| Item 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
All references in this Quarterly Report on Form 10-Q (“Form 10Q”) to “we,” “our,” “us” and the “Company,” refer to Lincoln Educational Services Corporation and its subsidiaries unless the context indicates otherwise.
The following discussion may contain forward-looking statements regarding the Company, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements. FactorsSuch statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” "may," “will,” “forecast,” “outlook,” “plan,” “project,” or similar words, and include, without limitation, statements relating to future enrollment, revenues, revenues per student, earnings growth, operating expenses, capital expenditures and effect of pandemics such as the COVID-19 pandemic and its ultimate effect on the Company’s business and results. These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. Additional factors that could cause or contribute to such differences between our actual results and those anticipated include, but are not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2016, as filed with the Securities and Exchange Commission (the “SEC”) and in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this reportQuarterly Report and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.
The interim financial statements and related notes thereto filedappearing elsewhere in this Form 10-Q and the discussions contained herein should be read in conjunction with the annual financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2016, as filed with the SEC, which includes audited consolidated financial statements for our threetwo fiscal years ended December 31, 2016.2021.
General
Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provideThe Company provides diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company which currently operates 25 schools in 15 states, offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electrical and electronic systems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, and pharmacy technician, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and business and information technology (which includes information technology and criminal justice programs).programs. The schools, currently consisting of 22 schools in 14 states, operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln College of New England, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of the campuses are nationally or regionally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (the “DOE”)DOE and applicable state education agencies and accrediting commissions, which allow students to apply for and access federal student loans as well as other forms of financial aid.
In the first quarter of 2015, we reorganized our operationsOur business is organized into threetwo reportable business segments: (a) Transportation and Skilled Trades, segment,and (b) Healthcare and Other Professions (“HOPS”) segment, and (c) Transitional segment, which refers to businesses that have been or are currently being taught out. In November 2015, the Board of Directors approved a plan for the Company to divest the schools included in the HOPS segment due to a strategic shift in the Company’s business strategy. The Company underwent an exhaustive process to divest the HOPS schools which proved successful in attracting various purchasers but, ultimately, did not result in a transaction that our Board believed would enhance shareholder value. When the decision was first made by the Board of Directors to divest HOPS, 18 campuses were operating in this segment. By the end of 2017, we will have strategically closed seven underperforming campuses leaving a total of 11 campuses remaining under the HOPS segment. The Company believes that the closures and planned closures of the aforementioned campuses has positioned this segment and the Company to be more profitable going forward as well as maximizing returns for the Company’s shareholders.“HOPS”.
The combination of several factors, including the inability of a prospective buyer of the HOPS segment to close on the purchase, the improvements the Company has implemented in the HOPS segment operations, the closure of seven underperforming campuses and the change in Federal government administration, resulted in the Board reevaluating its divestiture plan and the determination that shareholder value would more likely be enhanced by continuing to operate our HOPS segment as revitalized. Consequently, the Board of Directors has abandoned the plan to divest the HOPS segment and the Company now intends to retain the remaining campuses in the HOPS segment. The results of operations of the campuses included in the HOPS segment are reflected as continuing operations in the condensed consolidated financial statements.
In the fourth quarter of 2016, the Company completed the teach-out of its Hartford, Connecticut and Henderson (Green Valley), Nevada campuses which originally operated in the HOPS segment. Also in 2016, the Company announced the closing of its Northeast Philadelphia, Pennsylvania, Center City Philadelphia Pennsylvania and West Palm Beach, Florida facilities, which also were originally in our HOPS segment and which were fully taught out in 2017. In addition, in March 2017, the Board of Directors approved a plan to not renew the leases at our schools located in Brockton, Massachusetts and Lowell, Massachusetts, which also were originally in our HOPS segment. These schools are being taught out with expected closure in December 2017 and are included in the Transitional segment as of September 30, 2017.
On August 14, 2017, New England Institute of Technology at Palm Beach, Inc., a wholly-owned subsidiary of the Company, consummated the anticipated sale of the real property located at 2400 and 2410 Metrocentre Boulevard East, West Palm Beach, Florida, including the improvements and other personal property located thereon (the “West Palm Beach Property”) to Tambone Companies, LLC (“Tambone”), pursuant to a previously disclosed purchase and sale agreement (the “West Palm Sale Agreement”) entered into on March 14, 2017. Pursuant to the terms of the West Palm Sale Agreement, as subsequently amended, the purchase price for the West Palm Beach Property was $15.8 million. As a result, the Company recorded a gain on the sale in the amount of $1.5 million. As previously disclosed, the West Palm Beach Property served as collateral for a short term loan in the principal amount of $8.0 million obtained by the Company from its lender, Sterling National Bank, on April 28, 2017, which loan matured upon the earlier of the sale of the West Palm Beach Property or October 1, 2017. Accordingly, on August 14, 2017, concurrently with the consummation of the sale of the West Palm Beach Property, the Company repaid the term loan in an aggregate amount of $8.0 million, consisting of principal and accrued interest.
On March 31, 2017, the Company entered into a new revolving credit facility with Sterling National Bank in the aggregate principal amount of up to $55 million, which consists of up to $50 million of revolving loans, including a $10 million sublimit for letters of credit, and an additional $5 million non-revolving loan. The new credit facility requires that revolving loans in excess of $25 million and all letters of credit issued thereunder be cash collateralized dollar for dollar. The proceeds of the $5 million non-revolving loan were held in a pledged account at Sterling National Bank as required by the terms of the new credit facility pending the completion of environmental studies undertaken at certain properties owned by the Company and mortgaged to Sterling National Bank. Upon the completion of environmental studies that revealed that no environmental issues existed at the properties, during the quarter ended June 30, 2017, the $5 million held in the pledged account at Sterling National Bank was released and used to repay the $5 million non-revolving loan. The new revolving credit facility replaces a term loan facility which was repaid and terminated concurrently with the effectiveness of the new revolving credit facility. The term of the new revolving credit facility is 38 months, maturing on May 31, 2020. The new revolving credit facility is discussed in further detail under the heading “Liquidity and Capital Resources” below and in Note 4 to the condensed consolidated financial statements included in this report.
As of September 30, 2017, we had 11,515 students enrolled at 25 campuses in our programs.
Critical Accounting Policies and Estimates
Our discussionsFor a description of our financial conditioncritical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 1 to the Condensed Consolidated Financial Statements included in our Form 10-K and Note 1 to the Condensed Consolidated Financial Statements included in this Form 10-Q for the quarter ended June 30, 2022.
In addition, due to the impact of the COVID-19 pandemic, we have reassessed those of our accounting policies whose application places the most significant demands on management’s judgment, for instance, revenue recognition, allowance for doubtful accounts, goodwill, and long-lived assets, stock-based compensation, derivative instruments and hedging activity, borrowings, assumptions related to ROU assets, lease cost, income taxes and assets and obligations related to employee benefit plans. Such reassessments did not have a significant impact on our results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the period. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, bad debts, impairments, income taxes, benefit plans and certain accruals. Actual results could differ from those estimates. The critical accounting policies discussed herein are not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not result in significant management judgment in the application of such principles. We believe that the following accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management’s estimates, assumptions and judgment in the preparation of our condensed consolidated financial statements.
Revenue Recognition. Revenues are derived primarily from programs taught at our schools. Tuition revenues, textbook sales and one-time fees, such as nonrefundable application fees and course material fees, are recognized on a straight-line basis over the length of the applicable program as the student proceeds through the program, which is the period of time from a student’s start date through his or her graduation date, including internships or externships that take place prior to graduation, and we complete the performance of teaching the student which entitles us to the revenue. Other revenues, such as tool sales and contract training revenues are recognized as services are performed or goods are delivered. On an individual student basis, tuition earned in excess of cash received is recorded as accounts receivable, and cash received in excess of tuition earned is recorded as unearned tuition.
We evaluate whether collectability of revenue is reasonably assured prior to the student attending class and reassess collectability of tuition and fees when a student withdraws from a course. We calculate the amount to be returned under Title IV and its stated refund policy to determine eligible charges and, if there is a balance due from the student after this calculation, we expect payment from the student and we have a process to pursue uncollected accounts whereby, based upon the student’s financial means and ability to pay, a payment plan is established with the student to ensure that collectability is reasonable. We continuously monitor our historical collections to identify potential trends that may impact our determination that collectability of receivables for withdrawn students is realizable. If a student withdraws from a program prior to a specified date, any paid but unearned tuition is refunded. Refunds are calculated and paid in accordance with federal, state and accrediting agency standards. Generally, the amount to be refunded to a student is calculated based upon the period of time the student has attended classes and the amount of tuition and fees paid by the student as of his or her withdrawal date. These refunds typically reduce deferred tuition revenue and cash on our consolidated balance sheets as we generally do not recognize tuition revenue in our consolidated statements of income (loss) until the related refund provisions have lapsed. Based on the application of our refund policies, we may be entitled to incremental revenue on the day the student withdraws from one of our schools. We record revenue for students who withdraw from one of our schools when payment is received because collectability on an individual student basis is not reasonably assured.
Allowance for uncollectible accounts. Based upon our experience and judgment, we establish an allowance for uncollectible accounts with respect to tuition receivables. We use an internal group of collectors, augmented by third-party collectors as deemed appropriate, in our collection efforts. In addition, we periodically sell written-off receivables to third parties. In establishing our allowance for uncollectible accounts, we consider, among other things, current and expected economic conditions, a student’s status (in-school or out-of-school), whether or not a student is currently making payments and overall collection history. Changes in trends in any of these areas may impact the allowance for uncollectible accounts. The receivables balances of withdrawn students with delinquent obligations are reserved based on our collection history. Although we believe that our reserves are adequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments, additional allowances may be necessary, which will result in increased selling, general and administrative expenses in the period such determination is made.
Our bad debt expense as a percentage of revenueflows for the three months ended September 30, 2017 and 2016 was 4.7% and 4.8%, respectively. Our bad debt expense as a percentage of revenue for the nine months ended September 30, 2017 and 2016 was 5.3% and 4.7%, respectively. Our exposure to changes in our bad debt expense could impact our operations. A 1% increase in our bad debt expense as a percentage of revenues for each of the three months ended September 30, 2017 and 2016 would have resulted in an increase in bad debt expense of $0.7 million and $0.7 million, respectively. A 1% increase in our bad debt expense as a percentage of revenues for each of the nine months ended September 30, 2017 and 2016 would have resulted in an increase in bad debt expense of $1.9 million and $2.1 million, respectively.periods presented.
We do not believe that there is any direct correlation between tuition increases, the credit we extend to students, and our loan commitments. Our loan commitments to our students are made on a student-by-student basis and are predominantly a function of the specific student’s financial condition. We only extend credit to the extent there is a financing gap between the tuition charged for the program and the amount of grants, student loans and parental loans that each student receives and the availability of family contributions. Each student’s funding requirements are unique. Factors that determine the amount of aid available to a student are student status (whether they are dependent or independent students), Pell Grants awarded, Plus Loans awarded or denied to parents, and family contributions. As a result, it is extremely difficult to predict the number of students that will need us to extend credit to them. Our tuition increases have ranged historically from 2% to 5% annually and have not meaningfully impacted overall funding requirements.
Because a substantial portion of our revenue is derived from Title IV programs, any legislative or regulatory action that significantly reduces the funding available under Title IV programs or the ability of our students or schools to participate in Title IV programs could have a material effect on the realizability of our receivables.
Goodwill. We test our goodwill for impairment annually, or whenever events or changes in circumstances indicate an impairment may have occurred, by comparing its fair value to its carrying value. Impairment may result from, among other things, deterioration in the performance of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations, including changes that restrict the activities of the acquired business, and a variety of other circumstances. If we determine that impairment has occurred, we are required to record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made. In evaluating the recoverability of the carrying value of goodwill and other indefinite-lived intangible assets, we must make assumptions regarding estimated future cash flows and other factors to determine the fair value of the acquired assets. Changes in strategy or market conditions could significantly impact these judgments in the future and require an adjustment to the recorded balances.
There was no goodwill impairment for the three and nine months ended September 30, 2017 and 2016.
Long-lived assets. We review the carrying value of our long-lived assets and identifiable intangibles for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We evaluate long-lived assets for impairment by examining estimated future cash flows. These cash flows are evaluated by using weighted probability techniques as well as comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If we determine that an asset’s carrying value is impaired, we will record a write-down of the carrying value of the asset and charge the impairment as an operating expense in the period in which the determination is made.
There was no long-lived asset impairment during the three and nine months ended September 30 2017 and 2016.
Bonus costs. We accrue the estimated cost of our bonus programs using current financial information as compared to target financial achievements and key performance objectives. Although our recorded liability for bonuses is based on our best estimate of the obligation, actual results could differ and require adjustment of the recorded balance.
Income taxes. We account for income taxes in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Code (“ASC”) Topic 740, “Income Taxes”. This statement requires an asset and liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.
In accordance with ASC 740, we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable. A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. In accordance with ASC 740, our assessment considers whether there has been sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax assets, we considered, among other things, historical levels of income, expected future income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income tax benefits. Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns. Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial position or results of operations. Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods. On the basis of this evaluation the realization of our deferred tax assets was not deemed to be more likely than not and thus we have provided a valuation allowance on our net deferred tax assets.
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the three and nine months ended September 30, 2017 and 2016, there were no interest and penalties expense associated with uncertain tax positions.
Effect of Inflation
Inflation has not had a material effect on our operations.operations except for some inflationary pressures on certain instructional expenses and in instances where potential students have not wanted to incur additional debt or increased travel expense.
