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), Integrity College of Health, and the recently acquired Contra Costa Medical Career College (CCMCC).

HDMC was established in 2002 and offers a variety of programs including nursing, medical assisting, and veterinary assistant. CCC was founded in 1983 and provides training in business, medical, and veterinary fields. Integrity College of Health, acquired in 2019, focuses on nursing, medical, and diagnostic sonography programs. The newest addition, CCMCC, was purchased in December 2024 and offers vocational nursing, surgical technology, and other allied health programs.

Recent Developments

In December 2024, Legacy Education completed the acquisition of CCMCC, a postsecondary institution located in Antioch, California. The $6.6 million transaction was funded through a combination of cash, a promissory note, and the issuance of 118,906 shares of Legacy’s common stock.

The acquisition of CCMCC is subject to regulatory approvals, including from the Department of Education, state agencies, and accrediting bodies. Legacy has submitted the required applications and CCMCC is currently operating under a temporary provisional program participation agreement while the change of ownership is reviewed. There is uncertainty around the timing and outcome of these approval processes.

Regulatory Updates

Legacy Education’s institutions are subject to extensive regulation by the Department of Education, state agencies, and accrediting bodies. Recent and proposed regulatory changes, including those related to student debt relief, distance education, and Title IV program funds, could have significant impacts on the company’s business.

The ⁹⁰⁄₁₀ rule, which limits the amount of revenue proprietary institutions can derive from Title IV federal student aid programs, is an ongoing area of focus. Legacy’s institutions were below the 90% threshold in fiscal 2024, with HDMC at 87.55%, CCC at 79.51%, and Integrity at 84.19%.

Key Financial Metrics

Revenue Tuition revenue is the primary driver of Legacy’s financial performance. Tuition and fees are generally paid upfront, with some students utilizing installment billing. Revenue is recognized ratably over the instructional period using the time elapsed method.

Enrollments Enrollments are a function of new student starts, continuing students, and those who graduate or withdraw during the period. Enrollment growth has been a key factor in Legacy’s recent revenue increases.

Costs and Expenses The company’s main expense categories are:

• Educational services: Salaries, benefits, instructional materials, occupancy costs, etc.
• General and administrative: Bad debt, marketing, professional fees, travel, etc.
• Depreciation and amortization

Interest Expense and Income Legacy has minimal interest expense related to notes and other debt. Interest income is earned on the company’s cash and investments.

Factors Affecting Comparability Seasonality is a key factor, with the first and third quarters generally seeing higher enrollment and revenue. The recent acquisition of CCMCC will also impact comparability going forward.

Critical Accounting Policies Legacy’s critical accounting policies 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

Three Months Ended December 31, 2024 vs. 2023

• Revenue increased 29.2% to $13.7 million, driven by a 44.8% increase in ending enrollment and the addition of CCMCC.
• Educational services expense rose 35.3% to $7.5 million due to increased instructional and staffing costs.
• General and administrative expense grew 32.5% to $4.3 million, primarily from higher marketing and bad debt.
• Net income increased 8.5% to $1.4 million.

Six Months Ended December 31, 2024 vs. 2023

• Revenue increased 32.1% to $27.6 million, again due to enrollment growth and the CCMCC acquisition.
• Educational services expense rose 30.4% to $14.7 million.
• General and administrative expense grew 29.2% to $8.3 million.
• Net income increased 47.9% to $3.5 million.

Liquidity and Capital Resources

Legacy had $16.9 million in cash and cash equivalents as of December 31, 2024, up from $10.4 million at June 30, 2024. This increase was driven by $3.8 million in operating cash flow and $9.2 million in net proceeds from the company’s initial public offering completed in 2024.

The company does not currently have a revolving line of credit or other debt facility. Based on its current operations and growth plans, Legacy believes its cash flow and other sources of liquidity will provide adequate funds for the next 12 months.

A significant portion of Legacy’s revenue comes from Title IV federal student aid programs. The timing of these disbursements can impact the company’s operating cash flow. Legacy currently meets the financial responsibility requirements to participate in Title IV.

Segment Information

Legacy operates as a single reportable segment, managing its institutions and educational delivery as an integrated operation.

Recent Accounting Pronouncements

Legacy has adopted or plans to adopt several new accounting standards, including those related to credit losses, convertible instruments, and segment reporting disclosures. The impact of these standards has been or is expected to be minimal.

Conclusion

Legacy Education has experienced strong enrollment and revenue growth in recent periods, driven by both organic expansion and the acquisition of CCMCC. However, the company faces regulatory uncertainties around the CCMCC transaction and potential future changes to Title IV program rules.

Operationally, Legacy has been able to scale its educational services and administrative functions to support the enrollment increases, though margins have been impacted by higher costs in areas like marketing and bad debt. The company’s liquidity position appears solid, providing flexibility to invest in growth initiatives.

Overall, Legacy Education seems well-positioned to continue capitalizing on demand for its career-focused programs, but regulatory risks and integration challenges from acquisitions will be key factors to monitor going forward.