
|
Exercise of stock options
|
122
|
|
|
2
|
|
|
453
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
455
|
|
|
Net share settlement of stock options
|
—
|
|
|
—
|
|
|
(1,097
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,097
|
)
|
|
Stock issued under employee stock purchase plan
|
34
|
|
|
—
|
|
|
210
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
210
|
|
|
Stock issued under restricted stock plan, net of shares held for taxes
|
246
|
|
|
2
|
|
|
(951
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(949
|
)
|
|
Repurchase of common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,424
|
)
|
|
(2,424
|
)
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
4,636
|
|
|
—
|
|
|
—
|
|
|
4,636
|
|
|
Balance at December 31, 2018
|
65,289
|
|
|
$
|
653
|
|
|
$
|
205,157
|
|
|
$
|
429,992
|
|
|
$
|
—
|
|
|
$
|
(508,188
|
)
|
|
$
|
127,614
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BRIDGEPOINT EDUCATION, INC.
Consolidated Statements of Cash Flows
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
Net income (loss)
|
$
|
4,636
|
|
|
$
|
9,111
|
|
|
$
|
(33,051
|
)
|
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
Provision for bad debts
|
22,834
|
|
|
30,294
|
|
|
32,022
|
|
|
Depreciation and amortization
|
6,786
|
|
|
8,863
|
|
|
13,082
|
|
|
Amortization of premium/discount
|
—
|
|
|
20
|
|
|
68
|
|
|
Deferred income taxes
|
(19
|
)
|
|
(600
|
)
|
|
28
|
|
|
Stock-based compensation
|
4,787
|
|
|
3,632
|
|
|
7,317
|
|
|
Loss on impairment of student loans receivable
|
—
|
|
|
—
|
|
|
7,542
|
|
|
Net loss (gain) on marketable securities
|
89
|
|
|
(274
|
)
|
|
(164
|
)
|
|
Loss on termination of leased space
|
2,943
|
|
|
5,829
|
|
|
13,244
|
|
|
Loss on disposal or impairment of fixed assets
|
1,406
|
|
|
864
|
|
|
3,024
|
|
|
Loss on impairment of goodwill and intangibles
|
495
|
|
|
—
|
|
|
—
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
Accounts receivable
|
(27,007
|
)
|
|
(30,343
|
)
|
|
(31,724
|
)
|
|
Prepaid expenses and other current assets
|
4,133
|
|
|
280
|
|
|
13,225
|
|
|
Student loans receivable
|
—
|
|
|
—
|
|
|
876
|
|
|
Other long-term assets
|
2,843
|
|
|
(3,066
|
)
|
|
3,274
|
|
|
Accounts payable and accrued liabilities
|
(12,190
|
)
|
|
(12,908
|
)
|
|
4,778
|
|
|
Deferred revenue and student deposits
|
(6,598
|
)
|
|
(5,605
|
)
|
|
(13,572
|
)
|
|
Other liabilities
|
(12,729
|
)
|
|
(10,172
|
)
|
|
(8,886
|
)
|
|
Net cash (used in) provided by operating activities
|
(7,591
|
)
|
|
(4,075
|
)
|
|
11,083
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
Capital expenditures
|
(2,581
|
)
|
|
(3,387
|
)
|
|
(1,925
|
)
|
|
Purchases of investments
|
(1,067
|
)
|
|
(315
|
)
|
|
(20,260
|
)
|
|
Capitalized costs for intangible assets
|
(873
|
)
|
|
(553
|
)
|
|
(830
|
)
|
|
Sales of investments
|
975
|
|
|
214
|
|
|
—
|
|
|
Maturities of investments
|
—
|
|
|
47,725
|
|
|
37,756
|
|
|
Net cash (used in) provided by investing activities
|
(3,546
|
)
|
|
43,684
|
|
|
14,741
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
Proceeds from exercise of stock options
|
455
|
|
|
3,848
|
|
|
1,331
|
|
|
Tax withholdings related to net exercise of stock options
|
(1,097
|
)
|
|
—
|
|
|
—
|
|
|
Proceeds from the issuance of stock under employee stock purchase plan
|
210
|
|
|
289
|
|
|
246
|
|
|
Tax withholding on issuance of stock awards
|
(949
|
)
|
|
(1,860
|
)
|
|
(1,896
|
)
|
|
Repurchase of common stock
|
(2,424
|
)
|
|
(168,695
|
)
|
|
—
|
|
|
Net cash used in financing activities
|
(3,805
|
)
|
|
(166,418
|
)
|
|
(319
|
)
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash
|
(14,942
|
)
|
|
(126,809
|
)
|
|
25,505
|
|
|
Cash, cash equivalents and restricted cash at beginning of period
|
205,526
|
|
|
332,335
|
|
|
306,830
|
|
|
Cash, cash equivalents and restricted cash at end of period
|
$
|
190,584
|
|
|
$
|
205,526
|
|
|
$
|
332,335
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
73
|
|
|
$
|
65
|
|
|
$
|
62
|
|
|
Cash (received) paid for income taxes, net
|
$
|
(3,380
|
)
|
|
$
|
387
|
|
|
$
|
(20,788
|
)
|
|
|
|
|
|
|
|
|
Supplemental disclosure of non-cash transactions:
|
|
|
|
|
|
|
|
|
Purchase of equipment included in accounts payable and accrued liabilities
|
$
|
25
|
|
|
$
|
379
|
|
|
$
|
—
|
|
|
Issuance of common stock for vested restricted stock units
|
$
|
2,760
|
|
|
$
|
4,779
|
|
|
$
|
4,847
|
|
|
Property and equipment under build-to-suit leases
|
$
|
9,861
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The accompanying notes are an integral part of these consolidated financial statements.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements
1. Nature of Business
Bridgepoint Education, Inc. (together with its subsidiaries, the “Company”), incorporated in 1999, is a provider of postsecondary education services. Its wholly-owned subsidiary, Ashford University
®
, is a regionally accredited academic institution, which delivers programs primarily online. Ashford University offers associate’s, bachelor’s, master’s and doctoral programs.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Bridgepoint Education, Inc. and its wholly-owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of the consolidated financial statements in conformity with generally accepted accounting principles in the United States (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ from those estimates.
Restatement of Previously Issued Consolidated Financial Statements
Subsequent to the issuance of the Company’s consolidated financial statements for the year ended December 31, 2017, the Company determined that prior financial statements had errors related to revenue for the Full Tuition Grant program portion of our student contracts which was misstated due to allowances that had not been properly determined and computational errors, which also resulted in misstatements in accounts receivable and its provision for bad debts and deferred revenue and student deposits. As a result, the Company has restated the accompanying 2017 and 2016 consolidated financial statements from amounts previously reported to correct these matters. The Company recorded a cumulative adjustment to retained earnings of
$1.0 million
to its opening balance sheet as of January 1, 2016 for the immaterial adjustments impacting 2015 and prior. The restatement does not impact net cash flows used in operations in any period. Management considers the restatement to be immaterial.
The following tables present the impact of the restatement corrections on the previously issued consolidated financial statements. The following tables are presented in thousands, except per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
As Restated
|
|
Consolidated balance sheet data:
|
December 31, 2017
|
|
Accounts receivable, net
|
$
|
27,077
|
|
|
$
|
24,174
|
|
|
Total current assets
|
$
|
257,056
|
|
|
$
|
254,153
|
|
|
Total assets
|
$
|
287,539
|
|
|
$
|
284,636
|
|
|
Deferred revenue and student deposits
|
$
|
68,207
|
|
|
$
|
70,766
|
|
|
Total current liabilities
|
$
|
139,372
|
|
|
$
|
141,931
|
|
|
Total liabilities
|
$
|
159,081
|
|
|
$
|
161,640
|
|
|
Retained earnings
|
$
|
431,818
|
|
|
$
|
426,356
|
|
|
Total stockholders’ equity
|
$
|
128,458
|
|
|
$
|
122,996
|
|
|
Total liabilities and stockholders’ equity
|
$
|
287,539
|
|
|
$
|
284,636
|
|
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
As Restated
|
|
As Reported
|
|
As Restated
|
|
|
Year Ended
|
|
Consolidated statements of income (loss) and comprehensive income (loss) data:
|
December 31, 2017
|
|
December 31, 2016
|
|
Revenue
|
$
|
478,397
|
|
|
$
|
475,113
|
|
|
$
|
527,090
|
|
|
$
|
523,518
|
|
|
Instructional costs and services
|
$
|
237,248
|
|
|
$
|
235,390
|
|
|
$
|
263,898
|
|
|
$
|
263,337
|
|
|
Total costs and expenses
|
$
|
470,545
|
|
|
$
|
468,687
|
|
|
$
|
567,311
|
|
|
$
|
566,750
|
|
|
Operating income (loss)
|
$
|
7,852
|
|
|
$
|
6,426
|
|
|
$
|
(40,221
|
)
|
|
$
|
(43,232
|
)
|
|
Income (loss) before income taxes
|
$
|
9,363
|
|
|
$
|
7,937
|
|
|
$
|
(37,915
|
)
|
|
$
|
(40,926
|
)
|
|
Net income (loss)
|
$
|
10,537
|
|
|
$
|
9,111
|
|
|
$
|
(30,040
|
)
|
|
$
|
(33,051
|
)
|
|
Basic income (loss) per share
|
$
|
0.33
|
|
|
$
|
0.28
|
|
|
$
|
(0.65
|
)
|
|
$
|
(0.71
|
)
|
|
Diluted income (loss) per share
|
$
|
0.32
|
|
|
$
|
0.28
|
|
|
$
|
(0.65
|
)
|
|
$
|
(0.71
|
)
|
|
Comprehensive income (loss)
|
$
|
10,538
|
|
|
$
|
9,112
|
|
|
$
|
(30,138
|
)
|
|
$
|
(32,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
As Restated
|
|
As Reported
|
|
As Restated
|
|
|
Year Ended
|
|
Consolidated statement of cash flow data:
|
December 31, 2017
|
|
December 31, 2016
|
|
Net income (loss)
|
$
|
10,537
|
|
|
$
|
9,111
|
|
|
$
|
(30,040
|
)
|
|
$
|
(33,051
|
)
|
|
Provision for bad debts
|
$
|
32,151
|
|
|
$
|
30,294
|
|
|
$
|
32,583
|
|
|
$
|
32,022
|
|
|
Accounts receivable
|
$
|
(32,771
|
)
|
|
$
|
(30,343
|
)
|
|
$
|
(34,790
|
)
|
|
$
|
(31,724
|
)
|
|
Deferred revenue and student deposits
|
$
|
(6,460
|
)
|
|
$
|
(5,605
|
)
|
|
$
|
(14,078
|
)
|
|
$
|
(13,572
|
)
|
|
Cash flows provided by (used in) operating activities
|
$
|
(4,075
|
)
|
|
$
|
(4,075
|
)
|
|
$
|
11,083
|
|
|
$
|
11,083
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
As Restated
|
|
As Reported
|
|
As Restated
|
|
As Reported
|
|
As Restated
|
|
Consolidated statement of stockholders equity data:
|
December 31, 2017
|
|
December 31, 2016
|
|
January 1, 2016
|
|
Retained earnings
|
$
|
431,818
|
|
|
$
|
426,356
|
|
|
$
|
421,281
|
|
|
$
|
417,245
|
|
|
$
|
451,321
|
|
|
$
|
450,296
|
|
|
Total stockholders’ equity
|
$
|
128,458
|
|
|
$
|
122,996
|
|
|
$
|
280,706
|
|
|
$
|
276,670
|
|
|
$
|
303,650
|
|
|
$
|
302,625
|
|
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents is comprised of cash and other short-term highly liquid investments that are readily convertible into known amounts of cash. The Company considers all highly liquid investments with maturities of three months or less at the time of purchase to be cash equivalents.
The Company's restricted cash is primarily held in money market accounts, and is excluded from cash and cash equivalents on the Company's consolidated balance sheets. The majority of restricted cash represents funds held for students from Title IV financial aid programs that result in credit balances on a student’s account or funds held for students to be refunded in connection with a legal settlement. To a lesser extent, restricted cash also represents amounts held as collateral for letters of credit, a portion of which is considered long-term. The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the same such amounts shown in the statement of cash flows.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Cash and cash equivalents
|
$
|
166,307
|
|
|
$
|
185,098
|
|
|
$
|
307,802
|
|
|
Restricted cash, current
|
18,619
|
|
|
20,428
|
|
|
24,533
|
|
|
Restricted cash, long-term
|
5,658
|
|
|
—
|
|
|
—
|
|
|
Total cash, cash equivalents and restricted cash
|
$
|
190,584
|
|
|
$
|
205,526
|
|
|
$
|
332,335
|
|
Investments
The Company has historically held investments that consisted of mutual funds, corporate notes and bonds, and certificates of deposit. As of
December 31, 2018
, the Company held investments solely in mutual funds. The Company's investments are denominated in U.S. dollars, are investment grade and are readily marketable. The Company considers as current assets those investments which will mature or are likely to be sold in less than one year.
The Company classifies its investments as either trading, available-for-sale or held-to-maturity. Trading securities are those bought and held principally to sell in the short-term, with gains or losses from changes in fair value flowing through current earnings. Available-for-sale securities are carried at fair value as determined by quoted market prices, with unrealized gains and losses, net of tax, reported as a separate component of comprehensive income (loss) and stockholders’ equity. Held-to-maturity securities would be carried at amortized cost. Amortization of premiums, accretion of discounts, interest, and realized gains and losses are included in other income, net in the consolidated statement of income (loss).
The Company regularly monitors and evaluates the realizable value of its investments. If events and circumstances indicate that a decline in the value of these assets has occurred and is other-than-temporary, the Company would record a charge to other income, net in the consolidated statements of income (loss).
