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 reportForm 10-Q and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.
Because a substantial portion of our revenue is derived from Title IV programs,Programs, any legislative or regulatory action that significantly reduces the funding available under Title IV programsPrograms, or the ability of our students or schoolsinstitutions to participate in Title IV programs couldPrograms, would likely have a material effectimpact 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, including consumables, 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 Nine Months Ended September 30, 2023
Certain reported amounts in our analysis have been rounded for presentation purposes. The following table sets forth selected consolidated statementsCondensed Consolidated Statements of continuing operationsOperations data as a percentage of revenues for each of the periods indicated:
| | | | Three Months Ended | | Nine Months Ended | |
| | | Three Months Ended September 30, | | | Nine Months Ended September 30, | | | September 30, | | September 30, | |
| | | 2017 | | | 2016 | | | 2017 | | | 2016 | | | 2023 | | 2022 | | 2023 | | 2022 | |
| 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 | % | | 43.3 | % | | 43.5 | % | | 44.0 | % | | 43.8 | % |
| Selling, general and administrative | | | 52.7 | % | | | 50.3 | % | | | 56.2 | % | | | 53.1 | % | | 54.7 | % | | 51.2 | % | | 56.8 | % | | 54.4 | % |
| Gain on sale of assets | | | -2.3 | % | | | 0.0 | % | | | -0.8 | % | | | -0.2 | % | |
| Loss (gain) on sale of assets | | | 0.0 | % | | 0.0 | % | | -11.2 | % | | -0.1 | % |
| Impairment of goodwill and long-lived assets | | | | 0.0 | % | | | 0.0 | % | | | 1.5 | % | | | 0.0 | % |
| Total costs and expenses | | | 101.0 | % | | | 100.9 | % | | | 106.4 | % | | | 104.7 | % | | | 98.0 | % | | | 94.7 | % | | | 91.1 | % | | | 98.1 | % |
| Operating loss | | | -1.0 | % | | | -0.9 | % | | | -6.4 | % | | | -4.7 | % | |
| Interest expense, net | | | -1.1 | % | | | -1.9 | % | | | -3.4 | % | | | -2.1 | % | |
| Other income | | | 0.0 | % | | | 2.3 | % | | | 0.0 | % | | | 2.4 | % | |
| Loss from operations before income taxes | | | -2.1 | % | | | -0.5 | % | | | -9.8 | % | | | -4.4 | % | |
| Operating income | | | 2.0 | % | | 5.3 | % | | 8.9 | % | | 1.9 | % |
| Interest income, net | | | | 0.9 | % | | | 0.0 | % | | | 0.7 | % | | | 0.0 | % |
| Income from operations before income taxes | | | 2.9 | % | | 5.3 | % | | 9.5 | % | | 1.9 | % |
| Provision for income taxes | | | 0.1 | % | | | 0.1 | % | | | 0.1 | % | | | 0.1 | % | | | 0.8 | % | | | 1.4 | % | | | 2.5 | % | | | 0.3 | % |
| Net Loss | | | -2.2 | % | | | -0.6 | % | | | -9.9 | % | | | -4.5 | % | |
| Net income | | | | 2.1 | % | | | 3.9 | % | | | 7.0 | % | | | 1.6 | % |
Three Months Ended September 30, 20172023 Compared to Three Months Ended September 30, 20162022
Consolidated Results of Operations
Revenue.Revenue. Revenue decreased by $7.0increased $7.8 million, or 9.4%,8.5% to $67.3$99.6 million for the three months ended September 30, 20172023 from $74.3$91.8 million in the prior year comparable period. The decrease in revenue is mainly attributable toExcluding the suspension of new student starts at campuses in our Transitional segment which have closed or will be closed at year-end. This segment accounted for approximately 95%revenue of the total revenue decline.
Total student starts decreased by 10.9% to approximately 4,400 from 5,000$0.1 million and $1.7 million for the three months ended September 30, 2017 as compared to2023 and 2022, respectively, our revenue would have increased $9.4 million, or 10.5%. The remaining increase in revenue was driven by several factors including student start growth of 7.1%, which drove a 3.0% increase in average student population, and an increase in average revenue per student of 7.3%, driven in part by the prior year comparable period. Approximately 82%continuing rollout of the overall decrease was due to the Transitional segment noted above.Company’s hybrid teaching model in combination with tuition increases. The remaining decrease resulted from start underperformance at one campusCompany’s hybrid teaching model increases program efficiency and delivers accelerated revenue recognition in the Transportation and Skilled Trades segment and two campuses in the Healthcare and Other Professions segment.certain evening programs.
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 $3.2 million, or 9.3%,8.0% to $34.1$43.1 million for the three months ended September 30, 20172023 from $37.5$39.9 million in the prior year comparable quarter. This decrease is mainly attributable toperiod. Excluding the Transitional segment which accounted for $3.2 million in cost reductions as three campuses in the segment have closed during the three months ended September 30, 2017 and the remaining two campuses are preparing to close by the end of the current calendar year.
Educationaleducational services and facilities expenses, as a percentageexpense of revenue remained essentially flat at 50.6% for the three months ended September 30, 2017$0.5 million and 2016.
Selling, general and administrative expense. Our selling, general and administrative expense decreased by $1.9 million, or 5.1%, to $35.5$0.8 million for the three months ended September 30, 20172023 and 2022, respectively, our educational services and facilities expense would have increased $3.5 million, or 9.1%. Increased costs were primarily concentrated in instructional, facilities, and books and tools expenses.
Instructional expenses increased $1.6 million, driven primarily by higher instructional salaries resulting from $37.4 million in the comparable quarter of 2016. This decrease also was primarilyhigher staffing levels due to increases in our student population, merit salary increases, and the Transitional segment, which accountedtransition to the Company’s hybrid teaching model.
Facilities expense increased by approximately $1.3 million, mainly due to non-cash rent expense relating to the new Atlanta, Georgia campus, and the sale leaseback of our existing Nashville, Tennessee property. In connection with the sale of the Nashville, Tennessee property, the Company entered into a lease agreement allowing the Company to continue to occupy the campus and operate it on a rent-free basis for approximately $2.9a period of 15-months. At the consummation of the sale, the Company took the fair value of the 15-month rent free period, valued at $2.3 million, and included the balance in cost reductions. Partially offsettingprepaid expenses and other current assets on the cost reductions wasCompany’s Condensed Consolidated Balance Sheet. During the 15-month rent-free period, the Company will straight-line the expense until the rent-free period has expired. Additional increases were driven by utilities expense resulting from inflation and a higher student population in addition to routine maintenance at several campuses.
Books and tools expense increased $0.6 million, of corporatedriven by a 7.1% increase in student starts quarter-over-quarter.
Educational services and other costs related to the closure of the of the Hartford, Connecticut campus on December 31, 2016.
Asfacilities expense, as a percentage of revenues, selling, general and administrative expense increasedrevenue, decreased to 52.7%43.3% from 43.5% for the three months ended September 30, 2017 from 50.3% in the comparable prior year period. 2023 and 2022, respectively.
Selling, general and administrative expense. 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 ableexpense increased $7.5 million, or 16.0% to align these expenses with the corresponding decrease in population.
