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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One) 
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from________________to________________
Commission File Number: 001-34272
___________________________________________________________________________

ZOVIO INC
(Exact name of registrant as specified in its charter)
___________________________________________________________________________

Delaware59-3551629
(State or other jurisdiction of
incorporation or organization)
(IRS Employer
Identification No.)

1811 E. Northrop Blvd, Chandler, AZ 85286
(Address, including zip code, of principal executive offices)

(858) 668-2586
(Registrant’s telephone number, including area code)
____________________________________________________________________________

None
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒    No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☒
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐    No ☒

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareZVOThe Nasdaq Stock Market LLC
The total number of shares of common stock outstanding as of May 2, 2022, was 34,095,968.



ZOVIO INC
FORM 10-Q
INDEX

2

PART I—FINANCIAL INFORMATION
Item 1.  Financial Statements
ZOVIO INC
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value)
As of March 31, 2022As of
December 31, 2021
ASSETS  
Current assets:  
Cash and cash equivalents$33,698 $28,265 
Restricted cash6,083 9,288 
Investments905 974 
Accounts receivable, net of allowance for credit losses of $1.1 million and $0.9 million at March 31, 2022 and December 31, 2021, respectively
6,596 9,631 
Prepaid expenses and other current assets17,243 13,423 
Total current assets64,525 61,581 
Property and equipment, net24,965 26,382 
Operating lease assets28,103 28,881 
Goodwill and intangibles, net29,079 29,499 
Other long-term assets2,079 2,691 
Total assets$148,751 $149,034 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable and accrued liabilities$85,521 $74,769 
Deferred revenue and student deposits15,157 14,939 
Total current liabilities100,678 89,708 
Rent liability33,132 34,205 
Other long-term liabilities3,674 5,115 
Total liabilities137,484 129,028 
Commitments and contingencies (see Note 14)
Stockholders' equity:  
Preferred stock, $0.01 par value:
  
20,000 shares authorized; zero shares issued and outstanding at both March 31, 2022, and December 31, 2021
— — 
Common stock, $0.01 par value:
  
300,000 shares authorized; 67,764 and 67,255 issued, and 34,055 and 33,546 outstanding, at March 31, 2022 and December 31, 2021, respectively
681 676 
Additional paid-in capital170,753 172,060 
Retained earnings276,533 283,970 
Treasury stock, 33,709 and 33,709 shares at cost at March 31, 2022, and December 31, 2021, respectively
(436,700)(436,700)
Total stockholders' equity11,267 20,006 
Total liabilities and stockholders' equity$148,751 $149,034 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3

ZOVIO INC
Condensed Consolidated Statements of Income (Loss)
(Unaudited)
(In thousands, except per share amounts)
 Three Months Ended
March 31,
 20222021
Revenue$59,624 $74,107 
Other revenue2,009 2,752 
Revenue and other revenue$61,633 $76,859 
Costs and expenses: 
Technology and academic services$18,498 $19,144 
Counseling services and support21,331 25,325 
Marketing and communication21,914 25,831 
General and administrative7,122 15,896 
Total costs and expenses68,865 86,196 
Operating loss(7,232)(9,337)
Other income (expense), net(127)(73)
Loss before income taxes(7,359)(9,410)
Income tax expense78 83 
Net loss$(7,437)$(9,493)
Loss per share:  
Basic$(0.22)$(0.29)
Diluted$(0.22)$(0.29)
Weighted average number of common shares outstanding used in computing loss per share:  
Basic33,562 32,769 
Diluted33,562 32,769 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

ZOVIO INC
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(In thousands)

 Common StockAdditional
Paid-in
Capital		Retained
Earnings		Treasury
Stock		 
 SharesPar ValueTotal
Balance at December 31, 202066,454 $668 $179,489 $326,319 $(447,259)$59,217 
Stock-based compensation— — 2,382 — — 2,382 
Stock issued under stock incentive plan, net of shares held for taxes563 5 (1,083)— — (1,078)
Contingent consideration— — (122)— — (122)
Stock issued for acquisition— — (10,559)— 10,559 — 
Net loss— — — (9,493)— (9,493)
Balance at March 31, 202167,017 $673 $170,107 $316,826 $(436,700)$50,906 



 Common StockAdditional
Paid-in
Capital		Retained
Earnings		Treasury
Stock		 
 SharesPar ValueTotal
Balance at December 31, 202167,255 $676 $172,060 $283,970 $(436,700)$20,006 
Stock-based compensation— — (1,169)— — (1,169)
Stock issued under stock incentive plan, net of shares held for taxes509 5 (138)— — (133)
Net loss— — — (7,437)— (7,437)
Balance at March 31, 202267,764 $681 $170,753 $276,533 $(436,700)$11,267 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5

ZOVIO INC
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Three Months Ended
March 31,
 20222021
Cash flows from operating activities:  
Net loss$(7,437)$(9,493)
Adjustments to reconcile net loss to net cash provided by operating activities:  
Provision for bad debts201 661 
Depreciation and amortization2,033 2,285 
Stock-based compensation(1,169)2,382 
Noncash lease expense1,433 2,077 
Net loss (gain) on marketable securities63 (68)
Changes in operating assets and liabilities:  
Accounts receivable2,833 (288)
Prepaid expenses and other current assets(3,820)(2,776)
Other long-term assets612 (305)
Accounts payable and accrued liabilities10,784 7,457 
Deferred revenue and student deposits218 (13)
Operating lease liabilities(1,705)(2,598)
Other liabilities(1,440)1,455 
   Net cash provided by operating activities2,606 776 
Cash flows from investing activities:  
Capital expenditures(24)(184)
Purchases of investments(2)(30)
Capitalized costs for intangible assets(227)(143)
Sale of investments8 247 
   Net cash used in investing activities(245)(110)
Cash flows from financing activities:  
Tax withholdings on issuance of stock awards(133)(1,078)
   Net cash used in financing activities(133)(1,078)
Net increase (decrease) in cash, cash equivalents and restricted cash2,228 (412)
Cash, cash equivalents and restricted cash at beginning of period37,553 55,497 
Cash, cash equivalents and restricted cash at end of period$39,781 $55,085 
Reconciliation of cash, cash equivalents, and restricted cash:
Cash and cash equivalents$33,698 $35,052 
Restricted cash6,083 20,033 
Total cash, cash equivalents and restricted cash$39,781 $55,085 
Supplemental disclosure of non-cash transactions:
Purchase of equipment included in accounts payable and accrued liabilities$— $16 
Issuance of common stock for vested restricted stock units$560 $3,461 
The accompanying notes are an integral part of these condensed consolidated financial statements.
6


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nature of Business
Zovio Inc (the “Company”) is a Delaware corporation, and is an education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions to help learners and leaders achieve their aspirations. In April 2019, the Company acquired both Fullstack Academy, Inc. (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”), each of which became wholly-owned subsidiaries of the Company at that time. Fullstack is an innovative web development school offering immersive technology bootcamps, and TutorMe is an online education platform that provides 24/7 on-demand tutoring and online courses.
On December 1, 2020, the Company finalized a definitive Asset Purchase and Sale Agreement (the “Purchase Agreement”), by and among the Company, AU LLC (the “University”), the Arizona Board of Regents, a body corporate, for and on behalf of the University of Arizona (the “University of Arizona”), and the University of Arizona Global Campus (“Global Campus”). Upon the closing of the Purchase Agreement (the “Sale Transaction”), Global Campus owns and operates the University in affiliation with the University of Arizona and with a focus on expanding access to education for non-traditional adult learners, and the Company provides services to Global Campus under a long-term Strategic Services Agreement (the “Services Agreement”). The services that the Company provides to Global Campus under the Services Agreement include recruiting, admissions, marketing, student finance, financial aid processing, and financial aid advising, program advising, student retention advising, support services for academics, information technology and institutional support.
The majority of the Company's cash comes from the Services Agreement with Global Campus. The service fees in the Services Agreement are subject to certain minimum residual liability adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance during each service period, and to a certain extent the performance and forecast of Global Campus.