Deferred Compensation
The Company has a deferred compensation plan, into which eligible participants can defer a maximum of
80%
of their regular compensation and a maximum of
100%
of their incentive compensation. The amounts deferred by the participant under this plan are credited with earnings or losses based upon changes in values of participant elected notional investments. Each participant is fully vested in the participant amounts deferred. The Company may make contributions that will generally vest according to a four-year vesting schedule. After
four
years of service, participants become fully vested in the employer contributions upon reaching normal retirement age, death, disability or a change in control. The Company's obligations under the deferred compensation plan totaled
$1.5 million
and
$1.4 million
as of
December 31, 2018
and
2017
, respectively, and are included in other long-term liabilities in the consolidated balance sheets. The Company's assets relating to the deferred compensation plan totaled
$2.1 million
and
$2.1 million
as of
December 31, 2018
and
2017
, respectively, and are included in investments in the consolidated balance sheets.
Fair Value Measurements
The Company uses the three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: (i) Level 1, defined as observable inputs such as quoted prices in active markets; (ii) Level 2, defined as inputs other than quoted prices in active markets that are either observable directly or indirectly, through market corroboration, for substantially the full term of the financial instrument; and (iii) Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable consists of student accounts receivable, which represent amounts due for tuition, course digital materials, technology fees and other fees from currently enrolled and former students. Students generally fund their education through grants and/or loans under various Title IV programs, tuition assistance from military and corporate employers or personal funds. Generally, payments are due on the respective course start date and are considered past due dependent upon the student's payment terms. In general, an account is considered delinquent 120 days after the course start date.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
Accounts receivable are stated at the amount management expects to collect from outstanding balances. For accounts receivable, an allowance for doubtful accounts is estimated by management and is principally based on historical collection experience as well as (i) an assessment of individual accounts receivable over a specific aging and amount, (ii) consideration of the nature of the receivable accounts and (iii) potential changes in the business or economic environment. The provision for bad debt is recorded within instructional costs and services in the consolidated statements of income (loss). The Company writes off uncollectable accounts receivable when the student account is deemed uncollectable.
Student Loans Receivable and Loan Loss Reserves
During 2016, the Company reached a settlement with the Consumer Financial Protection Bureau, and in accordance with the terms of the settlement, all existing student loans receivable were written off. The Company’s institution has already ceased offering institutional loans, and no such loans were made after the year ended December 31, 2014. Before being written off, student loans receivable was stated at the amount management expected to collect from outstanding balances. For tuition related student loan receivables, the Company had estimated an allowance for doubtful accounts, similar to that of accounts receivable, based on (i) an assessment of individual loans receivable over a specific aging and amount, (ii) consideration of the nature of the receivable accounts, (iii) potential changes in the business or economic environment and (iv) related FICO scores and other industry metrics. The related provision for bad debts for the year ended December 31, 2016 were
$0.2 million
, and is recorded within instructional costs and services in the consolidated statements of income (loss).
The Company had also recorded a loss reserve for the full book value of any impaired loans. For the year ended December 31, 2016, there was
$0.2 million
recorded for loan loss reserves. The loan loss reserve was maintained at a level deemed adequate by management based on a periodic analysis of the individual loans and is recorded within instructional costs and services in the consolidated statements of income (loss).
Property and Equipment
Property and equipment are recognized at cost less accumulated depreciation. Depreciation is computed using the straight-line method based on estimated useful lives of the related assets as follows:
|
|
|
|
|
|
Furniture and office equipment
|
3 - 7 years
|
|
Software
|
3 - 5 years
|
|
Vehicles
|
5 years
|
Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the assets. Upon the retirement or disposition of property and equipment, the related cost and accumulated depreciation is removed and a gain or loss is recorded in the consolidated statements of income (loss). Repairs and maintenance costs are expensed in the period incurred.
Leases
Leases are evaluated and classified as either operating or capital leases. Leased property and equipment meeting certain criteria would be capitalized, and the present value of the related lease payments is recognized as a liability on the consolidated balance sheets. Amortization of capitalized leased assets is computed on the straight-line method over the term of the lease or the life of the related asset, whichever is shorter.
If the Company receives tenant allowances from the lessor for certain improvements made to the leased property, these allowances are capitalized as leasehold improvements and a long-term liability is established. The long-term liability is amortized on a straight-line basis over the corresponding lease term. The Company records rent expense on a straight-line basis over the initial term of a lease. The difference between the rent payment and the straight-line rent expense is recorded as either a short-term or long-term liability.
The Company recognizes liabilities for exit and disposal activities on non-cancelable lease obligations at fair value in the period the liability is incurred. For the non-cancelable lease obligations, the Company records the obligation when the contract is terminated.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
Impairment of Long-Lived Assets
The Company assesses potential impairment to its long-lived assets when there is evidence that events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recorded if the carrying amount of the long-lived asset is not recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. Any required impairment loss is measured as the amount by which the carrying amount of a long-lived asset exceeds fair value and is recorded as a reduction in the carrying value of the related asset and an expense to operating results. For additional information, see Note
4
, “Restructuring and Impairment Charges.”
Goodwill and Other Intangible Assets
The Company tests goodwill and indefinite-lived intangible assets for impairment annually in the fourth quarter of each fiscal year, or more frequently if events and circumstances warrant.
To evaluate the impairment of goodwill, the Company first assesses qualitative factors, such as deterioration in general economic conditions or negative company financial performance, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. The Company's assessment of goodwill during the fourth quarter of fiscal
2018
indicated that it was not more likely than not that the fair value of the reporting unit was less than its carrying amount. If negative qualitative indicators had been noted above, the Company would then need to assess the fair value of its reporting unit to determine whether it was greater or less than its carrying values. The Company's assessment of goodwill during the fourth quarter of fiscal
2018
resulted in impairment of goodwill of
$0.1 million
, due to the closure of a component of the Company's business.
To evaluate the impairment of the indefinite-lived intangible assets, the Company assessed the fair value of the assets to determine whether they were greater or less than the carrying values. Determining the fair value of indefinite-lived intangible asset is judgmental in nature and involves the use of significant estimates and assumptions. These estimates and assumptions are inherently uncertain, and may include such items as growth rates used to calculate projected future cash flows, risk-adjusted discount rates, future economic and market conditions, and a determination of appropriate market comparables. The Company's assessment of indefinite-lived intangible assets during the fourth quarter of fiscal
2018
resulted in impairment of intangibles of
$0.4 million
, due to the closure of a component of the Company's business.
The Company also has definite-lived intangible assets, which primarily consist of purchased intangibles and capitalized curriculum development costs. The definite-lived intangible assets are recognized at cost less accumulated amortization. Amortization is computed using the straight-line method based on estimated useful lives of the related assets.
Revenue and Deferred Revenue
Revenues are recognized when control of the promised goods or services are transferred to the institutions’ students, in an amount that reflects the consideration the Company expects to be entitled in exchange for those goods or services. Determining whether a valid customer contract exists includes an assessment of whether amounts due under the contract are collectible. The Company performs this assessment at the beginning of every contract and subsequently thereafter if new information indicates there has been a significant change in facts and circumstances.
The Company’s contracts with customers generally include multiple performance obligations, which it identifies by assessing whether each good and service promised in the contract is distinct. For each performance obligation, the Company allocates the transaction price, including fixed and variable consideration, on the basis of the relative standalone selling prices of each good and service in the contract, which is determined using observable prices.
The Company generates the majority of its revenue from tuition, technology fees, and digital materials related to students whose primary funding source is governmental funding. Tuition represents amounts charged for course instruction, and technology fees represent amounts charged for the students’ use of the technology platform on which course instruction is delivered. Digital materials fees represent amounts charged for the digital textbooks that accompany the majority of courses taught at the Company’s institution. With the exception of students attending courses within the three-week conditional admission period at Ashford University, the majority of tuition and technology fees are recognized as revenue as control of the
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
services is transferred to the student, which occurs over the applicable period of instruction. Similarly, the majority of digital materials fees are recognized as revenue when control of the product has been transferred to the student, which occurs when the student is granted unrestricted access to the digital textbook, generally, on the first day of the course. Revenue generated from students within the conditional admission period is deferred and recognized when the student matriculates into the institution, which occurs in the fourth week of the course.
The Company's institutions' online students generally enroll in a program that encompasses a series of five to six-week courses that are taken consecutively over the length of the program. With the exception of those students under conditional admission and students enrolled under the Corporate Full Tuition Grant (“FTG”) program, online students are billed on a payment period basis on the first day of a course. Students under conditional admission are billed for the payment period upon matriculation.
If a student's attendance in a class precedes the receipt of cash from the student's source of funding, the Company establishes an account receivable and corresponding deferred revenue in the amount of the tuition due for that payment period. Cash received either directly from the student or from the student's source of funding reduces the balance of accounts receivable due from the student. Financial aid from sources such as the federal government's Title IV programs pertains to the online student's award year and is generally divided into
two
disbursement periods. As such, each disbursement period may contain funding for up to
four
courses. Financial aid disbursements are typically received during the online student's attendance in the first or second course. Since the majority of disbursements cover more courses than for which a student is currently enrolled, the amount received in excess effectively represents a prepayment from the online student for up to
four
courses. At the end of each accounting period, the deferred revenue and related account receivable balances are reduced to present amounts attributable to the current course.
In certain cases, the Company's institution provides scholarships to students who qualify under various programs. These scholarships are recognized as direct reductions of revenue consistent with the timing of recognition associated with the related performance obligations. Also, for some customers, the Company does not expect to collect 100% of the consideration to which it is contractually entitled and, as a result, those customers may receive discounts or price adjustments that, based on historical Company practice, represent implied price concessions and are accounted for as variable consideration. The majority of these price concessions relate to amounts charged to students for goods and services, which management has determined will not be covered by the student’s primary funding source (generally, government aid) and, as a result, the student will become directly financially responsible for them. The reduction in the transaction price that results from this estimate of variable consideration reflects the amount the Company does not expect to be entitled to in exchange for the goods and services it will transfer to the students, as determined using historical experience and current factors, and includes performing a constraint analysis. These estimates of variable consideration are recorded as direct reductions of revenue consistent with the timing of recognition associated with the related performance obligation.
A portion of tuition revenue, technology fee revenue, and digital materials revenue is generated from contracts with students enrolled under the corporate FTG program, which is a 12-month grant that, when combined with a corporate partner’s annual tuition assistance program, enables eligible students to earn their degree without incurring student loan debt. Students enrolled under this program are eligible to take up to ten undergraduate or eight graduate courses per 12-month grant period and must first utilize 100% of the funds awarded under their employer’s annual tuition assistance program before they can be awarded the FTG grant. The grants awarded by Ashford University under the FTG program are considered a material right, and, as such, the Company records a contract liability for a portion of the consideration received or due under these contracts. The contract liability is recorded in deferred revenue and student deposits on the Company’s consolidated balance sheets, and further discussed in the paragraph on deferred revenue below. The standalone selling price of the material right is determined based on the observable standalone selling price of the courses. The transaction price in each FTG contract is allocated to this material right on a relative standalone selling price basis. The contract liability is recognized as revenue at the earlier of satisfaction of the future obligation or contract termination. There are no material differences between the timing of the products and services transferred and the payment terms.
Deferred revenue consists of cash payments that are received or due in advance of performance as well as deferrals associated with certain contracts that include a material right. For the majority of the Company’s customers, payment for products and services is due at the beginning of each course. Billing of products and services transferred under a FTG student
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
contract generally occurs after the conclusion of a course. Under special circumstances, some customers may be offered non-interest bearing payment plan arrangements that can extend for up to a maximum of three years. These payment plan arrangements give rise to significant financing components. However, since the Company historically collects substantially all 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.
Workers' Compensation
The Company records a gross liability for estimated workers' compensation claims, incurred but not yet reported, as of each balance sheet date. The Company also records the gross insurance recoverable due for individual claim amounts. This is recorded as an other asset and as an equal accrued liability. The stop-loss premium is determined annually, but invoiced and paid on a quarterly basis. The related insurance premiums are expensed ratably over the coverage period.
Income Taxes
The Company accounts for its income taxes using the asset-liability method whereby deferred tax assets and liabilities are determined based on temporary differences between the bases used for financial reporting and income tax reporting purposes. Deferred income taxes are provided based on the enacted tax rates expected to be in effect at the time such temporary differences are expected to reverse. A valuation allowance is provided for deferred tax assets if it is more-likely-than-not that the Company will not realize those tax assets through future operations.
The Company evaluates and accounts for uncertain tax positions using a two-step approach. Recognition (step one) occurs when the Company concludes that a tax position, based solely on its technical merits, is more-likely-than-not to be sustained upon examination. Measurement (step two) determines the amount of benefit that is greater than 50% likely to be realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. Derecognition of a tax position that was previously recognized would occur when the Company subsequently determines that a tax position no longer meets the more-likely-than-not threshold of being sustained.
Stock-Based Compensation
Stock-based compensation expense is measured at the grant date fair value of the award and is expensed over the vesting period. The Company estimates the fair value of stock options on the grant date using the Black-Scholes option pricing model. The Company estimates the fair value of its performance stock units (“PSUs”) on the grant date using a Monte Carlo simulation model. Determining the fair value of stock-based awards at the grant date under these models requires judgment, including estimating volatility, employee stock option exercise behaviors and forfeiture rates. The assumptions used in calculating the fair value of stock-based awards represent the Company's best estimates, but these estimates involve inherent uncertainties and the application of management judgment. The fair value of the Company's restricted stock units (“RSUs”) is based on the market price of the Company's common stock on the date of grant.
The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are ultimately expected to vest. The Company estimates award forfeitures at the time of grant and revises those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company's equity incentive plans require that stock option awards have an exercise price that equals or exceeds the closing price of the Company's common stock on the date of grant.