Results of Continuing Operations for the Three and Six Months Ended June 30, 2022
Certain reported amounts in our analysis have been rounded for presentation purposes. The following table sets forth selected condensed consolidated statements of continuing operations data as a percentage of revenues for each of the periods indicated:
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | |
| Three Months Ended June 30, |
| Six Months Ended June 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2022 | | 2021 | | 2022 | | 2021 | |
| Revenue | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
| Costs and expenses: | | | | | | | | | | | | | | | | | | | | | | | | | |
| Educational services and facilities | | | 50.6 | % | | | 50.6 | % | | | 51.0 | % | | | 51.8 | % | | 44.0 | % | | 41.9 | % | | 43.9 | % | | 41.7 | % |
| Selling, general and administrative | | | 52.7 | % | | | 50.3 | % | | | 56.2 | % | | | 53.1 | % | | 55.8 | % | | 53.8 | % | | 56.2 | % | | 52.3 | % |
| Gain on sale of assets | | | -2.3 | % | | | 0.0 | % | | | -0.8 | % | | | -0.2 | % | |
| (Gain) loss on sale of assets | | | | -0.2 | % | | | 0.0 | % | | | -0.1 | % | | | 0.0 | % |
| Total costs and expenses | | | 101.0 | % | | | 100.9 | % | | | 106.4 | % | | | 104.7 | % | | | 99.5 | % | | | 95.7 | % | | | 100.0 | % | | | 94.0 | % |
| Operating loss | | | -1.0 | % | | | -0.9 | % | | | -6.4 | % | | | -4.7 | % | |
| Operating income | | | 0.5 | % | | 4.3 | % | | 0.0 | % | | 6.0 | % |
| Interest expense, net | | | -1.1 | % | | | -1.9 | % | | | -3.4 | % | | | -2.1 | % | | | 0.0 | % | | | -0.4 | % | | | 0.0 | % | | | -0.4 | % |
| Other income | | | 0.0 | % | | | 2.3 | % | | | 0.0 | % | | | 2.4 | % | |
| Loss from operations before income taxes | | | -2.1 | % | | | -0.5 | % | | | -9.8 | % | | | -4.4 | % | |
| Provision for income taxes | | | 0.1 | % | | | 0.1 | % | | | 0.1 | % | | | 0.1 | % | |
| Net Loss | | | -2.2 | % | | | -0.6 | % | | | -9.9 | % | | | -4.5 | % | |
| Income (loss) from operations before income taxes | | | 0.4 | % | | 3.9 | % | | 0.0 | % | | 5.6 | % |
| Provision (benefit) for income taxes | | | | 0.1 | % | | | 0.9 | % | | | -0.3 | % | | | 1.2 | % |
| Net income | | | | 0.3 | % | | | 3.0 | % | | | 0.3 | % | | | 4.4 | % |
Three Months Ended SeptemberJune 30, 20172022 Compared to Three Months Ended SeptemberJune 30, 20162021
Consolidated Results of Operations
Revenue.Revenue decreased by $7.0increased $1.6 million, or 9.4%,2.1% to $67.3$82.1 million for the three months ended SeptemberJune 30, 20172022 from $74.3$80.5 million in the prior year comparable period. The decreaseincrease was mainly driven by a higher beginning of period population of approximately 230 more students at the start of 2022 than in revenue is mainly attributable2021 in addition to the suspension of newa 1.2% increase in average student starts at campuses in our Transitional segment which have closed or will be closed at year-end. This segment accounted for approximately 95% of the total revenue decline.
Total student starts decreased by 10.9% to approximately 4,400 from 5,000 for the three months ended September 30, 2017 as compared topopulation over the prior year comparable period. Approximately 82% of the overall decrease was due to the Transitional segment noted above. The remaining decrease resulted from start underperformance at one campus in the Transportation and Skilled Trades segment and two campuses in the Healthcare and Other Professions segment.
For a general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.
Educational services and facilities expense. Our educational services and facilities expense decreased by $3.5increased $2.4 million, or 9.3%,7.2% to $34.1$36.1 million for the three months ended SeptemberJune 30, 20172022 from $37.5$33.7 million in the prior year comparable quarter. This decrease isperiod. Increased costs were primarily concentrated in instructional expense and facilities expense.
Instructional salaries increased mainly attributabledue to current market conditions and higher staffing levels, as a result of population growth and program expansion. In addition, consumables prices rose sharply driven by on-going inflation and supply-chain shortages.
Facility expenses increased as a result of approximately $0.8 million of additional rent expense from the Transitional segment which accounted for $3.2 million in cost reductions as threesale leaseback transaction relating to our Denver and Grand Prairie campuses consummated in the segment have closed during the three months ended September 30, 2017 and the remaining two campuses are preparing to close by the endfourth quarter of the current calendar year.2021. Partially offsetting these costs were cost savings in utilities expense.
Educational services and facilities expenses,expense, as a percentage of revenue, remained essentially flat at 50.6%increased to 44.0% from 41.9% for the three months ended SeptemberJune 30, 20172022 and 2016.2021, respectively.
Selling, general and administrative expense.Our selling, general and administrative expense decreased by $1.9increased $2.5 million, or 5.1%,5.8% to $35.5$45.8 million for the three months ended SeptemberJune 30, 20172022 from $37.4 million in the comparable quarter of 2016. This decrease also was primarily due to the Transitional segment, which accounted for approximately $2.9 million in cost reductions. Partially offsetting the cost reductions was $0.6 million of corporate and other costs related to the closure of the of the Hartford, Connecticut campus on December 31, 2016.
As a percentage of revenues, selling, general and administrative expense increased to 52.7% for the three months ended September 30, 2017 from 50.3% in the comparable prior year period. Our selling, general and administrative expenses contain a high fixed cost component and are not as scalable as some of our other expenses. As our student population decreases, we typically experience a reduction in average class size and, therefore, are not always able to align these expenses with the corresponding decrease in population.
Gain on Sale of Assets. For the three months ended September 30, 2017, gain on sale of assets increased to $1.5 million from less than $0.1$43.3 million in the prior year comparable period. The increase was primarily driven by additional bad debt expense driven by a decrease in our historical repayment rates, an increase in medical expenses due to the saleadditional claims and one-time expenses in connection with growth initiatives of two properties located in West Palm Beach, Florida. approximately $0.2 million.
Net interest expense. ForSelling, general and administrative expense, as a percentage of revenue, increased to 55.8% from 53.8% for the three months ended SeptemberJune 30, 2017, net2022 and 2021, respectively.
Gain on sale of asset. Gain on sale of assets was $0.2 million for the three months ended June 30, 2022 as a result of the sale of our Suffield, Connecticut property, which was previously a former campus. Net proceeds received from the sale were approximately $2.4 million resulting in a $0.2 million gain in the current year.
Net interest expense. Net interest expense decreased by $0.7approximately $0.3 million, or 50%88.2% to $0.7less than $0.1 million for the three months ended June 30, 2022 from $1.4$0.3 million in the prior year comparable period. The decrease in expense reductions were attributablewas due to lowerthe payoff of all outstanding debt outstanding in combination with more favorable terms under our new credit facility with Sterling National Bank effective March 31, 2017.
Other Income. Forduring the three months ended September 30, 2017, other income decreased by $1.7 million from thefourth quarter of prior year comparable period. The $1.7 million of other income in 2016 reflectedconnection with the amortization of a one-time gain from the modification of a lease at three of the Company’s campuses which were previously accounted for as finance obligations in the prior year.sale leaseback transaction.
Income taxes.Our provision for income taxes was $0.1 million or 3.5% of pretax loss, for the three months ended SeptemberJune 30, 2017,2022 compared to $0.1a provision for income taxes of $0.7 million or 11.9% of pretax loss, in the prior year comparable period. No federal or state income tax benefit was recognized for the current period loss due to the recognition of a full valuation allowance. Income tax expense resulted from various minimal state tax expenses.
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Consolidated Results of Operations
Revenue. Revenue decreased by $18.5 million, or 8.7%, to $194.5 million for the nine months ended September 30, 2017 from $213.0 million for the prior year comparable period. The decrease in revenue is primarily attributable to the suspension of new student enrollments at campuses in our Transitional segment which have closed or will be closed by year end. This segment accounted for approximately 90% of the total revenue decline. The remaining declineincome tax provision quarter over quarter was mainly due to our HOPS segment which decreased by $1.8reduced pre-tax income.
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
Consolidated Results of Operations
Revenue. Revenue increased $6.2 million, or 3.9% to $164.7 million for the ninesix months ended SeptemberJune 30, 2017 due to average population down approximately 30 students.
Total student starts decreased by 12.5% to approximately 9,9002022 from 11,300 for the nine months ended September 30, 2017 as compared to$158.5 million in the prior year comparable period. The decreaseincrease in revenue was largelymainly due to a 2.8% increase in average student population driven by a higher beginning of period population of approximately 740 more students at the suspensionstart of new student starts for the Transitional segment which accounted for approximately 79% of the decline. The Transportation and Skilled Trades segment starts were down 2.8% and the HOPS segment starts were down 3.4% for the nine months ended September 30, 2017 as compared to the prior year comparable period.2022 than in 2021.
For a general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.
Educational services and facilities expense. Our educational services and facilities expense decreased by $11.1increased $6.3 million, or 10%,9.5% to $99.2$72.3 million for the ninesix months ended SeptemberJune 30, 20172022 from $110.2$66.0 million in the prior year comparable period. This decrease isIncreased costs were primarily concentrated in instructional expense and facilities expense.
Instructional salaries increased mainly attributabledue to current market conditions and higher staffing levels as a result of population growth, program expansion and the Transitional segment which accounted for $10.4return to normalized levels of in-person instruction post COVID-19 restrictions. In addition, consumables prices rose sharply driven by on-going inflation and supply-chain shortages.
Facility expenses increased as a result of approximately $1.6 million in cost reductions as threeof additional rent expense from the sale leaseback transaction relating to our Denver and Grand Prairie campuses consummated in the segment have closed during the nine months ended September 30, 2017fourth quarter of 2021 and the remaining two campuses that are preparing to close by the end of the current calendar year. The remainder of the decrease was due to a $1.4 million decrease in depreciation expense resulting from fully depreciated assets.higher maintenance costs.
Educational services and facilities expenses,expense, as a percentage of revenue, decreasedincreased to 51.0%43.9% from 41.7% for the ninesix months ended SeptemberJune 30, 2017 from 51.8% in the prior year comparable period.2022 and 2021, respectively.
Selling, general and administrative expense.Our selling, general and administrative expense decreased by $3.9increased $9.6 million, or 3.5%,11.5% to $109.4$92.5 million for the ninesix months ended SeptemberJune 30, 20172022 from $113.3 million in the comparable period of 2016. The decrease also was primarily due to the Transitional segment, which accounted for approximately $9.5 million in cost reductions. Partially offsetting these costs reductions are $3.3 million in increased administrative expense; and $2.5 million in additional sales and marketing expense.
Administrative expense increased primarily due to a $1.8 million increase in bad debt expense as a result of higher past due student accounts, higher account write-offs, and timing of Title IV funds receipts and $1.1 million in additional closed school expenses which relates directly to the closure of the Hartford, Connecticut campus in December 31, 2016. The additional expenses relating to the Hartford Connecticut campus will terminate with the apartment lease which ends in September 2019.
Sales and marketing expense increased by $2.5 million, or 6.6%, primarily as a result of $2.1 million in increased marketing expense. Increased marketing spend was part of a strategic marketing initiatives intended to reach more students. These initiatives resulted in a slight improvement in starts in the adult demographic for the nine months ended September 30, 2017 as compared to the prior comparable period.
As a percentage of revenues, selling, general and administrative expense increased to 56.2% for the nine months ended September 30, 2017 from 53.1% in the comparable prior year period.
As of September 30, 2017, we had total outstanding loan commitments to our students of $46.9 million, as compared to $40.0 million at December 31, 2016. Loan commitments, net of interest that would be due on the loans through maturity, were $34.9 million at September 30, 2017, as compared to $30.0 million at December 31, 2016. The increase in loan commitments was due in part to the seasonality of the Company’s operations.
Gain on sale of assets. For the nine months ended September 30, 2017, gain on sale of assets increased to $1.6 million from $0.4$82.9 million in the prior year comparable period. The increase was primarily driven by additional bad debt expense, an increase in medical expenses due to additional claims, $0.9 million of additional stock compensation expense and severance and one-time expenses in connection with growth initiatives of approximately $1.0 million.
Bad debt expense for the six months ended June 30, 2021 was lower than historical amounts due to an adjustment made in the first quarter of 2021 to qualifying student accounts receivables as permitted by the Higher Education Emergency Relieve Funds (“HEERF”). In accordance with the applicable guidance, the Company combined HEERF funding with Company funds to provide financial relief to students who dropped from school due to COVID-19 related circumstances with unpaid accounts receivable balances during the period from March 15, 2020 to March 31, 2021. The relief resulted in a net benefit to bad debt expense of approximately $3.0 million. Without this adjustment bad debt expense for the six months ended June 30, 2022 as a percentage of total revenue, would have been comparable to that reported in the prior year comparable period.
Selling, general and administrative expense, as a percentage of revenue, increased to 56.2% from 52.3% for the six months ended June 30, 2022 and 2021, respectively.
Gain on sale of two properties located in West Palm Beach, Florida.
Net interest expense. Forasset. Gain on sale of assets increased to $0.2 million for the ninesix months ended SeptemberJune 30, 2017 net interest expense increased by 2.1 million, or 46% to $6.6 million2022 from $4.5less than $0.1 million in the prior year comparable period. The increase year over year was mainly attributable tothe result of the sale of our Suffield, Connecticut property, which was previously a $2.2former campus. Net proceeds received from the sale were approximately $2.4 million non-cash write-off of previously capitalized deferred financing fees. These costs were incurred at March 31, 2017 whenresulting in a $0.2 million gain in the Company entered into a new revolving credit facility with Sterling National Bank. Partially offsetting these increases were reductions incurrent year.
Net interest expense. Net interest expense resulting from lower debt outstanding in combination with more favorable terms underdecreased by approximately $0.5 million, or 86.8% to less than $0.1 million for the current Credit Facility compared to our prior Term Loan.
Other Income. For the ninesix months ended SeptemberJune 30, 2017 other income decreased by $5.12022 from $0.6 million fromin the prior year comparable period. The $5.1decrease in expense was due to the payoff of all outstanding debt during the fourth quarter of last year in connection with the sale leaseback transaction.
Income taxes. Our benefit for income taxes was $0.5 million in 2016 reflectedfor the amortization ofsix months ended June 30, 2022 compared to a one-time gain from the modification of a lease at three of the Company’s campuses which were previously accounted for as finance obligations in the prior year.
Income taxes. Our provision for income taxes was $0.2of $2.0 million or 0.8% of pretax loss, for the nine months ended September 30, 2017, compared to $0.2 million, or 1.6% of pretax loss, in the prior year comparable period. No federal or state income taxThe benefit was recognized for the current periodsix months ended June 30, 2022 was due primarily to a pre-tax book loss and a discrete item relating to restricted stock vesting, while the provision in the prior year was due primarily to the recognition of a full valuation allowance. Income tax expense resulted from various minimal state tax expenses.pre-tax income position.
Segment Results of Operations
The for-profit education industry has been impacted by numerous regulatory changes, the changing economy and an onslaught of negative media attention. As a result of these challenges, student populations have declined and operating costs have increased. Over the past few years, the Company has closed over ten locations and exited its online business. In 2016, the Company ceased operations in Hartford, Connecticut; Fern Park, Florida; and Henderson (Green Valley), Nevada. In the fourth quarter of 2016, the Board of Directors approved plans to cease operations at our schools in Center City Philadelphia, Pennsylvania; Northeast Philadelphia, Pennsylvania; and West Palm Beach, Florida which were fully taught out in 2017. In addition, in March 2017, the Board of Directors approved plans to cease operations at our schools in Brockton, Massachusetts and Lowell, Massachusetts, which are expected to close in the fourth quarter of 2017. These schools, which were previously included in our HOPS segment, are now included in the Transitional segment.