Gain on Sale of Assets. For$54.5 million for the three months ended September 30, 2017, gain2023, from $47.0 million in the prior year comparable period. Excluding the Transitional segment selling, general and administrative expense of $0.4 million and $1.0 million for the three months ended September 30, 2023 and 2022, respectively, our selling general and administrative expense would have increased $8.1 million, or 17.7%. Increased costs were driven by the following:
Administrative costs increased $5.7 million, driven primarily by bad debt expense and performance-based incentives. Bad debt expense increased quarter-over-quarter primarily due to a higher accounts receivable balance driven by revenue growth, and lower collections.
Marketing investments increased $1.1 million as a result of a continuing shift in marketing strategy to include additional spending in digital channels that generate higher quality, better converting leads but which come at a higher cost-per-lead. These efforts are driven primarily through the increased investment in the paid search and paid social media channels. We continue to reduce our dependency on salelower cost third-party affiliate/pay-per-lead inquiries, which convert at relatively lower levels. Additional investments in marketing have contributed to the increase in starts quarter-over-quarter while maintaining a consistent cost per start. The Company also invested incremental marketing dollars in the third quarter to support two new program launches: Medical Assistant at our Columbia, Maryland campus and Electrical & Electronic Systems Technology at our Grand Prairie, Texas campus.
Student services increased $0.7 million, primarily resulting from costs associated with an increased student population.
Selling, general and administrative expense, as a percentage of assetsrevenue, increased to $1.554.7% from 51.2% for the three months ended September 30, 2023 and 2022, respectively.
Net interest income / expense. Net interest income was $0.9 million fromfor the three months ended September 30, 2023 compared to net interest expense of less than $0.1 million in the prior year comparable period. The increase was due to the sale of two properties located in West Palm Beach, Florida.
Net interest expense. For the three months ended September 30, 2017, net interest expense decreasedincome was primarily driven by $0.7 million, or 50% to $0.7 million from $1.4 million in the prior year comparable period. The expense reductions were attributable to lower debt outstanding in combination with more favorable terms under our new credit facility with Sterling National Bank effective March 31, 2017.
Other Income. For the three months ended September 30, 2017, other income decreased by $1.7 million from the prior year comparable period. The $1.7 million of other income in 2016 reflected 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.investment of its cash reserves into various short-term investments.
Income taxes.Our provision for income taxes was $0.1$0.8 million, or 3.5%27.7% of pretax loss,pre-tax income for the three months ended September 30, 2017,2023 compared to $0.1$1.3 million, or 11.9%26.8% of pretax loss,pre-tax income 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, 20172023 Compared to Nine Months Ended September 30, 20162022
Consolidated Results of Operations
Revenue.Revenue. Revenue decreased by $18.5increased $19.0 million, or 8.7%,7.4% to $194.5$275.5 million for the nine months ended September 30, 20172023 from $213.0$256.5 million forin the prior year comparable period. The decrease in revenue is primarily attributable toExcluding 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%revenue of the total revenue decline. The remaining decline was due to our HOPS segment which decreased by $1.8$1.5 million and $5.3 million for the nine months ended September 30, 2017 due to2023 and 2022, respectively, our revenue would have increased $22.9 million, or 9.1%. The remaining increase in revenue was driven by several factors including student start growth of 10.3% and an increase in average population down approximately 30 students.
Totalrevenue per student starts decreasedof 8.9%, driven in part by 12.5% to approximately 9,900 from 11,300 for the nine months ended September 30, 2017 as compared to the prior year comparable period. The decrease was largely due to the suspension of new student starts for the Transitional segment which accounted for approximately 79%continuing rollout of the decline.Company’s hybrid teaching model in combination with tuition increases. The TransportationCompany’s hybrid teaching model increases program efficiency 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.delivers accelerated revenue recognition in certain evening programs.
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 $9.0 million, or 10%,8.0% to $99.2$121.2 million for the nine months ended September 30, 20172023 from $110.2$112.2 million in the prior year comparable period. This decrease is mainly attributable toExcluding the Transitional segment which accounted for $10.4 million in cost reductions as three campuses in the segment have closed during the nine months ended September 30, 2017 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.
Educationaleducational services and facilities expenses, as a percentageexpense of revenue decreased to 51.0% for the nine months ended September 30, 2017 from 51.8% in the prior year comparable period.
Selling, general$1.6 million and administrative expense. Our selling, general and administrative expense decreased by $3.9 million, or 3.5%, to $109.4$2.5 million for the nine months ended September 30, 20172023 and 2022, respectively, our educational services and facilities expense would have increased $9.9 million, or 9.0%. Increased costs were primarily concentrated in instructional expense, facilities expense and books and tools expense.
Instructional expenses increased $4.8 million, driven primarily by higher instructional salaries resulting from $113.3higher staffing levels due to increases in our student population, merit salary increases, and the transition to the Company’s hybrid teaching model. Also contributing to the increase were additional costs incurred for student testing primarily relating to our nursing program, increased consumables costs driven by a higher student population and inflation, and an increase in benefits expense due to increased enrollments.
Facilities expense increased by approximately $2.9 million, inmainly due to non-cash rent expense relating to the comparablenew Atlanta, Georgia campus, and the sale leaseback of our existing Nashville, Tennessee property. In connection with the sale of the Nashville, Tennessee property, the Company entered into a lease agreement allowing the Company to continue to occupy the campus and operate it on a rent-free basis for a period of 2016. The decrease also was primarily due15-months. At the consummation of the sale, the Company took the fair value of the 15-month rent free period valued at $2.3 million and included the balance in prepaid expenses and other current assets on the Company’s Condensed Consolidated Balance Sheet. During the 15-month rent-free period, the Company will straight-line the expense until the rent-free period has expired. Additional increases were driven by utilities expense resulting from inflation and a higher student population in addition 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;routine maintenance at several campuses.
Books and $2.5 million in additional sales and marketing expense.
Administrativetools expense increased primarily due to a $1.8$2.2 million, driven by the 10.3% increase in bad debtstudent starts year-over-year.
Educational services and facilities expense, as a resultpercentage 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 directlyrevenue, increased 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 demographic44.0% from 43.8% for the nine months ended September 30, 2017 as compared to the prior comparable period.2023 and 2022, respectively.
As a percentage of revenues,Selling, general and administrative expense. Our selling, general and administrative expense increased $17.1 million, or 12.3% to 56.2%$156.6 million for the nine months ended September 30, 20172023, from 53.1%$139.5 million in the comparable prior year comparable period.
As Excluding the Transitional segment selling, general and administrative expense of September 30, 2017, we had total outstanding loan commitments to our students of $46.9$1.3 million as compared to $40.0and $3.1 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. Forfor the nine months ended September 30, 2017, gain2023 and 2022, respectively, our selling general and administrative expense would have increased $18.9 million, or 13.8%. Increased costs were driven by the following:
Administrative costs increased $14.0 million, driven by several factors including increased bad debt expense, stock-based compensation, performance-based incentives, and legal costs. Bad debt expense increased year-over-year primarily due to a higher accounts receivable balance driven by revenue growth, and lower collections.