Stock-based compensation expense for stock-based awards is recorded in the consolidated statement of income (loss), net of estimated forfeitures, using the graded-vesting method over the requisite service periods of the respective stock awards. The requisite service period is generally the period over which an employee is required to provide service to the Company in exchange for the award.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
Instructional Costs and Services
Instructional costs and services consist primarily of costs related to the administration and delivery of the Company's educational programs. These expenses include compensation for faculty and administrative personnel, curriculum and new program development costs, financial aid processing costs, technology license costs, bad debt expense and costs associated with other support groups that provide services directly to the students. Instructional costs and services also include an allocation of information technology, facility, depreciation and amortization costs.
Admissions Advisory and Marketing
Admissions advisory and marketing costs include compensation of personnel engaged in marketing and recruitment, as well as costs associated with advertising media, purchasing leads and producing marketing materials. Such costs are generally affected by the cost of advertising media and leads, the efficiency of the Company's marketing and recruiting efforts, compensation for the Company's enrollment personnel and expenditures on advertising initiatives for new and existing academic programs. Admissions advisory and marketing costs also include an allocation of information technology, facility, depreciation and amortization costs.
Advertising costs, a subset of admissions advisory and marketing costs, consists primarily of marketing leads and other branding and promotional activities. These advertising activities are expensed as incurred, or the first time the advertising takes place, depending on the type of advertising activity. Advertising costs were
$74.8 million
,
$75.7 million
and
$83.0 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
General and Administrative
General and administrative expenses include compensation of employees engaged in corporate management, finance, human resources, legal and compliance and other corporate functions. General and administrative expenses also include professional services fees, travel and entertainment expenses and an allocation of information technology, facility, depreciation and amortization costs.
Legal Settlement Expense
Legal settlement expense is primarily comprised of (i) the cost to settle a wage and hour dispute, (ii) charges related to the cost of resolution of the previously disclosed civil investigative demands and (iii) the estimate of amounts to resolve the previously disclosed investigative subpoenas.
Restructuring and Impairment Charges
Restructuring and impairment charges are primarily comprised of i) charges related to the write off of certain fixed assets and assets abandoned, ii) student transfer costs relating to the closure of certain components of the Company's business, iii) severance costs related to headcount reductions made in connection with restructuring plans and iv) estimated lease losses related to facilities vacated or consolidated under restructuring plans.
Income (Loss) Per Share
Basic income per common share is calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted income per common share is calculated by dividing net income available to common stockholders by the sum of (i) the weighted average number of common shares outstanding during the period and (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive common shares consist of incremental shares of common stock issuable upon the exercise of the stock options and upon the settlement of RSUs and PSUs.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
Segment Information
The Company operates in
one
reportable segment as a single educational delivery operation using a core infrastructure that serves the curriculum and educational delivery needs of its students regardless of geography. The Company's chief operating decision maker, its CEO and President, manages the Company's operations as a whole, and no revenue, expense or operating income information is evaluated by the chief operating decision maker on any component level.
Comprehensive Income
Comprehensive income consists of net income and other gains and losses affecting stockholders’ equity that, under GAAP, are excluded from net income. The following table summarizes the components of other comprehensive gain (loss) and the related tax effects for the years ended
December 31, 2018
,
2017
and
2016
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on investments
|
|
Year ended:
|
Before-Tax Amount
|
|
Tax Effect
|
|
Net-of-Tax Amount
|
|
December 31, 2018
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
December 31, 2017
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
December 31, 2016
|
$
|
157
|
|
|
$
|
(59
|
)
|
|
$
|
98
|
|
There were no reclassifications out of other comprehensive income, relating to the net realized gain on the sale of securities, during the years ended
December 31, 2018
,
2017
and
2016
.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09,
Revenue from Contracts with Customers,
or Accounting Standards Codification Topic 606 (“ASC 606”), which supersedes the revenue recognition requirements in ASC 605,
Revenue Recognition
(“ASC 605”). This literature is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The accounting guidance also requires additional disclosure regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, as well as assets recognized from costs incurred to obtain or fulfill a contract. On January 1, 2018, the Company adopted ASC 606
using the modified retrospective adoption method. In accordance with the modified retrospective adoption method, the Company elected to retroactively adjust only those contracts that did not meet the definition of a completed contract at the date of initial application. The new guidance impacted the amount and timing of the Company’s revenue recognition as follows:
|
|
|
|
•
|
Prior to the adoption of ASC 606, we recognized revenue to the extent of cash receipts when collectibility was not reasonably assured. Under ASC 606, collectibility issues may indicate an implied price concession, which is accounted for as variable consideration. Consequently, revenues for these types of contracts are accelerated, net of any amounts which we do not expect to collect.
|
|
|
|
|
•
|
Under ASC 606, once a student is deemed to have a history of collection issues, future revenues earned are subject to a price concession as the student has demonstrated that they may not pay the full tuition price based on past behavior. This results in a reduction in the transaction price such that revenue is recorded based on the amount to which the Company expects to be entitled if, in the future, a student is deemed to have resolved their collection issues, a price concession will no longer be recorded.
|
At the date of adoption of ASC 606, the Company recorded a cumulative adjustment to its consolidated balance sheet, including an adjustment to retained earnings, to adjust for the aggregate impact of these revenue items, as calculated under the new guidance. The cumulative effect adjustment decreased the opening balance of retained earnings on January 1, 2018, as follows (in thousands):
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Closing balance at December 31, 2017
|
|
Adjustments due to ASC 606
|
|
Opening balance at January 1, 2018
|
|
Accounts receivable, net
|
$
|
24,174
|
|
|
$
|
(1,333
|
)
|
|
$
|
22,841
|
|
|
Deferred revenue and student deposits
|
$
|
70,766
|
|
|
$
|
(333
|
)
|
|
$
|
70,433
|
|
|
Retained earnings
|
$
|
426,356
|
|
|
$
|
(1,000
|
)
|
|
$
|
425,356
|
|
The following tables present the impact of changes to the consolidated financial statement line items as a result of applying ASC 606 to the twelve months ended December 31, 2018 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported under ASC 606
|
|
Adjustments due to ASC 606
|
|
Amounts under ASC 605
|
|
Revenue
|
$
|
443,373
|
|
|
$
|
6,638
|
|
|
$
|
450,011
|
|
|
Instructional costs and services
(1)
|
$
|
217,700
|
|
|
$
|
6,469
|
|
|
$
|
224,169
|
|
|
Net income
|
$
|
4,636
|
|
|
$
|
169
|
|
|
$
|
4,805
|
|
(1) Adjustment for instructional costs and services is due to change in provision for bad debts.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2018
|
|
|
As Reported under ASC 606
|
|
Adjustments due to ASC 606
|
|
Amounts under ASC 605
|
|
Accounts receivable, net
|
$
|
27,015
|
|
|
$
|
1,748
|
|
|
$
|
28,763
|
|
|
Deferred revenue and student deposits
|
$
|
63,834
|
|
|
$
|
579
|
|
|
$
|
64,413
|
|
|
Retained earnings
|
$
|
429,992
|
|
|
$
|
(1,169
|
)
|
|
$
|
428,823
|
|
Comparative historical information on the consolidated statement of income has not been restated and continues to be reported under ASC 605
.
For further information regarding the disaggregation of revenue recorded in the current period, refer to Note 3, “Revenue Recognition” to the consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842).
Under the new guidance, lessees will be required to recognize the following for all leases at the lease commencement date: (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement. Lessees will no longer be provided with a source of off-balance sheet financing. Topic 842 was subsequently amended by ASU 2018-01,
Land Easement Practical Expedient for Transition to Topic 842
; ASU 2018-10,
Codification Improvements to Topic 842, Leases
; and ASU 2018-11,
Targeted Improvements.
Public companies should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company expects to adopt the new standard on January 1, 2019 and use the effective date as its date of initial application.
A modified retrospective transition approach would require applying the new standard to all leases existing at the date of initial application. An entity may choose to use either (1) its effective date or (2) the beginning of the earliest comparative period presented in the financial statements as its date of initial application. If an entity chooses the second option, the transition requirements for existing leases also apply to leases entered into between the date of initial application and the effective date. An entity must also recast its comparative period financial statements and provide the disclosures required by the new standard for the comparative periods. Consequently, financial information will not be updated and the disclosures required under the new standard will not be provided for dates and periods before January 1, 2019. The new standard provides several optional practical expedients in transition. The Company expects to elect the ‘package of practical expedients’, which permits us not to reassess under the new standard prior conclusions about lease identification, lease classification and initial direct costs. The Company does not expect to elect the use-of hindsight or the practical expedient pertaining to land easements; the latter not being applicable. The standard also provides practical expedients for an entity’s ongoing accounting. The Company
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
currently expects to elect the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize right-of-use assets or lease liabilities, and this includes not recognizing right-of-use assets or lease liabilities for existing short-term leases of those assets in transition. The Company also currently expects to elect the practical expedient to not separate lease and non-lease components for all its leases.
The Company expects that ASU 2016-02 will have a material effect on its financial statements. While the Company continues to assess all of the effects of adoption, it currently believes the most significant effects relate to (1) the recognition of new right-of-use assets and lease liabilities on its balance sheet for real estate operating leases; (2) the derecognition of existing assets and liabilities for certain assets under construction in build-to-suit lease arrangements that the Company will lease when construction is complete; and (3) providing significant new disclosures about its leasing activities. The Company does not expect a significant change in its leasing activities between now and adoption.
Upon adoption, the Company expects to recognize right-of-use assets of approximately
$24.9 million
, with corresponding operating lease liabilities of approximately
$33.3 million
. The operating lease liabilities are based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases. The Company plans to use its estimated incremental borrowing rate based on information available at the date of adoption in calculating the present value of its existing lease payments. The incremental borrowing rate will be determined using the U.S. Treasury rate adjusted to account for the Company’s credit rating and the collateralized nature of operating leases.
Upon adoption, the Company also expects to derecognize an existing debt obligation of
$8.6 million
with corresponding construction-in-process of the same amount for an asset under construction in build-to-suit lease arrangements. Upon completion of the related build-to-suit construction, the Company expects to recognize a new right-of-use asset and lease liability on its balance sheet for the associated lease. The Company does not expect any material adjustments to the opening balance of retained earnings upon adoption of the new standard given the nature of the impacts and the other transition practical expedients elected by the Company. The Company does not expect the adoption of this standard to have a material impact on the recognition, measurement or presentation of lease expenses within its consolidated statements of operations or cash flows.
In June 2018, the FASB issued ASU 2018-07,
Improvements to Non-Employee Share-Based Payment Accounting
, which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the literature, most of the guidance on such payments to non-employees would be aligned with the requirements for share-based payments granted to employees currently under ASC 718,
Compensation - Stock Compensation
. Board members are the only non-employees that the Company grants to, who are treated as “employees” under ASC 718. The guidance is effective for public companies for fiscal years, and interim fiscal periods within those fiscal years, beginning after December 15, 2018. The Company believes that the adoption of ASU 2018-07 will not have a significant impact on the Company’s consolidated financial statements.
3. Revenue Recognition
The following table presents the Company’s net revenue disaggregated based on the revenue source (in thousands):
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2018
|
|
Tuition revenue, net
|
$
|
402,711
|
|
|
Digital materials revenue, net
|
24,730
|
|
|
Technology fee revenue, net
|
14,047
|
|
|
Other revenue, net
(1)
|
1,885
|
|
|
Total revenue, net
|
$
|
443,373
|
|
(1) Primarily consists of revenues generated from services such as graduation fees, transcript fees, and other miscellaneous services.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
The following table presents the Company’s net revenue disaggregated based on the timing of revenue recognition (in thousands):
|
|
|
|
|
|
|
|
|
Twelve Months Ended December 31, 2018
|
|
Over time, over period of instruction
|
$
|
382,554
|
|
|
Over time, full tuition grant
(1)
|
36,230
|
|
|
Point in time
(2)
|
24,589
|
|
|
Total revenue, net
|
$
|
443,373
|
|
|
|
|
|
(1)
|
Represents revenue generated from the corporate full tuition grant (“FTG”) program.
|
|
|
|
|
(2)
|
Represents revenue generated from digital textbooks and other miscellaneous fees.
|
The Company operates under one reportable segment and has no foreign operations or assets located outside of the United States.
Deferred Revenue
Deferred revenue consists of cash payments that are received or due in advance of the Company’s performance as well as deferrals associated with certain contracts that include a material right. Below are the opening and closing balances of deferred revenue from the Company’s contracts with customers (in thousands):
|
|
|
|
|
|
|
|
|
Deferred Revenue
|
|
Opening balance, January 1, 2018
|
$
|
22,001
|
|
|
Closing balance, December 31, 2018
|
21,768
|
|
|
Increase (Decrease)
|
$
|
(233
|
)
|
For further information on deferred revenue and student deposits, refer to Note
11
, “Deferred Revenue and Student Deposits” and for further information on receivables, refer to Note 6, “Accounts Receivable, Net” within the consolidated financial statements.
For the majority of the Company’s customers, payment for products and services is due at the beginning of each course. Billing of products and services transferred under a FTG student contract generally occurs after the conclusion of a course. Under special circumstances, some customers may be offered non-interest bearing payment plan arrangements that can extend for up to a maximum of three years. These payment plan arrangements give rise to a significant financing component. 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 the significant financing component in these transactions 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 year ended
December 31, 2018
, the Company recognized
$21.9 million
of revenue that was included in the deferred revenue balance as of January 1, 2018. Amounts reported in the closing balance of deferred revenue are expected to be recognized as revenue within the next 12 months.
4
. Restructuring and Impairment Charges
The Company has written off certain assets and has implemented various restructuring plans to better align its resources with its business strategy. These related charges are recorded in the restructuring and impairment charges line item on the Company’s consolidated statements of income (loss).