In the past, we offered any combination of programs at any campus. We have shifted our focus to program offerings that create greater differentiation among campuses and attain excellence to attract more students and gain market share. Also, strategically, we began offering continuing education training to select employers who hire our students and this is best achieved at campuses focused on their profession.
As a result of the regulatory environment, market forces and strategic decisions, we now operate our business in threetwo reportable segments: (a) the Transportation and Skilled Trades segment; and (b) the Healthcare and Other Professions segment;(“HOPS”) segment. The Company also utilizes the Transitional segment solely when and (c) Transitional segment.
if it closes a school. Our reportable segments have been determined based on a method by which we now evaluate performance and allocate resources. Each reportable segment represents a group of post-secondary education providers that offer a variety of degree and non-degree academic programs. These segments are organized by key market segments to enhance operational alignment within each segment to more effectively execute our strategic plan. Each of the Company’s schools is a reporting unit and an operating segment. Our operating segments are segments described below.
Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly in the career-oriented disciplines of transportation and skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).
Healthcare and Other Professions – The Healthcare and Other Professions segment offers academic programs in the career-oriented disciplines of health sciences, hospitality and business and information technology (e.g. dental assistant, medical assistant, practical nursing, culinary arts and cosmetology).
Transitional – Transitional segment refers to operations that are being phased out or closed and consists of our campuses that are currently being taught out. These schools are employing a gradual teach-out process that enables the schools to continue to operate while current students complete their course of study. These schools are no longer enrolling new students. In addition, in March 2017, the Board of Directors of the Company approved a plan to cease operations at our schools in Brockton, Massachusetts and Lowell, Massachusetts. These schools are being taught out and are expected to be closed in December 2017. During the year ended December 31, 2016, the Company announced the closing of our Northeast Philadelphia, Pennsylvania, Center City Philadelphia, Pennsylvania and West Palm Beach, Florida facilities which were fully taught out in 2017. In the first quarter of 2016, we completed the teach-out of our Fern Park, Florida campus. In addition, in the fourth quarter of 2016, we completed the teach-out of our Hartford, Connecticut and Henderson (Green Valley), Nevada campuses.
The Company continually evaluates each campus for profitability, earning potential, and customer satisfaction. This evaluation takes several factors into consideration, including the campus’ geographic location and program offerings, as well as skillsets required of our students by their potential employers. The purpose of this evaluation is to ensure that our programs provide our students with the best possible opportunity to succeed in the marketplace with the goals of attracting more students to our programs and, ultimately, to provide our shareholders with the maximum return on their investment. Campuses in the Transitional segment have been subject to this process and have been strategically identified for closure.
We evaluate segment performance based on operating results. Adjustments to reconcile segment results to consolidated results are included under the caption “Corporate,” which primarily includes unallocated corporate activity.
The following table presentpresents results for our threetwo reportable segments for the three months ended SeptemberJune 30, 20172022 and 2016:2021:
| | | Three Months Ended September 30, | | | Three Months Ended June 30, | |
| | | 2017 | | | 2016 | | | % Change | | | 2022 | | 2021 | | % Change | |
Revenue: | | | | | | | | | | | | | | | | |
| Transportation and Skilled Trades | | $ | 47,694 | | | $ | 47,939 | | | | -0.5 | % | | $ | 57,973 | | | $ | 56,965 | | | | 1.8 | % |
| HOPS | | | 18,428 | | | | 18,559 | | | | -0.7 | % | |
| Transitional | | | 1,186 | | | | 7,769 | | | | -84.7 | % | |
| Healthcare and Other Professions | | | | 24,169 | | | | 23,499 | | | | 2.9 | % |
| Total | | $ | 67,308 | | | $ | 74,267 | | | | -9.4 | % | | $ | 82,142 | | | $ | 80,464 | | | | 2.1 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Operating Income (Loss): | | | | | | | | | | | | | |
| Operating Income (loss): | | | | | | | | | | | | | |
| Transportation and Skilled Trades | | $ | 6,061 | | | $ | 6,120 | | | | -1.0 | % | | $ | 7,094 | | | $ | 11,256 | | | | -37.0 | % |
| Healthcare and Other Professions | | | (574 | ) | | | (41 | ) | | | 1300.0 | % | | | 1,609 | | | | 2,962 | | | | -45.7 | % |
| Transitional | | | (2,495 | ) | | | (2,029 | ) | | | -23.0 | % | |
| Corporate | | | (3,723 | ) | | | (4,721 | ) | | | 21.1 | % | | | (8,307 | ) | | | (10,766 | ) | | | 22.8 | % |
| Total | | $ | (731 | ) | | $ | (671 | ) | | | -8.9 | % | | $ | 396 | | | $ | 3,452 | | | | -88.5 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Starts: | | | | | | | | | | | | | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 3,016 | | | | 3,090 | | | | -2.4 | % | | | 2,583 | | | | 2,509 | | | | 2.9 | % |
| Healthcare and Other Professions | | | 1,429 | | | | 1,453 | | | | -1.7 | % | | | 1,269 | | | | 1,194 | | | | 6.3 | % |
| Transitional | | | - | | | | 448 | | | | -100.0 | % | |
| Total | | | 4,445 | | | | 4,991 | | | | -10.9 | % | | | 3,852 | | | | 3,703 | | | | 4.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
Average Population: | | | | | | | | | | | | | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 6,977 | | | | 7,128 | | | | -2.1 | % | | | 8,315 | | | | 8,039 | | | | 3.4 | % |
| Leave of Absence - COVID-19 | | | | - | | | | (25 | ) | | | 100.0 | % |
| Transportation and Skilled Trades Excluding Leave of Absence - COVID-19 | | | | 8,315 | | | | 8,014 | | | | 3.8 | % |
| | | | | | | | | | | | | | |
| Healthcare and Other Professions | | | 3,327 | | | | 3,286 | | | | 1.2 | % | | | 4,322 | | | | 4,508 | | | | -4.1 | % |
| Transitional | | | 259 | | | | 1,429 | | | | -81.9 | % | |
| Leave of Absence - COVID-19 | | | | - | | | | (40 | ) | | | 100.0 | % |
| Healthcare and Other Professions Excluding Leave of Absence - COVID-19 | | | | 4,322 | | | | 4,468 | | | | -3.3 | % |
| | | | | | | | | | | | | | |
| Total | | | 10,563 | | | | 11,843 | | | | -10.8 | % | | | 12,637 | | | | 12,547 | | | | 0.7 | % |
| Total Excluding Leave of Absence - COVID-19 | | | | 12,637 | | | | 12,482 | | | | 1.2 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | |
End of Period Population: | | | | | | | | | | | | | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 7,403 | | | | 7,667 | | | | -3.4 | % | | | 8,765 | | | | 8,467 | | | | 3.5 | % |
| Leave of Absence - COVID-19 | | | | - | | | | (7 | ) | | | 100.0 | % |
| Transportation and Skilled Trades Excluding Leave of Absence - COVID-19 | | | | 8,765 | | | | 8,460 | | | | 3.6 | % |
| | | | | | | | | | | | | | |
| Healthcare and Other Professions | | | 3,957 | | | | 3,826 | | | | 3.4 | % | | | 4,237 | | | | 4,410 | | | | -3.9 | % |
| Transitional | | | 155 | | | | 1,362 | | | | -88.6 | % | |
| Leave of Absence - COVID-19 | | | | - | | | | (10 | ) | | | 100.0 | % |
| Healthcare and Other Professions Excluding Leave of Absence - COVID-19 | | | | 4,237 | | | | 4,400 | | | | -3.7 | % |
| | | | | | | | | | | | | | |
| Total | | | 11,515 | | | | 12,855 | | | | -10.4 | % | | | 13,002 | | | | 12,877 | | | | 1.0 | % |
| Total Excluding Leave of Absence - COVID-19 | | | | 13,002 | | | | 12,860 | | | | 1.1 | % |
Three Months Ended SeptemberJune 30, 20172022 Compared to the Three Months Ended SeptemberJune 30, 20162021
Transportation and Skilled Trades
Student starts for the quarter decreased by 74 students, or 2.4%, compared to the prior year comparable period. The decline in student starts is mainly the result of the underperformance of one campus, which decreased by 98 students. Excluding this campus, student starts for the quarter would have grown over the prior year comparable period. In addition, as previously reported in the second quarter, there was a decline in starts as a result of a lower than expected high school start rate. High school students make up approximately 30% of the segment’s population. In an effort to increase high school enrollments, the Company made various changes to its processes and organizational structure.
Operating income remained essentially flat at $6.1was $7.1 million for the three months ended SeptemberJune 30, 2017 as2022 compared to the prior year comparable period. Changes in revenue and expense allocations were impacted as follows:
| · | Revenue decreased by $0.2 million, or 0.5% to $47.7 million for the three months ended September 30, 2017 from $47.9 million in the prior year comparable period. The decrease in revenue was primarily driven by a 2.1% decrease in average student population due to a decline in the number of student starts slightly offset by a 1.6% increase in average revenue per student compared to the prior year comparable period. |
| · | Educational services and facilities expense decreased by $0.4 million, or 1.9%, to $22.4 million for the three months ended September 30, 2017 from $22.8 million in the prior year comparable quarter. This decrease was primarily due to reductions in facilities expense resulting from more favorable lease terms at one of our campuses and reductions in depreciation expense due to fully depreciated assets. |
| · | Selling, general and administrative expenses were essentially flat. Our selling, general and administrative expenses contain a high fixed cost component and are not as scalable as some of our other expenses. As our student population decreases, we typically experience a reduction in average class size and, therefore, are not always able to align these expenses with the corresponding decrease in population. |
Healthcare and Other Professions
Student starts in the Healthcare and Other Professions segment decreased by 24 students, or 1.7%, for the three months ended September 30, 2017 as compared to the prior year comparable period. This segment consists of 11 campuses and, despite the overall decrease in student starts, for the three months ended September 30, 2017, seven of the 11 campuses in this segment showed an increase in student starts. Of the remaining four campuses, one remained flat, two demonstrated less starts as a result of underperformance, and the last campus had a shift in start dates lowering starts compared to the prior year comparable period.
Operating loss for the three months ended September 30, 2017 was $0.6 million compared to $0.1$11.3 million in the prior year comparable period. The $0.5 million change quarter over quarter was mainly driven by the following factors:
| · | Revenue decreased to $18.4 million for the three months ended September 30, 2017, as compared to $18.6 million in the prior year comparable quarter. The decrease in revenue is mainly attributable to a 2.0% decline in average revenue per student due to tuition decreases at certain campuses and shifts in program mix. |
| · | Educational services and facilities expense increased by $0.2 million, or 1.9%, to $10.2 million for the three months ended September 30, 2017 from $10.0 million in the prior year comparable quarter. |
| · | Selling, general and administrative expense increased by $0.2, or 2.4%, to $8.8 million for the three months ended September 30, 2017 from $8.6 million in the prior year comparable quarter due to increases in sales and marketing expense. |
Transitional
The following table lists the schools that are categorized in the Transitional segment and their status as of September 30, 2017:
Campus | | Date Closed | | Date Scheduled to Close |
Northeast Philadelphia, Pennsylvania | | August 31, 2017 | | N/A |
Center City Philadelphia, Pennsylvania | | August 31, 2017 | | N/A |
West Palm Beach, Florida | | September 30, 2017 | | N/A |
Brockton, Massachusetts | | N/A | | December 31, 2017 |
Lowell, Massachusetts | | N/A | | December 31, 2017 |
Fern Park, Florida | | March 31, 2016 | | N/A |
Hartford, Connecticut | | December 31, 2016 | | N/A |
Henderson (Green Valley), Nevada | | December 31, 2016 | | N/A |
**Revenue for the campuses in the above table have been classified in the Transitional segment for comparability for the three months ended September 30, 2017 and 2016.
Revenue was $1.2increased $1.0 million, or 1.8% to $58.0 million for the three months ended SeptemberJune 30, 2017 as compared to $7.8 million in the prior year comparable period mainly due to the campus closures.
Operating loss increased by $0.5 million to $2.5 million for the three months ended September 30, 20172022 from $2.0$57.0 million in the prior year comparable period. The decreaseincrease in revenue was primarily due to campus closures.a 3.8% increase in average student population driven by a higher beginning of period population in the current quarter of approximately 350 students.
Educational services and facilities expense increased $1.6 million, or 6.8% to $24.3 million for the three months ended June 30, 2022 from $22.7 million in the prior year comparable period. Increased costs were primarily concentrated in instructional expense and facilities expense. Instructional increases were primarily driven by salary increases mainly due to market adjustments and larger staffing levels as a result of population growth and program expansion. Facility expense increases were the result of approximately $0.8 million of additional rent expense from the sale leaseback transaction relating to our Denver and Grand Prairie campuses consummated in the fourth quarter of 2021. Partially offsetting the additional facility costs are reductions in depreciation expense.
Selling, general and administrative expense increased $3.6 million, or 15.7% to $26.6 million for the three months ended June 30, 2022 from $23.0 million in the prior year comparable period. The increase was primarily driven additional bad debt expense driven by a decrease in our historical repayment rates.
Healthcare and Other Professions
Operating income was $1.6 million for the three months ended June 30, 2022 compared to $2.9 million in the prior year comparable period. The change quarter over quarter was driven by the following factors:
28Revenue increased by $0.7 million, or 2.9% to $24.1 million for the three months ended June 30, 2022 from $23.4 million in the prior year comparable period. The increase in revenue was primarily the result of a 6.3% increase in average revenue per student.
Educational services and facilities expense increased $0.9 million, or 7.8% to $11.8 million for the three months ended June 30, 2022 from 11.0 million in the prior year comparable period. Increased costs were primarily concentrated in instructional expense and facilities expense. Additional instructional expenses were primarily driven by salary increases due to market adjustments and larger staffing levels. Facility expense increases were primarily due to additional spending for common area maintenance quarter over quarter.Selling, general and administrative expenses increased $1.2 million, or 12.2% to $10.7 million for the three months ended June 30, 2022 from $9.5 million in the prior year comparable period. The increase was primarily driven by additional bad debt expense driven by a decrease in our historical repayment rates.
Corporate and Other
This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and Otherother expenses decreasedwere $8.3 million and $10.8 million for the three months ended June 30, 2022 and 2021, respectively. The decrease in expense quarter over quarter was primarily driven by $1.0a reduction in incentive compensation and a gain resulting from the sale of our Suffield, Connecticut property, which was previously a former campus. Net proceeds received from the sale were approximately $2.4 million or 21.1%,resulting in a $0.2 million gain in the current quarter.