Marketing investments increased $2.5 million as a result of a continuing shift in marketing strategy to include additional spending in digital channels that generate higher quality, better converting leads but which come at a higher cost-per-lead. These efforts are driven primarily through the increased investment in the paid search and paid social media channels. We continue to reduce our dependency on lower cost third-party affiliate/pay-per-lead inquiries, which convert at relatively lower levels. Additional investments in marketing have contributed to the increase in starts year-over-year while maintaining a consistent cost per start. The Company also invested incremental marketing dollars in the third quarter to support two new program launches: Medical Assistant at our Columbia, Maryland campus and Electrical & Electronic Systems Technology at our Grand Prairie, Texas campus.
Student services increased $1.7 million, primarily resulting from costs associated with an increased student population.
Selling, general and administrative expense, as a percentage of revenue, increased to 56.8% from 54.4% for the nine months ended September 30, 2023 and 2022, respectively.
Gain on sale of assets. Gain on sale of assets increasedwas $30.9 million, resulting from the sale of the Company’s Nashville, Tennessee property during the second quarter of 2023. Net proceeds from the sale were approximately $33.3 million.
Impairment of goodwill and long-lived assets. Impairment of goodwill and long-lived assets was $4.2 million as a result of the sale of the Nashville, Tennessee property on June 8, 2023. The result of the sale created a change in the trajectory of the fair value of the Nashville, Tennessee operations and as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to $1.6goodwill and an additional $0.4 million from $0.4impairment relating to long-lived assets. As of September 30, 2022, there were no impairments of goodwill or long-lived assets.
Net interest income / expense. Net interest income was $1.8 million for the nine months ended September 30, 2023 compared to net interest expense of $0.1 million in the prior year comparable period. The increase was due to the sale of two properties located in West Palm Beach, Florida.
Net interest expense. For the nine months ended September 30, 2017 net interest expense increasedincome was primarily driven by 2.1 million, or 46% to $6.6 million from $4.5 million in the prior year comparable period. The increase was mainly attributable to a $2.2 million non-cash write-off of previously capitalized deferred financing fees. These costs were incurred at March 31, 2017 when the Company entered into a new revolving credit facility with Sterling National Bank. Partially offsetting these increases were reductions in interest expense resulting from lower debt outstanding in combination with more favorable terms under the current Credit Facility compared to our prior Term Loan.
Other Income. For the nine months ended September 30, 2017 other income decreased by $5.1 million from the prior year comparable period. The $5.1 million in 2016 reflected 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.investment of its cash reserves into various short-term investments.
Income taxes.Our provision for income taxes was $0.2$7.0 million, or 0.8%26.7% of pretax loss,pre-tax income for the nine months ended September 30, 2017,2023 compared to $0.2$0.8 million, or 1.6%15.7% of pretax loss,pre-tax income in the prior year comparable period. No federal or state income tax benefit was recognizedThe increase in provision for the current period lossnine months ended September 30, 2023 was due to the recognitiongain on the sale of a full valuation allowance. Income tax expense resulted from various minimal state tax expenses.the Nashville, Tennessee property during the second quarter of 2023, which drove an increase in the Company’s pre-tax income.
Segment Results of Operations
The for-profit education industryAs of January 1, 2023, the Company’s business is now organized into two reportable business segments: (a) Campus Operations; and (b) Transitional. Based on trends in student demand and our program expansions, there have been more cross-offerings of programs among the various campuses. Given this change, the Company has been impacted by numerous regulatory changes,revised the changing economyway it manages the business, evaluates performance, and allocates resources, resulting in an onslaught of negative media attention. updated segment structure. 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 exitedshifted 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 offeringsthe two new segments as defined below:
Campus Operations – The Campus Operations segment includes all campuses that create greater differentiation among campusesare continuing in operation and attain excellencecontribute 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 three reportable segments: (a) Transportation and Skilled Trades segment; (b) Healthcare and Other Professions segment; and (c) Transitional segment.
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 unitcore operations and an operating segment. Our operating segments are segments described below.performance.
Transportation and Skilled Trades – 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 – The Transitional segment refers to operationsbusinesses that are being phased out or closedmarked for closure and consists of our campuses that are currently being taught out. These schools are employing a gradual teach-out process that enablestaught-out. As of September 30, 2023, 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 eachonly 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. Campusesclassified in the Transitional segment haveis the Somerville, Massachusetts campus. The campus has been subjectfully taught-out and will continue to this process and have been strategically identified for closure.incur some additional closing costs until year-end 2023. Total estimated costs to close the campus will approximate $2.0 million.
We evaluate segment performance based on operating results. Adjustments to reconcile segment results to consolidated results are included underin the caption “Corporate,” which primarily includes unallocated corporate activity.
The following table presentpresents results for our threetwo reportable segments for the three months ended September 30, 20172023 and 2016:2022:
| | | Three Months Ended September 30, | |
| | | 2017 | | | 2016 | | | % Change | |
Revenue: | | | | | | | | | |
| Transportation and Skilled Trades | | $ | 47,694 | | | $ | 47,939 | | | | -0.5 | % |
| HOPS | | | 18,428 | | | | 18,559 | | | | -0.7 | % |
| Transitional | | | 1,186 | | | | 7,769 | | | | -84.7 | % |
| Total | | $ | 67,308 | | | $ | 74,267 | | | | -9.4 | % |
| | | | | | | | | | | | | |
Operating Income (Loss): | | | | | | | | | | | | |
| Transportation and Skilled Trades | | $ | 6,061 | | | $ | 6,120 | | | | -1.0 | % |
| Healthcare and Other Professions | | | (574 | ) | | | (41 | ) | | | 1300.0 | % |
| Transitional | | | (2,495 | ) | | | (2,029 | ) | | | -23.0 | % |
| Corporate | | | (3,723 | ) | | | (4,721 | ) | | | 21.1 | % |
| Total | | $ | (731 | ) | | $ | (671 | ) | | | -8.9 | % |
| | | | | | | | | | | | | |
Starts: | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 3,016 | | | | 3,090 | | | | -2.4 | % |
| Healthcare and Other Professions | | | 1,429 | | | | 1,453 | | | | -1.7 | % |
| Transitional | | | - | | | | 448 | | | | -100.0 | % |
| Total | | | 4,445 | | | | 4,991 | | | | -10.9 | % |
| | | | | | | | | | | | | |
Average Population: | | | | | | | | | | | | |
| Transportation and Skilled Trades | | | 6,977 | | | | 7,128 | | | | -2.1 | % |
| Healthcare and Other Professions | | | 3,327 | | | | 3,286 | | | | 1.2 | % |
| Transitional | | | 259 | | | | 1,429 | | | | -81.9 | % |
| Total | | | 10,563 | | | | 11,843 | | | | -10.8 | % |
| | | | | | | | | | | | | |
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 | % |
| | | Three Months Ended September 30, | |
| | | 2023 | | | 2022 | | | % Change | |
| Revenue: | | | | | | | | | |
| Campus Operations | | $ | 99,527 | | | $ | 90,085 | | | | 10.5 | % |
| Transitional | | | 91 | | | | 1,728 | | | | -94.7 | % |
| Total | | $ | 99,618 | | | $ | 91,813 | | | | 8.5 | % |
| | | | | | | | | | | | | |
| Operating Income (loss): | | | | | | | | | | | | |
| Campus Operations | | $ | 11,889 | | | $ | 13,024 | | | | -8.7 | % |
| Transitional | | | (745 | ) | | | (76 | ) | | | 880.3 | % |