During the years ended
December 31, 2018
,
2017
and
2016
, the Company recognized asset impairment charges of
$1.7 million
,
$0.8 million
and
$2.2 million
, respectively. The charges for this year ending
December 31, 2018
, related to the
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
impairment of certain fixed assets, goodwill and intangible assets as a result of the closure of a component of the Company's business. The charges in the year ended
December 31, 2017
also related to the discontinuation of certain software, and the charges in the year ended
December 31, 2016
also related to vacating leased property in 2016 as a result of the decision to close Ashford University’s residential campus in 2015.
With the closure of the residential campus, ground-based Ashford University students were provided opportunities to continue their degrees through individual student transfer agreements. The Company initially recorded restructuring charges relating to future cash expenditures for student transfer agreements based upon several assumptions that were subject to change, including assumptions related to the number of students who elected to continue to pursue their degrees through Ashford University’s online programs. For the years ended
December 31, 2018
,
2017
and
2016
, the Company reassessed this estimate and decreased the related restructuring charges by approximately
$0.3 million
,
$0.1 million
and
$0.1 million
respectively. Offsetting these amounts for the year ended
December 31, 2018
, were charges relating to the closure of a component of the Company's business, where students had the opportunity to have certain portions of their tuition and fees refunded under the Department regulations regarding “borrower defense to repayment.” The Company currently estimates that a reasonable range for this matter is between
$1.5 million
and
$8.3 million
. The Company has recorded an expense of
$1.5 million
for the year ended
December 31, 2018
related to this matter which represents its current best estimate of the cost of resolution of this matter.
The Company has also implemented various reductions in force to help better align personnel resources with the decline in enrollment. During the years ended
December 31, 2018
,
2017
and
2016
, the Company recognized
$1.9 million
,
$2.2 million
and
$2.7 million
, respectively, as restructuring charges related to severance costs for wages and benefits resulting from the reductions in force. The Company anticipates the remainder of these costs will be paid out by the end of the first quarter of 2019 from existing cash on hand.
As part of its continued efforts to streamline operations, the Company vacated or consolidated properties in Denver and San Diego and reassessed its obligations on non-cancelable leases. The fair value estimate of these non-cancelable leases is based on the contractual lease costs over the remaining term, partially offset by estimated future sublease rental income. The estimated rental income considers subleases the Company has executed or expects to execute, current commercial real estate market data and conditions, comparable transaction data and qualitative factors specific to the related facilities. During the years ended
December 31, 2018
,
2017
and
2016
, the Company recorded
$2.9 million
,
$5.8 million
and
$14.5 million
, respectively, as restructuring charges relating to lease exit and other costs, due to reassessment of estimates.
The following table summarizes the amounts recorded in the restructuring and impairment charges line item on the Company's consolidated statements of income (loss) for each of the periods presented (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Asset impairment
|
$
|
1,718
|
|
|
$
|
798
|
|
|
$
|
2,215
|
|
|
Student transfer costs
|
1,186
|
|
|
(120
|
)
|
|
(142
|
)
|
|
Severance costs
|
1,947
|
|
|
2,175
|
|
|
2,668
|
|
|
Lease exit and other costs
|
2,943
|
|
|
5,829
|
|
|
14,535
|
|
|
Total restructuring and impairment charges
|
$
|
7,794
|
|
|
$
|
8,682
|
|
|
$
|
19,276
|
|
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
The following table summarizes the changes in the Company's restructuring liability by type during the three-year period ended
December 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Impairment
|
|
Student Transfer Costs
|
|
Severance Costs
|
|
Lease Exit and Other Costs
|
|
Total
|
|
Balance at December 31, 2015
|
$
|
—
|
|
|
$
|
3,224
|
|
|
$
|
1,744
|
|
|
$
|
13,921
|
|
|
$
|
18,889
|
|
|
Restructuring and impairment charges
|
2,215
|
|
|
(142
|
)
|
|
2,668
|
|
|
14,535
|
|
|
19,276
|
|
|
Payments
|
—
|
|
|
(1,490
|
)
|
|
(3,845
|
)
|
|
(9,999
|
)
|
|
(15,334
|
)
|
|
Non-cash transaction
|
(2,215
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,215
|
)
|
|
Balance at December 31, 2016
|
—
|
|
|
1,592
|
|
|
567
|
|
|
18,457
|
|
|
20,616
|
|
|
Restructuring and impairment charges
|
798
|
|
|
(120
|
)
|
|
2,175
|
|
|
5,829
|
|
|
8,682
|
|
|
Payments
|
—
|
|
|
(878
|
)
|
|
(2,547
|
)
|
|
(13,643
|
)
|
|
(17,068
|
)
|
|
Non-cash transaction
|
(798
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(798
|
)
|
|
Balance at December 31, 2017
|
—
|
|
|
594
|
|
|
195
|
|
|
10,643
|
|
|
11,432
|
|
|
Restructuring and impairment charges
|
1,718
|
|
|
1,186
|
|
|
1,947
|
|
|
2,943
|
|
|
7,794
|
|
|
Payments
|
—
|
|
|
(277
|
)
|
|
(1,875
|
)
|
|
(10,722
|
)
|
|
(12,874
|
)
|
|
Non-cash transaction
|
(1,718
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,718
|
)
|
|
Balance at December 31, 2018
|
$
|
—
|
|
|
$
|
1,503
|
|
|
$
|
267
|
|
|
$
|
2,864
|
|
|
$
|
4,634
|
|
The restructuring liability amounts are recorded within either the accounts payable and accrued liabilities account or the rent liability account on the consolidated balance sheets. The Company is not complete with its restructuring activities and anticipates additional charges in the foreseeable future.
5. Investments
The following tables summarize the fair value information of total investments as of
December 31, 2018
and
2017
, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Mutual funds
|
$
|
2,068
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Mutual funds
|
$
|
2,065
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,065
|
|
The mutual funds in the tables above, represent the deferred compensation asset balances, which are considered to be trading securities. There were no transfers between level categories for investments during the periods presented. The Company’s money market securities are recorded in the cash and cash equivalents line item on the Company’s consolidated balance sheets, and are classified as Level 1 securities.
There were no differences between amortized cost and fair value of investments as of
December 31, 2018
and
2017
. There were no reclassifications out of accumulated other comprehensive income during either the
twelve months ended
December 31, 2018
and
2017
. As of
December 31, 2018
, the
$2.1 million
of mutual funds, representing the deferred compensation asset balances are considered to be trading securities.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
6. Accounts Receivable, Net
Accounts receivable, net, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
|
Accounts receivable
|
$
|
39,195
|
|
|
$
|
39,363
|
|
|
Less allowance for doubtful accounts
|
12,180
|
|
|
15,189
|
|
|
Accounts receivable, net
|
$
|
27,015
|
|
|
$
|
24,174
|
|
There is an immaterial amount of accounts receivable, net, at each balance sheet date with a payment due date of greater than one year.
The following table presents the changes in the allowance for doubtful accounts for accounts receivable for the periods indicated (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts receivable:
|
Beginning
Balance
|
|
Charged to
Expense
|
|
Deductions (1)
|
|
Ending
Balance
|
|
For the year ended December 31, 2018
|
$
|
15,189
|
|
|
$
|
22,834
|
|
|
$
|
(25,843
|
)
|
|
$
|
12,180
|
|
|
For the year ended December 31, 2017
|
$
|
15,621
|
|
|
$
|
30,294
|
|
|
$
|
(30,726
|
)
|
|
$
|
15,189
|
|
|
For the year ended December 31, 2016
|
$
|
10,114
|
|
|
$
|
31,862
|
|
|
$
|
(26,355
|
)
|
|
$
|
15,621
|
|
|
|
|
|
(1)
|
Deductions represent accounts written off, net of recoveries.
|
7. Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
|
Prepaid expenses
|
$
|
5,445
|
|
|
$
|
6,195
|
|
|
Prepaid licenses
|
5,840
|
|
|
4,882
|
|
|
Income tax receivable
|
5,044
|
|
|
8,889
|
|
|
Prepaid insurance
|
1,077
|
|
|
1,215
|
|
|
Insurance recoverable
|
723
|
|
|
1,192
|
|
|
Other current assets
|
126
|
|
|
15
|
|
|
Total prepaid expenses and other current assets
|
$
|
18,255
|
|
|
$
|
22,388
|
|
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
8. Property and Equipment, Net
Property and equipment, net, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
|
Buildings, build-to-suit
|
$
|
10,434
|
|
|
$
|
—
|
|
|
Furniture and office equipment
|
31,227
|
|
|
43,330
|
|
|
Software
|
7,517
|
|
|
12,313
|
|
|
Leasehold improvements
|
3,430
|
|
|
5,445
|
|
|
Vehicles
|
22
|
|
|
22
|
|
|
Total property and equipment
|
52,630
|
|
|
61,110
|
|
|
Less accumulated depreciation and amortization
|
(35,770
|
)
|
|
(50,676
|
)
|
|
Total property and equipment, net
|
$
|
16,860
|
|
|
$
|
10,434
|
|
Depreciation and amortization expense associated with property and equipment totaled $
4.3 million
, $
5.5 million
and $
8.4 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
9. Goodwill and Intangibles, Net
Goodwill and intangibles, net, consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2018
|
|
Definite-lived intangible assets:
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Capitalized curriculum costs
|
$
|
21,076
|
|
|
$
|
(19,338
|
)
|
|
$
|
1,738
|
|
|
Purchased intangible assets
|
15,850
|
|
|
(7,219
|
)
|
|
8,631
|
|
|
Total definite-lived intangible assets
|
$
|
36,926
|
|
|
$
|
(26,557
|
)
|
|
$
|
10,369
|
|
|
Goodwill and indefinite-lived intangibles
|
|
|
|
|
2,072
|
|
|
Total goodwill and intangibles, net
|
|
|
|
|
$
|
12,441
|
|
|
|
|
|
|
|
|
|
|
December 31, 2017
|
|
Definite-lived intangible assets:
|
Gross Carrying Amount
|
|
Accumulated Amortization
|
|
Net Carrying Amount
|
|
Capitalized curriculum costs
|
$
|
21,463
|
|
|
$
|
(19,300
|
)
|
|
$
|
2,163
|
|
|
Purchased intangible assets
|
15,850
|
|
|
(5,987
|
)
|
|
9,863
|
|
|
Total definite-lived intangible assets
|
$
|
37,313
|
|
|
$
|
(25,287
|
)
|
|
$
|
12,026
|
|
|
Goodwill and indefinite-lived intangibles
|
|
|
|
|
2,567
|
|
|
Total goodwill and intangibles, net
|
|
|
|
|
$
|
14,593
|
|
Goodwill and indefinite-lived intangibles includes the goodwill resulting from prior period acquisitions and the indefinite-lived intangibles attributable to the accreditation of the Company's institution. Definite-lived intangibles include trademark agreements and digital course materials.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
For the years ended
December 31, 2018
,
2017
and
2016
, amortization expense was
$2.5 million
,
$3.4 million
and
$4.7 million
, respectively. The following table summarizes the estimated remaining amortization expense as of each fiscal year ended below (in thousands):
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
$
|
2,041
|
|
|
2020
|
1,791
|
|
|
2021
|
1,549
|
|
|
2022
|
1,280
|
|
|
2023
|
1,236
|
|
|
Thereafter
|
2,472
|
|
|
Total future amortization expense
|
$
|
10,369
|
|
10. Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
|
Accounts payable
|
$
|
5,313
|
|
|
$
|
5,619
|
|
|
Accrued salaries and wages
|
7,807
|
|
|
8,573
|
|
|
Accrued bonus
|
8,147
|
|
|
6,924
|
|
|
Accrued vacation
|
7,929
|
|
|
8,237
|
|
|
Accrued litigation and fees
|
8,041
|
|
|
9,886
|
|
|
Accrued expenses
|
17,692
|
|
|
16,024
|
|
|
Current leases payable
|
5,768
|
|
|
12,971
|
|
|
Accrued insurance liability
|
2,095
|
|
|
2,931
|
|
|
Total accrued liabilities
|
$
|
62,792
|
|
|
$
|
71,165
|
|
11
. Deferred Revenue and Student Deposits
Deferred
revenue
and student
deposits consists of
the following
(in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
|
Deferred revenue
|
$
|
21,768
|
|
|
$
|
22,001
|
|
|
Student deposits
|
42,066
|
|
|
48,765
|
|
|
Total deferred revenue and student deposits
|
$
|
63,834
|
|
|
$
|
70,766
|
|
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
12. Other Long-Term Liabilities
Other long-term liabilities consists of
the following
(in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
|
Uncertain tax positions
|
$
|
865
|
|
|
$
|
8,893
|
|
|
Other long-term liabilities
|
2,570
|
|
|
3,815
|
|
|
Total other long-term liabilities
|
$
|
3,435
|
|
|
$
|
12,708
|
|
13
.
Credit Facilities
The Company has issued letters of credit that are collateralized with cash in the aggregate amount of
$14.9 million
, which is included as either restricted cash or other long-term assets in the consolidated balance sheets as of
December 31, 2018
.
As part of its normal business operations, the Company is required to provide surety bonds in certain states in which the Company does business. The Company has entered a surety bond facility with an insurance company to provide such bonds when required. As of
December 31, 2018
, the Company's total available surety bond facility was
$6.5 million
and the surety had issued bonds totaling
$4.2 million
on the Company's behalf under such facility.
14. Lease Obligations
Operating leases
The Company leases certain office facilities and office equipment under non-cancelable lease arrangements that expire at various dates through 2023. The office leases contain certain renewal options. Rent expense under non-cancelable operating lease arrangements is accounted for on a straight-line basis and totaled
$14.9 million
,
$15.0 million
and
$23.3 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. Rent expense in certain periods also includes the restructuring and impairment charges recorded and therefore, may differ significantly from cash payments. For additional information, see Note
4
, “Restructuring and Impairment Charges.”