2. Summary of Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Intercompany transactions have been eliminated in consolidation.
Unaudited Interim Financial Information
The condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, these financial statements do not include all of the information and footnotes required by GAAP for complete annual financial statements and should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the Securities and Exchange Commission (“SEC”) on April 15, 2022. In the opinion of management, the condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, considered necessary to present a fair statement of the Company’s condensed consolidated financial position, results of operations and cash flows as of and for the periods presented.
Operating results for any interim period are not necessarily indicative of the results that may be expected for the full year. The year-end condensed consolidated balance sheet data was derived from audited consolidated financial statements but does not include all disclosures required by GAAP for complete annual consolidated financial statements.
7


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the condensed consolidated financial statements. Actual results could differ from those estimates.
Comprehensive Income (Loss)
The Company has no components of other comprehensive income (loss), and therefore, comprehensive income (loss) equals net income (loss).
Recent Accounting Pronouncements
None noted as applicable.

3. Revenue, Other Revenue and Deferred Revenue
The following table presents the Company’s net revenue disaggregated based on the revenue source (in thousands):
 Three Months Ended
March 31,
 20222021
Strategic services revenue$50,289 $66,927 
Transition services income2,009 2,752 
Tuition revenue, net9,246 7,089 
Other revenue, net (1)
89 91 
Total revenue, net$61,633 $76,859 
(1) Primarily consists of revenues generated from various services and other miscellaneous fees.

The following table presents the Company’s net revenue disaggregated based on the timing of revenue recognition (in thousands):
 Three Months Ended
March 31,
 20222021
Over time, over period of instruction$61,592 $76,768 
Point in time (1)
41 91 
Total revenue, net$61,633 $76,859 
(1)Represents revenue generated from digital textbooks and other miscellaneous fees.
The Company operates under two reportable segments and has no significant foreign operations or assets located outside of the United States. For additional information on segmentation, see Note 15, “Segment Information.”
8


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Deferred Revenue and Student Deposits
Current deferred revenue and student deposits consisted of the following (in thousands):
As of March 31, 2022As of
December 31, 2021
Deferred revenue, current$14,734 $14,469 
Student deposits423 470 
Total current deferred revenue and student deposits$15,157 $14,939 
Below are the opening and closing balances of current deferred revenue from the Company’s contracts with customers (in thousands):
March 31, 2022March 31, 2021
Current deferred revenue opening balance, January 1$14,469 $7,477 
Current deferred revenue closing balance, March 3114,734 7,307 
Increase (decrease)$265 $(170)
For further information on receivables, refer to Note 6, “Accounts Receivable, Net” within the condensed consolidated financial statements.
Deferred revenue consists of cash payments that are received or due in advance of the Company’s performance. As of March 31, 2022 the deferred revenue balance relates entirely to the Zovio Growth segment. For the majority of the Company’s customers, payment for services is due prior to services being provided and is included in current deferred revenue. However, there are contracts which include deferred revenue that is deemed to be long-term. For additional information, refer to Note 7, “Other Significant Balance Sheet Accounts - Other Long-Term Liabilities” within the condensed consolidated financial statements.
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 three months ended March 31, 2022, the Company recognized $6.7 million of revenue that was included in the deferred revenue balance as of January 1, 2022. For the three months ended March 31, 2021, the Company recognized $4.7 million of revenue that was included in the deferred revenue balance as of January 1, 2021. 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 Expense
The Company previously vacated or consolidated properties and subsequently reassessed its non-cancelable leases. Additionally, the Company previously implemented restructuring plans to reduce operating expenses, implement cost reductions and conserve cash resources. The severance costs and lease costs are expected to substantially all be paid out over the next 12 months.
The following table summarizes the changes in the Company's restructuring and impairment liability by type during the three months ended March 31, 2022 (in thousands):
Student Transfer CostsSeverance CostsLease Exit and Other CostsTotal
Balance at December 31, 2021$1,282 $520 $398 $2,200 
Payments and adjustments— (294)(67)(361)
Balance at March 31, 2022$1,282 $226 $331 $1,839 
The restructuring liability amounts are recorded within either the (i) accounts payable and accrued liabilities account or (ii) rent liability account on the condensed consolidated balance sheets.
9


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)

5. Fair Value Measurements
The following tables summarize fair value information as of March 31, 2022 and December 31, 2021, respectively (in thousands):
As of March 31, 2022
Level 1Level 2Level 3Total
Mutual funds$905 $— $— $905 
As of
December 31, 2021
Level 1Level 2Level 3Total
Mutual funds$974 $— $— $974 
The mutual funds in the tables above, represent deferred compensation asset balances, which are considered to be trading securities. The Company’s deferred compensation asset balances are recorded in the investments line item on the Company’s condensed consolidated balance sheets, and are classified as Level 1 securities. There were no transfers between any level categories for investments during the periods presented.
There were no differences between amortized cost and fair value of investments as of March 31, 2022 or December 31, 2021, and no reclassifications out of accumulated other comprehensive income during the three months ended March 31, 2022 or 2021.
6. Accounts Receivable, Net
Accounts receivable, net, consisted of the following (in thousands):
As of March 31, 2022As of
December 31, 2021
Accounts receivable$7,726 $10,562 
Less allowance for credit losses1,130 931 
Accounts receivable, net$6,596 $9,631 
The following table presents the changes in the allowance for credit losses for the three months ended March 31, 2022 (in thousands):
Beginning
Balance		Charged to
Expense		Write-offsRecoveries of amountsEnding
Balance
$931 $201 $(2)$— $1,130 
The following table presents the changes in the allowance for credit losses for the three months ended March 31, 2021 (in thousands):
Beginning
Balance		Charged to
Expense		Write-offsRecoveries of amountsEnding
Balance
$1,216 $661 $(159)$— $1,718 

10


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
7. Other Significant Balance Sheet Accounts
Prepaid Expenses and Other Current Assets
Prepaid expenses and other current assets consisted of the following (in thousands):
As of March 31, 2022As of
December 31, 2021
Prepaid expenses$3,760 $2,664 
Prepaid licenses3,685 1,233 
Prepaid insurance2,437 2,254 
Insurance recoverable515 496 
Other current assets (1)
6,846 6,776 
Total prepaid expenses and other current assets$17,243 $13,423 
(1) Other current assets includes a net asset adjustment due from Global Campus related to the Sale Transaction, which is currently in mediation.
Property and Equipment, Net
Property and equipment, net, consisted of the following (in thousands):
As of March 31, 2022As of
December 31, 2021
Furniture and office equipment$22,001 $22,032 
Software4,493 4,493 
Leasehold improvements15,921 15,921 
Vehicles22 22 
Total property and equipment42,437 42,468 
Less accumulated depreciation and amortization(17,472)(16,086)
Total property and equipment, net$24,965 $26,382 
For the three months ended March 31, 2022 and 2021, depreciation and amortization expense related to property and equipment was $1.4 million and $1.3 million, respectively.
11