The following table presents results for our two reportable segments for the six months ended June 30, 2022 and 2021:
| | | Six Months Ended June 30, | |
| | | 2022 | | | 2021 | | | % Change | |
| Revenue: | | | | | | | | | |
| Transportation and Skilled Trades | | $ | 116,758 | | | $ | 112,636 | | | | 3.7 | % |
| Healthcare and Other Professions | | | 47,939 | | | | 45,825 | | | | 4.6 | % |
| Total | | $ | 164,697 | | | $ | 158,461 | | | | 3.9 | % |
| | | | | | | | | | | | | |
| Operating Income (loss): | | | | | | | | | | | | |
| Transportation and Skilled Trades | | $ | 14,340 | | | $ | 23,581 | | | | -39.2 | % |
| Healthcare and Other Professions | | | 2,916 | | | | 5,911 | | | | -50.7 | % |
| Corporate | | | (17,186 | ) | | | (20,020 | ) | | | 14.2 | % |
| Total | | $ | 70 | | | $ | 9,472 | | | | -99.3 | % |
| | | | | | | | | | | | | |
| Starts: | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 4,761 | | | | 4,848 | | | | -1.8 | % |
| Healthcare and Other Professions | | | 2,444 | | | | 2,403 | | | | 1.7 | % |
| Total | | | 7,205 | | | | 7,251 | | | | -0.6 | % |
| | | | | | | | | | | | | |
| Average Population: | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 8,417 | | | | 8,036 | | | | 4.7 | % |
| Leave of Absence - COVID-19 | | | - | | | | (20 | ) | | | 100.0 | % |
| Transportation and Skilled Trades Excluding Leave of Absence - COVID-19 | | | 8,417 | | | | 8,016 | | | | 5.0 | % |
| | | | | | | | | | | | | |
| Healthcare and Other Professions | | | 4,344 | | | | 4,459 | | | | -2.6 | % |
| Leave of Absence - COVID-19 | | | - | | | | (65 | ) | | | 100.0 | % |
| Healthcare and Other Professions Excluding Leave of Absence - COVID-19 | | | 4,344 | | | | 4,394 | | | | -1.1 | % |
| | | | | | | | | | | | | |
| Total | | | 12,761 | | | | 12,495 | | | | 2.1 | % |
| Total Excluding Leave of Absence - COVID-19 | | | 12,761 | | | | 12,410 | | | | 2.8 | % |
| | | | | | | | | | | | | |
| End of Period Population: | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 8,765 | | | | 8,467 | | | | 3.5 | % |
| Leave of Absence - COVID-19 | | | - | | | | (7 | ) | | | 100.0 | % |
| Transportation and Skilled Trades Excluding Leave of Absence - COVID-19 | | | 8,765 | | | | 8,460 | | | | 3.6 | % |
| | | | | | | | | | | | | |
| Healthcare and Other Professions | | | 4,237 | | | | 4,410 | | | | -3.9 | % |
| Leave of Absence - COVID-19 | | | - | | | | (10 | ) | | | 100.0 | % |
| Healthcare and Other Professions Excluding Leave of Absence - COVID-19 | | | 4,237 | | | | 4,400 | | | | -3.7 | % |
| | | | | | | | | | | | | |
| Total | | | 13,002 | | | | 12,877 | | | | 1.0 | % |
| Total Excluding Leave of Absence - COVID-19 | | | 13,002 | | | | 12,860 | | | | 1.1 | % |
Six Months Ended June 30, 2022 Compared to $3.7the Six Months Ended June 30, 2021
Transportation and Skilled Trades
Operating income was $14.3 million from $4.7for the six months ended June 30, 2022 compared to $23.6 million in the prior year comparable period. The decreasechange year over year was primarily driven by a $1.5 million gain resulting from the sale of two properties located in West Palm Beach, Florida on August 14, 2017 and a decrease in salaries expense of approximately $0.9 million. Partially offsetting these reductions was a $0.9 million increase in benefits expense and $0.6 million of additional closed school costs. The decrease in benefits was attributable to historically lower medical claims in 2016 and the additional closed school costs related to the closure of the Hartford, Connecticut campus on December 31, 2016. The additional expenses relating to the Hartford Connecticut campus will terminate with the apartment lease which ends in September 2019.
The following table presents results for our three reportable segments for the nine months ended September 30, 2017 and 2016:
| | | Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | | | % Change | |
Revenue: | | | | | | | | | |
| Transportation and Skilled Trades | | $ | 131,169 | | | $ | 131,243 | | | | -0.1 | % |
| HOPS | | | 55,199 | | | | 57,030 | | | | -3.2 | % |
| Transitional | | | 8,084 | | | | 24,718 | | | | -67.3 | % |
| Total | | $ | 194,452 | | | $ | 212,991 | | | | -8.7 | % |
| | | | | | | | | | | | | |
Operating Income (Loss): | | | | | | | | | | | | |
| Transportation and Skilled Trades | | $ | 8,960 | | | $ | 11,916 | | | | -24.8 | % |
| Healthcare and Other Professions | | | (1,047 | ) | | | 2,634 | | | | -139.7 | % |
| Transitional | | | (3,900 | ) | | | (7,132 | ) | | | 45.3 | % |
| Corporate | | | (16,503 | ) | | | (17,566 | ) | | | 6.1 | % |
| Total | | $ | (12,490 | ) | | $ | (10,148 | ) | | | -23.1 | % |
| | | | | | | | | | | | | |
Starts: | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 6,502 | | | | 6,686 | | | | -2.8 | % |
| Healthcare and Other Professions | | | 3,272 | | | | 3,386 | | | | -3.4 | % |
| Transitional | | | 132 | | | | 1,254 | | | | -89.5 | % |
| Total | | | 9,906 | | | | 11,326 | | | | -12.5 | % |
| | | | | | | | | | | | | |
Average Population: | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 6,694 | | | | 6,723 | | | | -0.4 | % |
| Healthcare and Other Professions | | | 3,477 | | | | 3,508 | | | | -0.9 | % |
| Transitional | | | 574 | | | | 1,519 | | | | -62.2 | % |
| Total | | | 10,745 | | | | 11,750 | | | | -8.6 | % |
| | | | | | | | | | | | | |
End of Period Population: | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 7,403 | | | | 7,667 | | | | -3.4 | % |
| Healthcare and Other Professions | | | 3,957 | | | | 3,826 | | | | 3.4 | % |
| Transitional | | | 155 | | | | 1,362 | | | | -88.6 | % |
| Total | | | 11,515 | | | | 12,855 | | | | -10.4 | % |
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Transportation and Skilled Trades
Student start results decreased by 2.8% to 6,502 from 6,686 for the nine months ended September 30, 2017 as compared to the prior year comparable period.
Operating income decreased by $3.0 million, or 24.8%, to $9.0 million for the nine months ended September 30, 2017 from $11.9 million in the prior year comparable period mainly driven by the following factors:
| · | Revenue remained essentially flat at $131.2Revenue increased $4.1 million, or 3.7% to $116.7 million for the nine months ended September 30, 2017 as compared to the prior year comparable period mainly due to a higher carry in population compared to the prior year quarter in addition to a slight increase in revenue per student. Partially offsetting the increases was a decline in average population of approximately 30 students. |
| · | Educational services and facilities expense decreased by $0.6 million, or 0.9% primarily due to a $1.2 million decrease in facilities expense, partially offset by a $0.6 million increase in instructional and books and tools expense. Reductions in facilities expense were primarily driven by reduced depreciation expense resulting from fully depreciated assets. Increases in instructional expenses were due to the launch of a new program at one of our campuses in combination with increased materials costs; and increased expenses for books and tools were due to the timing of the distribution of materials for students starting classes in combination with implementing the use of laptop computers for more of our program curriculums during the quarter. |
| · | Selling, general and administrative expense increased by $3.6 million due to (a) $1.3 million of additional bad debt expense resulting from higher past due student accounts, higher account write-offs, and timing of Title IV fund receipts; and (b) $1.4 million increase in sales and marketing expenses. The increased spending in sales and marketing was part of a strategic effort to attract student enrollments and increase brand awareness.
|
Healthcare and Other Professions
Student start results decreased by 3.4% to 3,272 from 3,386 for the ninesix months ended SeptemberJune 30, 2017 as compared to the prior year comparable period.
Operating loss for the nine months ended September 30, 2017 was $1.1 million compared to operating income of $2.62022 from $112.6 million in the prior year comparable period. The $3.7 million changeincrease in revenue was primarily driven by a 5.0% increase in average student population mainly driven by a higher beginning of period population in the following factors:current year of approximately 730 students.
| · | Revenue decreased to $55.2 million for the nine months ended September 30, 2017, as compared to $57.0 million in the prior year comparable quarter. The decrease in revenue is mainly attributable to two main factors, a decline in average population of approximately 30 students in combination with a 2.4% decline in average revenue per student due tuition decreases at certain campuses and shifts in our program mix. |
| · | Educational services and facilities expense remained essentially flat at $29.9 million for the nine months ended September 30, 2017 as compared to the prior year comparable period. |
| · | Selling, general and administrative expense increased by $1.9 million primarily resulting from a $1.1 million increase in sales and marketing expense. The increased marketing initiatives has resulted in a slight improvement in student starts in the adult demographic for the nine months ended September 30, 2017 as compared to the prior comparable period; and a $0.6 million increase in administrative expenses mainly the result of bad debt expense which increased due to higher past due student accounts, higher account write-offs, and timing of Title IV fund receipts.
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Transitional
Revenue was $8.1Educational services and facilities expense increased $4.2 million, or 9.4% to $48.8 million for the ninesix months ended SeptemberJune 30, 2017 as compared to $24.72022 from $44.6 million in the prior year comparable periodperiod. Increased costs were primarily concentrated in instructional expense and facilities expense. Instructional increases were primarily driven by salary increases mainly attributabledue to market adjustments and larger staffing levels as a result of population growth, program expansion and the closingreturn to normalized levels of in-person instruction post COVID-19 restrictions. In addition, consumable costs increased year over year, driven by on-going inflation in addition to supply chain shortages. Facility expense increases were the result of approximately $1.6 million of additional rent expense from the sale leaseback transaction relating to our Denver and Grand Prairie campuses within this segment.consummated in the fourth quarter of 2021. Partially offsetting the additional facility costs are reductions in depreciation expense.
Operating loss decreased by $3.2Selling, general and administrative expense increased $9.2 million, or 20.6% to $3.9$53.6 million for the ninesix months ended SeptemberJune 30, 20172022 from $7.1$44.4 million in the prior year comparable period. The increase was primarily driven by additional bad debt expense driven by a decrease isin our historical repayment rates.
Healthcare and Other Professions
Operating income was $2.9 million for the six months ended June 30, 2022 compared to $5.9 million in the prior year comparable period. The change quarter over quarter was driven by the following factors:
Revenue increased $2.1 million, or 4.6% to $47.9 million for the six months ended June 30, 2022 from $45.8 million in the prior year comparable period. The increase in revenue was primarily attributablethe result of a 5.8% increase in average revenue per student.
Educational services and facilities expense increased $2.1 million, or 9.7% to $23.5 million for the six months ended June 30, 2022 from $21.4 million in the prior year comparable period. Increased costs were primarily concentrated in instructional expense and facilities expense. Additional instructional expenses were primarily driven by salary increases mainly due to market adjustments and larger staffing levels in addition to the closingreturn to normalized levels of campuses within this segmentin-person instruction post COVID-19 restrictions. Facility expense increases were primarily due to additional spending for common area maintenance year over year.
Selling, general and administrative expense increased $3.0 million, or 16.3% to 21.5 million for the six months ended June 30, 2022 from $18.5 million in the prior year comparable period. The increase was primarily driven by additional bad debt expense driven by a decrease in our historical repayment rates.
Corporate and Other
This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and Other expense decreased by $1.1other expenses were $17.2 million or 6.0%, to $16.5and $20.0 million from $17.6 million infor the prior year comparable period.six months ended June 30, 2022 and 2021, respectively. The decrease in corporate expensesexpense year over year was primarily driven by a $1.5 millionreduction in incentive compensation and a gain resulting from the sale of two properties locatedour Suffield, Connecticut property, which was previously a former campus. Net proceeds received from the sale were approximately $2.4 million resulting in West Palm Beach, Florida on August 14, 2017 and a decrease$0.2 million gain in salaries expense of approximately $2.7 million.the current year. Partially offsetting these reductions was a $2.1 millioncost savings is an increase in benefits expensestock-based compensation and $1.2 million of additional closed school costs. The increase in benefits was attributable to historically lower medical claims in 2016 and the additional closed school costs related to the closure of the Hartford, Connecticut campus on December 31, 2016. The additional expenses relating to the Hartford Connecticut campus will terminate with the apartment lease which ends in September 2019.severance.
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirements are for facilitiesmaintenance and expansion and maintenanceof our facilities and the development of new programs. Our principal sources of liquidity have been cash provided by operating activities and borrowings under our credit facility.Credit Facility. The following chart summarizes the principal elements of our cash flow:flow for each of the six months ended June 30, 2022 and 2021, respectively:
| | | Nine Months Ended September 30, | |
| | | 2017 | | | 2016 | |
| Net cash used in operating activities | | $ | (16,607 | ) | | $ | (9,513 | ) |
| Net cash provided by (used in) investing activities | | | 10,897 | | | | (643 | ) |
| Net cash used in financing activities | | | (8,077 | ) | | | (9,024 | ) |
| | | Six Months Ended June 30, 2022 | |
| | | 2022 | | | 2021 | |
Net cash (used in) provided by operating activities | | $ | (9,992 | ) | | $ | 1,067 | |
Net cash used in investing activities | | | (1,192 | ) | | | (3,516 | ) |
Net cash used in financing activities | | | (5,138 | ) | | | (2,570 | ) |
At SeptemberAs of June 30, 2017,2022, the Company had $14.5 million of cash and cash equivalents and restricted cash (which includes $7.2of $67.0 million of restricted cash) as compared to $47.7$83.3 million of cash, cash equivalents and restricted cash (which included $26.7 million of restricted cash) as ofat December 31, 2016. This2021.
The decrease is primarilyin cash position from year end was the result of a net loss duringseveral factors including the nine months ended September 30, 2017; repayment of $44.3 million under our previous term loan facility and seasonality of our business, incentive compensation payments, share repurchases made under the business.