The following table summarizes the future minimum rental payments under non-cancelable operating lease arrangements in effect at
December 31, 2018
(in thousands):
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2019
|
$
|
20,382
|
|
|
2020
|
9,936
|
|
|
2021
|
6,460
|
|
|
2022
|
3,826
|
|
|
2023
|
2,726
|
|
|
Thereafter
|
17,710
|
|
|
Total minimum payments
|
$
|
61,040
|
|
The Company has agreements to sublease certain portions of its office facilities, with
three
active subleases as of
December 31, 2018
. The Company is subleasing approximately
28,300
square feet of office space in San Diego, California with a commitment to lease for
16
months and a net sublease value of
$1.0 million
. In addition, the Company is subleasing approximately
72,000
square feet of office space in Denver, Colorado with a commitment to lease for
32
months and a net sublease value of
$3.2 million
.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
During 2018, the Company entered into a lease agreement consisting of approximately
131,000
square feet of office space located in Chandler, Arizona. Although the Company is not the legal owner of the leased space, the Company is involved in the construction and the build-out of the space, and as such, serves as the construction agent on behalf of the landlord. Under such arrangement, the Company has obligations to fund cost over-runs in its capacity as the construction agent, and accordingly has determined that under lease accounting standard ASC 840,
Leases,
it bears substantially all of the risks and rewards of ownership as measured under GAAP. The Company is therefore required to report the landlord's costs of construction on its balance sheet as a fixed asset during the construction period as if the Company owned such asset. In connection with this arrangement, the Company has recorded
$10.4 million
in buildings, build-to-suit, in property and equipment, net, with a corresponding lease financing obligation of
$8.6 million
on the consolidated balance sheets as of
December 31, 2018
.
15. 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 during the period, plus (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive securities for the periods presented include incremental 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Numerator:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
4,636
|
|
|
$
|
9,111
|
|
|
$
|
(33,051
|
)
|
|
Denominator:
|
|
|
|
|
|
|
Weighted average number of common shares outstanding
|
27,135
|
|
|
32,058
|
|
|
46,228
|
|
|
Effect of dilutive options and stock units
|
428
|
|
|
736
|
|
|
—
|
|
|
Diluted weighted average number of common shares outstanding
|
27,563
|
|
|
32,794
|
|
|
46,228
|
|
|
Income (loss) per share:
|
|
|
|
|
|
|
Basic
|
$
|
0.17
|
|
|
$
|
0.28
|
|
|
$
|
(0.71
|
)
|
|
Diluted
|
$
|
0.17
|
|
|
$
|
0.28
|
|
|
$
|
(0.71
|
)
|
The following table sets forth the number of stock options, RSUs and PSUs excluded from the computation of diluted loss per share for the periods indicated because their effect was anti-dilutive (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Stock options
|
2,524
|
|
|
1,850
|
|
|
4,359
|
|
|
Stock units
|
64
|
|
|
6
|
|
|
730
|
|
16
. Stock-Based Compensation
The Company recorded
$4.8 million
,
$3.6 million
and
$7.3 million
of compensation expense related to equity awards for the years ended
December 31, 2018
,
2017
and
2016
, respectively. The related income tax benefit was
$1.2 million
,
$1.4 million
and
$2.7 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively. However, there was no net tax benefit recorded for the equity awards, as the Company was in a full valuation allowance position for the years ended
December 31, 2018
,
2017
and
2016
. The Company records stock-based compensation expense over the vesting term using the graded-vesting method.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
Stock Options
The Company grants stock options from its 2009 Stock Incentive Plan (the “2009 Plan”). The compensation committee of the Company's board of directors, or the full board of directors, determines eligibility, vesting schedules and exercise prices for stock options granted under the 2009 Plan. Stock options granted under the 2009 Plan typically have a maximum contractual term of
10 years
, subject to the option holder's continuing service with the Company. Stock options are generally granted with a
four
-year vesting requirement, pursuant to which the option holder must continue providing service to the Company at the applicable vesting date. All stock options granted during the years ended December 31,
2018
,
2017
and
2016
were awarded pursuant to the 2009 Plan. Under the 2009 Plan, the number of authorized shares is subject to automatic increase each January 1 through and including January 1, 2019, pursuant to a formula contained in the 2009 Plan, without the need for further approval by the Company's board of directors or stockholders.
Before the adoption of the 2009 Plan, the Company awarded stock options pursuant to the Company's Amended and Restated 2005 Stock Incentive Plan (the “2005 Plan”). Effective upon the closing of the Company's initial public offering, the 2005 Plan was terminated and no further stock options may be issued under the 2005 Plan, provided that all stock options then outstanding under the 2005 Plan will continue to remain outstanding pursuant to the terms of the 2005 Plan and the applicable award agreements.
The following table presents a summary of stock option activity during the years ended December 31,
2018
,
2017
and
2016
(in thousands, except for exercise prices and contractual terms):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
Outstanding
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
(in years)
|
|
Aggregate
Intrinsic Value
|
|
December 31, 2015
|
4,653
|
|
|
$
|
13.72
|
|
|
4.84
|
|
$
|
2,556
|
|
|
Granted
|
375
|
|
|
$
|
10.44
|
|
|
|
|
|
|
Exercised
|
(306
|
)
|
|
$
|
4.35
|
|
|
|
|
|
|
Forfeitures and expired
|
(1,115
|
)
|
|
$
|
15.41
|
|
|
|
|
|
|
December 31, 2016
|
3,607
|
|
|
$
|
13.64
|
|
|
4.80
|
|
$
|
2,025
|
|
|
Granted
|
332
|
|
|
$
|
10.44
|
|
|
|
|
|
|
Exercised
|
(537
|
)
|
|
$
|
7.17
|
|
|
|
|
|
|
Forfeitures and expired
|
(502
|
)
|
|
$
|
15.51
|
|
|
|
|
|
|
December 31, 2017
|
2,900
|
|
|
$
|
14.15
|
|
|
4.23
|
|
$
|
—
|
|
|
Granted
|
35
|
|
|
$
|
6.89
|
|
|
|
|
|
|
Exercised
|
(798
|
)
|
|
$
|
10.50
|
|
|
|
|
|
|
Forfeitures and expired
|
(165
|
)
|
|
$
|
17.82
|
|
|
|
|
|
|
December 31, 2018
|
1,972
|
|
|
$
|
15.19
|
|
|
4.49
|
|
$
|
4
|
|
|
Vested and expected to vest at December 31, 2018
|
1,965
|
|
|
$
|
15.21
|
|
|
4.48
|
|
$
|
4
|
|
|
Exercisable at December 31, 2018
|
1,740
|
|
|
$
|
15.90
|
|
|
4.02
|
|
$
|
—
|
|
As of
December 31, 2018
, the Company had
4.2 million
shares of common stock reserved for issuance upon the exercise of outstanding stock options and settlement of outstanding stock awards under the Company's equity incentive plans. Shares issued upon stock option exercises and settlements of stock awards are drawn from the authorized but unissued shares of common stock.
During the year ended
December 31, 2018
, there were
0.8 million
stock options exercised with an intrinsic value of
$2.3 million
.
No
windfall tax benefit was realized from these exercises. The Company also realized a total tax benefit shortfall of
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
$0.8 million
. During the year ended
December 31, 2017
, there were
0.5 million
stock options exercised with an intrinsic value of
$2.7 million
. The windfall tax benefit realized from these exercises was
$0.3 million
. The Company also realized a total tax benefit shortfall of
$1.6 million
. During the year ended
December 31, 2016
, there were
0.3 million
stock options exercised with an intrinsic value of
$1.2 million
. The windfall tax benefit realized from these exercises was
$0.3 million
. The Company also realized a total tax benefit shortfall of
$3.4 million
.
Approximately
0.2 million
and
0.3 million
stock options expired during the years ended
December 31, 2018
and
2017
, respectively.
The fair value of each stock option award granted during the years ended
December 31, 2018
,
2017
and
2016
was estimated on the date of grant using the Black-Scholes option pricing model. The Company's determination of the fair value of share-based awards is affected by the Company's common stock price as well as assumptions regarding several complex and subjective variables.
Below is a summary of the assumptions used for the stock options granted in the years indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
Weighted average exercise price per share
|
$
|
6.89
|
|
|
$
|
10.44
|
|
|
$
|
10.44
|
|
|
Risk-free interest rate
|
2.7
|
%
|
|
2.1
|
%
|
|
1.4
|
%
|
|
Expected dividend yield
|
—
|
|
|
—
|
|
|
—
|
|
|
Expected volatility
|
41.8
|
%
|
|
47.2
|
%
|
|
49.8
|
%
|
|
Expected life (in years)
|
5.75
|
|
|
5.75
|
|
|
5.75
|
|
|
Forfeiture rate
|
13.0
|
%
|
|
11.0
|
%
|
|
9.0
|
%
|
|
Weighted average grant date fair value per share
|
$
|
2.97
|
|
|
$
|
4.76
|
|
|
$
|
4.91
|
|
The risk-free interest rate is based on the currently available rate on a U.S. Treasury zero-coupon issue with a remaining term equal to the expected term of the stock option converted into a continuously compounded rate. The Company has never declared or paid any cash dividends on its common stock and does not currently anticipate paying cash dividends in the future. The Company has enough historical option exercise information to compute an expected term for use as an assumption in the Black-Scholes option pricing model, and as such, its computation of expected term was calculated using its own historical data. The volatility of the Company's common stock is also based upon its own historical volatility.
As of
December 31, 2018
,
2017
and
2016
, there was
$0.4 million
,
$0.9 million
and
$1.4 million
, respectively, of unrecognized compensation costs related to unvested stock options. At
December 31, 2018
, the unrecognized compensation costs of stock options were expected to be recognized over a weighted average period of
1.1
years.
Stock Awards
The Company also grants RSUs to its employees under the 2009 Plan. Each RSU represents the future issuance of
one
share of the Company's common stock contingent upon the recipient's continued service with the Company through the applicable vesting date. Upon the vesting date, RSUs are automatically settled for shares of the Company's common stock unless the applicable award agreement provides for delayed settlement. If prior to the vesting date the employee's status as a full-time employee is terminated, the unvested RSUs are automatically canceled on the employment termination date, unless otherwise specified in an employee's individual employment agreement. The fair value of an RSU is calculated based on the market value of the common stock on the grant date and is amortized over the applicable vesting period using the graded-vesting method.
The Company also grants certain PSUs under the 2009 Plan to various individuals. During the year ended
December 31, 2018
,
0.2 million
PSUs were granted. There were
no
PSUs granted during either of the years ended December 31, 2017 or 2016. Each PSU represents the future issuance of
one
share of the Company's common stock contingent upon achievement of the applicable performance target and the recipient's continued service with the Company through the applicable vesting date.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
Certain of the PSUs may be earned based on the achievement of a market-based measure, and certain of the PSUs may be earned based on performance-based measures.
With respect to each award of PSUs, vesting is based upon the achievement of the applicable performance target, and subject to the employee's continued service with the Company through the applicable vesting date. If prior to the vesting date the employee's status as a full-time employee is terminated, the unvested PSUs are automatically canceled on the employment termination date, unless otherwise specified in an employee's individual employment agreement. PSUs are amortized over the applicable vesting period using the graded-vesting method. The fair value of the portion of the PSU awards subject to earning based on the achievement of a performance-based measure was based on the Company's stock price as of the date the applicable performance target was approved by the Company's board of directors. Compensation cost for the portion of the PSU awards subject to earning based on the achievement of a performance-based measure is recorded based on the probable outcome of the performance conditions associated with the shares, as determined by management. The fair value of the portion of the PSU awards subject to earning based on the achievement of a market-based measure was estimated based on the Company's stock price as of the date of grant using a Monte Carlo simulation model.
The assumptions for the portion of the PSU awards subject to earning based on the achievement of a market-based measure are noted in the following table:
|
|
|
|
|
|
|
|
|
2018
|
|
Grant price per share
|
$
|
9.57
|
|
|
Risk-free interest rate
|
2.9
|
%
|
|
Expected dividend yield
|
—
|
|
|
Historical volatility
|
52.5
|
%
|
|
Expected life (in years)
|
1.5
|
|
|
Forfeiture rate
|
13.0
|
%
|
|
Weighted average grant date fair value per share
|
$
|
11.34
|
|
A summary of the RSU and PSU activity and related information is as follows (in thousands, except for exercise prices and contractual terms):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units and Performance Stock Units
|
|
|
Time-Based RSU
|
|
Performance-Based PSU
|
|
Market-Based PSU
|
|
|
Number of Shares
|
|
Weighted Average
Purchase Price
|
|
Number of Shares
|
|
Weighted Average
Purchase Price
|
|
Number of Shares
|
|
Weighted Average
Purchase Price
|
|
Balance at December 31, 2015
|
1,390
|
|
|
$
|
10.78
|
|
|
359
|
|
|
$
|
9.86
|
|
|
966
|
|
|
$
|
5.11
|
|
|
Awarded
|
505
|
|
|
$
|
10.18
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Vested
|
(472
|
)
|
|
$
|
10.84
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Canceled
|
(289
|
)
|
|
$
|
10.69
|
|
|
(92
|
)
|
|
$
|
9.86
|
|
|
(231
|
)
|
|
$
|
5.19
|
|
|
Balance at December 31, 2016
|
1,134
|
|
|
$
|
10.52
|
|
|
267
|
|
|
$
|
9.86
|
|
|
735
|
|
|
$
|
5.09
|
|
|
Awarded
|
473
|
|
|
$
|
10.45
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Vested
|
(461
|
)
|
|
$
|
10.58
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Canceled
|
(302
|
)
|
|
$
|
10.51
|
|
|
(103
|
)
|
|
$
|
9.86
|
|
|
(300
|
)
|
|
$
|
5.04
|
|
|
Balance at December 31, 2017
|
844
|
|
|
$
|
10.45
|
|
|
164
|
|
|
$
|
9.86
|
|
|
435
|
|
|
$
|
5.13
|
|
|
Awarded
|
1,121
|
|
|
$
|
7.55
|
|
|
—
|
|
|
—
|
|
|
237
|
|
|
9.57
|
|
|
Vested
|
(377
|
)
|
|
$
|
10.68
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Canceled
|
(148
|
)
|
|
$
|
9.61
|
|
|
—
|
|
|
$
|
—
|
|
|
(2
|
)
|
|
$
|
9.57
|
|
|
Balance at December 31, 2018
|
1,440
|
|
|
$
|
8.22
|
|
|
164
|
|
|
$
|
9.86
|
|
|
670
|
|
|
$
|
6.69
|
|
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
As of
December 31, 2018
and
2017
, there was
$6.4 million
and
$3.6 million
, respectively, of unrecognized compensation costs related to unvested RSUs. At
December 31, 2018
, the unrecognized compensation costs of RSUs were expected to be recognized over a weighted average period of
1.4
years.