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Goodwill and Intangibles, Net
Goodwill and intangibles, net, consisted of the following (in thousands):
March 31, 2022
Definite-lived intangible assets:Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Capitalized curriculum costs$14,012 $(12,733)$1,279 
Purchased intangible assets14,185 (9,561)4,624 
   Total definite-lived intangible assets$28,197 $(22,294)$5,903 
Goodwill23,176 
Total goodwill and intangibles, net$29,079 
December 31, 2021
Definite-lived intangible assets:Gross Carrying AmountAccumulated AmortizationNet Carrying Amount
Capitalized curriculum costs$13,982 $(12,796)$1,186 
Purchased intangible assets14,185 (9,048)5,137 
   Total definite-lived intangible assets$28,167 $(21,844)$6,323 
Goodwill23,176 
Total goodwill and intangibles, net$29,499 
For the three months ended March 31, 2022 and 2021, amortization expense was $0.6 million and $1.0 million, respectively.
The following table summarizes the estimated remaining amortization expense as of each fiscal year ended below (in thousands):
Year Ended December 31,
Remainder of 2022$1,887 
20232,477 
2024910 
2025257 
2026137 
Thereafter235 
Total future amortization expense$5,903 
12


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consisted of the following (in thousands):
As of March 31, 2022As of
December 31, 2021
Accounts payable$9,952 $5,967 
Accrued salaries and wages7,205 5,434 
Accrued bonus1,714 3,625 
Accrued vacation3,055 3,037 
Accrued litigation and fees22,376 22,376 
Minimum residual liability (1)
22,481 14,987 
Accrued expenses12,816 13,400 
Current leases payable4,515 4,492 
Accrued insurance liability1,280 1,404 
Accrued income taxes payable127 47 
Total accounts payable and accrued liabilities$85,521 $74,769 
(1) Amount represents approximately 75% of the total amount anticipated to be remitted to Global Campus in June 2022. The amount payable could be materially different than the current estimate projected by management.
Other Long-Term Liabilities
Other long-term liabilities consisted of the following (in thousands):
As of March 31, 2022As of
December 31, 2021
Notes payable$2,759 $2,723 
Deferred revenue673 807 
Other long-term liabilities242 1,585 
Total other long-term liabilities$3,674 $5,115 

8. Credit Facilities
The Company has issued letters of credit that are collateralized with cash, in the aggregate amount of $6.0 million as of March 31, 2022. The letters of credit relate primarily to the Company's leased facilities and insurance requirements. The collateralized cash is held in restricted cash on the Company's condensed consolidated balance sheets.
The Company is required to provide surety bonds in certain states in which it does business. As a result, the Company previously entered into a surety bond facility with an insurance company to provide such bonds when required. Although there are no remaining issued bonds on the Company’s behalf under this facility as of March 31, 2022, the Company still holds certain liability associated with any required collateral.
Subsequent to the quarter end, on April 14, 2022, the Company entered into a Financing Agreement (the “Credit Facility”) among the Company, as borrower, each of its wholly-owned subsidiaries as subsidiary guarantors (the “Guarantors”), the lenders party thereto from time to time (the “Lenders”) and Blue Torch Finance LLC, as administrative agent and collateral agent for the Lenders (the “Agent”). The Credit Facility provides for, among other things, a term loan in the aggregate principal amount of $31.5 million (the “Term Loan”). The proceeds of the Term Loan will be used (i) if necessary, to satisfy any final judgement in the CA Attorney General lawsuit, and (ii) thereafter, to fund the working capital of the Company and the Guarantors.
13


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Subject to the terms of Credit Facility, the Term Loan bears interest at a rate per annum equal to LIBOR plus 9.0%, payable monthly. The principal amount of the Term Loan will be repayable in equal quarterly installments of $393,750 beginning June 30, 2023 and through March 31, 2025, with the remaining unpaid principal amount of the Term Loan, and all accrued and unpaid interest thereon, due and payable on the maturity date of April 14, 2025.
The Credit Facility contains customary representations, warranties, affirmative and negative covenants (including financial covenants), and indemnification provisions in favor of the Agent and the Lenders. The financial covenants include a minimum cash flow covenant that takes effect six months following the Effective Date and that is to be tested on a monthly basis for the trailing twelve month period, a minimum liquidity covenant that requires the Company to maintain unrestricted cash on hand at all times of at least $7.5 million (inclusive of any proceeds of the Term Loan in excess of the amounts used to satisfy any final judgment in the CA Attorney General lawsuit, and minimum revenue covenants applicable to each of the Company’s Fullstack Academy, LLC and TutorMe, LLC subsidiaries and that are to be tested on a monthly basis beginning June 30, 2022 for the trailing twelve month period.
In connection with the Credit Facility, the Company issued warrants (the “Warrants”) to the Lenders to purchase at any time or from time to time on or after the date that is six months from the Effective Date, at an exercise price of $0.01 per share, such number of shares of common stock of the Company as equals 5.0% of the outstanding fully-diluted shares of common stock of the Company as of the issuance date.
9. Lease Obligations
Operating Leases
The Company leases various office and classroom facilities with terms that expire at various dates through 2033. These facilities are used for academic operations, corporate functions, enrollment services and student support services. The Company does not have any leases other than its office facilities and classrooms. All of the leases were classified as operating leases for the period ended March 31, 2022, and the Company does not have any finance leases. All of the leases, other than those that may qualify for the short-term scope exception of 12 months or less, are recorded on the Company’s condensed consolidated balance sheets.
In 2021, the Company entered into a new lease in New York for classrooms and office space and recorded a right-of-use asset of $14.6 million in exchange for lease obligations. However, in the fourth quarter of 2021, the Company began to market this space for sublease. There is no guarantee that the Company will be able to sublease the space at rates materially similar to that of the current lease.
The Company's one active sublease as of March 31, 2022 relates to office space of approximately 21,000 square feet in Denver, Colorado with a remaining commitment to lease of 11 months and net lease payments of $0.6 million. Sublease income for the three months ended March 31, 2022 and 2021 was $0.1 million and $0.6 million, respectively. The Company’s sublease does not include any options to extend or for early termination and do not contain any residual value guarantees or restrictive covenants. The sublease was classified as an operating lease for the period ended March 31, 2022.
10. Income (Loss) Per Share
Basic income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the weighted average number of common shares outstanding for the period.
Diluted income (loss) per share is calculated by dividing net income (loss) available to common stockholders for the period by the sum of (i) the weighted average number of common shares outstanding for the period, plus (ii) potentially dilutive securities outstanding during the period, if the effect is dilutive. Potentially dilutive securities for the periods presented include stock options, unvested restricted stock units (“RSUs”) and unvested performance stock units (“PSUs”).
14


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
The following table sets forth the computation of basic and diluted income (loss) per share for the periods indicated (in thousands, except per share data):
 Three Months Ended
March 31,
 20222021
Numerator:  
Net income (loss)$(7,437)$(9,493)
Denominator:  
Weighted average number of common shares outstanding33,562 32,769 
Effect of dilutive options and stock units— — 
Diluted weighted average number of common shares outstanding33,562 32,769 
Income (loss) per share:  
Basic$(0.22)$(0.29)
Diluted$(0.22)$(0.29)
The following table sets forth the number of stock options and stock units excluded from the computation of diluted income (loss) per share for the periods indicated below because their effect was anti-dilutive (in thousands):
 Three Months Ended
March 31,
20222021
Stock options1,096 1,582 
Stock units3,163 1,461 
11. Stock-Based Compensation
The Company recorded a reversal of $1.2 million of stock-based compensation expense for the three months ended March 31, 2022, primarily relating to the forfeitures of certain performance-based PSUs not meeting their targets. The Company recorded $2.4 million of stock-based compensation expense for the three months ended March 31, 2021. The related income tax expense was $0.3 million for the three months ended March 31, 2022, and the related income tax benefit was $0.6 million for the three months ended March 31, 2021.
During the three months ended March 31, 2022, the Company granted 1.0 million RSUs at a weighted average grant date fair value of $0.84 and 0.5 million RSUs vested. During the three months ended March 31, 2021, the Company granted 0.5 million RSUs at a grant date fair value of $4.25, and 0.8 million RSUs vested.
During the three months ended March 31, 2022, the Company granted 0.4 million performance-based PSUs at a weighted average grant date fair value of $0.91, and 0.2 million performance-based or market-based PSUs vested. During the three months ended March 31, 2021, the Company did not grant any performance-based or market-based PSUs and no performance-based or market-based PSUs vested.
During each of the three months ended March 31, 2022, and 2021, the Company did not grant any stock options and no stock options were exercised.
As of March 31, 2022, unrecognized compensation cost was $5.8 million related to unvested stock options, RSUs and PSUs.
15