Forshare repurchase plan and a decrease in net income. Partially offsetting the last several years, the Companydecrease in cash and the proprietary school sector generally have faced deteriorating earnings growth. Government regulations have negatively impacted earnings by making it more difficult for prospective students to obtain loans, which when coupled with the overall economic environment have hindered prospective students from enrollingcash equivalents was $2.4 million in our schools. In light of these factors, we have incurred significant operating lossesnet proceeds received as a result of lower student population. Despite these events, we believethe sale of a former campus located in Suffield, Connecticut.
On May 24, 2022, the Company announced that our likely sourcesits Board of cash should be sufficientDirectors has authorized a share repurchase program of up to fund operations$30.0 million of the Company’s outstanding common stock. The repurchase program has been authorized for twelve months. As of June 30, 2022, the next twelve months and thereafter for the foreseeable future.Company repurchased 414,963 shares at a cost of approximately $2.5 million.
To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures and principal and interest payments on borrowings, we leveraged our owned real estate. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student population.
Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV programsPrograms, which represented approximately 79%75% of our cash receipts relating to revenues in 2016.2021. Pursuant to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV programsPrograms and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student's academic year. Certain types of grants and other funding are not subject to a 31-day delay. In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned tuition or prorated Title IV Program financial aid is refunded according to federal, state and accrediting agency standards.
As a result of the significant amount of Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the level of Title IV Program funds that our students are eligible to receive or any restriction on our eligibility to receive Title IV Program funds would have a significant impact on our operations and our financial condition. SeeFor more information, see Part I, Item 1A. “Risk Factors” in Item 1AFactors - Risks Related to Our Industry” of our Annual Report on Form 10-K for the year ended December 31, 2016.10-K.
Operating Activities
Net cash used in operating activities was $16.6$10.0 million for the nine months September 30, 2017 compared to $9.5 million for the comparable period of 2016. The increase in cash used in operating activities in the ninesix months ended SeptemberJune 30, 2017 as2022 compared to the nine months ended September 30, 2016 is primarily due to an increased net loss as well as changes in other working capital such as accounts receivable, accounts payable, accrued expenses and unearned tuition.
Investing Activities
Net cash provided by investingoperating activities was $10.9 million for the nine months ended September 30, 2017 compared to cash used of $0.6$1.1 million in the prior year comparable period. OurThe cash used in or provided by operating activities is subject to changes in working capital, which at any point in time is subject to many variables including the seasonality of our business, timing of cash receipts and cash payments and vendor payments terms. For the six months ended June 30, 2022 net cash used in operating activities was driven by changes in working capital in addition to a decrease in net earnings year over year.
Investing Activities
Net cash used in investing activities was $1.2 million for the six months ended June 30, 2022 compared to $3.5 million in the prior year comparable period. The decrease in net cash used was driven by an increase in liquidity resulting from $2.4 million in net proceeds received from the sale of our former campus located in Suffield, Connecticut executed during the second quarter of the current year.
One of our primary useuses of cash in investing activities was capital expenditures associated with investments in training technology, classroom furniture, and new program buildouts.
We currently lease a majority of our campuses. We own our schoolscampus in Grand Prairie, Texas; Nashville, Tennessee; and Denver, Colorado and our buildingsTennessee, which currently is subject to a sale leaseback agreement (described elsewhere in West Palm Beach, Florida; and Suffield, Connecticut.
On August 14, 2017, the Company completedthis Form 10-Q) for the sale of two of three properties located in West Palm Beach Florida resulting in cash inflows of $15.5 million.the property which is currently expected to be consummated within the next fifteen months.
Capital expenditures were 2% of revenues in 2021 and are expected to approximate 2%3% of revenues in 2017.2022. We expect to fund future capital expenditures with cash generated from operating activities borrowings under our revolving credit facility, and cash from our real estate monetization.on hand.
Financing Activities
Net cash used in financing activities was $8.1$5.1 million asfor the six months ended June 30, 2022 compared to $2.6 million in the prior year comparable period. The increase in net cash used of $9.0 million for the nine months ended September 30, 2017 and 2016, respectively. The decrease of $0.9$2.5 million was primarily due to three main factors: (a) net payments on borrowing of $6.5 million; (b) $2.9 million in lease termination fees paid in the prior year; and (c) the reclassification of $5 million in restricted cash in the prior year.
Net borrowings consisted of: (a) total borrowing to date under our secured revolving credit facility of $38.0 million; (b) reclassification of payments of borrowing from restricted cash of $20.3 million; and (c) $64.8 million in total repayments madedriven by the Company.implementation of a share repurchase program during the second quarter of the current year.
Credit AgreementFacility
On March 31, 2017,November 14, 2019, the Company entered into a senior secured revolving credit agreement (the “Credit Agreement”) with its lender, Sterling National Bank (the “Bank”“Lender”) pursuant to which the Company obtained a credit facility, providing for borrowing in the aggregate principal amount of up to $55$60 million (the “Credit Facility”). TheInitially, the Credit Facility consists of (a) a $30 million loan facility (“Facility 1”), which iswas comprised of four facilities: (1) a $25$20 million revolvingsenior secured term loan designated as “Tranche A” and a $5 million non-revolving loan designated as “Tranche B,” which Tranche B was repaid during the quarter ended June 30, 2017 and (b) a $25 million revolving loan facility (“Facility 2”maturing on December 1, 2024 (the “Term Loan”), which includeswith monthly interest and principal payments based on 120-month amortization with the outstanding balance due on the maturity date; (2) a $10 million senior secured delayed draw term loan maturing on December 1, 2024 (the “Delayed Draw Term Loan”), with monthly interest payments for the first 18 months and thereafter monthly payments of interest and principal based on 120-month amortization and all balances due on the maturity date; (3) a $15 million senior secured committed revolving line of credit providing a sublimit amountof up to $10 million for standby letters of credit of $10 million. The Credit Facility replaces a term loan facility (the “Prior Credit Facility”) which was repaid and terminated concurrently with the effectiveness of the Credit Facility. The term of the Credit Facility is 38 months, maturing on MayNovember 13, 2022 (the “Revolving Loan”), with monthly payments of interest only; and (4) a $15 million senior secured non-restoring line of credit maturing on January 31, 2020.2021 (the “Line of Credit Loan”).
The Credit Facility is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company as well as mortgages on four parcels of real property owned by the Company in Connecticut, Colorado, Tennessee and Texas at which four of the Company’s schools are located.
At the closing of the Credit Facility, the Company drew $25 million under Tranche Aentered into a swap transaction with the Lender for 100% of Facility 1, which, pursuant tothe principal balance of the Term Loan maturing on the same date as the Term Loan. Under the terms of the Credit Agreement, was usedFacility accrued interest on each loan is payable monthly in arrears with the Term Loan and the Delayed Draw Term Loan bearing interest at a floating interest rate based on the then one-month London Interbank Offered Rate (“LIBOR”) plus 3.50% and subject to repaya LIBOR interest rate floor of 0.25% if there is no swap agreement. Revolving Loans bear interest at a floating interest rate based on the Prior Credit Facility and to pay transaction costs associated with closingthen LIBOR plus an indicative spread determined by the Credit Facility. After the disbursements of such amounts, the Company retained approximately $1.8 million of the borrowed amount for working capital purposes.
Also, at closing, $5 million was drawn under Tranche B and, pursuant to the terms ofCompany’s leverage as defined in the Credit Agreement was deposited into an interest-bearing pledged account (the “Pledged Account”) inor, if the nameborrowing of a Revolving Loan is to be repaid within 30 days of such borrowing, the Company maintainedRevolving Loan will accrue interest at the Bank in order to secure payment obligationsLender’s prime rate plus 0.50% with a floor of the Company with respect to the costs4.0%. Line of remediation of any environmental contamination discovered at certain of the mortgaged properties based upon environmental studies undertaken at such properties. During the quarter ended June 30, 2017, the environmental studies were completed and revealed no environmental issues existing at the properties. Accordingly, pursuant to the terms of the Credit Agreement, the $5 million in the Pledged Account was released and used to repay the non-revolving loan outstanding under Tranche B. Upon the repayment of Tranche B, the maximum principal amount of Facility 1 was permanently reduced to $25 million.
Pursuant to the terms of the Credit Agreement, all draws under Facility 2 for letters of credit or revolving loans must be secured by cash collateral in an amount equal to 100% of the aggregate stated amount of the letters of credit issued and revolving loans outstanding through draws from Facility 1 or other available cash of the Company.
Accrued interest on each revolving loan will be payable monthly in arrears. Revolving loans under Tranche A of Facility 1Loans will bear interest at a floating interest rate per annum equal tobased on the greater of (x) the Bank’sLender’s prime rate plus 2.50% and (y) 6.00%. The amount borrowed under Tranche B of Facility 1 and revolving loans under Facility 2 will bear interest at a rate per annum equal to the greater of (x) the Bank’s prime rate and (y) 3.50%.
Each issuance of a letter of credit under Facility 2 will require the payment of a letter of credit fee to the Bank equal to a rate per annum of 1.75% on the daily amount available to be drawn under the letter of credit, which fee shall be payable in quarterly installments in arrears.interest. Letters of credit totaling $7.2 million that were outstandingissued under the Revolving Loan reduce, on a $9.5 million letterdollar-for-dollar basis, the availability of borrowings under the Revolving Loan. Letters of credit facility previously providedare charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) 0.25%, paid quarterly in arrears, in addition to the CompanyLender’s customary fees for issuance, amendment and other standard fees. Borrowings under the Line of Credit Loan are secured by the Bank, which letter of credit facility was set to mature on April 1, 2017, are treated as letters of credit under Facility 2.
cash collateral. The terms of the Credit Agreement provide that the Bank be paidLender receives an unused facility fee on the average daily unused balance of Facility 1 at a rate0.50% per annum equal to 0.50%, which fee is payable quarterly in arrears. In addition,arrears on the Company is required to maintain, on deposit in one or more non-interest bearing accounts, a minimumunused portions of $5 million in quarterly average aggregate balances. If in any quarter the required average aggregate account balance is not maintained,Revolving Loan and the Company is required to pay the Bank a feeLine of $12,500 for that quarter and, in the event that the Company terminates the Credit Facility or refinances with another lender within 18 months of closing, the Company is required to pay the Bank a breakage fee of $500,000.Loan.
In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants including(including financial covenants that (i) restrict capital expenditures, prohibit the incurrence of a net loss commencing on December 31, 2018 and(ii) restrict leverage, (iii) require a minimum adjusted EBITDA and amaintaining minimum tangible net worth, (iv) require maintaining a minimum fixed charge coverage ratio and (v) require the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with the Lender, which, is an annual covenant,if not maintained, will result in the assessment of a quarterly fee of $12,500), as well as events of default customary for facilities of this type. The Credit Agreement also limited the payment of cash dividends during the first twenty-four months of the agreement to $1.7 million but an amendment to the Credit Agreement entered into on November 10, 2020 raised the cash dividend limit to $2.3 million in such twenty-four-month period to increase the amount of permitted cash dividends that the Company can pay on its Series A Preferred Stock.
As further discussed below, the Credit Facility was secured by a first priority lien in favor of the Lender on substantially all of the personal property owned by the Company, as well as a pledge of the stock and other equity in the Company’s subsidiaries and mortgages on parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as a former school property owned by the Company located in Connecticut.
On September 23, 2021, in connection with entering into the agreements relating to the sale leaseback transaction for the Company’s Denver, Grand Prairie and Nashville campuses (collectively, the “Property Transactions”), the Company and certain of its subsidiaries entered into a Consent and Waiver Letter Agreement (the “Consent Agreement”) to the Company’s Credit Agreement with its lender. The Consent Agreement provides the Lender’s consent to the Property Transactions and waives certain covenants in the Credit Agreement, subject to certain specified conditions. In addition, in connection with the consummation of the Property Transactions, the Lender released its mortgages and other liens on the subject-properties upon the Company’s payment in full of the outstanding principal and accrued interest on the Term Loan and any swap obligations arising from any swap transaction. Upon the consummation of the Property Transaction on October 29, 2021 the Company paid the Lender approximately $16.7 million in repayment of the Term Loan and the swap termination fee and no further borrowings may be made under the Term Loan or the Delayed Draw Term Loan. Further, during the second quarter of 2022, the Company sold a property located in Suffield, Connecticut for net proceeds of approximately $2.4 million. Prior to the consummation of the transaction, Lincoln obtained consent from the Lender to enter into the sale of this property.
As of SeptemberJune 30, 2017,2022, and December 31, 2021, the Company ishad zero debt outstanding under the Credit Facility for both periods and was in compliance with all debt covenants.
In connection with the Credit Agreement, the Company paid the Bank an origination fee in the amount of $250,000 and other fees and reimbursements that are customary for facilities of this type.
The Company incurred an early termination premium of approximately $1.8 million in connection with the termination of the Prior Credit Facility.
On April 28, 2017, the Company entered into an additional secured credit agreement with the Bank, pursuant to which the Company obtained a short term loan in the principal amount of $8 million, the proceeds of which were used for working capital and general corporate purposes. The loan, which had an interest rate equal to the greater of the Bank’s prime rate plus 2.50% or 6.00%, was secured by real property assets located in West Palm Beach, Florida at which schools operated by the Company were located and matured upon the earlier of October 1, 2017 and the date of the sale of the West Palm Beach, Florida property. The Company sold two of three properties located in West Palm Beach, Florida to Tambone in the third quarter of 2017 and subsequently repaid the $8 million.
As of SeptemberJune 30, 2017, the Company had $17.5 million outstanding under the Credit Facility; offset by $0.8 million of deferred finance fees. As of December 31, 2016, the Company had $44.3 million outstanding under the Prior Credit Facility; offset by $2.3 million of deferred finance fees, which were written-off. As of September 30, 20172022, and December 31, 2016, there were2021, letters of credit in the aggregate outstanding principal amount of $7.2$4.0 million and $6.2$4.0 million, respectively. As of September 30, 2017, there are no revolving loansrespectively, were outstanding under Facility 2.
the Credit Facility. On August 5, 2022, the Company entered into a third amendment to its Credit Agreement with its lender (the “Third Amendment”), in order to extend the maturity date of the revolving loan thereunder through November 14, 2023. The following table sets forth our long-term debt (in thousands):
| | | September 30, 2017 | | | December 31, 2016 | |
| Credit agreement | | $ | 16,721 | | | $ | - | |
| Term loan | | | - | | | | 44,267 | |
| | | | 16,721 | | | | 44,267 | |
| Less current maturities | | | - | | | | (11,713 | ) |
| | | $ | 16,721 | | | $ | 32,554 | |
Asforegoing description of September 30, 2017, we had outstanding loan commitmentsthe Third Amendment is not complete and is qualified in its entirety by reference to our students of $46.9 million,the Third Amendment which is filed as comparedExhibit 10.2 to $40.0 million at December 31, 2016. Loan commitments, net of interest that would be duethis Quarterly Report on the loans through maturity, were $34.9 million at September 30, 2017, as compared to $30.0 million at December 31, 2016.