During the year ended
December 31, 2018
,
0.4 million
RSUs vested and were released with a market value of
$2.8 million
. The related windfall tax benefit realized was approximately
$39,000
, and the related tax benefit shortfall realized was
$0.3 million
. During the year ended
December 31, 2017
,
0.5 million
RSUs vested and were released with a market value of
$4.8 million
. The related windfall tax benefit realized was
$0.1 million
, and the related tax benefit shortfall realized from the RSUs released was
$0.1 million
. During the year ended December 31,
2016
,
0.5 million
RSUs vested and were released with a market value of
$4.8 million
. There was
$0.1 million
related windfall tax benefit realized, and the related tax benefit shortfall realized from the RSUs released was
$0.2 million
.
As of
December 31, 2018
, there was
$2.7 million
of unrecognized compensation costs related to unvested PSUs. At
December 31, 2018
, the unrecognized compensation costs of PSUs were expected to be recognized over a weighted average period of
0.8
years, to the extent the applicable performance criteria are met.
No
PSUs vested during the years ended
December 31, 2018
,
2017
and
2016
.
17
. Stock Repurchase Programs
The Company's board of directors (“board”) may authorize the Company to repurchase outstanding shares of its common stock from time to time in the open market through block trades or otherwise depending on market conditions and other considerations, pursuant to the applicable rules of the Securities and Exchange Commission (“SEC”). The Company's policy is to retain these repurchased shares as treasury shares and not to retire them. The amount and timing of future share repurchases, if any, will be determined as market and business conditions warrant.
On March 10, 2017, the Company repurchased approximately
18.1 million
shares of the Company's common stock for an aggregate purchase price of approximately
$152.0 million
, including fees. On November 21, 2017, the Company repurchased
2.1 million
shares of the Company's common stock for an aggregate purchase price of approximately
$16.7 million
, including fees.
On November 17, 2017, the Company's board authorized a share repurchase program of up to
$20.0 million
in aggregate value of shares of its common stock over the next 12 months. The timing and extent of any repurchases will depend upon market conditions, the trading price of the Company's shares and other factors, and subject to the restrictions relating to volume, price and timing under applicable law. In addition, the Company may commence or suspend share repurchases at any time or from time to time. Under this program, during the year ended
December 31, 2018
, the Company repurchased approximately
0.4 million
shares of the Company’s common stock for an aggregate purchase price of approximately
$2.4 million
, including fees.
18. 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 financial statements that will result in income and deductions in future years. The components of income tax expense (benefit) are as follows (in thousands):
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Current:
|
|
|
|
|
|
|
Federal
|
$
|
(1,836
|
)
|
|
$
|
(1,091
|
)
|
|
$
|
(8,433
|
)
|
|
State
|
(5,727
|
)
|
|
517
|
|
|
530
|
|
|
|
(7,563
|
)
|
|
(574
|
)
|
|
(7,903
|
)
|
|
Deferred:
|
|
|
|
|
|
|
Federal
|
(12
|
)
|
|
(605
|
)
|
|
25
|
|
|
State
|
(7
|
)
|
|
5
|
|
|
3
|
|
|
|
(19
|
)
|
|
(600
|
)
|
|
28
|
|
|
Total
|
$
|
(7,582
|
)
|
|
$
|
(1,174
|
)
|
|
$
|
(7,875
|
)
|
On December 22, 2017, H.R.1, formerly known as the Tax Cuts and Jobs Act (the “Tax Legislation”) significantly revised the U.S. tax code that could affect the Company's year ended December 31, 2018, including, but not limited to, lowering the U.S. federal corporate income tax rate from
35%
to
21%
; bonus depreciation that will allow for full expensing of qualified property; limitations on the deductibility of certain executive compensation and other deductions; and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017. The enactment of the Tax Legislation resulted in a one-time remeasurement of the Company's U.S. federal deferred tax assets and liabilities from
35%
to the lower enacted corporate tax rate or
21%
. The provisional remeasurement of the Company's deferred tax balance was primarily offset by a corresponding change in the valuation allowance in the year ended December 31, 2017. The Company completed its accounting for the income tax effects of the Tax Legislation in 2018, and no material adjustments were required to the provisional amounts initially recorded.
Each reporting period, the Company assesses the likelihood that it will be able to recover its deferred tax assets, which represent timing differences in the recognition of certain tax deductions for accounting and tax purposes. The realization of deferred tax assets is dependent, in part, upon future taxable income. Significant judgment is required in determining any valuation allowance recorded against deferred tax assets. In assessing the need for a valuation allowance, the Company considers all available evidence, including past operating results, estimates of future taxable income given current business conditions affecting the Company, and the feasibility of ongoing tax planning strategies.
As of December 31, 2018, the Company continued to record a full valuation allowance against all net deferred tax assets mainly because the Company was in a three-year cumulative pretax book loss position at December 31, 2018. The Company intends to maintain a valuation allowance against its deferred tax assets until sufficient positive evidence exists to support its reversal.
Deferred income tax balances reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities and their tax bases and are stated at enacted tax rates expected to be in effect when taxes are paid or recovered.
Significant components of the Company’s deferred tax assets and liabilities and balance sheet classifications are as follows (in thousands):
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2018
|
|
2017
|
|
Deferred tax assets:
|
|
|
|
|
Net operating loss
|
$
|
5,925
|
|
|
$
|
2,183
|
|
|
Fixed assets
|
1,543
|
|
|
(291
|
)
|
|
Bad debt
|
1,537
|
|
|
1,194
|
|
|
Vacation accrual
|
1,954
|
|
|
1,880
|
|
|
Stock-based compensation
|
5,313
|
|
|
6,435
|
|
|
Deferred rent
|
2,168
|
|
|
4,818
|
|
|
State tax
|
—
|
|
|
1,520
|
|
|
Bonus accrual
|
1,456
|
|
|
1,372
|
|
|
Accrued expenses
|
3,303
|
|
|
3,711
|
|
|
Revenue reserves
|
—
|
|
|
2,007
|
|
|
Other
|
987
|
|
|
766
|
|
|
Total deferred tax assets
|
24,186
|
|
|
25,595
|
|
|
Valuation allowance
|
(23,603
|
)
|
|
(25,251
|
)
|
|
Net deferred tax assets
|
583
|
|
|
344
|
|
|
Deferred tax liabilities:
|
|
|
|
|
Indefinite-lived intangibles
|
(450
|
)
|
|
(517
|
)
|
|
Other
|
(288
|
)
|
|
—
|
|
|
Total deferred tax liabilities
|
(738
|
)
|
|
(517
|
)
|
|
Total net deferred tax assets (liabilities)
|
$
|
(155
|
)
|
|
$
|
(173
|
)
|
At
December 31, 2018
, the Company had federal and state net operating loss carryforwards of
$19.9 million
and
$35.0 million
, respectively, which are available to offset future taxable income. The federal and state net operating loss carryforwards will begin to expire in
2021
and 2020, respectively. The Company’s utilization of net operating loss carryforwards may be subject to annual limitations due to ownership change provisions of Section 382 of Internal Revenue Code of 1986, as amended.
The following table presents a reconciliation of the income tax benefit computed using the federal statutory tax rate of
21%
and the Company's provision for income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Computed expected federal tax expense
|
$
|
(619
|
)
|
21.0
|
%
|
|
$
|
2,778
|
|
35.0
|
%
|
|
$
|
(14,324
|
)
|
35.0
|
%
|
|
State taxes, net of federal benefit
|
142
|
|
(4.8
|
)
|
|
277
|
|
3.5
|
|
|
(628
|
)
|
1.5
|
|
|
Permanent differences
|
640
|
|
(21.7
|
)
|
|
(363
|
)
|
(4.5
|
)
|
|
341
|
|
(0.8
|
)
|
|
Penalty
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
2,800
|
|
(6.8
|
)
|
|
Uncertain tax positions
|
(4,422
|
)
|
150.1
|
|
|
677
|
|
8.5
|
|
|
346
|
|
(0.9
|
)
|
|
Credits
|
—
|
|
—
|
|
|
(466
|
)
|
(5.9
|
)
|
|
(402
|
)
|
1.0
|
|
|
Stock compensation
|
879
|
|
(29.8
|
)
|
|
1,277
|
|
16.1
|
|
|
116
|
|
(0.3
|
)
|
|
Federal tax rate change
|
—
|
|
—
|
|
|
12,726
|
|
160.3
|
|
|
—
|
|
—
|
|
|
Domestic production activities
|
(2,245
|
)
|
76.2
|
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
Valuation allowance
|
(1,939
|
)
|
65.8
|
|
|
(18,169
|
)
|
(228.9
|
)
|
|
3,839
|
|
(9.4
|
)
|
|
Other
|
(18
|
)
|
0.6
|
|
|
89
|
|
1.1
|
|
|
37
|
|
(0.1
|
)
|
|
Income tax benefit
|
$
|
(7,582
|
)
|
257.4
|
%
|
|
$
|
(1,174
|
)
|
(14.8
|
)%
|
|
$
|
(7,875
|
)
|
19.2
|
%
|
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
The Company has recognized a tax benefit of
$5.7 million
associated with a reduction in uncertain tax position mainly associated with the California audit examination settlement for the tax years ended December 31, 2008 through 2012, and
$1.8 million
income tax benefit including interest associated with refund claims for qualified production activities tax deductions for the tax years ended December 31, 2013 and 2014.
The following table presents a reconciliation of the beginning and ending amount of unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2018
|
|
2017
|
|
2016
|
|
Unrecognized tax benefits at beginning of period
|
$
|
18,869
|
|
|
$
|
20,248
|
|
|
$
|
20,589
|
|
|
Gross increases - tax positions in prior period
|
487
|
|
|
427
|
|
|
176
|
|
|
Gross decreases - tax positions in prior period
|
(16,369
|
)
|
|
(1,354
|
)
|
|
(517
|
)
|
|
Gross increases - current period tax positions
|
—
|
|
|
—
|
|
|
—
|
|
|
Settlements
|
(1,936
|
)
|
|
—
|
|
|
—
|
|
|
Lapse of statute of limitations
|
(166
|
)
|
|
(452
|
)
|
|
—
|
|
|
Unrecognized tax benefits at end of period
|
$
|
885
|
|
|
$
|
18,869
|
|
|
$
|
20,248
|
|
In 2018, the Company executed a Closing Agreement with the California Franchise Tax Board to settle an audit principally associated with the method of sourcing services income for sales factor apportionment purposes. The settlement resolved the sales factor sourcing issue for the audit period covering the California income tax returns for years ended December 31, 2008 through 2012. As part of the settlement, the Company has agreed to withdraw a refund claim of
$12.6 million
and paid
$1.9 million
in additional taxes and interest which were previously included in the prior period unrecognized tax benefits.
Included in the amount of unrecognized tax benefits at
December 31, 2018
and
2017
is
$0.7 million
and
$14.8 million
, respectively, of tax benefits that, if recognized, would affect the Company's effective tax rate. Also included in the balance of unrecognized tax benefits at
December 31, 2018
and
2017
is
$0.1 million
and
$3.9 million
, respectively, of tax benefits that, if recognized, would result in adjustments to other tax accounts, primarily deferred tax assets which was offset by a full valuation allowance. It is reasonably possible that the total amount of the unrecognized tax benefit will change during the next 12 months; however, the Company does not expect the potential change to have a material effect on the results of operations or financial position in the next year.
The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. At
December 31, 2018
and
2017
, the Company had approximately
$0.1 million
and
$2.7 million
, respectively, of accrued interest and penalties, before any tax benefit, related to uncertain tax positions.
The Company has analyzed filing positions in all the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The tax years 2001 through 2017 are open to examination by major taxing jurisdictions to which the Company is subject.
The Company is currently under Internal Revenue Service audit examinations of the Company’s income and payroll tax returns for the years 2013 through 2016.
The Company’s income tax returns for the tax years ended December 31, 2013 through 2015 are under examination by the California Franchise Tax Board. The audit examination is currently on hold until the IRS audit examination has been completed.
There are no other income tax audit examinations pending at December 31, 2018 other than the aforementioned IRS and FTB audit examinations.
19
.
Regulatory
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
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 (the “Higher Education Act”), and the regulations promulgated thereunder by the U.S. Department of Education (the “Department”) subject the Company to significant regulatory scrutiny on the basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”). Ashford University is regionally accredited by WASC Senior College and University Commission (“WSCUC”).
Department of Education Open Program Review of Ashford University
On July 7, 2016, Ashford University was notified by the Department that an off-site program review had been scheduled to assess Ashford University’s administration of the Title IV programs in which it participates. The off-site program review commenced on July 25, 2016 and covered students identified in the 2009-2012 calendar year data previously provided by Ashford University to the Department in response to a request for information received from the Multi-Regional and Foreign School Participation Division of the Department’s Office of Federal Student Aid (“FSA”) on December 10, 2015, but may be expanded if the Department deems such expansion appropriate.