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
12. Income Taxes
The Company uses the asset-liability method to account for taxes. Under this method, deferred income tax assets and liabilities result from temporary differences between the tax basis of assets and liabilities and their reported amounts in the condensed consolidated financial statements that will result in income and deductions in future years.
The Company recognizes deferred tax assets if realization of such assets is more-likely-than-not. In order to make this determination, the Company evaluates a number of factors including the ability to generate future taxable income from reversing taxable temporary differences, forecasts of financial and taxable income or loss, and the ability to carryback certain operating losses to refund taxes paid in prior years. The cumulative loss incurred over the three-year period ended March 31, 2022 constituted significant negative objective evidence against the Company’s ability to realize a benefit from its federal deferred tax assets. Such objective evidence limited the ability of the Company to consider in its evaluation certain subjective evidence such as the Company’s projections for future growth. On the basis of its evaluation, the Company determined that its deferred tax assets were not more-likely-than-not to be realized and that a valuation allowance against its deferred tax assets should continue to be maintained as of March 31, 2022.
The Company’s current effective income tax rate that has been applied to normal, recurring operations for the three months ended March 31, 2022, after discrete items, was (1.1)%.
As of both March 31, 2022, and December 31, 2021, the Company did not have any gross unrecognized tax benefits. Although the Company believes the tax accruals provided are reasonable, the final determination of tax returns under review or returns that may be reviewed in the future and any related litigation could result in tax liabilities that materially differ from the Company’s historical income tax provisions and accruals.
The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. The 2017 tax year are forward are open to examination for federal income tax purposes, and the 2015 tax year and forward are open to examination for state income tax purposes.

13. Regulatory
The Company is subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, the Higher Education Act of 1965, as amended (“Higher Education Act”), and the regulations promulgated thereunder by the U.S. Department of Education (“Department”) subject the Company and its university partners to significant regulatory scrutiny on the basis of numerous standards that institutions of higher education must satisfy in order to participate in the various federal student financial aid programs under Title IV of the Higher Education Act (“Title IV programs”). After the sale of the University to Global Campus, the Company remains responsible for liabilities resulting from any violation of these regulatory requirements during the time it owned and operated the University, either directly or by an obligation to indemnify Global Campus.
Department of Education On-Site Program Review of former Ashford University
In December 2016, the Department informed the University that it intended to continue the on-site program review, which commenced in January 2017 and initially covered the 2015-2016 and 2016-2017 award years, but may be expanded if the Department deems such expansion appropriate. To date, the Company has not received a draft report from the Department.
16


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Department of Education Close Out Audit of University of the Rockies
During the fiscal year 2018, the Company recorded an expense of $1.5 million, in relation to the close out audit of University of the Rockies resulting from its merger with the University in October 2018. The expense was recorded in relation to borrower defense to repayment regulations. On September 26, 2019, the Department sent the University a Final Audit Determination letter for the University of the Rockies. This letter confirmed that with the exception of the borrower defense to repayment regulations, none of the other audit findings resulted in financial liability. The Department also stated that additional liabilities could accrue in the future. On December 19, 2019, the Company filed an administrative appeal with the Department appealing the alleged liability on the basis that the University of Rockies did not close but rather merged with the University. The briefing on the appeal is complete and the Company is awaiting a decision by the administrative law judge.
WSCUC Accreditation of Global Campus (formerly Ashford University)
Global Campus is regionally accredited by WASC Senior College and University Commission (“WSCUC”). In June 2019, WSCUC acted to reaffirm accreditation through Spring 2025.
In November 2020, WSCUC approved the change of control application filed to complete the Sale Transaction, subject to certain conditions. WSCUC notified Global Campus that the provisions of the Notice of Concern issued as part of the reaffirmation of the University in July 2019 also remain in effect.
Department of Education Regulation
On December 1, 2020, the parties to the Purchase Agreement entered into Amendment No. 1 to the Purchase Agreement (“Amendment”) pursuant to which, among other things, the University of Arizona and Global Campus waived the closing condition regarding issuance of a pre-acquisition review notice by the Department of Education. Under the terms of the Purchase Agreement, as amended, the Closing was subject to customary closing conditions for transactions in this sector. The Department is expected to conduct a post-closing review of Global Campus following the Sale Transaction, consistent with the Department’s procedures during which the Department makes a determination on the institution’s request for recertification from the Department following the change of control, including whether to impose or place other conditions or restrictions. To be eligible to participate in Title IV programs, an institution must comply with the Higher Education Act and the regulations thereunder that are administered by the Department.
Borrowers Defense to Repayment
On October 28, 2016, the Department published borrower defense to repayment regulations to change processes that assist students in gaining relief under certain provisions of the Direct Loan Program regulations. These defense to repayment regulations allow a borrower to assert a defense to repayment on the basis of a substantial misrepresentation, any other misrepresentation in cases where certain other factors are present, a breach of contract or a favorable nondefault contested judgment against a school for its act or omission relating to the making of the borrower’s loan or the provision of educational services for which the loan was provided. In addition, the financial responsibility standards contained in the new regulations establish the conditions or events that trigger the requirement for an institution to provide the Department with financial protection in the form of a letter of credit or other security against potential institutional liabilities. Triggering conditions or events include, among others, certain state, federal or accrediting agency actions or investigations, and in the case of publicly traded companies, receipt of certain warnings from the SEC or the applicable stock exchange, or the failure to timely file a required annual or quarterly report with the SEC. The new regulations also prohibit schools from requiring that students agree to settle future disputes through arbitration.
On March 15, 2019, the Department issued guidance for the implementation of parts of the regulations. The guidance covers an institution’s responsibility in regard to reporting mandatory and discretionary triggers as part of the financial responsibility standards, class action bans and pre-dispute arbitration agreements, submission of arbitral and judicial records, and repayment rates.
On August 30, 2019, the Department finalized the regulations derived from the 2017-2018 negotiated rulemaking process and subsequent public comments. This version of the borrower defense regulations applies to all federal student loans made on or after July 1, 2020, and, among other things: grants borrowers the right to assert borrower defense to repayment claims
17