| Corporate | | | (9,148 | ) | | | (8,068 | ) | | | -13.4 | % |
| Total | | $ | 1,996 | | | $ | 4,880 | | | | -59.1 | % |
| | | | | | | | | | | | | |
| Starts: | | | | | | | | | | | | |
| Campus Operations | | | 5,157 | | | | 4,815 | | | | 7.1 | % |
| Transitional | | | - | | | | 114 | | | | -100.0 | % |
| Total | | | 5,157 | | | | 4,929 | | | | 4.6 | % |
| | | | | | | | | | | | | |
| Average Population: | | | | | | | | | | | | |
| Campus Operations | | | 12,923 | | | | 12,551 | | | | 3.0 | % |
| Transitional | | | 19 | | | | 273 | | | | -93.0 | % |
| Total | | | 12,942 | | | | 12,824 | | | | 0.9 | % |
| | | | | | | | | | | | | |
| End of Period Population: | | | | | | | | | | | | |
| Campus Operations | | | 14,027 | | | | 13,291 | | | | 5.5 | % |
| Transitional | | | 4 | | | | 295 | | | | -98.6 | % |
| Total | | | 14,031 | | | | 13,586 | | | | 3.3 | % |
Three Months EndedCampus Operations
Operating income was $11.9 million and $13.0 million for each of the three months ended September 30, 2017 Compared2023 and 2022, respectively. The change quarter-over-quarter was mainly driven by the following factors:
Revenue increased $9.4 million, or 10.5% to Three Months Ended September 30, 2016
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 $6.1$99.5 million for the three months ended September 30, 2017 as compared to2023 from $90.1 million in the prior year comparable period. ChangesThe increase in revenue was driven by several factors including student start growth of 7.1%, which drove a 3.0% increase in average student population and expense allocations were impacted as follows:an increase in average revenue per student of 7.3%, driven in part by the continuing rollout of the Company’s hybrid teaching model in combination with tuition increases. The Company’s hybrid teaching model increases program efficiency and delivers accelerated revenue recognition in certain evening programs.
| ·• | Revenue decreased by $0.2Educational services and facilities expense increased $3.5 million, or 0.5%9.1% to $47.7$42.6 million for the three months ended September 30, 20172023 from $47.9$39.1 million in the prior year comparable period. The decreaseIncreased costs were primarily concentrated in revenue wasinstructional, facilities expense, and books and tools expense. |
| o | Instructional expenses increased $1.6 million, driven primarily by higher instructional salaries resulting from higher staffing levels due to increases in our student population, merit salary increases, and the transition to the Company’s hybrid teaching model. |
| o | Facilities expense increased by approximately $1.3 million, mainly due to non-cash rent expense relating to the new Atlanta, Georgia campus and the sale leaseback of our existing Nashville, Tennessee property. In connection with the sale of the Nashville, Tennessee property, the Company entered into a lease agreement allowing the Company to continue to occupy the campus and operate it on a rent-free basis for a period of 15-months. At the consummation of the sale, the Company took the fair value of the 15-month rent free period, valued at $2.3 million, and included the balance in prepaid expenses and other current assets on the Company’s Condensed Consolidated Balance Sheet. During the 15-month rent-free period, the Company will straight-line the expense until the rent-free period has expired. Additional increases were driven by utilities expense resulting from inflation and a higher student population in addition to routine maintenance at several campuses. |
| o | Books and tools expense increased $0.6 million, driven by a 2.1% decrease7.1% increase 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.quarter-over-quarter. |
| · | Educational services and facilities expense decreased by $0.4Selling, general and administrative expense increased $7.0 million, or 18.6% to $44.9 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 $0.12023, from $37.9 million in the prior year comparable period. The $0.5 million changeincrease was mainlyprimarily 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 thatan increase in administrative costs including bad debt expense, sales, and marketing investments and additional spending in student services, all of which are categorizeddiscussed above in the Consolidated Results of Operations.
Transitional segment
On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus. The owner of the Somerville property has exercised an option to terminate the lease on December 8, 2023 and their status as of September 30, 2017:the Company has since determined not to pursue relocating the campus in this geographic region. The campus has been fully taught out, and will continue to incur some additional closing costs until year-end 2023. Total estimated costs to close the campus will approximate $2.0 million.
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 $1.2decreased $1.6 million, or 94.7% to $0.1 million for the three months ended September 30, 2017 as compared to $7.82023, from $1.7 million in the prior year comparable period mainly dueperiod.
Total operating expenses decreased $1.0 million, or 53.7% to the campus closures.
Operating loss increased by $0.5 million to $2.5$0.8 million for the three months ended September 30, 20172023, from $2.0$1.8 million in the prior year comparable period. The decrease was due to campus closures.
28Decreased operating performance is the result of closing the campus and no longer enrolling new students.
Corporate and Other
This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and Otherother expenses decreased by $1.0were $9.1 million or 21.1%,for the three months ended September 30, 2023 compared to $3.7 million from $4.7$8.1 million in the prior year comparable period. The decrease was primarilyIncreased costs were driven by a $1.5 million gain resulting from the saleperformance-based initiatives.
The following table presents results for our threetwo reportable segments for the nine months ended September 30, 20172023 and 2016:2022:
| | | 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, | |
| | | 2023 | | | 2022 | | | % Change | |
| Revenue: | | | | | | | | | |
| Campus Operations | | $ | 274,093 | | | $ | 251,216 | | | | 9.1 | % |
| Transitional | | | 1,455 | | | | 5,294 | | | | -72.5 | % |
| Total | | $ | 275,548 | | | $ | 256,510 | | | | 7.4 | % |
| | | | | | | | | | | | | |
| Operating Income (loss): | | | | | | | | | | | | |
| Campus Operations | | $ | 26,167 | | | $ | 30,430 | | | | -14.0 | % |
| Transitional | | | (1,423 | ) | | | (227 | ) | | | 526.9 | % |
| Corporate | | | (347 | ) | | | (25,252 | ) | | | 98.6 | % |
| Total | | $ | 24,397 | | | $ | 4,951 | | | | 392.8 | % |
| | | | | | | | | | | | | |
| Starts: | | | | | | | | | | | | |
| Campus Operations | | | 13,008 | | | | 11,791 | | | | 10.3 | % |
| Transitional | | | - | | | | 343 | | | | -100.0 | % |
| Total | | | 13,008 | | | | 12,134 | | | | 7.2 | % |
| | | | | | | | | | | | | |
| Average Population: | | | | | | | | | | | | |
| Campus Operations | | | 12,506 | | | | 12,479 | | | | 0.2 | % |
| Transitional | | | 88 | | | | 302 | | | | -70.9 | % |
| Total | | | 12,594 | | | | 12,781 | | | | -1.5 | % |
| | | | | | | | | | | | | |
| End of Period Population: | | | | | | | | | | | | |
| Campus Operations | | | 14,027 | | | | 13,291 | | | | 5.5 | % |
| Transitional | | | 4 | | | | 295 | | | | -98.6 | % |
| Total | | | 14,031 | | | | 13,586 | | | | 3.3 | % |
Campus Operations
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
TransportationOperating income was $26.2 million and Skilled Trades
Student start results decreased by 2.8% to 6,502 from 6,686$30.4 million for each of the nine months ended September 30, 2017 as compared to2023 and 2022, respectively. The change year-over-year was mainly driven by the prior year comparable period.following factors:
Operating income decreased by $3.0Revenue increased $22.9 million, or 24.8%,9.1% to $9.0$274.1 million for the nine months ended September 30, 20172023 from $11.9$251.2 million in the prior year comparable period mainlyperiod. The increase in revenue was driven by several factors including student start growth of 10.3% and an increase in average revenue per student of 8.9%, driven in part by the following factors:continuing rollout of the Company’s hybrid teaching model in combination with tuition increases. The Company’s hybrid teaching model increases program efficiency and delivers accelerated revenue recognition in certain evening programs.