On December 9, 2016, the Department informed Ashford University that it intended to continue the program review on-site at Ashford University. The on-site program review commenced on January 23, 2017 and initially covered the 2015-2016 and 2016-2017 award years, but may be expanded if the Department deems such expansion appropriate. To date, the Company has not received a draft report from the Department.
Program Participation Agreement for Ashford University
On April 23, 2018, Ashford University received an updated Program Participation Agreement from the Department. Based on the updated Program Participation Agreement, Ashford University is provisionally certified to participate in Federal Student Financial Aid Programs until March 31, 2021. Ashford University is required to submit its reapplication for continued certification by December 31, 2020.
WSCUC Accreditation of Ashford University
In July 2013, WSCUC granted Initial Accreditation to Ashford University for five years, until July 15, 2018. In December 2013, Ashford 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 a continuing monitoring process, Ashford University hosted a visiting team from WSCUC on a special visit in April 2015. In July 2015, Ashford University received an Action Letter from WSCUC outlining the findings arising out of its visiting team's special visit. The Action Letter stated that the WSCUC visiting team found evidence that Ashford University continues to make progress in all six areas recommended by WSCUC in 2013. As part of its institutional review process, WSCUC commenced its comprehensive review of Ashford University with an off-site review in March 2018. Ashford University was notified on June 8, 2018 that the Ashford University Accreditation Visit originally scheduled for fall 2018 had been rescheduled to April 3-5, 2019.
The “90/10” Rule
Under the Higher Education Act, 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. This rule is commonly referred to as the “90/10 rule.” 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. In September 2016, the Department issued new audit standards, for financial statement audits of proprietary institutions for fiscal years ending June 30, 2017 or later, which include a requirement that institutions must determine Title IV and non-Title IV revenue on a student by student basis. On the basis of this calculation, during the fiscal year ended
December 31, 2018
, Ashford University derived
78.6%
, of their respective cash revenues from Title IV program funds. As previously reported, for fiscal years ended
December 31, 2017
and
2016
, Ashford University derived
80.8%
and
81.2%
, respectively, of its respective cash revenues from Title IV program funds.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
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 William D. Ford 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.
The most recent official three-year cohort default rates for Ashford University for the 2015, 2014 and 2013 federal fiscal years, were
13.5%
,
14.9%
and
14.5%
, respectively.
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.
For the fiscal year ended
December 31, 2017
, the consolidated composite score calculated was
2.3
, satisfying the composite score requirement of the Department's financial responsibility test, which institutions must satisfy to participate in Title IV programs. For the fiscal year ended
December 31, 2018
, the Company expects the consolidated composite score to be
2.2
. However, the consolidated calculation is subject to determination by the Department once it receives and reviews the Company's audited financial statements for the year ended
December 31, 2018
. Additionally, for the year ended
December 31, 2018
, the composite score at the Company's institution is higher than the consolidated score.
Return of Title IV funds for students who withdraw
If a student who has received Title IV funds withdraws, the institution must determine the amount of Title IV program funds the student has earned pursuant to applicable regulations. If the student withdraws during the first 60% of any payment period (which, for undergraduate online students, is typically a 20-week term consisting of four five-week courses), the amount of Title IV funds that the student has earned is equal to a pro rata portion of the funds the student received or for which the student would otherwise be eligible for the payment period. If the student withdraws after the 60% threshold, then the student is deemed to have earned 100% of the Title IV funds received. If the student has not earned all the Title IV funds disbursed, the institution must return the unearned funds to the appropriate lender or the Department in a timely manner, which is generally no later than 45 days after the date the institution determined that the student withdrew. If an institution's annual financial aid compliance audit in either of its two most recently completed fiscal years determines that 5% or more of such returns were not timely made, the institution may be required to submit a letter of credit in favor of the Department equal to 25% of the amount of unearned Title IV funds the institution was required to return for its most recently completed fiscal year. For the fiscal year ended
December 31, 2018
, the Company's institution did not exceed the 5% threshold for late refunds sampled.
Substantial Misrepresentation
The Higher Education Act prohibits an institution participating in Title IV programs from engaging in substantial misrepresentation regarding the nature of its educational programs, its financial charges or the employability of its graduates. Under the Department’s rules, a “misrepresentation” is any false, erroneous or misleading statement an institution, one of its representatives or any ineligible institution, organization or person with whom the institution has an agreement to provide educational programs or marketing, advertising, recruiting, or admissions services makes directly or indirectly to a student, prospective student or any member of the public, or to an accrediting agency, a state agency or the Department. The Department’s rules define a “substantial misrepresentation” as any misrepresentation on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment. For-profit educational institutions are also subject to the general deceptive practices jurisdiction of the Federal Trade Commission and the Consumer Financial Protection Bureau (the “CFPB”).
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
On December 10, 2015, Ashford University received a request for information from the Multi-Regional and Foreign School Participation Division of the FSA for (i) advertising and marketing materials provided to prospective students regarding the transferability of certain credits, (ii) documents produced in response to the August 10, 2015 Civil Investigative Demand from the CFPB related to the CFPB’s investigation to determine whether for-profit postsecondary education companies or other unnamed persons have engaged in or are engaging in unlawful acts or practices related to the advertising, marketing or origination of private student loans, (iii) certain documents produced in response to subpoenas and interrogatories issued by the Attorney General of the State of California (the “CA Attorney General”) and (iv) records created between 2009 and 2012 related to the disbursement of certain Title IV funds. The FSA is investigating representations made by Ashford University to potential and enrolled students, and has asked the Company and Ashford to assist in its assessment of Ashford’s compliance with the prohibition on substantial misrepresentations. The Company and Ashford University are cooperating fully with the FSA with a view toward demonstrating the compliant nature of their practices.
The Department is currently conducting a program review to assess Ashford University’s administration of the Title IV programs in which it participates. For additional information, see “
Department of Education Open Program Review of Ashford University
” above.
If the Department determines that one of the Company’s institution has engaged in substantial misrepresentation, the Department may (i) revoke the institution’s program participation agreement, if the institution is provisionally certified, (ii) impose limitations on the institution’s participation in Title IV programs, if the institution is provisionally certified, (iii) deny participation applications made on behalf of the institution or (iv) initiate proceedings to fine the institution or to limit, suspend or terminate the participation of the institution in Title IV programs. Because Ashford University is provisionally certified, if the Department determined that Ashford has engaged in substantial misrepresentation, the Department may take the actions set forth in clauses (i) and (ii) above in addition to any other actions taken by the Department.
GI Bill Benefits
On May 20, 2016, the Company received a letter from the Iowa Department of Education (“Iowa DOE”) indicating that, as a result of the planned closure of the Clinton Campus, the Iowa State Approving Agency (“ISAA”) would no longer continue to approve Ashford University’s programs for benefits under the GI Bill after June 30, 2016, and recommending Ashford University seek approval through the State Approving Agency of jurisdiction for any location that meets the definition of a “main campus” or “branch campus.” Ashford University began the process of applying for approval through the State Approving Agency in California (“CSAAVE”), and the Company subsequently disclosed that on June 20, 2016 it received a second letter from the Iowa DOE indicating that the Iowa DOE had issued a stay of the ISAA’s withdrawal of approval of Ashford University’s programs for GI Bill benefits effective immediately until the earlier of (i) 90 days from June 20, 2016 or (ii) the date on which CSAAVE completed its review and issued a decision regarding the approval of Ashford University in California. Ashford University received communication from CSAAVE indicating that additional information and documentation would be required before Ashford University’s application could be considered for CSAAVE approval. Ashford University subsequently withdrew the CSAAVE application and continued working with the U.S. Department of Veterans Affairs (“VA”), the Iowa DOE and the ISAA to obtain continued approval of Ashford University’s programs for GI Bill benefits and to prevent any disruption of educational benefits to Ashford University’s veteran students.
On September 15, 2016, in response to a Petition for Declaratory and Injunctive Relief (“Petition”) filed by Ashford University, the Iowa District Court for Polk County entered a written order (“Order”) staying the Iowa DOE’s announced intention to withdraw the approval of Ashford University as a GI Bill eligible institution until the entry of a final and appealable order and judgment in the action. On June 23, 2017, the Iowa District Court held a hearing on Ashford University’s Petition and on July 17, 2017, the Court ruled in favor of the Iowa DOE and denied the petition. Ashford University filed a motion for reconsideration of this ruling, which was denied on August 17, 2017. On August 23, 2017, Ashford University filed a Petition to Vacate or Modify the Iowa District Court’s July 17, 2017 ruling, based on material evidence, newly discovered, which could not with reasonable diligence have been previously discovered by Ashford University (“First Petition to Vacate”). On September 18, 2017, Ashford University appealed,
inter alia
, the July 17, 2017 ruling to the Iowa Supreme Court and posted an appeal bond, which stayed this matter pending resolution of Ashford University’s appeal. As a result, Ashford University’s approval was not withdrawn, and Ashford University’s programs remain approved for GI Bill purposes. The Assistant Attorney General handling this matter on behalf of the Iowa DOE also advised Ashford University that the Iowa DOE would take no
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
action pending the post-ruling motions and appeal. On October 12, 2017, Judge Eliza Ovrom, the Iowa District Court Judge who issued the July 17, 2017 ruling, filed a Disclosure Statement revealing family ties to the Iowa Attorney General’s Office. Following motions by Ashford University for her recusal, Judge Ovrom recused herself from all further proceedings. On October 24, 2017, Ashford University filed with the Iowa Supreme Court a Petition to Vacate or, in the Alternative, for Limited Remand (“Second Petition to Vacate”), in which Ashford University argued that the July 17, 2017 ruling and all other material orders entered by Judge Ovrom should be vacated due to her previously undisclosed conflict of interest. On January 8, 2018, the Iowa Supreme Court remanded the Second Petition to Vacate to the District Court, where all proceedings in this matter were consolidated before Judge Michael Huppert. On April 26, 2018, Judge Huppert granted the Second Petition to Vacate and vacated all material rulings by Judge Ovrom, including the July 17, 2017 ruling, thus on June 21, 2018, the Iowa Supreme Court issued a
Procedendo
stating that the appeal was concluded. Judge Huppert’s decision mooted the First Petition to Vacate and Ashford’s appeal of,
inter alia
, the July 17, 2017 ruling. The case is now proceeding on the merits
de novo
before a new judge.
On July 6, 2017, Ashford University received approval from the Arizona State Approving Agency (“ASAA”) to provide GI Bill benefits to its students. On September 13, 2017, the VA accepted the ASAA’s approval, subject to Ashford University's compliance with the approval requirements, and the University subsequently received a facility code from the VA. On November 9, 2017, the VA informed Ashford University that the ASAA had not provided sufficient evidence to establish that it has jurisdictional authority over Ashford University’s online programs. The VA stated that they intend to suspend payment of educational assistance and approval of new student enrollments and student re-enrollments for Ashford University’s online programs in 60 days unless corrective action was taken.
On November 17, 2017, Ashford University filed a petition for review in the United States Court of Appeals for the Federal Circuit challenging the VA’s actions. In response to that petition, the VA agreed to stay the actions with respect to the suspension and reenrollment it had announced on November 9, 2017 through the entry of judgment in the Federal Circuit case, on the condition that Ashford University request and submit an application for approval to CSAAVE on or before January 8, 2018. Ashford University submitted an application to CSAAVE for approval on January 5, 2018. On February 21, 2018, CSAAVE provided notice of its intention not to act on Ashford University’s initial application for approval for the training of veterans and other eligible persons. The notice directed Ashford University to request approval of its application by the VA. Ashford University continues to work in good faith with the VA while its petition for review remains pending with the Federal Circuit. In keeping with this commitment, Ashford University agreed, at the VA’s request, to submit another application to CSAAVE. Ashford University filed that additional application on November 19, 2018. On December 14, 2018, however, CSAAVE again informed Ashford University that it did not intend to act on Ashford University’s application, and again indicated that Ashford University could request approval of its application directly from the VA.
On January 29, 2019, Ashford University filed its opening brief with the Court of Appeals for the Federal Circuit. Under the briefing schedule established by the Court, VA’s opposition brief is currently due on April 1, 2019, and Ashford University’s reply is currently due on April 22, 2019.
20. Retirement Plans
The Company maintains an employee savings plan (the “401(k) Plan”) that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code of 1986, as amended. Under the 401(k) Plan, participating employees may contribute a portion of their pre-tax earnings up to the Internal Revenue Service annual contribution limit. Additionally, the Company may elect to make matching contributions into the 401(k) Plan in its sole discretion. The Company's total expense related to the 401(k) Plan was
$2.8 million
,
$2.9 million
and
$3.1 million
for the years ended
December 31, 2018
,
2017
and
2016
, respectively.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
21
. Commitments and Contingencies
Litigation
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with GAAP, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated, the best estimate within that range should be accrued. If no estimate is better than another, the Company records the minimum estimated liability in the range. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. Below is a list of material legal proceedings to which the Company or its subsidiaries is a party.
California Attorney General Investigation of For-Profit Educational Institutions
In January 2013, the Company received from the Attorney General of the State of California (the “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 present. 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 the current date.
Representatives from the Company met with representatives from the CA Attorney General’s office on several occasions to discuss the status of the investigation, additional information requests, and specific concerns related to possible unfair business practices in connection with the Company’s recruitment of students and debt collection practices.
The parties also discussed a potential resolution involving injunctive relief, other non-monetary remedies and a payment to the CA Attorney General and in the third quarter of 2016, the Company recorded an expense of
$8.0 million
related to the cost of resolving this matter.
The parties did not reach a resolution and on November 29, 2017, the CA Attorney General filed suit against Ashford University and Bridgepoint Education.