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
against institutions, regardless of whether the loan is in default or in collection proceedings; allows borrowers to file defense to repayment claims three years from either the student’s date of graduation or withdrawal from the institution; and gives students the ability to allege a specific amount of financial harm and to obtain relief in an amount determined by the Department, which may be greater or lesser than their original claim amount. It also includes financial triggers and other factors for recalculating an institution’s financial responsibility composite score that differ from those in the 2016 regulations.
On March 18, 2021, the Department announced it would adopt a streamlined approach for granting full debt relief to borrowers reversing the methodology first announced in December 2019 that allowed for partial student loan cancellation for borrowers. The Department determined that the previous methodology did not result in an appropriate relief determination.
In July 2020, the Department notified the Company that they would be initiating a preliminary review of borrower defense applications from borrowers who made claims regarding the University. As part of the initial fact-finding process, the Department will send individual student claims to the University and allow the institution the opportunity to submit a response to the borrower’s allegations. In 2020, the Company received and timely responded to the submitted claims and cannot predict the outcome of the Department’s review at this time. In 2022, Global Campus also received additional borrower defense applications from borrowers. Global Campus is responding to these additional submitted claims and we cannot predict the outcome of the Department's review at this time.
14. Commitments and Contingencies
Litigation
From time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. When the Company becomes aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. In accordance with GAAP, the Company records loss contingencies in its financial statements only for matters in which losses are probable and can be reasonably estimated. Where a range of loss can be reasonably estimated, the best estimate within that range should be accrued. If no estimate is better than another, the Company records the minimum estimated liability in the range. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. The Company continuously assesses the potential liability related to the Company’s pending litigation and revises its estimates when additional information becomes available. Other than the specific liabilities assumed by Global Campus, the Company and AU LLC will generally remain responsible for liabilities of the University relating to periods prior to the closing of the Sale Transaction. Below is a list of material legal proceedings to which the Company or its subsidiaries is a party.
California Attorney General Investigation of For-Profit Educational Institutions
In January 2013, the Company received from the Attorney General of the State of California (“CA Attorney General”) an Investigative Subpoena relating to the CA Attorney General’s investigation of for-profit educational institutions. Pursuant to the Investigative Subpoena, the CA Attorney General requested documents and detailed information for the time period March 1, 2009 to the date of the Investigative Subpoena. On July 24, 2013, the CA Attorney General filed a petition to enforce certain categories of the Investigative Subpoena related to recorded calls and electronic marketing data. On September 25, 2013, the Company reached an agreement with the CA Attorney General to produce certain categories of the documents requested in the petition and stipulated to continue the hearing on the petition to enforce from October 3, 2013 to January 9, 2014. On January 13, 2014 and June 19, 2014, the Company received additional Investigative Subpoenas from the CA Attorney General, each requesting additional documents and information for the time period March 1, 2009 through each such date.
Representatives from the Company met with representatives from the CA Attorney General’s office on several occasions to discuss the status of the investigation, additional information requests, and specific concerns related to possible unfair business practices in connection with the Company’s recruitment of students and debt collection practices. The parties also discussed a potential resolution involving injunctive relief, other non-monetary remedies and a payment to the CA Attorney General and in the third quarter of 2016, the Company recorded an expense of $8.0 million related to the cost of resolving this matter.
18


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
The parties did not reach a resolution and on November 29, 2017, the CA Attorney General filed suit against the Company. The Company vigorously defended 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. A trial took place from November 2021 through December 2021.
On March 7, 2022, the Superior Court of the State of California, County of San Diego (the “Court”), issued a Statement of Decision regarding the Lawsuit in favor of the CA Attorney General. In the Statement of Decision, the Court ordered the Company to pay $22.4 million in statutory penalties. As a result, the Company accrued an additional $14.3 million in the fourth quarter of 2021, and the total of $22.4 million remains accrued as of March 31, 2022. The Court denied the CA Attorney General’s demands for restitution and injunctive relief finding no evidence postdating 2017 that would necessitate an injunction. The Company is disappointed by the Court’s decision and believes that its practices were at all times in compliance with California law. The Company is currently considering all options available to it related to the Statement of Decision. On April 7, 2022, the Company filed a motion for a new trial and/or to set aside and vacate the judgement, which is currently set for a hearing on May 13, 2022.

15. Segment Information
The Company operates in two reportable segments: University Partners and Zovio Growth. The Company reports segment information based upon the management approach, and how the chief operating decision maker views the operations. The Company has three operating segments: Fullstack, TutorMe, and Zovio, and two reportable segments: University Partners and Zovio Growth.
The Company’s operating segments are determined based on (i) financial information reviewed by the CEO, who is the chief operating decision maker, (ii) internal management and related reporting structure, and (iii) the basis upon which the chief operating decision maker makes resource allocation decisions. The Fullstack and TutorMe operating segments are aggregated into a single reportable segment, called Zovio Growth. The aggregation of the Fullstack and TutorMe operating segments is based on their uniform customer bases and methods of services provided as required by ASC 280-10-50-12. Based on these same quantitative tests, the Zovio operating segment is a separate reportable segment, called University Partners. This change in segment reporting did not have any impact on the determination of reporting units used to assess impairment under ASC 350, Intangibles - Goodwill and Other.
The University Partners segment includes the technology and services provided to colleges and universities to enable the online delivery of degree programs and related goods and services.
19


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
Segment Performance
The following table summarizes financial information regarding each reportable segment’s results of operations for the periods presented (in thousands):
 Three Months Ended
March 31,
 20222021
Revenue by segment
University Partners$52,333$69,679
Zovio Growth9,3007,180
Total revenue and other revenue$61,633$76,859
Segment profitability
University Partners$(2,626)$(5,437)
Zovio Growth(2,573)(1,615)
Total segment profitability(1)$(5,199)$(7,052)
(1) Segment profitability represents EBITDA.
The following table reconciles total loss before income taxes to total segment profitability (in thousands):
 Three Months Ended
March 31,
 20222021
Loss before income taxes$(7,359)$(9,410)
Adjustments:
Other expense, net127 73 
Depreciation and amortization expense2,033 2,285 
Total segment profitability$(5,199)$(7,052)
During both the three months ended March 31, 2022 and March 31, 2021, Global Campus accounted for the entire amount of the University Partners segment revenue, respectively.
During both the three months ended March 31, 2022 or 2021, there were no customers or individual university clients which accounted for 10% or more of the Zovio Growth segment revenue.
The Company’s total assets by segment are as follows (in thousands):
As of March 31, 2022As of
December 31, 2021
University Partners$88,172 $86,628 
Zovio Growth60,579 62,406 
Total assets$148,751 $149,034 
As of March 31, 2022, approximately $34.3 million of the assets in University Partners were considered to be entity-wide assets.
20


ZOVIO INC
Notes to Condensed Consolidated Financial Statements (Unaudited)
The Company’s accounts receivable and current deferred revenue in each segment are as follows (in thousands):
As of March 31, 2022As of
December 31, 2021
University Partners$64 $78 
Zovio Growth6,532 9,553 
Total accounts receivable$6,596 $9,631 
University Partners$— $— 
Zovio Growth15,157 14,939 
Total deferred revenue and student deposits, current$15,157 $14,939 
As of each March 31, 2022 and December 31, 2021, the University Partners accounts receivable balance was immaterial. As of each March 31, 2022 and December 31, 2021, there were no individual partners or customers which accounted for 10% or more of the Zovio Growth accounts receivable balance, as customers are individual students or third parties paying on their behalf, rather than university clients.
The Company’s goodwill amounts as of March 31, 2022 and December 31, 2021, respectively, are fully attributable to the Zovio Growth segment. For additional information on goodwill, see Note 7, “Other Significant Balance Sheet Accounts - Goodwill and intangibles, net.”