| ·• | Revenue remained essentially flat at $131.2Educational services and facilities expense increased $9.9 million, or 9.0% to $119.7 million for the nine months ended September 30, 2017 as compared to2023 from $109.8 million in the prior year comparable period mainly due to a higher carryperiod. Increased costs were primarily concentrated 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 andinstructional, 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 |
| o | Instructional expenses increased $4.8 million, driven primarily by higher instructional salaries resulting from higher staffing levels due to increases in facilities expenseour student population, merit salary increases, and the transition to the Company’s hybrid teaching model. Also contributing to the increase were additional costs incurred for student testing, primarily relating to our nursing program, increased consumables costs driven by reduced depreciationa higher student population and inflation, and an increase in benefits expense due to increased enrollments. |
| o | Facilities expense increased by approximately $2.9 million, mainly due to non-cash rent expense relating to the new Atlanta, Georgia campus, and the sale leaseback of our existing Nashville, Tennessee property. In connection with the sale of the Nashville, Tennessee property, the Company entered into a lease agreement allowing the Company to continue to occupy the campus and operate it on a rent-free basis for a period of 15-months. At the consummation of the sale, the Company took the fair value of the 15-month rent free period, valued at $2.3 million, and included the balance in prepaid expenses and other current assets on the Company’s Condensed Consolidated Balance Sheet. During the 15-month rent-free period, the Company will straight-line the expense until the rent-free period has expired. Additional increases were driven by utilities expense resulting from fully depreciated assets. Increasesinflation and a higher student population in instructional expenses were dueaddition to the launch of a new programroutine maintenance at one of our campuses in combination with increased materials costs; and increased expenses for booksseveral campuses. |
| o | 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 $2.2 million, driven 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 millionthe 10.3% 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.
starts year-over-year. |
HealthcareSelling, general and Other Professions
Student start results decreased by 3.4%administrative expense increased $13.0 million, or 11.7% to 3,272 from 3,386$124.0 million for the nine months ended September 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 $2.62023, from $111.0 million in the prior year comparable period. The $3.7 million changeincrease was mainlyprimarily driven by an increase in administrative costs including bad debt expense, sales, and marketing investments and additional spending in student services, all of which are discussed above in the following factors:Consolidated Results of Operations.
Impairment of goodwill and long-lived assets was $4.2 million as a result of the sale the Nashville, Tennessee property on June 8, 2023. The result of the sale created a change in the trajectory of the fair value of the Nashville, Tennessee operations, and as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to goodwill and an additional $0.4 million impairment relating to long-lived assets. As of September 30, 2022, there were no impairments of goodwill or long-lived assets.
| · | 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. |
Transitional | · | 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.
|
On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus. The owner of the Somerville property has exercised an option to terminate the lease on December 8, 2023 and the Company has since determined not to pursue relocating the campus in this geographic region. The campus has been fully taught-out, and will continue to incur some additional closing costs until year-end 2023. Total estimated costs to close the campus will approximate $2.0 million.
Transitional
Revenue was $8.1decreased $3.8 million, or 72.5% to $1.5 million for the nine months ended September 30, 2017 as compared to $24.72023, from $5.3 million in the prior year comparable period mainly attributableperiod.
Total operating expenses decreased $2.6 million, or 47.9% to the closing of campuses within this segment.
Operating loss decreased by $3.2 million to $3.9$2.9 million for the nine months ended September 30, 20172023, from $7.1$5.5 million in the prior year comparable period. The decrease is primarily attributable to the closing of campuses within this segment
30Decreased operating performance is the result of closing the campus and no longer enrolling new students.
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 $31.3 million or 6.0%, to $16.5and $25.5 million from $17.6after excluding a $30.9 million gain in the priorcurrent year, comparable period. The decrease in corporate expenses 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, 2017our Nashville, Tennessee property and a decrease$0.2 million gain in salaries expensethe prior year driven by the sale of approximately $2.7 million. Partially offsetting these reductions was a $2.1 millionour former campus property in Suffield, Connecticut. Increased costs were driven by several factors including additional performance-based incentives, stock-based compensation, and an increase in benefits expense and $1.2 million of additional closed schoollegal 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.
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirements are for facilitiesthe maintenance 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, prior to the termination thereof (as described below), borrowings under our credit facility.Credit Facility. The following chart summarizes the principal elements of our cash flow:
| | | 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 | ) |
Atflow for each of the nine months ended September 30, 2017,2023 and 2022:
| | Nine Months Ended | |
| | September 30, | |
| | 2023 | | | 2022 | |
Net cash provided by operating activities | | $ | 3,612 | | | $ | 612 | |
Net cash used in investing activities | | | (4,961 | ) | | | (4,663 | ) |
Net cash used in financing activities | | | (2,945 | ) | | | (9,637 | ) |
As of September 30, 2023, the Company had $14.5$46.0 million ofin cash and cash equivalents and restricted cash, (which includes $7.2in addition to $24.3 million of restricted cash) asin short-term investments, compared to $47.7$50.3 million of cash and cash equivalents and restricted cash, (which included $26.7including $14.7 million of restricted cash)in short-term investments as of December 31, 2016. This2022. The decrease isin cash was due to several factors including investments of $28.7 million in capital expenditures primarily relating to the resultbuildout of a net lossthe new Atlanta, Georgia campus and the purchase of the new Levittown, Pennsylvania property for approximately $10.2 million on September 28, 2023. Also contributing to the decrease in cash were incentive compensation payments, share repurchases made under the share repurchase program, and one-time costs incurred in connection with the teach-out of our Somerville, Massachusetts campus. Partially offsetting the expenditures during the nine months ended September 30, 2017; repayment2023 was the sale of $44.3our Nashville, Tennessee property, which yielded proceeds of approximately $33.3 million. In addition, our cash position in prior years benefited from $2.4 million under our previous term loan facility and seasonality of the business.
For the last several years, the Company 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 enrolling 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, which was consummated during the second quarter of 2022.
On May 24, 2022, the Company announced that our likely sourcesits Board of cash should be sufficientDirectors had authorized a share repurchase program of up to fund operations$30.0 million of the Company’s outstanding Common Stock. The share repurchase program was authorized for 12 months. On February 27, 2023, the next twelveBoard of Directors extended the share repurchase program for an additional 12 months and thereafterauthorized the repurchase of an additional $10.0 million of the Company’s Common Stock, for an aggregate of up to $30.6 million in additional repurchases. As of September 30, 2023, the foreseeable future.Company has approximately $29.7 million remaining for repurchases.