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 were not fully accurate in its statements to investors. However, the outcome of this legal proceeding is uncertain at this point because of the many questions of fact and law that may arise. At present, the Company cannot reasonably estimate any updated range of loss for this action based on currently available information and as such, the prior accrual of
$8.0 million
remains.
Massachusetts Attorney General Investigation of Bridgepoint Education, Inc. and Ashford University
On July 21, 2014, the Company and Ashford University received from the Attorney General of the State of Massachusetts (“MA Attorney General”) a Civil Investigative Demand (“MA CID”) relating to the MA Attorney General's investigation of for-profit educational institutions and whether the university's business practices complied with Massachusetts consumer protection laws. Pursuant to the MA CID, the MA Attorney General has requested from the Company and Ashford University documents and information for the time period January 1, 2006 to present. The Company is cooperating with the investigation and cannot predict the eventual scope, duration or outcome of the investigation at this time. The Company has not accrued any liability associated with this action.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
Department of Justice Civil Investigative Demand
On July 7, 2016, the Company received from the U.S. Department of Justice (“DOJ”) a Civil Investigative Demand (“DOJ CID”) related to the DOJ's investigation concerning allegations that the Company may have misstated Title IV refund revenue or overstated revenue associated with private secondary loan programs and thereby misrepresented its compliance with the 90/10 rule of the Higher Education Act. Pursuant to the DOJ CID, the DOJ has requested from the Company documents and information for fiscal years 2011-2015. The Company is cooperating with the DOJ and cannot predict the eventual scope, duration or outcome of the investigation at this time. The Company has not accrued any liability associated with this action.
Shareholder Derivative Actions
In re Bridgepoint, Inc. Shareholder Derivative Action
On July 24, 2012, a shareholder derivative complaint was filed in California Superior Court by Alonzo Martinez. In the complaint, the plaintiff asserts a derivative claim on the Company's behalf against certain of its current and former officers and directors. The complaint is captioned
Martinez v. Clark, et al.
and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement on behalf of the Company, as well as other equitable relief and attorneys' fees.
On September 28, 2012, a substantially similar shareholder derivative complaint was filed in California Superior Court by David Adolph-Laroche. In the complaint, the plaintiff asserts a derivative claim on the Company's behalf against certain of its current and former officers and directors. The complaint is captioned
Adolph-Laroche v. Clark, et al.
and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched.
On October 11, 2012, the Adolph-Laroche action was consolidated with the Martinez action and the case is now captioned
In re Bridgepoint, Inc. Shareholder Derivative Action
. A consolidated complaint was filed on December 18, 2012 and the defendants filed a motion to stay the case while the underlying securities class action is pending. The motion was granted by the Court on April 11, 2013. A status conference was held on October 10, 2013, during which the Court ordered the stay continued for the duration of discovery in the underlying securities class action, but permitted the plaintiff to receive copies of any discovery responses served in the underlying securities class action. The stay was lifted following the settlement of the underlying securities class action and all defendants filed demurrers on October 3, 2016, which were granted with leave to amend on October 6, 2017. On October 17, 2017, the plaintiff submitted a litigation demand to the Company's Board of Directors, which appointed a working group to evaluate the demand. The Board refused the demand and the Plaintiff filed a Second Amended Complaint on October 3, 2018. The Defendants filed demurrers on December 21, 2018, which are currently pending with the Court.
Reardon v. Clark, et al.
On March 18, 2015, a shareholder derivative complaint was filed in the Superior Court of the State of California in San Diego. The complaint asserts derivative claims on the Company’s behalf against certain of its current and former officers and directors. The complaint is captioned
Reardon v. Clark, et al.
and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement, as well as other equitable relief and attorneys’ fees. Following the dismissal of the underlying
Zamir
securities class action and pursuant to a stipulation among the parties, on May 10, 2018, the Court ordered the case stayed while the Company’s Board of Directors evaluates a litigation demand submitted by the plaintiff.
Larson v. Hackett, et al.
On January 19, 2017, a shareholder derivative complaint was filed in the Superior Court of the State of California in San Diego. The complaint asserts derivative claims on the Company's behalf against certain of its current and former officers and directors. The complaint is captioned
Larson v. Hackett, et al.
and generally alleges that the individual defendants breached their fiduciary duties of candor, good faith and loyalty, wasted corporate assets and were unjustly enriched. The lawsuit seeks unspecified monetary relief and disgorgement, as well as other equitable relief and attorneys’ fees. Following the dismissal of
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
the underlying
Zamir
securities class action and pursuant to a stipulation among the parties, on May 10, 2018, the Court ordered the case stayed while the Company’s Board of Directors evaluates a litigation demand submitted by the plaintiff.
Stein Securities Class Action
On March 8, 2019, a securities class action complaint was filed in the U.S. District Court for the Southern District of California by Shiva Stein naming the Company, Andrew Clark, Kevin Royal, and Joseph D’Amico as defendants. The Complaint alleges that Defendants made false and materially misleading statements and failed to disclose material adverse facts regarding the Company's business, operations and prospects, specifically that the Company had applied an improper revenue recognition methodology to students enrolled in the Corporate Full Tuition Grant program. The complaint asserts a putative class period stemming from March 8, 2016 to March 7, 2019. The complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The Complaint has not yet been served.
The Company is evaluating the complaint and intends to vigorously defend against it. However, because of the many questions of fact and law that may arise, the outcome of the legal proceeding is uncertain at this point. Based on information available to the Company at present, it cannot reasonably estimate a range of loss and accordingly has not accrued any liability associated with this action.
22. Concentration of Risk
Concentration of Revenue
In
2018
, Ashford University derived
78.6%
of its respective cash revenues from students whose source of funding is through Title IV programs, as calculated in accordance with Department regulations. See Note
19
, “Regulatory - The “90/10” Rule.” Revenue derived from government tuition assistance for military personnel, including veterans, is not considered federal student aid for purposes of calculations under the 90/10 rule.
Title IV programs are subject to political and budgetary considerations and are subject to extensive and complex regulations. The Company's administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potentially adverse actions including a suspension, limitation or termination proceeding, which could have a material adverse effect on the Company's enrollments, revenues and results of operations. Students obtain access to federal student financial aid through a Department-prescribed application and eligibility certification process. Student financial aid funds are generally made available to students at prescribed intervals throughout their expected length of study. Students typically apply the funds received from the federal financial aid programs first to pay their tuition and fees. Any remaining funds are distributed directly to the student, if requested.
Concentration of Credit Risk
The Company maintains its cash and cash equivalents accounts in financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation (FDIC) up to
$250,000
. The Company performs ongoing evaluations of these institutions to limit its concentration risk exposure.
Concentration of Sources of Supply
The Company is dependent on a third-party provider for its online platform, which includes a learning management system that stores, manages and delivers course content, enables assignment uploading, provides interactive communication between students and faculty, and supplies online assessment tools. The partial or complete loss of this source may have an adverse effect on enrollments, revenues and results of operations.
BRIDGEPOINT EDUCATION, INC.
Notes to Annual Consolidated Financial Statements (Continued)
23. Quarterly Results of Operations (Unaudited)
The following tables set forth unaudited results of operations and certain operating results for each quarter during the years ended
December 31, 2018
and
2017
, and present the impact of the restatement on the previously issued condensed consolidated financial statements. See Note 2, "Summary of Significant Accounting Policies - Restatement of Previously Issued Consolidated Financial Statements" for further information. The Company believes the information reflects all adjustments necessary to present fairly the information below. Basic and diluted income (loss) per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted income (loss) per share information may not equal annual basic and diluted income (loss) per share. The following tables for the quarterly periods in fiscal year
2018
and
2017
are presented in thousands, except per share data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
As Restated
|
|
As Reported
|
|
As Restated
|
|
As Reported
|
|
As Restated
|
|
|
|
|
Three Months Ended
|
|
Consolidated statement of income (loss) data:
|
March 31, 2018
|
|
June 30, 2018
|
|
September 30, 2018
|
|
December 31, 2018
|
|
Revenue
|
$
|
118,031
|
|
|
$
|
116,777
|
|
|
$
|
120,834
|
|
|
$
|
119,037
|
|
|
$
|
114,858
|
|
|
$
|
112,846
|
|
|
$
|
94,713
|
|
|
Instructional costs and services
|
$
|
56,862
|
|
|
$
|
56,614
|
|
|
$
|
53,986
|
|
|
$
|
54,397
|
|
|
$
|
54,470
|
|
|
$
|
55,109
|
|
|
$
|
51,580
|
|
|
Total costs and expenses
|
$
|
117,645
|
|
|
$
|
117,397
|
|
|
$
|
109,280
|
|
|
$
|
109,691
|
|
|
$
|
111,328
|
|
|
$
|
111,967
|
|
|
$
|
108,311
|
|
|
Operating income (loss)
|
$
|
386
|
|
|
$
|
(620
|
)
|
|
$
|
11,554
|
|
|
$
|
9,346
|
|
|
$
|
3,530
|
|
|
$
|
879
|
|
|
$
|
(13,598
|
)
|
|
Income (loss) before income taxes
|
$
|
636
|
|
|
$
|
(370
|
)
|
|
$
|
11,836
|
|
|
$
|
9,628
|
|
|
$
|
3,897
|
|
|
$
|
1,246
|
|
|
$
|
(13,450
|
)
|
|
Income tax benefit
|
$
|
(1,661
|
)
|
|
$
|
(1,680
|
)
|
|
$
|
(5,395
|
)
|
|
$
|
(5,452
|
)
|
|
$
|
(408
|
)
|
|
$
|
(415
|
)
|
|
$
|
(35
|
)
|
|
Net income (loss)
|
$
|
2,297
|
|
|
$
|
1,310
|
|
|
$
|
17,231
|
|
|
$
|
15,080
|
|
|
$
|
4,305
|
|
|
$
|
1,661
|
|
|
$
|
(13,415
|
)
|
|
Basic income (loss) per share
|
$
|
0.08
|
|
|
$
|
0.05
|
|
|
$
|
0.63
|
|
|
$
|
0.56
|
|
|
$
|
0.16
|
|
|
$
|
0.06
|
|
|
$
|
(0.49
|
)
|
|
Diluted income (loss) per share
|
$
|
0.08
|
|
|
$
|
0.05
|
|
|
$
|
0.63
|
|
|
$
|
0.55
|
|
|
$
|
0.16
|
|
|
$
|
0.06
|
|
|
$
|
(0.49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As Reported
|
|
As Restated
|
|
As Reported
|
|
As Restated
|
|
As Reported
|
|
As Restated
|
|
As Reported
|
|
As Restated
|
|
|
Three Months Ended
|
|
Consolidated statement of income (loss) data:
|
March 31, 2017
|
|
June 30, 2017
|
|
September 30, 2017
|
|
December 31, 2017
|
|
Revenue
|
$
|
129,490
|
|
|
$
|
128,279
|
|
|
$
|
124,581
|
|
|
$
|
123,363
|
|
|
$
|
119,367
|
|
|
$
|
118,419
|
|
|
$
|
104,959
|
|
|
$
|
105,052
|
|
|
Instructional costs and services
|
$
|
63,039
|
|
|
$
|
62,714
|
|
|
$
|
61,148
|
|
|
$
|
61,077
|
|
|
$
|
57,756
|
|
|
$
|
56,741
|
|
|
$
|
55,305
|
|
|
$
|
54,858
|
|
|
Total costs and expenses
|
$
|
119,828
|
|
|
$
|
119,503
|
|
|
$
|
118,401
|
|
|
$
|
118,330
|
|
|
$
|
120,870
|
|
|
$
|
119,855
|
|
|
$
|
111,446
|
|
|
$
|
110,999
|
|
|
Operating income (loss)
|
$
|
9,662
|
|
|
$
|
8,776
|
|
|
$
|
6,180
|
|
|
$
|
5,033
|
|
|
$
|
(1,503
|
)
|
|
$
|
(1,436
|
)
|
|
$
|
(6,487
|
)
|
|
$
|
(5,947
|
)
|
|
Income (loss) before income taxes
|
$
|
10,105
|
|
|
$
|
9,219
|
|
|
$
|
6,521
|
|
|
$
|
5,374
|
|
|
$
|
(1,122
|
)
|
|
$
|
(1,055
|
)
|
|
$
|
(6,141
|
)
|
|
$
|
(5,601
|
)
|
|
Net income (loss)
|
$
|
9,869
|
|
|
$
|
8,983
|
|
|
$
|
6,314
|
|
|
$
|
5,167
|
|
|
$
|
39
|
|
|
$
|
106
|
|
|
$
|
(5,685
|
)
|
|
$
|
(5,145
|
)
|
|
Basic income (loss) per share
|
$
|
0.23
|
|
|
$
|
0.21
|
|
|
$
|
0.22
|
|
|
$
|
0.18
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.18
|
)
|
|
Diluted income (loss) per share
|
$
|
0.23
|
|
|
$
|
0.21
|
|
|
$
|
0.21
|
|
|
$
|
0.17
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.20
|
)
|
|
$
|
(0.18
|
)
|
24. Subsequent Event
On March 12, 2019, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) to acquire Fullstack Academy, Inc., a Delaware corporation (“Fullstack”). Fullstack is an award-winning, immersive coding bootcamp, which offers a premier program centered on a series of leading and emerging technologies. The total consideration for the transaction is anticipated to be
$17.5 million
in cash and up to
4.75 million
shares of Bridgepoint common stock, with
2.5 million
shares issued at closing, and the remainder to be issued in the future upon the satisfaction of certain performance milestones. The Merger Agreement contains customary representations, warranties and covenants of Fullstack and the Company, and the acquisition is subject to customary closing conditions. If the acquisition is consummated, Fullstack will be a wholly-owned subsidiary of the Company.