16. Subsequent Events
The Company performed an evaluation of events occurring between the end of our most recent quarter end and the date of filing these condensed consolidated financial statements.
The majority of our cash comes from our Services Agreement with our largest customer. The service fees in the Services Agreement are subject to certain minimum residual liability adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance, and to a certain extent the performance of our customer, during each service period. On April 11, 2022 the Company and their largest customer modified the payment terms from monthly to bi-monthly for the months of July, August and September 2022.
On April 14, 2022, the Company entered into a Financing Agreement (the “Credit Facility”) among the Company, as borrower, each of its wholly-owned subsidiaries as subsidiary guarantors (the “Guarantors”), the lenders party thereto from time to time (the “Lenders”) and Blue Torch Finance LLC, as administrative agent and collateral agent for the Lenders (the “Agent”). The Credit Facility provides for, among other things, a term loan in the aggregate principal amount of $31.5 million (the “Term Loan”). See Note 8, “Credit Facilities,” for further information.
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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following Management’s Discussions and Analysis of Financial Condition and Results of Operations should be read in conjunction with our condensed consolidated financial statements and related notes thereto included in Part I, Item 1 of this report. For additional information regarding our financial condition and results of operations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 (“Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) on April 15, 2022, as well as our consolidated financial statements and related notes thereto included in Part II, Item 8 of the Form 10-K. Unless the context indicates otherwise, in this report the terms “Zovio,” “the Company,” “we,” “us” and “our” refer to Zovio Inc, a Delaware corporation, and its wholly owned and indirect subsidiaries.
Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). All statements other than statements of historical fact may be forward-looking statements. Forward-looking statements may include, among others, statements regarding future events, future financial and operating results, strategies, expectations, the competitive environment, regulation and the availability of financial resources, including, without limitation, statements regarding:
•our ability and the ability of our current or any future university partners to comply with the extensive and continually evolving regulatory framework, applicable to such partners, including but not limited to Title IV of the Higher Education Act of 1965, as amended (“Higher Education Act”), and its implementing regulations, the gainful employment regulations, defense to repayment regulations, state authorization regulations, state laws and regulatory requirements, and accrediting agency requirements;
•our ability to meet any conditions of the U.S. Department of Education (the “Department”) with respect to the Asset Purchase and Sale Agreement (the “Purchase Agreement”) with the Arizona Board of Regents, for and on behalf of the University of Arizona (“University of Arizona”) and the University of Arizona Global Campus, a newly formed Arizona nonprofit corporation (“Global Campus”);
•our ability to service and repay our Financing Agreement (the “Credit Facility”);
•projections, predictions and expectations regarding our business, financial position, results of operations, liquidity and capital resources, and enrollment trends;
•the ability of our current or any future university partners to obtain continued approval of programs for educational benefits to active duty military students or to veteran students;
•the outcome of various lawsuits, claims and legal proceedings;
•the impact of COVID-19 on the economy, and the demand for our services and the collectability of our receivables;
•initiatives focused on student success, retention and academic quality;
•expectations regarding the adequacy of our cash and cash equivalents and other sources of liquidity for ongoing operations, planned capital expenditures and working capital requirements;
•expectations regarding capital expenditures;
•the impact of accounting standards on our financial statements;
•the reasonableness and acceptance of our tax accruals;
•the continued growth of our growth segment;
•management’s goals and objectives; and
•other similar matters that are not historical facts.
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Forward-looking statements may generally be identified by the use of words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates” and similar expressions, as well as statements in the future tense.
Forward-looking statements should not be interpreted as a guarantee of future performance or results and will not necessarily be accurate indications of the times at or by which such performance or results will be achieved, if at all. Forward-looking statements are based on information available at the time such statements are made and the current good faith beliefs, expectations and assumptions of management regarding future events. Such statements are subject to risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. For a discussion of some of these risks and uncertainties, see Part II, Item 1A, “Risk Factors” as well as the discussion of such risks and uncertainties contained in our other filings with the SEC, including the Form 10-K.
All forward-looking statements in this report are qualified in their entirety by the cautionary statements included herein, and you should not place undue reliance on any forward-looking statements. These forward-looking statements speak only as of the date of this report. We assume no obligation to update or revise any forward-looking statements contained herein to reflect actual results or any changes in our assumptions or expectations or any other factors affecting such forward-looking statements, except to the extent required by applicable securities laws. If we do update or revise one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.
Overview
Zovio Inc is an education technology services company that partners with higher education institutions and employers to deliver innovative, personalized solutions and learning experiences to help learners and leaders achieve their aspirations and help institutions grow. Zovio’s expertise across academic disciplines, credential levels, learning experiences, and modalities has powered student and partner success through a tailored, customer-focused approach bolstered by data analytics. The Company provides student recruitment and enrollment systems, retention strategies, educational tools and curriculums.
In April 2019, the Company acquired both Fullstack Academy, Inc (“Fullstack”) and TutorMe.com, Inc. (“TutorMe”), each of which became wholly-owned subsidiaries of the Company. Fullstack is an innovative web development school offering immersive technology bootcamps, and TutorMe is an online education platform that provides 24/7 on-demand tutoring and online courses.
Key Financial Metrics
In evaluating our operating performance, our management focuses in large part on our revenue and operating income (loss). The following table, which should be read in conjunction with our condensed consolidated financial statements included elsewhere in this report, presents our key operating data for each of the periods presented (in thousands):
Three Months Ended
March 31,
Consolidated Statement of Income (Loss) Data:20222021
Revenue and other revenue $61,633 $76,859 
Operating loss$(7,232)$(9,337)
Revenue and other revenue
Revenue is primarily derived from our service agreement with our university partners. On December 1, 2020, the Company entered into the Services Agreement with Global Campus whereby the Company provides certain educational technology and support services, which has an initial term of fifteen years and seven months, subject to renewal options and certain early termination provisions. The amounts earned from the Services Agreement are denoted as revenue on the condensed consolidated statements of income (loss). On December 1, 2020, the Company also entered into a transition services agreement with Global Campus whereby the Company will provide certain temporary transition services (the “Transition Services Agreement”), which has a term of three years. The amounts earned from the Transition Services Agreement are denoted as other revenue on the condensed consolidated statements of income (loss).
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Costs and expenses
Technology and academic services costs consist primarily of costs related to ongoing maintenance of educational infrastructure, including online course delivery and management, student records, assessment, customer relations management and other internal administrative systems. This also includes costs to provide support for curriculum and new program development, support for faculty training and development and technical support. This expense category includes salaries, benefits and share-based compensation, information technology costs, curriculum and new program development costs (which are expensed as incurred), provision for bad debt and other costs associated with these support services. This category also includes an allocation of depreciation, amortization, rent, and occupancy costs attributable to the provision of these services.
Counseling services and support costs consist primarily of costs including team-based counseling and other support to prospective and current students as well as financial aid processing. This expense category includes salaries, benefits and share-based compensation, and other costs such as dues, fees and subscriptions and travel costs. This category also includes an allocation of depreciation, amortization, rent, and occupancy costs attributable to the provision of these services.
Marketing and communication costs consist primarily of lead acquisition, digital communication strategies, brand identity advertising, media planning and strategy, video, data science and analysis, marketing to potential students and other promotional and communication services. This category was primarily from our historical captions of advertising and marketing and promotional. This expense category includes salaries, benefits and share-based compensation for marketing and communication personnel, brand advertising, marketing leads and other promotional and communication expenses. This category also includes an allocation of depreciation, amortization, rent, and occupancy costs attributable to the provision of these services. Advertising costs are expensed as incurred.
General and administrative costs consist primarily of compensation and benefit costs (including related stock-based compensation) for employees engaged in corporate management, finance, human resources, compliance, and other corporate functions. This category also includes an allocation of depreciation, amortization, rent, and occupancy costs attributable to the provision of these services.
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. Our university partners generally experience higher new enrollments during the first quarter of each year, following a holiday break, as well as during the third quarter each year, when most other colleges and universities begin their fall semesters. While our university partners enroll students throughout the year, fourth quarter revenue is generally lower than other quarters due to the holiday break in December, with a relative increase in the first quarter of each year.
Trends and uncertainties regarding continuing operations
Valuation allowance
We recognize deferred tax assets if realization of such assets is more-likely-than-not. In order to make this determination, we evaluate factors including the ability to generate future taxable income from reversing taxable temporary differences, forecasts of financial and taxable income or loss. The cumulative loss incurred over the three-year period ended March 31, 2022 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. Based on 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 March 31, 2022.
Critical Accounting Policies and Estimates
The critical accounting policies and estimates used in the preparation of our consolidated financial statements are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Policies and Estimates” included in Part II, Item 7 of the Form 10-K.
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There were no material changes to these critical accounting policies and estimates during the three months ended March 31, 2022.