Contractual Obligations
Long-termCurrent portion of Long-Term Debt,. Long-Term Debt and Lease Commitments. As of SeptemberJune 30, 2017, our current portion of long-term2022, we have no debt and our long-term debt consisted of borrowings under our Credit Facility.
Lease Commitments.outstanding. We lease offices, educational facilities and various items of equipment for varying periods through the year 20302041 at basebasic annual rentals (excluding taxes, insurance, and other expenses under certain leases).
As of June 30, 2022, we had outstanding loan principal commitments to our active students of $30.0 million. These are institutional loans and no cash is advanced to students. The full loan amount is not guaranteed unless the student completes the program. The institutional loans are considered commitments because the students are packaged to fund their education using these funds and they are not reported on our financial statements.
Regulatory Updates
Borrower Defense to Repayment Regulations.
On July 1, 2020, the DOE’s previously published final Borrower Defense to Repayment regulations became effective. Among other things, these regulations amended the processes for borrowers to receive from the DOE a discharge of the obligation to repay certain Title IV Program loans first disbursed on or after July 1, 2020 based on certain acts or omissions by the institution or a covered party. The new and existing DOE regulations establish detailed procedures and standards for the loan discharge processes for periods prior to July 1, 2017, between July 1, 2017 and June 30, 2020, and on or after July 1, 2020, including the information required for borrowers to receive a loan discharge, and the authority of the DOE to seek recovery from the institution of the amount of discharged loans. The regulations also modify certain components of the financial responsibility regulations, including the list of triggering events that could result in the DOE determining that the institution lacks financial responsibility and must submit to the DOE a letter of credit or other form of acceptable financial protection and accept other conditions on the institution’s Title IV Program eligibility. See Form 10-K at Part I, Item 1. “Business - Regulatory Environment – Financial Responsibility Standards.” The final regulations also generally permit the use of arbitration clauses and class action waivers while requiring institutions to make certain disclosures to students.
The following table contains supplemental informationcurrent and future rules could have a material adverse effect on our schools’ business and results of operations, and the broad sweep of the rules may, in the future, require our schools to submit a letter of credit based on expanded standards of financial responsibility. See Form 10-K at Part I, Item 1. “Business - Regulatory Environment – Financial Responsibility Standards.” Moreover, Congress or the DOE could enact or establish new laws or regulations that could restore prior versions of the borrower defense to repayment requirements or similar and potentially stricter requirements.
On July 13, 2022, the DOE published proposed regulations on borrower defense to repayment and other topics. The proposed regulations are subject to a notice and comment period during which the public may comment on the proposed regulations and the DOE may respond to such comments and ultimately publish final regulations. The proposed regulations regarding our total contractual obligationsborrower defense to repayment and regarding closed school loan discharges are extensive and generally make it easier for borrowers to obtain discharges of student loans and for the DOE to assess liabilities and other sanctions on institutions based on the loan discharges.
Among other things, the proposed borrower defense to repayment regulations if adopted would establish a new process for evaluating borrower applications for loan discharges that would apply to all claims submitted or pending as of Septemberthe anticipated July 1, 2023 effective date of the regulations. The proposed regulations would make it easier for borrowers to obtain loan discharges and for the DOE to recoup the costs of the discharges from the institutions. The new process would differ from the current regulations that establish a separate process for each of 3 categories of loans depending on the date the loans were disbursed to students (i.e., prior to July 1, 2017, between July 1, 2017 and June 30, 2017 (in thousands):2020, and on or after July 1, 2020). As a result, the proposed new process would apply not just to loans disbursed on or after July 1, 2023, but also to older loans as long as the discharge requests are still pending as of July 1, 2023 or are submitted on or after July 1, 2023.
| | | Payments Due by Period | |
| | | Total | | | Less than 1 year | | | 1-3 years | | | 3-5 years | | | More than 5 years | |
| Credit facility | | $ | 17,500 | | | $ | - | | | $ | - | | | $ | 17,500 | | | $ | - | |
| Operating leases | | | 83,394 | | | | 19,506 | | | | 31,246 | | | | 15,723 | | | | 16,919 | |
| Total contractual cash obligations | | $ | 100,894 | | | $ | 19,506 | | | $ | 31,246 | | | $ | 33,223 | | | $ | 16,919 | |
Off-Balance Sheet Arrangements33
The proposed regulations expand the types of conduct that could result in a discharge of student loans including: 1) an expanded list of substantial misrepresentations, 2) a new section regarding substantial omissions of fact, 3) breaches of contract, 4) a new section regarding aggressive and deceptive recruitment, or 5) state or federal judgments or final DOE actions that could result in a borrower defense claim. Some of these forms of conduct also could result in other sanctions against the institutions. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – Substantial Misrepresentation.” The proposed regulations also make it easier for borrowers to qualify for loan discharges by establishing a presumption that borrowers reasonably relied on misrepresentations or omissions of fact, in some cases to establish a borrower defense to repayment claim based on a separate state law standard if the DOE does not approve their claims based on one of the other types of conduct, and it provides the DOE with the discretion to reopen its decisions at any time in accordance with regulatory requirements.
The DOE generally is required to publish final regulations by November 1 in order for the regulations to become effective on July 1 of the following year. We cannot predict the ultimate timing or content of the regulations that are anticipated to emerge from this process. The final regulations could result in new requirements that would make it easier for borrowers to obtain discharges of their loans and for the DOE to recover liabilities from institutions and impose other sanctions. The implementation of new borrower defense to repayment regulations by the DOE and the enforcement of the existing borrower defense to repayment regulations could have a material adverse effect on our business and results of operations. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – Negotiated Rulemaking.”
On April 29, 2021, the Company received communication from the DOE indicating that the DOE was in receipt of a number of borrower defense applications containing allegations concerning us and requiring the DOE to undertake a fact-finding process pursuant to DOE regulations. Among other things, the communication outlines a process by which the DOE would provide to us the applications and allow us the opportunity to submit responses to them. Further, the communication outlines certain information requests, relating to the period between 2007 and 2013, in connection with the DOE’s preliminary review of the borrower defense applications. Based upon publicly available information, it appears that the DOE has undertaken similar reviews of other educational institutions which have also been the subject of various borrower defense applications. We have received the borrower application claims and have completed the process of thoroughly reviewing and responding to each borrower application as well as providing information in response to the DOE’s requests.
Given the early stage of this matter, management is not able to predict the outcome of the DOE’s review at this time. If the DOE disagrees with our legal and factual grounds for contesting the applications, the DOE may impose liabilities on the Company based on the discharge of the loans at issue in the pending applications which could have a material adverse effect on our business and results of operations. If the proposed borrower defense to repayment regulations take effect on July 1, 2023 and if any or all of the borrower defense to repayment applications remain pending, the DOE could attempt to apply the new regulations to the pending applications which could increase the likelihood of the DOE granting the applications because the proposed regulations are more favorable to borrowers.
It is possible that we may receive from the DOE in the future borrower defense applications submitted by or on behalf of prior, current, or future students and that the DOE could seek to recover liabilities from us for discharged loans. If the DOE grants any pending or future borrower applications, the DOE regulations state that the DOE may initiate an appropriate proceeding to recover liabilities arising from the loans in the applications. If the DOE initiates such a proceeding, we would request reconsideration of the liabilities. We cannot predict the timing or amount of all borrower defense applications that borrowers may submit to the DOE or that the DOE may grant in the future, or the timing or amount of any possible liabilities that the DOE may seek to recover from the Company, if any.
On June 22, 2022, the DOE and plaintiffs in a lawsuit before a federal court in California submitted a proposed settlement agreement to the court. The plaintiffs contend, among other things, that the DOE has failed to timely decide and resolve borrower defense to repayment applications submitted to the DOE. If approved, the settlement would result in full discharge and refund payments to covered student borrowers who have asserted a borrower defense to repayment to the DOE and whose borrower defense claims have not yet been granted or denied on the merits.
The lawsuit is a class action against the DOE submitted by a group of students, none of whom attended any of our institutions. We were not a party to the lawsuit. The plaintiffs requested the court to compel the DOE to start approving or denying the pending applications. The court granted class certification and defined the class of plaintiffs generally to include all people who borrowed a Title IV Direct loan or FFEL loan, who have asserted a borrower defense to repayment claim to the DOE, and whose borrower defense claim has not been granted or denied on the merits. This includes an unidentified number of student borrowers who attended one of our institutions.
The proposed settlement agreement includes a long list of institutions including each of our institutions. The DOE would agree under the proposed settlement agreement to discharge loans and refund all prior loan payments to each class member with loan debt associated with an institution on the list (including our institutions), including borrowers whose applications the DOE previously denied after October 30, 2019. The DOE and the plaintiffs stated in a court filing that this provision is intended to provide for automatic relief for students at the listed schools which they estimate to total 200,000 class members. We anticipate that the DOE believes that the class includes the borrowers with claims to which we submitted responses to the DOE. The parties also stated that the DOE has determined that attendance at one of the institutions on the list justifies presumptive relief based on strong indicia regarding substantial misconduct by the institutions, whether credibly alleged or in some instances proven, and the high rate of class members with applications related to the listed schools. The proposed settlement agreement provides a separate process for reviewing claims associated with schools not on the list. It is unclear whether the DOE would seek to impose liabilities on us or other schools – or take other actions or impose other sanctions on us or other schools based on relief provided to students under the proposed settlement agreement (particularly if the DOE provides relief without evaluating or accounting for legal and factual information provided to the DOE by us and other schools).
On July 13, 2022, we and one other company submitted a motion to intervene in the lawsuit. Certain other school companies submitted separate motions to intervene in the lawsuit. We submitted the motion in order to protect our interests in the finalization and implementation of any settlement agreement the court might approve. We noted in the motion that the proposed settlement agreement introduced, for the first time, the prospect that the DOE would “automatically” and fully discharge loans and refund payments to student borrowers without adjudication of the merits of the students’ borrower-defense applications in accordance with the DOE’s borrower-defense regulations and without ensuring that we and other institutions can defend against allegations asserted in individual borrower-defense applications. In addition, we also asserted that it would be unlawful and inappropriate if the DOE sought recoupment against us based on loans that were forgiven under the proposed settlement agreement without providing us an opportunity to address the claims and accounting for our responses to the claims as we believe is required by the regulations. We also asserted that the lawsuit and the potential loan discharges could result in reputational harm to us and our institutions and could result in other actions against us by other federal and state agencies or by current and former students.
The court granted preliminary approval of the proposed settlement agreement on August 4, 2022, and also tentatively granted our motion for permissive intervention. The proposed settlement agreement is subject to further review by the court before final approval of the proposed settlement agreement. We likely will have an opportunity to file a brief opposing the final approval. The court has scheduled a final approval hearing for November 3, 2022, and we intend to participate in the hearing and present arguments. We cannot predict whether the court will provide final approval of the proposed settlement agreement or whether the DOE and plaintiffs will make amendments to the proposed settlement agreement. If the proposed settlement agreement as it is currently drafted receives final approval by the court, the DOE is expected to discharge all of the pending borrower defense applications concerning us without evaluating or accounting for any of the legal or factual grounds that we provided for contesting the applications that were provided to us. If the DOE discharges the loans and attempts to recoup from us the discharged loan amounts, we would consider options for challenging the legal and factual basis for attempting to recoup these liabilities. We cannot predict the timing or amount of all borrower defense applications that borrowers may submit to the DOE or that the DOE may grant in the future, or the timing or amount of any possible liabilities that the DOE may seek to recover from the Company, if any.
The “90/10 Rule.”
Under the Higher Education Act, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs (its “90/10 Rule percentage”) for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until the end of at least two fiscal years. See Form 10K at Part I, Item 1. “Business – Regulatory Environment – The 90/10 Rule.” An institution with revenues exceeding 90% for a single fiscal year will be placed on provisional certification and may be subject to other enforcement measures, including a potential requirement to submit a letter of credit. See Form 10K at Part I, Item 1. “Business - Regulatory Environment – Financial Responsibility Standards.” If an institution violated the 90/10 Rule and became ineligible to participate in Title IV Programs but continued to disburse Title IV Program funds, the DOE would require the institution to repay all Title IV Program funds received by the institution after the effective date of the loss of eligibility.
In March 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law. Among other provisions, the ARPA includes a provision that amends the 90/10 rule by treating other “Federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution” in the same way as Title IV Program funds are currently treated in the 90/10 rule calculation. This means that our institutions will be required to limit the combined amount of Title IV Program funds and applicable “Federal funds” revenue in a fiscal year to no more than 90% as calculated under the rule. Consequently, the ARPA change to the 90/10 rule is expected to increase the 90/10 rule calculations at our institutions. The ARPA does not identify the specific Federal funding programs that will be covered by this provision, but it is expected to include funding from federal student aid programs such as the veterans’ benefits programs, which include the Post-9/11 GI Bill and Veterans Readiness and Employment services from which we derived approximately 7% of our revenues on a cash basis in 2021.
The ARPA states that the amendments to the 90/10 rule apply to institutional fiscal years beginning on or after January 1, 2023 and are subject to the HEA’s negotiated rulemaking process. Accordingly, the ARPA change to the 90/10 rule is not expected to apply to our 90/10 rule calculations until 2024 relating to our fiscal year ended 2023. Beginning in January 2022, the DOE convened negotiated rulemaking committee meetings on a variety of topics including the 90/10 rule. The committee reached consensus on proposed 90/10 rule regulations during meetings in March 2022.
On July 28, 2022, the DOE published proposed regulations regarding the 90/10 rule among other topics. See 10-Q at “Negotiated Rulemaking.” The proposed 90/10 rule regulations contain several new and amended provisions on a variety of topics including, among other things, confirming that the rules apply to fiscal years ending on or after January 1, 2023; noting that the DOE plans to identify the types of Federal funds to be included in the 90/10 rule in a notice in the Federal Register (which we anticipate will include a wide range of Federal student aid programs such as the veterans’ benefits programs); requiring institutions to disburse funds that students are eligible to receive for a fiscal year before the end of the fiscal year rather than delaying disbursements until a subsequent fiscal year; updating requirements for counting revenues generated from certain educational activities associated with institutional programs, from certain non-Title IV eligible educational programs, and from institutional aid programs such as institutional loans, scholarships, and income share agreements; updating technical rules for the 90/10 rule calculation; including rules for sanctions for noncompliance with the 90/10 rule and for required notifications to students and the DOE by the institution of noncompliance with the 90/10 rule.