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 ourDuring the nine months ended September 30, 2023, the Company repurchased 165,064 shares at a cost structure to our student population.of approximately $0.9 million. Total repurchases made since the inception of the share repurchase program through September 30, 2023 were 1,737,478 shares at a total cost of approximately $10.3 million.
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%74% of our cash receipts relating to revenues in 2016.2022. 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 for tuition payments to us 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
NetOperating cash used in operating activities was $16.6 million for the nine months September 30, 2017 compared to $9.5 million for the comparable period of 2016. The increase inflow results primarily from cash used in operating activities in the nine months ended September 30, 2017 as compared to the nine months ended September 30, 2016 is primarily due to an increased net loss as well asreceived from our students, offset by changes in other working capital such as accounts receivable, accounts payable, accrued expensesdemands. Working capital can vary at any point in time based on several factors including seasonality, timing of cash receipts and unearned tuition.payments and vendor payment terms.
Investing Activities
Net cash provided by investingoperating activities was $10.9$3.6 million for the nine months ended September 30, 20172023 compared to cash used of $0.6 million in the prior year comparable period. Our primary useThe main drivers for the cash provided by operating activities included a $2.6 million increase in accounts payable during the nine months ended September 30, 2023 resulting from the timing of cash disbursements and an increase in accrued expense of $9.6 million over the prior year resulting from a $6.1 million performance-based incentive payment made during the first quarter of 2022.
Investing Activities
Net cash used in investing activities was $5.0 million for the nine months ended September 30, 2023 compared to net cash used in investing activities of $4.7 million in the prior year comparable period. Cash used in the current year was primarily driven by investments in capital expenditures associated with investmentsof $28.7 million, which was primarily driven by the buildout of the new Atlanta, Georgia campus and the purchase of the new Levittown, Pennsylvania property for approximately $10.2 million, which was consummated on September 28, 2023.
Also contributing to the decrease were net purchases of short-term investment of $9.6 million in training technology, classroom furniture, and new program buildouts.the current year. Partially offsetting the cash outflow was $33.3 million in proceeds received from the sale of our Nashville, Tennessee property during the second quarter of 2023.
We currently lease a majorityall of our campuses. We own our schools in Grand Prairie, Texas; Nashville, Tennessee; and Denver, Colorado and our buildings in West Palm Beach, Florida; and Suffield, Connecticut.
On August 14, 2017, the Company completed the sale of two of three properties located in West Palm Beach Florida resulting in cash inflows of $15.5 million.
Capital expenditures were 3.0% of revenues in 2022 and are expected to approximate 2%11.0% of revenues in 2017.2023. The significant increase in planned capital expenditures over the prior year will be driven by several factors that include, but are not limited to, the buildout of our new Atlanta, Georgia area campus, additional space, the planned introduction of three new programs at the Lincoln, Rhode Island campus, and the anticipated introduction of new programs at five other campuses. 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 million as compared to net cash used of $9.0 million for the nine months ended September 30, 20172023 and 2016,2022 was $2.9 million and $9.6 million, respectively. The decrease in cash used of $0.9$6.7 million was primarily due to three main factors: (a) net payments on borrowing of $6.5 million; (b) $2.9driven by a $5.8 million reduction in lease termination fees paidrepurchases made under the Company’s share repurchase program in the prior year; and (c) the reclassificationcurrent year, in addition to $0.9 million of $5 million in restricted cashdividends payments made 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 made by the Company.
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$60.0 million (the “Credit Facility”). Initially, the Credit Facility was comprised of four facilities: (1) a $20.0 million senior secured term loan maturing on December 1, 2024 (the “Term Loan”), with monthly interest and principal payments based on a 120-month amortization, with the outstanding balance due on the maturity date; (2) a $10.0 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 a 120-month amortization and all balances due on the maturity date; (3) a $15.0 million senior secured committed revolving line of credit providing a sublimit of up to $10.0 million for standby letters of credit maturing on November 13, 2022 (the “Revolving Loan”), with monthly payments of interest only; and (4) a $15.0 million senior secured non-restoring line of credit maturing on January 31, 2021 (the “Line of Credit Loan”). The Credit Facility consists of (a) a $30 million loan facility (“Facility 1”), which is comprised of a $25 million revolving 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”), which includes a sublimit amount for 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 May 31, 2020.
The Credit Facility is secured by a first priority lien in favor of the BankLender on substantially all of the personal property owned by the Company as well as a pledge of the stock and other rights in the Company’s subsidiaries and 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.Company. The Credit Agreement was amended on various occasions.
At the closing of the Credit Facility,On November 4, 2022, the Company drew $25 million under Tranche A of Facility 1, which, pursuantagreed with its Lender to the terms ofterminate the Credit Agreement was usedand the remaining Revolving Loan. The Lender agreed to repayallow the Prior Credit Facility and to pay transaction costs associated with closing 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 of the Credit Agreement, was deposited into an interest-bearing pledged account (the “Pledged Account”) in the name of the Company maintained at the Bank in order to secure payment obligations of the Company with respect to the costs 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 issuesCompany’s 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 byto remain outstanding, provided that they are 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 1 will bear interest at a rate per annum equal to the greater of (x) the Bank’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. Letters of credit totaling $7.2 million that were outstanding under a $9.5 million letter of credit facility previously provided to the Company 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.
The terms of the Credit Agreement provide that the Bank be paid an unused facility fee on the average daily unused balance of Facility 1 at a rate per annum equal to 0.50%, which fee is payable quarterly in arrears. In addition, the Company is required to maintain, on deposit in one or more non-interest bearing accounts, a minimum of $5 million in quarterly average aggregate balances. If in any quarter the required average aggregate account balance is not maintained, the Company is required to pay the Bank a fee 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.
In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants, including financial covenants that restrict capital expenditures, prohibit the incurrence of a net loss commencing on December 31, 2018 and require a minimum adjusted EBITDA and a minimum tangible net worth, which is an annual covenant, as well as events of default customary for facilities of this type.collateralized. As of September 30, 2017,2023, the Company is in compliance with all 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 September 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, 2017 and December 31, 2016, there were letters of credit, in the aggregate outstanding principal amount of $7.2$4.1 million, remained outstanding, were cash collateralized, and $6.2 million, respectively.were classified as restricted cash on the Condensed Consolidated Balance Sheet. As of September 30, 2017, there are no revolving loans outstanding under Facility 2.2023, the Company did not have a credit facility and did not have any debt outstanding. The Company is continuing to consider potential lenders for its future credit needs.
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 | |
As of September 30, 2017, we had 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.
Contractual Obligations
Long-termCurrent portion of Long-Term Debt,. Long-Term Debt and Lease Commitments. As of September 30, 2017, our current portion of long-term2023, we had 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).
The following table contains supplemental information regarding our total contractual obligations as of September 30, 2017 (in thousands):
| | | 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 Arrangements
We had no off-balance sheet arrangements as of September 30, 2017, except for surety bonds. As of September 30, 2017,2023, we posted surety bondshad outstanding loan principal commitments to our active students of $28.0 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 required to fund their education using these funds and they are not reported on our financial statements.