Results of Operations
The following table sets forth our condensed consolidated statements of income (loss) data as a percentage of revenue for each of the periods indicated:
 Three Months Ended
March 31,
 20222021
Revenue and other revenue100.0 %100.0 %
Costs and expenses:  
Technology and academic services30.0 24.9 
Counseling services and support34.6 32.9 
Marketing and communication35.6 33.6 
General and administrative11.6 20.8 
Total costs and expenses111.8 112.2 
Operating loss(11.8)(12.2)
Other income (expense), net(0.2)(0.1)
Loss before income taxes(12.0)(12.3)
Income tax expense0.1 0.1 
Net loss(12.1)%(12.4)%
Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021
Total revenue and other revenue. Total revenue and other revenue for the three months ended March 31, 2022 and 2021, was $61.6 million and $76.9 million, respectively, a decrease of $15.3 million, or 19.8%. For the three months ended March 31, 2022 and 2021, University Partners segment revenue was $52.3 million and $69.7 million, respectively, representing a decrease of 24.9%, and the Zovio Growth segment revenue was $9.3 million and $7.2 million, respectively, representing an increase of 29.5%.
The decrease in revenue in the University Partners segment of $17.3 million between periods was primarily due to the change in business model in December 2020, and the related decrease in service revenue due to a decrease in average weekly enrollment for the three months ended March 31, 2022, as compared to the same period ended March 31, 2021. A component of the University Partners segment revenue includes the other revenue generated from the Transition Services Agreement of approximately $2.0 million.
The increase in revenue in the Zovio Growth segment between periods was primarily due to the growth in new customer contracts within the related subsidiaries, Fullstack Academy and TutorMe.com.
Technology and academic services. Technology and academic services for the three months ended March 31, 2022 and 2021, were $18.5 million and $19.1 million, respectively, a decrease of $0.6 million, or 3.4%. Specific decreases between periods primarily include bad debt expense of $0.5 million, amortization of $0.3 million, and professional fees of $0.1 million, partially offset by an increase in license fees of $0.3 million. Technology and academic services, as a percentage of revenue, for the three months ended March 31, 2022 and 2021, were 30.0% and 24.9%, respectively, an increase of 5.1%. This increase primarily included increases in employee costs of 3.2%, license fees of 1.2%, instructional supplies of 0.5%, and other technology and academic services of 0.5%, partially offset by a decrease in bad debt expense of 0.5%.
Counseling services and support. Counseling services and support for the three months ended March 31, 2022 and 2021, were $21.3 million and $25.3 million, respectively, a decrease of $4.0 million, or 15.8%. Specific factors contributing to the overall decrease between periods were primarily due to a decrease in employee costs of $3.9 million and facility costs of $0.5 million. Counseling services and support, as a percentage of revenue, for the three months ended March 31, 2022 and 2021,
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were 34.6% and 32.9%, respectively, an increase of 1.7%. This increase primarily included increases in other counseling service and support expenses of 1.1%, which include one-time severance costs, employee costs of 0.6%, depreciation of 0.4% partially offset by a decrease in facility costs of 0.4%.
Marketing and communication. Marketing and communication for the three months ended March 31, 2022 and 2021, were $21.9 million and $25.8 million, respectively, a decrease of $3.9 million, or 15.2%. Specific factors contributing to the overall decrease between periods were decreases in advertising of $2.9 million, employee costs of $0.7 million, and consulting and outside services of $0.3 million. Marketing and communication, as a percentage of revenue, for the three months ended March 31, 2022 and 2021, were 35.6% and 33.6%, respectively, an increase of 2.0%. This increase was primarily due to an increase in advertising of 1.8%.
General and administrative. General and administrative expenses for the three months ended March 31, 2022 and 2021, were $7.1 million and $15.9 million, respectively, a decrease of $8.8 million, or 55.2%. The decrease between periods was primarily due to decreases in employee costs of $4.2 million, other general and administrative expeses of $3.9 million, including one-time severance costs, professional fees of $0.5 million and legal fees of $0.4 million, partially offset by an increase in human resources costs of $0.2 million. General and administrative expenses, as a percentage of revenue, for the three months ended March 31, 2022 and 2021, were 11.6% and 20.8%, respectively, a decrease of 9.2%. This decrease was primarily due to decreases in employee costs of 4.8%, other general and administrative expenses of 4.2%, professional fees of 0.5%, and legal fees of 0.4%, partially offset by an increase in insurance of 0.6%.
Other expense, net. Other expense, net, was $0.1 million for the three months ended March 31, 2022 and other expense was $0.1 million for the three months ended March 31, 2021, respectively. The amounts recognized during the three months ended March 31, 2022 relate primarily to interest expense.
Income tax expense. We recognized income tax expense of $0.1 million for each of the three months ended March 31, 2022 and 2021, respectively, at effective tax rates of (1.1)% and (0.9)%, respectively. The income tax expense for the three months ended March 31, 2022 was mainly attributable to the current state income taxes.
Net loss. Net loss was $7.4 million for the three months ended March 31, 2022, compared to net loss of $9.5 million for the three months ended March 31, 2021, a $2.1 million increase in income as a result of the factors discussed above.

