Overview of Legacy Education

Legacy Education is a provider of career-focused, post-secondary education services to students at all stages of adult life. The company operates four accredited academic institutions: High Desert Medical College (HDMC), Central Coast College (CCC), Contra Costa Medical Career College (CCMCC), and Integrity College of Health.

HDMC was established in 2002 and offers a variety of programs including nursing, medical assisting, and veterinary assistant. CCC was established in 1983 and offers programs in business, medical assisting, and nursing. Integrity College of Health was established in 2007 and offers nursing, medical assisting, and diagnostic medical sonography programs. Legacy Education recently acquired CCMCC in December 2024, which offers programs in vocational nursing, surgical technology, and medical assisting.

Recent Developments

In December 2024, Legacy Education’s subsidiary Legacy Education Antioch, LLC completed the acquisition of substantially all the assets of Contra Costa Medical Career College (CCMCC) for $6.6 million. This acquisition added 389 students to Legacy’s enrollment.

The acquisition of CCMCC required approval from various regulatory agencies, including the California Bureau for Private Postsecondary Education, the Accrediting Council for Continuing Education and Training, and the California Board of Vocational Nursing and Psychiatric Technicians. Legacy Education timely submitted the required applications and documentation, and CCMCC is now operating under a temporary provisional program participation agreement with the Department of Education while its change of ownership is reviewed.

Regulatory Updates

The Department of Education (ED) has been active in promulgating new regulations in recent years that have significantly impacted Legacy Education’s business. This includes regulations related to student debt relief, cash management, state authorization, distance education, and return of Title IV funds.

There are also indications that the new presidential administration may attempt to dissolve or diminish the role of the Department of Education, which could disrupt the availability of Title IV funds or change the rules applicable to Legacy Education’s institutions. The company is closely monitoring these developments.

Legacy Education must also comply with the ⁹⁰⁄₁₀ rule, which requires proprietary institutions to derive no more than 90% of their revenue from Title IV federal student aid programs. For fiscal year 2024, Legacy’s institutions were below the 90% threshold, with HDMC at 87.55%, CCC at 79.51%, and Integrity at 84.19%.

Key Financial Metrics

Revenue Tuition revenue is the primary source of revenue for Legacy Education, which is recognized ratably over the instruction period. Revenue is also generated from course materials and lab services. Enrollments, which are a function of new students and continuing students, are a key driver of revenue.

Costs and Expenses Legacy Education’s main expenses include:

• Educational services: Salaries, benefits, student materials, occupancy costs
• General and administrative: Bad debt, marketing, professional fees, accreditation
• Depreciation and amortization

Interest Expense and Income Interest expense is incurred on notes and other debt, while interest income is earned on investments.

Factors Affecting Comparability Legacy Education’s results are subject to seasonal trends, with higher enrollments and revenue in the first and third quarters. The company’s recent acquisition of CCMCC also impacts comparability between periods.

Critical Accounting Policies Key accounting policies and estimates include the allowance for credit losses, impairment of long-lived assets, income taxes, share-based compensation, and goodwill/intangible asset impairment testing.

Results of Operations

For the three months ended December 31, 2024, Legacy Education reported:

• Revenue of $13.7 million, up 29.2% from the prior year period
• Net income of $1.4 million, up 8.5% from the prior year period

The increase in revenue was driven by a 44.8% increase in ending enrollment, supported by a 3.0% increase in new student starts and the addition of CCMCC. Educational services expense increased 35.3% due to higher instructional and staffing costs to support enrollment growth, as well as increased rent, externship fees, and public company costs. General and administrative expense increased 32.5%, primarily due to higher marketing, professional fees, and bad debt.

For the six months ended December 31, 2024, Legacy Education reported:

• Revenue of $27.6 million, up 32.1% from the prior year period
• Net income of $3.5 million, up 47.9% from the prior year period

The increase in revenue and net income for the six-month period was driven by similar factors as the quarterly results, including the 44.8% increase in enrollment and the addition of CCMCC.

Liquidity and Capital Resources

As of December 31, 2024, Legacy Education had $16.9 million in cash and cash equivalents. The company is not party to a revolving line of credit or other debt facility.

Legacy Education believes its current cash flow from operations, proceeds from its recent IPO, and other sources of liquidity will provide adequate funds for ongoing operations and capital expenditures for at least the next 12 months. Capital expenditures were $0.4 million and $0.3 million for the six months ended December 31, 2024 and 2023, respectively.

A significant portion of Legacy Education’s revenue comes from Title IV federal student aid programs. The timing of these disbursements impacts the company’s operating cash flow. Legacy Education currently satisfies the composite score requirement of the Department of Education’s financial responsibility test.

Segment Information

Legacy Education operates as a single reportable segment, as its chief operating decision maker manages the business as a whole rather than evaluating results at a component level.

Recent Accounting Pronouncements

Legacy Education has adopted or plans to adopt several new accounting standards, including those related to credit losses, convertible instruments, and segment reporting disclosures. The company does not expect these new standards to have a material impact on its financial statements.

Conclusion

In summary, Legacy Education has experienced strong enrollment and revenue growth, driven by both organic expansion and the recent acquisition of CCMCC. While costs have also increased to support this growth, the company has maintained profitability and a solid liquidity position.

However, Legacy Education faces ongoing regulatory risks, including potential changes to Title IV funding and the ⁹⁰⁄₁₀ rule. The company must also navigate the approval process for the CCMCC acquisition with various state and accrediting agencies. Successful management of these regulatory matters will be critical to Legacy Education’s continued success.

Overall, Legacy Education appears to be executing well on its strategy of growth through targeted acquisitions and organic enrollment expansion. If the company can effectively navigate the regulatory landscape, it seems poised to continue delivering value to its students and shareholders.