Regulatory Updates
Negotiated Rulemaking
The DOE initiated rulemaking on several topics in January 2022 and, after delaying the process, announced in January 2023 its intention to reinitiate the rulemaking process on topics including gainful employment, financial responsibility, administrative capability, certification procedures, ability to benefit, and improving income-driven repayment of loans. See our Form 10-K at “Business – Regulatory Environment – Negotiated Rulemaking.”
On May 19, 2023, the DOE published a notice of proposed rulemaking in the total amountFederal Register that included proposed regulations on topics including gainful employment, financial responsibility, administrative capability, certification, and ability to benefit. See our Form 10-Q for the second quarter of approximately $14.3 million. Cash collateralized lettersthe fiscal year at “Negotiated Rulemaking.”
On October 10, 2023, the DOE published the final gainful employment regulations which have a general effective date of creditJuly 1, 2024. The final regulations replace prior gainful employment regulations, rescinded by the DOE in 2019, that required each of $7.2 million are primarily comprisedour educational programs to achieve threshold rates in at least one of letterstwo debt measure categories. See our Form 10-K at “Business – Regulatory Environment – Gainful Employment.” The regulations establish rules for annually evaluating each of creditour educational programs based on the calculation of debt-to-earnings rates (an annual debt-to-earnings rate and a discretionary debt-to-earnings rate) and a median earnings measure. The DOE will calculate these rates and measures under complex regulatory formulas outlined in the regulations and using data such as student debt (including not only Title IV loans but also certain private loans and extensions of credit), student earnings data, and comparative median earnings data for young working adults with only a high school diploma or GED. If one or more of our educational programs were to yield debt-to-earnings rates or a median earnings measure that do not comply with regulatory benchmarks for two of three consecutive years, we would lose Title IV eligibility for each of the impacted educational programs. The regulations will also require us to provide warnings to current and prospective students for programs in danger of losing of Title IV eligibility (which could deter prospective students from enrolling and current students from continuing their respective programs). The regulations also include provisions for providing certifications and reporting data to the DOE and security depositsproviding required student disclosures related to gainful employment.
The regulations include gainful employment rates and measures that will be based in connectionpart on data that is not readily accessible to us and other institutions, which make it difficult for us to predict with certainty how our educational programs will perform under the new gainful employment benchmarks and the extent to which certain programs could become ineligible for Title IV participation. The DOE released performance data at the time it published the proposed regulations that calculates rates for each school’s program while acknowledging that the methodology used to produce the calculations differs from the methodology in the proposed regulations due to limitations in data availability. Because neither we nor the DOE have access to all of the data that will ultimately be used under the regulations to evaluate our programs, we cannot predict whether, or the extent to which, our programs could fail to comply with the new gainful employment benchmarks. Moreover, we do not have control over some of the factors that could impact the rates and measures for our programs which will limit our ability to eliminate or mitigate the impact of the regulations on us and our educational programs.
We cannot predict how our programs will perform under the new gainful employment metrics. The implementation of the new gainful employment regulations could require us to eliminate or modify certain educational programs, could result in the loss of our real estate leases. These off-balance sheetstudents’ access to Title IV Program funds for the affected programs, and could have a significant impact on the rate at which students enroll in our programs and on our business and results of operations.
On October 31, 2023, the DOE published final regulations regarding financial responsibility, administrative capability, certification standards and procedures, and ability to benefit. The regulations have a general effective date of July 1, 2024.
| • | Financial Responsibility: The final regulations include an expanded list of mandatory and discretionary triggering events that could result in the DOE determining that an 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 our Form 10-K at “Business – Regulatory Environment – Financial Responsibility Standards.” |
The final regulations would, among other things, modify and substantially expand the number of triggers and, as a result, increase the likelihood that the DOE could impose a financial protection requirement and other conditions on us and our institutions. The final rules require the institution to notify the DOE of a triggering event and provide information demonstrating why the event does not warrant the submission of a letter of credit or imposition of other requirements. The final rules state that, if the DOE requires financial protection as a result of more than one mandatory or discretionary trigger, the DOE will require separate financial protection for each individual trigger, which could substantially increase the amount of financial protection we and other institutions could be required to provide to the DOE.
Examples of mandatory triggering events under the final rules include a lawsuit by a federal or state authority or a qui tam lawsuit in which the Federal government has intervened, where the suit has been pending for 120 days as measured under the regulation; an action where the DOE seeks to recover the cost of adjudicated claims in favor of borrowers under the Borrower Defense to Repayment regulations and the claims would lower the institution’s composite score below 1.0; certain judgments, awards, or settlements in certain lawsuits, mediations, or administrative or arbitration proceedings; certain withdrawals of owner’s equity including by dividend; gainful employment issues; accreditor requirements to submit a teach-out plan for reasons related to financial concerns; certain actions taken against a publicly-traded company or failure to timely file certain annual or quarterly reports; 90/10 Rule issues; cohort default rate issues; contributions and distributions occurring near the fiscal year end that materially impact the composite score; certain defaults or other adverse events under a financing arrangement; or certain financial exigencies or receiverships.
Examples of discretionary triggering events under the final regulations include certain accrediting agency actions, certain accreditor events, fluctuations in Title IV volume, high annual dropout rates, indicators of significant change in the financial condition of the institution, the formation by DOE of a group process to consider borrower defense claims against the institution, the institution’s discontinuation of education programs affecting at least 25 percent of enrolled students receiving Title IV funds, the institution’s closure of locations that enroll more than 25 percent of its students who receive Title IV funds, certain state licensing agency actions, the loss of institutional or program eligibility in another federal educational assistance program, a requirement to disclose in a public filing that the company is under investigation for possible violations of law, or if the institution is cited and faces loss of education assistance funds from another federal agency if it does not comply with agency requirements. The final regulations also establish new rules for evaluating financial responsibility during a change in ownership.
| • | Administrative Capability: The DOE assesses the administrative capability of each institution that participates in Title IV Programs under a series of separate standards. Failure to satisfy any of the standards may lead the DOE to find the institution ineligible to participate in Title IV Programs or to place the institution on provisional certification as a condition of its participation. See our Form 10-K at “Business – Regulatory Environment – Administrative Capability.” The final rules add more standards related to topics such as the provision of adequate financial aid counseling and career services, ensuring the availability of clinical and externship opportunities, the disbursement of Title IV funds in a timely manner, compliance with high school diploma requirements, preventing substantial misrepresentations, complying with gainful employment requirements, and avoiding significant negative actions with a federal, state, or accrediting agency. |
| • | Certification Regulations: The final regulations expand the grounds for placing institutions on provisional certification, expand the types of conditions the DOE may impose on provisionally certified institutions, and expand the number of requirements contained in the institution’s program participation agreement with the DOE (including, among other requirements, an obligation to comply with all state laws related to closure). The DOE typically provides provisional certification to an institution following a change in ownership resulting in a change of control and also may provisionally certify an institution for other reasons, including, but not limited to, noncompliance with certain standards of administrative capability and financial responsibility. The DOE provisionally certified all of our institutions based on findings in recent audits of each institution’s Title IV Program compliance that the DOE alleges identified deficiencies related to DOE regulations regarding an institution’s level of administrative capability. An institution that is provisionally certified receives fewer due process rights than those received by other institutions in the event the DOE takes certain adverse actions against the institution, is required to obtain prior DOE approvals of new campuses and educational programs and may be subject to heightened scrutiny by the DOE. Provisional certification makes it easier for the DOE to revoke or decline to renew our Title IV eligibility if the DOE under the current administration chooses to take such an action against us and other provisionally certified for-profit schools without undergoing a formal administrative appeal process. See our Form 10-K at “Business – Regulatory Environment – Regulation of Federal Student Financial Aid Programs.” The regulations also expand the conditions to which institutions must agree as part of their participation in the Title IV programs. For example, one of the conditions prohibits the length of certain educational programs from exceeding the required minimum number of hours established by applicable state(s) for entry-level training requirements for the occupation for which the programs train students. We are still evaluating the potential impact of this requirement, which applies to new students enrolling on or after July 1, 2024, but the new requirement could require us to modify or phase out some of our educational programs. |
The final regulations, if adopted, allow the DOE to place institutions on provisional certification if, among other reasons, the institution does not meet financial responsibility factors or administrative capability standards, if the institution is required by the DOE to submit a letter of credit as a result of a mandatory or discretionary triggering event, or if the DOE deems the institution to be at risk of closure.