Liquidity and Capital Resources
We finance our operating activities and capital expenditures primarily through cash on hand. At March 31, 2022 and December 31, 2021, our cash and cash equivalents were $33.7 million and $28.3 million, respectively. At March 31, 2022 and December 31, 2021, total restricted cash was $6.1 million and $9.3 million, respectively, and investments were $0.9 million and $1.0 million, respectively. At March 31, 2022, we had $2.8 million of long-term notes payable.
There was a slight decrease in the fair value of our investments at March 31, 2022 as compared to December 31, 2021 primarily due to distributions. We believe that any remaining fluctuations we have experienced are temporary in nature and, while our securities are classified as available-for-sale, we have the ability and intent to hold them until maturity, if necessary, to recover their full value.
In March 2022, the Company received a court order to pay $22.4 million in statutory penalties relating to the California Attorney General’s lawsuit. We are currently considering all options available and have filed a motion for a new trial on the Court’s decision. Regardless of the ultimate outcome, this decision could have a material impact on our future cash flow.
On April 14, 2022, the Company entered into a Financing Agreement (the “Credit Facility”) among the Company, as borrower, each of its wholly-owned subsidiaries as subsidiary guarantors (the “Guarantors”), the lenders party thereto from time to time (the “Lenders”) and Blue Torch Finance LLC, as administrative agent and collateral agent for the Lenders (the “Agent”). The Credit Facility provides for, among other things, a term loan in the aggregate principal amount of $31.5 million (the “Term Loan”). The proceeds of the Term Loan will be used (i) to satisfy any final judgement in the California Attorney General lawsuit and (ii) to fund the working capital of the Company and the Guarantors.
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Based on our current level of operations, recent cost reductions throughout the organization, and the recently acquired Credit Facility, we believe that our future cash flows from operating activities and our existing cash and cash equivalents will provide adequate funds for ongoing operations, minimum residual payments, planned capital expenditures and working capital requirements for at least the next 12 months. However, changes could occur that would consume our available capital resources before that time. Our capital requirements depend on numerous factors, including our ability to continue to generate revenue. If additional funding is needed, there can be no assurance that the additional funding will be available to us on favorable terms, if at all.
We manage our cash pursuant to the quantitative and qualitative operational guidelines of our cash investment policy. Our cash investment policy, which is managed by our Chief Financial Officer, has the following primary objectives: (i) preserving principal, (ii) meeting our liquidity needs, (iii) minimizing market and credit risk, and (iv) providing after-tax returns. Under the policy’s guidelines, we invest our excess cash exclusively in high-quality, U.S. dollar-denominated financial instruments. For a discussion of the measures we use to mitigate the exposure of our cash investments to market risk, credit risk and interest rate risk, see Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk” in this Form 10-Q.
Operating activities
Net cash provided by operating activities was $2.6 million for the three months ended March 31, 2022, compared to net cash provided by operating activities of $0.8 million for the three months ended March 31, 2021, an overall increase between periods in net cash provided by operating activities of $1.8 million. The increase in cash provided by operating activities is primarily attributable to the net increases in the working capital accounts, as well as the decrease in net loss of $2.1 million between periods, partially offset by the decreases in non-cash expenses.
Investing activities
Net cash used in investing activities was $0.2 million for the three months ended March 31, 2022, compared to net cash used in investing activities of $0.1 million for the three months ended March 31, 2021. Capital expenditures for the three months ended March 31, 2022 were $24 thousand, compared to $0.2 million for the three months ended March 31, 2021. During the three months ended March 31, 2022 and 2021, we capitalized costs for intangibles of $0.2 million and $0.1 million, respectively. We anticipate our capital expenditures to be approximately $1.8 million for the year ending December 31, 2022.
Financing activities
Net cash used in financing activities was $0.1 million for the three months ended March 31, 2022, compared to net cash used in financing activities of $1.1 million for the three months ended March 31, 2021. During each of the three months ended March 31, 2022 and 2021, net cash used included tax withholdings related to the issuance of restricted stock units vesting.
Agreements with Global Campus
Our largest university partner, Global Campus, derives the majority of its respective cash revenues from students who enroll and are eligible for various federal student financial assistance programs authorized under Title IV of the Higher Education Act. An institution is subject to significant regulatory scrutiny as a result of numerous standards that must be satisfied in order to participate in Title IV programs. For additional information regarding Title IV programs and the regulation thereof, see “Business—Regulation” included in Part I, Item 1 of the Form 10-K. The balance of revenues derived by Global Campus is from government tuition assistance programs for military personnel, including veterans, payments made in cash by individuals, reimbursement from corporate partnerships and private loans from third parties.
The majority of our cash comes from our Services Agreement with Global Campus. The service fees in the Services Agreement are subject to certain minimum residual liability adjustments, including performance-based adjustments, minimum profit level adjustments, and excess direct cost adjustments. These adjustments are all variable in nature in that they depend upon the Company’s performance during each service period. In connection with the Services Agreement, the minimum residual payment will be paid annually in June. On April 11, 2022, the Company and Global Campus modified the payment terms from monthly to bi-monthly for the months of July, August and September 2022.
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Debt and Financing Arrangements
As of March 31, 2022, the Company has a notes payable valued at $2.8 million, including accrued interest. The counterparty advanced funds to the Company for certain program development costs, which the Company is obligated to repay out of future revenues from the developed program. The Company recognized these advances as a debt obligation, and expects to begin repayments from future program revenues four years from the contract start date.
The Company has issued letters of credit that are collateralized with cash, in the aggregate amount of $6.0 million as of March 31, 2022. The letters of credit relate primarily to the Company's leased facilities and insurance requirements. The collateralized cash is held in restricted cash on the Company's condensed consolidated balance sheets. The Company is required to provide surety bonds in certain states in which it does business. As a result, the Company had previously entered into a surety bond facility with an insurance company to provide such bonds when required. Although there are no remaining bonds on the Company’s behalf under this facility as of March 31, 2022, the Company still holds certain liability associated with any required collateral.
Subsequent to the quarter end, on April 14, 2022, the Company entered into a Financing Agreement (the “Credit Facility”) among the Company, as borrower, each of its wholly-owned subsidiaries as subsidiary guarantors (the “Guarantors”), the lenders party thereto from time to time (the “Lenders”) and Blue Torch Finance LLC, as administrative agent and collateral agent for the Lenders (the “Agent”). The Credit Facility provides for, among other things, a term loan in the aggregate principal amount of $31.5 million (the “Term Loan”). For further information, see Note 8, “Credit Facilities,” to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.
The Company does not have any off-balance sheet financing arrangements.
Future Contractual Obligations
As of March 31, 2022, we have future contractual obligations relating to operating lease obligations in the amount of $51.9 million, of which approximately $5.3 million is payable during the remainder of 2022.
We also have contractual obligations in the amount of $10.2 million, of which $4.3 million is payable during the remainder of 2022. These obligations include agreements with vendors in the areas of software, facilities, telephony, licensing fees, consulting, marketing, among others.
Recent Accounting Pronouncements
For information regarding recent accounting pronouncements, refer to Note 2, “Summary of Significant Accounting Policies” to our condensed consolidated financial statements included in Part I, Item 1 of this Form 10-Q.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
Market and Credit Risk
Pursuant to our cash investment policy, we attempt to mitigate the exposure of our cash and investments to market and credit risk by (i) diversifying concentration to ensure we are not overly concentrated in a limited number of financial institutions, (ii) monitoring and managing the risks associated with the national banking and credit markets, (iii) investing in U.S. dollar-denominated assets and instruments only, (iv) diversifying account structures so that we maintain a decentralized account portfolio with numerous stable, highly rated and liquid financial institutions and (v) ensuring that our investment procedures maintain a defined and specific scope such that we will not invest in higher-risk investment accounts, including financial swaps or derivative and corporate equities. Accordingly, pursuant to the guidelines established by our cash investment policy, we invest our excess cash exclusively in high-quality, U.S. dollar-denominated financial instruments.
Despite the investment risk mitigation strategies we employ, we may incur investment losses as a result of unusual and unpredictable market developments, and we may experience reduced investment earnings if the yields on investments that are deemed to be low risk remain low or decline further in this time of economic uncertainty. Unusual and unpredictable market developments may also create liquidity challenges for certain of the assets in our investment portfolio.
We have no derivative financial instruments or derivative commodity instruments.
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Interest Rate Risk
To the extent we borrow funds, we would be subject to fluctuations in interest rates. As of March 31, 2022, as well as $2.8 million in long-term notes payable.
As noted above, subsequent to the quarter end, on April 14, 2022, the Company entered into a Credit Facility which provides for, among other things, a Term Loan in the aggregate principal amount of $31.5 million and bears interest at a rate per annum equal to LIBOR plus 9.0%, payable monthly.
Our future investment income may fall short of expectations due to changes in interest rates. At March 31, 2022, a hypothetical 10% increase or decrease in interest rates would not have a material impact on our future earnings, fair value or cash flows related to interest earned on our cash, cash equivalents or investments.
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Item 4.  Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act, that are designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Principal Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act. Based on that evaluation, our Chief Executive Officer and our Principal Financial Officer concluded that our disclosure controls and procedures were effective as of March 31, 2022.
Changes in Internal Control Over Financial Reporting
There have been no changes in internal control over financial reporting, during the three months ended March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1.  Legal Proceedings
For information regarding our legal proceedings, refer to Note 14, “Commitments and Contingencies” to our condensed consolidated financial statements included in Part I, Item 1 of this report, which note is incorporated by reference into this Part II, Item 1.
Item 1A.  Risk Factors
Investing in our common stock involves risk. Before making an investment in our common stock, you should carefully consider the risk factors discussed in Part I, Item 1A, “Risk Factors” of the Form 10-K. The risks described in the Form 10-K are those which we believe are the material risks we face, and such risks could materially adversely affect our business, prospects, financial condition, cash flows and results of operations. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may impact us. There have been no material changes in our risk factors from those previously disclosed in the Form 10-K.
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.  Defaults Upon Senior Securities
None.
Item 4.  Mine Safety Disclosures
None.
Item 5.  Other Information
None.

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Item 6.  Exhibits
ExhibitDescription
31.1 
31.2 
32.1 
101 
The following financial information from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 10, 2022, formatted in Extensible Business Reporting Language (“XBRL”): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Income (Loss); (iii) the Condensed Consolidated Statements of Stockholders’ Equity; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.
104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 ZOVIO INC
May 10, 2022/s/ KEVIN ROYAL
Kevin Royal
Chief Financial Officer
(Principal financial officer and duly authorized to
sign on behalf of the registrant)

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