The proposed regulations are subject to a notice and comment period before the DOE publishes final regulations after consideration of public comment. The comments are due by August 26, 2022. The DOE has stated that it intends to consider the comments and publish the final regulations in time for them to take effect on July 1, 2023. We cannot predict the ultimate timing and content of the final regulations, but the future regulations on 90/10 rule could have a material adverse effect on us and other schools like ours.
Negotiated Rulemaking.
The DOE periodically issues new regulations and guidance that can have an adverse effect on our institutions. We cannot predict the timing and content of any new regulations or guidance that the DOE may seek to impose or whether and to what extent the DOE under the new administration may issue new regulations and guidance that could adversely impact for-profit schools including our institutions. See Form 10-K, at Part I, Item 1. at “Business – Regulatory Environment – Negotiated Rulemaking.” The DOE initiated two additional negotiated rulemaking processes in 2021 and 2022, respectively. The first of the two negotiated rulemaking sessions took place during the last quarter of 2021 and resulted in proposed regulations published on July 13, 2022. See Form 10-K, at Part I, Item 1. “Business – Regulatory Environment - Borrower Defense to Repayment Regulations.”
The second of the two negotiated rulemaking sessions began in January 2022 and finished during March 2022. The topics included the 90/10 rule, gainful employment, administrative capability standards, financial responsibility standards, eligibility certification procedures, changes in ownership, and ability to benefit. The DOE was expected to publish proposed regulations on each of these topics in the Federal Register for public comment during 2022. On June 22, 2022, the Office of Management and Budget (OMB) published a 2022 Spring Agenda with regulatory updates that indicated that specific Notices of Proposed Rulemaking (NPRMs) will be delayed until April 2023 for the following topics: gainful employment, administrative capability standards, financial responsibility standards, eligibility certification procedures, and ability to benefit. If the DOE does not publish proposed regulations until April 2023, the earliest general effective date for the final versions of regulations on these topics would be July 1, 2024. We cannot predict the ultimate timing and content of any final regulations on these topics.
The regulatory updates published by the OMB indicate that proposed regulations regarding 90/10 and changes in ownership are expected to be published in 2022. See Form 10-K, at Part I, Item 1. “Business – Regulatory Environment – The 90/10 Rule” and at Form 10K, at Part I, Item 1. “Business – Regulatory Environment – Change of Control.” The proposed regulations would be subject to a notice and comment period before the DOE publishes the regulations in final. If the final regulations are published by or before November 1, 2022, then the regulations typically would not take effect until July 1, 2023. The new regulations that the DOE ultimately will publish and implement are expected to impose a broad range of additional requirements on institutions and especially on for-profit institutions like our schools. In turn, the new regulations are likely to increase the possibility that our schools could be subject to additional reporting requirements, to potential liabilities and sanctions such as letter of credit amounts, and to potential loss of Title IV eligibility if our efforts to modify our operations to comply with the new regulations are unsuccessful. However, we cannot predict the ultimate timing and content of any final regulations following the conclusion of the rulemaking process.
We had no off-balance sheet arrangementsalso cannot predict with certainty the ultimate combined impact of the regulatory changes which have occurred in recent years and that may occur as a result of September 30, 2017, except for surety bonds. Asthe ongoing rulemaking process, nor can we predict the effect of September 30, 2017,future legislative or regulatory action by federal, state or other agencies regulating our education programs or other aspects of our operations, how any resulting regulations will be interpreted or whether we posted surety bondsand our institutions will be able to comply with these requirements in the future. Any such actions by legislative or regulatory bodies that affect our programs and operations could have a material adverse effect on our student population and our institutions, including the need to cease offering a number of programs.
Compliance with Regulatory Standards and Effect of Regulatory Violations.
Our schools are subject to audits, program reviews, site visits, and other reviews by various federal and state regulatory agencies, including, but not limited to, the DOE, the DOE’s Office of Inspector General (“OIG”), state education agencies and other state regulators, the U.S. Department of Veterans Affairs and other federal agencies (such as, for example, the Federal Trade Commission or the Consumer Financial Protection Board ), and by our accrediting commissions. See Form 10-K, at Part I, Item1. “Business – Regulatory Environment - Compliance with Regulatory Standards and Effect of Regulatory Violations” and at Form 10K, at Part I, Item 1. “Business – Regulatory Environment - Scrutiny of the For-Profit Postsecondary Education Sector.”
In 2021, our New Britain, Iselin and Indianapolis institutions received final audit determination letters from the DOE in connection with the Title IV Program compliance audits conducted for the 2020 fiscal year. The letters contain findings of alleged noncompliance with certain Title IV Program requirements for each institution. The total amount of approximately $14.3 million. Cash collateralizedquestioned funds in the reports were immaterial and had been repaid prior to the issuance of the final audit determination letters. In addition to the payment of the questioned amounts, the letters require the institutions to correct all of creditthe deficiencies noted in the audit reports and require the auditor to comment in the 2021 fiscal year audit on the actions taken by the institutions in response to the findings and required actions. The letters indicate that repeat findings in future audits or failure to satisfactorily resolve the findings of $7.2 millionthe audit could lead to an adverse action. Each letter also notes that, due to the seriousness of one or more of the findings, the letter has been referred to a separate office within the DOE for consideration of possible adverse action including the possible imposition of a fine; the limitation, suspension, or termination of the institution’s Title IV Program eligibility; the revocation of the institution’s provisional program participation agreement; or the denial of a future application for renewal of the institution’s Title IV Program certification. Each letter indicates that the DOE will notify the institution if the DOE initiates an adverse action and will notify the institution of its appeal rights and procedures on how to contest the action if any is taken. We are primarily comprisedcontinuing to cooperate with the audit process and to respond to the DOE’s requests for information in connection with the audits.
On December 16, 2020, the OIG began an audit of our Indianapolis institution to ensure that we used the funds provided under the Higher Education Emergency Relief Fund (“HEERF”) for allowable and intended purposes and to perform limited work on the institution’s cash management practices and HEERF reporting. We cooperated with the OIG during its audit of the institution. In September 2021, the OIG issued a final audit report containing 3 findings of alleged non-compliance and 2 additional topics that were each classified as an “other matter.” The final report was inclusive of our response to the findings and other matters. The final audit report was sent to the DOE for further consideration. On May 3, 2022, the DOE issued a determination letter in connection with the 3 findings in the OIG final audit report. The DOE accepted our responses to each of the three findings and indicated in the letter that it considers each of the findings resolved and did not contain any further discussion of the 2 additional topics that were each classified as an “other matter.” The DOE is not seeking recovery of funds in connection with any of the 3 findings and did not impose any liabilities or other sanctions in the May 3, 2022 determination letter.
On June 22, 2022, each of our three institutions received a separate letter from the DOE in connection with findings contained in our fiscal year 2020 compliance audit in connection with funds provided under HEERF. The DOE letters addressed two findings in the audits for our Iselin and New Britain institutions and three findings for our New Britain institution. Each DOE letter acknowledged our responses to the findings and deemed the findings to be resolved and closed. The DOE letters did not impose any liabilities or other sanctions.
School Acquisitions.
When a company acquires a school that is eligible to participate in Title IV Programs, that school undergoes a change of creditownership resulting in a change of control as defined by the DOE. Upon such a change of control, a school’s eligibility to participate in Title IV Programs is generally suspended until it has applied for recertification by the DOE as an eligible school under its new ownership, which requires that the school also re-establish its state authorization and accreditation. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – School Acquisitions.” Thus, any plans to expand our business through acquisition of additional schools and have them certified by the DOE to participate in Title IV Programs must take into account the approval requirements of the DOE and security depositsthe relevant state education agencies and accrediting commissions. On July 28, 2022, the DOE published proposed regulations on topics including changes in connection with certainownership that, among other things, may expand the requirements applicable to school acquisitions in ways that could make it more difficult to acquire additional schools. The DOE has stated that it intends to publish final regulations following a notice and comment period in time for the final regulations to take effect on July 1, 2023. We cannot predict the ultimate timing and content of new regulations that the DOE may publish and implement. See “Negotiated Rulemaking.”
Change of Control.
In addition to school acquisitions, other types of transactions can also cause a change of control. The DOE, most state education agencies and our accrediting commissions have standards pertaining to the change of control of schools, but these standards are not uniform. See Form 10-K at Part 1, Item 1. “Business – Regulatory Environment – Change of Control.” A change of control could occur as a result of future transactions in which the Company or our schools are involved. Some corporate reorganizations and some changes in the board of directors of the Company are examples of such transactions. Moreover, the potential adverse effects of a change of control could influence future decisions by us and our shareholders regarding the sale, purchase, transfer, issuance or redemption of our real estate leases. These off-balance sheet arrangements do not adverselystock. In addition, the adverse regulatory effect of a change of control also could discourage bids for shares of our common stock and could have an adverse effect on the market price of our shares. On July 28, 2022, the DOE published proposed regulations on topics including regulations associated with the ownership and control of Title IV participating schools in ways that could further influence future decisions by us or by current or prospective shareholders regarding the sale, purchase, transfer, issuance or redemption of our stock, or that could impact our liquidityability or capital resources.willingness to make certain organizational changes. The DOE has stated that it intends to publish final regulations following a notice and comment period in time for the final regulations to take effect on July 1, 2023. We cannot predict the ultimate timing and content of new regulations that the DOE may publish and implement. See “Negotiated Rulemaking.”
Seasonality and Outlook
Seasonality
Our revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population. Student population varies as a result of new student enrollments, graduations and student attrition. Historically, our schools have had lower student populations in our first and second quarters and we have experienced larger class starts in the third quarter and higher student attrition in the first half of the year. Our second half growth is largely dependent on a successful high school recruiting season. We recruit our high school students several months ahead of their scheduled start dates and, thus, while we have visibility on the number of students who have expressed interest in attending our schools, we cannot predict with certainty the actual number of new student enrollments in any given year and the related impact on revenue. Our expenses, however, typically do not vary significantly over the course of the year with changes in our student population and revenue. During the first half of the year, we make significant investments in marketing, staff, programs and facilities to meet our second half of the year targets and, as a result, such expenses do not fluctuate significantly on a quarterly basis. To the extent new student enrollments, and related revenue, in the second half of the year fall short of our estimates, our operating results could be negatively impacted. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change as a result of new school openings, new program introductions, and increased enrollments of adult students and/or acquisitions.
Outlook
Similar to many companies in the proprietary education sector, we have experienced significant deterioration in student enrollments over the last several years. This can be attributed to many factors including the economic environment and numerous regulatory changes such as changes to admissions advisor compensation policies, elimination of “ability-to-benefit,” changes to the 90/10 Rule and cohort default rates, gainful employment and modifications to Title IV amounts and eligibility. While the industry has not returned to growth, the trends are far more stable as declines have slowed.
As the economy continues to improve and the unemployment rate continues to decline our student enrollment is negatively impacted due to a portion of our potential student base entering the workforce earlier without obtaining any post-secondary training. Offsetting this short term decline in available students is the fact that an increasing number of individuals in the “baby boom” generation are retiring from the workforce. The retirement of baby boomers coupled with a growing economy has resulted in additional employers looking to us to help solve their workforce needs. With schools in 15 states, we are a very attractive employment solution for large regional and national employers.
To fund our business plans, including any anticipated future losses, purchase commitments, capital expenditures, principal and interest payments on borrowings and to satisfy the DOE financial responsibility standards, we have entered into a new credit facility as described above and continue to have the ability to sell our assets that are classified as held for sale. We are also continuing to take actions to improve cash flow by aligning our cost structure to our student population.
Regulatory Update
On April 26, 2013, the DOE notified our Union, New Jersey campus that an on-site Program Review was scheduled to begin on May 20, 2013. The Program Review assessed the institution’s administration of Title IV Programs in which the campus participated for the 2011-2012 and 2012-2013 awards years. On September 29, 2017, the DOE issued its Final Program Review Determination (“FPRD”) that closed the review and indicated that the DOE had determined the Company’s financial liability to the DOE resulting from the FPRD to be $175, which amount has been paid by the Company to the DOE.
Cohort Default Rates
In September 2017, the DOE released the final cohort default rates for the 2014 federal fiscal year. These are the most recent final rates published by the DOE. The rates for our existing institutions for the 2014 federal fiscal year range from 5.2% to 13.6%. None of our institutions had a cohort default rate equal to or greater than 30% for the 2014 federal fiscal year.
| Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are exposeda smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to certain market risks as part of our on-going business operations. On March 31, 2017,provide the Company repaid in full and terminated a previously existing term loan with the proceeds of a new revolving credit facility providedinformation otherwise required by Sterling National Bank in an aggregate principal amount of up to $50 million, which revolving credit facility is referred to in this report as the “Credit Facility.” Our obligations under the Credit Facility are secured by a lien on substantially all of our assets and any assets that we or our subsidiaries may acquire in the future. Outstanding borrowings under the Credit Facility bear interest at the rate of 6.75% as of September 30, 2017. As of September 30, 2017, we had $17.5 million outstanding under the Credit Facility.item.
Based on our outstanding debt balance as of September 30, 2017, a change of one percent in the interest rate would have caused a change in our interest expense of approximately $0.2 million, or $0.01 per basic share, on an annual basis. Changes in interest rates could have an impact on our operations, which are greatly dependent on our students’ ability to obtain financing and, as such, any increase in interest rates could greatly impact our ability to attract students and have an adverse impact on the results of our operations. The remainder of our interest rate risk is associated with miscellaneous capital equipment leases, which is not significant.
(a) Evaluation of disclosure controlsDisclosure Controls and procedures.Procedures. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this report, have concluded that our disclosure controls and procedures are adequate and effective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission’s RulesSEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control Over Financial Reporting. There were no changes made during our most recently completed fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Information regarding certain specific legal proceedings in which the Company is involved is contained in Part I, Item 3 and in Note 14 to the notes to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016. Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated therein as having been concluded, remain outstanding as of September 30, 2017.
In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations and claims, including, but not limited to, claims involving students or graduates and routine employment matters. Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, financial condition, results of operations or cash flows.
In December 2021, we received a letter from the Consumer Financial Protection Bureau (“CFPB”) stating that the CFPB is assessing whether we are subject to CFPB’s supervisory authority based on our activities related to certain extensions of credit to our students and requesting certain information. The letter states that the CFPB has the authority to supervise certain entities in the private education loan market and certain other consumer financial products and services. We have provided the requested information to the CFPB and are waiting for the CFPB to respond.
On June 7, 2022, the Massachusetts Office of the Attorney General (“AGO”) issued a civil investigative demand (“CID”) to Lincoln Technical Institute in Somerville, Massachusetts. The CID states that it is intended to investigate possible unfair or deceptive methods, acts, or practices in violation of state law and that it relates to allegations that the institution violated law by engaging in unfair or deceptive practices in connection with their policies regarding fee refunds and associated disclosures to students and prospective students. The CID has requested that the institution provide to the AGO a list of documentation generally from the period from January 1, 2020 to the present. We have provided documents requested by the CID and are cooperating with the investigation.
The Company has no changes to the Risk Factors disclosed in our Form 10-K.
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS |
| (c) | Issuer Purchases of Equity Securities. |
On May 24, 2022, the Company announced that the Board of Directors had approved a share repurchase program for twelve months authorizing purchases of up to $30.0 million. The following table presents the number and average price of shares purchased during the three months ended June 30, 2022. The remaining authorized amount for share repurchases under the program is approximately $27.5 million.
| Period | | Total Number of Shares Purchased | | | Average Price Paid per Share | | | Total Number of Shares Purchased as Part of Publically Announced Plan | | | Maximum Dollar Value of Shares Remaining to be Purchased Under the Plan | |
| April 1, 2022 to April 30, 2022 | | | - | | | $ | - | | | | - | | | $ | - | |
| May 1, 2022 to May 31, 2022 | | | 106,170 | | | | 6.04 | | | | 106,170 | | | | 29,358,786 | |
| June 1, 2022 to June 30, 2022 | | | 308,793 | | | | 6.14 | | | | 308,793 | | | | 27,461,655 | |
| Total | | | 414,963 | | | | 6.12 | | | | 414,963 | | | | | |
For more information on the share repurchase plan, see Note 7 to our condensed consolidated financial statements.
| Item 3. | DEFAULTS ON SENIOR SECURITIES |
None.
| Item 4. | MINE SAFETY DISCLOSURES |
None.
(a)
(1) On November 8, 2017,August 5, 2022, the Company entered into a new employment agreementthird amendment to its Credit Agreement with Scott M. Shaw,Webster Bank, National Bank (the “Third Amendment”), in order to extend the Company’s President and Chief Executive Officer, pursuant to which Mr. Shaw will continue to serve in such positions (the “Shaw Employment Agreement”). Mr. Shaw also serves as and will remain a member of the Board of Directors of the Company. The Shaw Employment Agreement, the full text of which is filed as Exhibit 10.2 to this Quarterly Report on 10-Q and is incorporated herein by reference, replaces Mr. Shaw’s prior employment agreement with the Company, which would have expired by its terms on December 31, 2017.
The term of the Shaw Employment Agreement commenced on November 8, 2017 and will expire on December 31, 2018, unless sooner terminated in accordance with its terms. During the term of the Shaw Employment Agreement, Mr. Shaw will continue to receive an annual base salary of $500,000, an annual performance bonus based upon achievement of performance targets or other criteria as determined by the Company’s Board of Directors or its Compensation Committee and a Company-owned vehicle, as well as insurance, maintenance, fuel and other costs associated with such vehicle.
Under the terms of the Shaw Employment Agreement, the Company may terminate Mr. Shaw’s employment at any time with or without Cause and Mr. Shaw may resign from his employment at any time, with or without Good Reason (in each case as such terms are defined in the Shaw Employment Agreement). In the event that Mr. Shaw’s employment should be terminated by the Company without Cause or by Mr. Shaw’s resignation for Good Reason, in addition to his right to receive payment of all accrued and unpaid compensation and benefits due to him through the date of termination of employment, subject to Mr. Shaw’s execution of a release in favor of the Company and its subsidiaries and affiliates, Mr. Shaw would be entitled to receive a lump sum payment on the 60th day following termination of employment equal to (a) two times the sum of (i) his annual base salary and (ii) the target amount of the annual performance bonus for him in the year in which the termination of employment occurs, (b) all outstanding reasonable travel and other business expenses incurred through the date of termination and (c) the estimated employer portion of premiums that would be necessary to continue Mr. Shaw’s coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Shaw become insured under a subsequent healthcare plan). In addition, Mr. Shaw would be entitled to receive a prorated portion of his annual bonus for the year of termination, which prorated annual bonus would be paid in a lump sum on the date that bonuses for the year in which the termination occurs are paid generally to the Company’s senior executives.
The Shaw Employment Agreement further provides that, upon a Change in Control of the Company (as defined in the Shaw Employment Agreement), (a) the term of the Shaw Employment Agreement will be automatically extended for an additional two-year term commencing on thematurity date of the Change in Control and ending on the second anniversary of the date of the Change in Control and (b) all outstanding restricted stock and stock options held by Mr. Shaw will vest in full and all stock options will become immediately exercisable on the date of the Change in Control. The Shaw Employment Agreement also provides that if any amounts due to Mr. Shaw pursuant to the Shaw Employment Agreement or any other plan or arrangement constitute a “parachute payment” for purposes of Section 280G of the Internal Revenue Code and the amount of the parachute payment (after taking into account all taxes, including excise taxes) is less than the amount Mr. Shaw would receive if he was paid three times his “base amount” (as defined under Section 280G of the Internal Code), less one dollar (after taking into account all taxes, including excise taxes), then the aggregate of the amounts constituting the parachute payment will be reduced (or returned by Mr. Shaw if already paid to him) to an amount that will equal three times Mr. Shaw’s base amount less one dollar.
The Shaw Employment Agreement contains a two-year post-employment noncompetition agreement and standard no solicitation and confidentiality provisions.
revolving loan thereunder through November 14, 2023. The foregoing description of the Shaw Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Shaw Employment Agreement filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
(2) Also on November 8, 2017, the Company entered into a new employment agreement with Brian K. Meyers, the Company’s Executive Vice President, Chief Financial Officer and Treasurer, pursuant to which Mr. Meyers will continue to serve in such positions (the “Meyers Employment Agreement”). The Meyers Employment Agreement, the full text of which is filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q and is incorporated herein by reference, replaces Mr. Meyers’ prior employment agreement which would have expired by its terms on December 31, 2017.
The term of the Meyers Employment Agreement commenced on November 8, 2017 and will expire on December 31, 2018, unless sooner terminated in accordance with its terms. During the term of the Meyers Employment Agreement, Mr. Meyers will continue to receive an annual base salary of $340,000 and an annual performance bonus based upon achievement of performance targets or other criteria as determined by the Company’s Board of Directors or its Compensation Committee.
Under the terms of the Meyers Employment Agreement, the Company may terminate Mr. Meyers’ employment at any time with or without Cause and Mr. Meyers may resign from his employment at any time, with or without Good Reason (in each case as such terms are defined in the Meyers Employment Agreement). In the event that Mr. Meyers’ employment should be terminated by the Company without Cause or by Mr. Meyers resignation for Good Reason, in addition to his right to receive payment of all accrued and unpaid compensation and benefits due to him through the date of termination of employment, subject to Mr. Meyers’ execution of a release in favor of the Company and its subsidiaries and affiliates, Mr. Meyers would be entitled to receive a lump sum payment on the 60th day following termination of employment equal to (a) one and three-quarters times the sum of (i) his annual base salary and (ii) the target amount of the annual performance bonus for him in the year in which the termination of employment occurs, (b) all outstanding reasonable travel and other business expenses incurred through the date of termination and (c) the estimated employer portion of premiums that would be necessary to continue Mr. Meyers’ coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Mr. Meyers become insured under a subsequent healthcare plan). In addition, Mr. Meyers would be entitled to receive a prorated portion of his annual bonus for the year of termination, which prorated annual bonus would be paid in a lump sum on the date that bonuses for the year in which the termination occurs are paid generally to the Company’s senior executives.
The Meyers Employment Agreement further provides that, upon a Change in Control of the Company (as defined in the Meyers Employment Agreement), (a) the term of the Meyers Employment Agreement will be automatically extended for an additional two-year term commencing on the date of the Change in Control and ending on the second anniversary of the date of the Change in Control and (b) all outstanding restricted stock and stock options held by Mr. Meyers will vest in full and all stock options will become immediately exercisable on the date of the Change in Control. The Meyers Employment Agreement also provides that if any amounts due to Mr. Meyers pursuant to the Meyers Employment Agreement or any other plan or arrangement constitute a “parachute payment” for purposes of Section 280G of the Internal Revenue Code and the amount of the parachute payment (after taking into account all taxes, including excise taxes) is less than the amount Mr. Meyers would receive if he was paid three times his “base amount” (as defined under Section 280G of the Internal Code), less one dollar (after taking into account all taxes, including excise taxes), then the aggregate of the amounts constituting the parachute payment will be reduced (or returned by Mr. Meyers if already paid to him) to an amount that will equal three times Mr. Meyers’ base amount less one dollar.
The Meyers Employment Agreement contains a two-year post-employment noncompetition agreement and standard no solicitation and confidentiality provisions.
The foregoing description of the Meyers Employment Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Meyers Employment Agreement filed as Exhibit 10.3 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
(3) Also on November 8, 2017, the Company entered into a change in control agreement with Deborah Ramentol (the “Ramentol Agreement”). The Ramentol Agreement, the full text of which is filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q and is incorporated herein by reference, replaces Ms. Ramentol’s prior change in control agreement, which would have expired by its terms on December 31, 2017.
The Ramentol Agreement, which remains in effect until December 31, 2018, provides that in the event Ms. Ramentol’s employment should be terminated by the Company without Cause or by Ms. Ramentol’s resignation for Good Reason (in each case as such terms are defined in the Ramentol Agreement) during the one-year period following a Change in Control of the Company (as defined in the Ramentol Agreement), Ms. Ramentol would be entitled to receive a payment equal to the sum of (i) her annual base salary in effect on the date of the termination of her employment, (ii) the target amount of the annual performance bonus for her in the year in which the termination of employment occurs and (iii) the estimated employer portion of premiums that would be necessary to continue Ms. Ramentol’s coverage under the Company’s healthcare plan until the first anniversary of the date of termination (subject to proration should Ms. Ramentol become insured under a subsequent healthcare plan). In addition, all outstanding restricted stock and stock options held by Ms. Ramentol will vest in full and all stock options will become immediately exercisable on the date of the Change in Control.
The Ramentol Agreement also provides that if any amounts due to Ms. Ramentol pursuant to the Ramentol Agreement or any other plan or arrangement constitute a “parachute payment” for purposes of Section 280G of the Internal Revenue Code and the amount of the parachute payment (after taking into account all taxes, including excise taxes) is less than the amount Ms. Ramentol would receive if she was paid three times her “base amount” (as defined under Section 280G of the Internal Code), less one dollar (after taking into account all taxes, including excise taxes), then the aggregate of the amounts constituting the parachute payment will be reduced (or returned by Ms. Ramentol if already paid to her) to an amount that will equal three times Ms. Ramentol’s base amount less one dollar.
The foregoing description of the Ramentol Change in Control AgreementThird Amendment is not complete and is qualified in its entirety by reference to the full text of the Ramentol AgreementThird Amendment which is filed as Exhibit 10.410.2 to this Quarterly Report on Form 10-Q whichand is incorporated herein by reference.
Exhibit Number | |
Description |
| | | |
10.1(1)3.1 | | PurchaseAmended and Sale Agreement,Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005. |
| | |
| 3.2 | | Certificate of Amendment, dated MarchNovember 14, 2017, between New England Institute2019, to the Amended and Restated Certificate of Technology at Palm Beach, Inc. and Tambone Companies, LLC,Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-3 filed October 6, 2020). |
| | |
| 3.3 | | Bylaws of the Company as amended on March 8, 2019 (incorporated by First Amendmentreference to Purchase and Sale Agreement dated asExhibit 3.1 of the Company’s Form 8-K filed April 18, 2017, and as further amended by 30, 2020). |
| | |
| 10.1 | | Second Amendment to Purchase and Salethe Credit Agreement dated asMay 23, 2022 among Lincoln Educational Services Corporation and its subsidiaries named therein and Webster Bank, National Bank (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 12, 201724, 2022). |
| | | |
| 10.2* | | EmploymentThird Amendment to the Credit Agreement dated as of November 8, 2017, between the CompanyAugust 5, 2022 among Lincoln Educational Services Corporation and Scott M. Shaw.its subsidiaries named therein and Webster Bank, National Bank. |
| | | |
10.3*31.1* | | Employment Agreement, dated as of November 8, 2017, between the Company and Brian K. Meyers. |
| | |
10.4* | | Change in Control Agreement, dated as of November 8, 2017, between the Company and Deborah Ramentol. |
| | |
31.1 * | | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
31.2 *31.2* | | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
32 32** | | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
101** | | The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2017,2022, formatted in XBRL:Inline Extensible Business Reporting Language (“iXBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail. |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| (1) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017. |
| ** | As provided in Rule 406T of Regulation S-T, this information is furnished andFurnished herewith. This exhibit will not filedbe deemed “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.1934, as amended, or otherwise subject to the liability of that section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. |
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 hereunto duly authorized.
| | | LINCOLN EDUCATIONAL SERVICES CORPORATION |
| | | | |
Date: November 13, 2017August 8, 2022 | By: | /s/ Brian Meyers | |
| | | Brian Meyers | |
| | | Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit Index
10.1(1) | | PurchaseAmended and Sale Agreement,Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005. |
| | |
| | Certificate of Amendment, dated MarchNovember 14, 2017, between New England Institute2019, to the Amended and Restated Certificate of Technology at Palm Beach, Inc. and Tambone Companies, LLC,Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-3 filed October 6, 2020). |
| | |
| | Bylaws of the Company, as amended on March 8, 2019 (incorporated by First Amendmentreference to Purchase and Sale Agreement dated asExhibit 3.1 of the Company’s Form 8-K filed April 18, 2017, and as further amended by 30 2020). |
| | |
| | Second Amendment to Purchase and Salethe Credit Agreement dated asMay 23, 2022 among Lincoln Educational Services Corporation and its subsidiaries named therein and Webster Bank, National Bank (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 12, 201724, 2022) |
| | | |
| | EmploymentThird Amendment to the Credit Agreement dated as of November 8, 2017, between the CompanyAugust 5, 2022 among Lincoln Educational Services Corporation and Scott M. Shaw.its subsidiaries named therein and Webster Bank, National Bank. |
| | | |
| | Employment Agreement, dated as of November 8, 2017, between the Company and Brian K. Meyers. |
| | |
| | Change in Control Agreement, dated as of November 8, 2017, between the Company and Deborah Ramentol. |
| | |
| | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | | |
| | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | |
| | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | | |
101** | | The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended SeptemberJune 30, 2017,2022, formatted in XBRL:Inline Extensible Business Reporting Language (“iXBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail. |
| | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| (1) | Incorporated by reference to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 14, 2017. |
| ** | As provided in Rule 406T of Regulation S-T, this information is furnished andFurnished herewith. This exhibit will not filedbe deemed “filed” for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.1934, as amended, or otherwise subject to the liability of that section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. |