The final regulations also allow the DOE to determine whether to certify or impose conditions on an institution based on consideration of factors including, for example, the institution’s withdrawal rate, the amounts the institution spent on recruiting activities, advertising, and other pre-enrollment activities, and the passage rate for licensure exams for programs that are designed to meet the educational requirements for a professional license required for employment in an occupation.
The final regulations expand the types of conditions the DOE can impose on provisionally certified institutions including, for example, restrictions on the addition of new programs or locations, restrictions on the rate of growth or new enrollment of students or of Title IV volume, restrictions on the institution providing a teach-out on behalf of another institution, restrictions on the acquisition of another participating institution (including financial protection requirements), additional reporting requirements, limitations on entering into certain written arrangements do not adverselywith institutions or entities for providing part of an educational program, requirements to submit marketing and recruiting materials to DOE for approval (if the institution is alleged or found to have engaged in substantial misrepresentations to students, engaged in aggressive recruiting practices, or violated incentive compensation rules), reporting requirements for institutions that received a government formal inquiry such as a subpoena related to its marketing or recruitment or its federal financial aid, and other potential conditions imposed by the DOE.
We are still reviewing the final regulations and cannot predict the ultimate impact of the final regulations on gainful employment and the other topics discussed above, but the final regulations impose a broad range of additional requirements on institutions and especially on for-profit institutions like our liquidityschools, which increase the possibility that our schools could be subject to additional reporting requirements, potential liabilities and sanctions, and potential loss of Title IV eligibility if our efforts to modify our operations to comply with the new regulations are unsuccessful, which could have a significant impact on our business and results of operations.
The DOE commenced negotiated rulemaking meetings in October 2023 aimed at developing new regulations related to providing student debt relief. The meetings are scheduled to continue through December 2023 and are expected to lead to the publication of proposed regulations next year and, after a period of public notice and comment, final regulations. The rulemaking process is in its earliest stages. We cannot predict the timing, content, or capital resources.potential impact of any final regulations that might emerge from this process.
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 ofdue to 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. OurThe growth that we generally experience in the second half growthof the year 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,as a consequence, 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,Form 10-Q, 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.reporting, except for new internal controls related to ASC 326 and accounts payable payment processing that have been implemented.
PART IIPART II.. OTHER INFORMATION
Information regarding certain specificThere are no material developments relating to previously disclosed 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 inproceedings. See the Company’s Annual Report on Form 10-K and subsequent Form 10Qs “Legal Proceedings” 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.information regarding existing legal proceedings.
In the ordinary conduct of ourits business, we arethe Company is subject to periodiccertain lawsuits, investigations and claims, including, but not limited to, claims involving students or graduates and routine employment matters. Although wethe Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against us, we doit, the Company does not believe that any currently pending legal proceeding to which we are a partyof these matters will have a material adverse effect on ourthe Company’s business, financial condition, results of operations or cash flows.
In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our Form 10-K and those contained in our previously filed Form 10-Q, which could affect our business, financial condition, or operating results. The risks we describe in our periodic reports are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or operating results. For the quarter ended September 30, 2023, the Company is not aware of any specific new and additional risk factors not previously disclosed.
| Item 2. | UNREGISTERED SALES OF EQUITY SECURITIES, USE OF PROCEEDS, AND ISSUER PURCHASES OF EQUITY SECURITIES |
| (c) | On May 24, 2022, the Company announced that the Board of Directors had approved a share repurchase program for 12 months authorizing purchases of up to $30.0 million. Subsequently, on February 27, 2023, the Board of Directors extended the share repurchase program for an additional 12 months and authorized the repurchase of an additional $10.0 million of the Company’s Common Stock, for an aggregate of up to $30.6 million in additional repurchases. |
The following table presents the number and average price of shares purchased during the three months ended September 30, 2023. The remaining authorized amount for share repurchases under the program as of September 30, 2023 was approximately $29.7 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 | |
| July 1, 2023 to July 31, 2023 | | | - | | | $ | - | | | | - | | | $ | 29,663,667 | |
| August 1, 2023 to August 31, 2023 | | | - | | | | - | | | | - | | | | - | |
| September 1, 2023 to September 30, 2023 | | | - | | | | - | | | | - | | | | - | |
| Total | | | - | | | | - | | | | - | | | | | |
For more information on the share repurchase plan, see Part I, Item 1. “Notes to Condensed Consolidated Financial Statements”, Note 7 – Stockholders Equity.
| Item 3. | DEFAULTS UPON SENIOR SECURITIES |
| Item 4. | MINE SAFETY DISCLOSURES |
None.
(a)
(1) On November 8, 2017, the Company entered into a new employment agreement with Scott M. Shaw, 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 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. 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.
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 Agreement is not complete and is qualified in its entirety by reference to the full text of the Ramentol Agreement filed as Exhibit 10.4 to this Quarterly Report on Form 10-Q, which is incorporated herein by reference.
Exhibit Number | |
Description |
| | | |
10.1(1)3.1 | | PurchaseAmended and Sale Agreement, dated March 14, 2017, between New England InstituteRestated Certificate of Technology at Palm Beach, Inc. and Tambone Companies, LLC, as amendedIncorporation of the Company (incorporated by First Amendmentreference to Purchase and Sale Agreement dated as of April 18, 2017, and as further amended by Second Amendment to Purchase and Sale Agreement dated as of May 12, 2017the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005. |
| | | |
10.2*3.2 | | Employment Agreement,Certificate of Amendment, dated asNovember 14, 2019, to the Amended and Restated Certificate of November 8, 2017, betweenIncorporation of the Company and Scott M. Shaw.(incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-3 filed October 6, 2020). |
| | | |
10.3*3.3 | | Employment Agreement, dated asBylaws of November 8, 2017, between the Company and Brian K. Meyers.as amended on March 8, 2019 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed April 30, 2020). |
| | | |
10.4*31.1* | | 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 Formthe Company’s 10-Q for the quarter ended September 30, 2017,2023, 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 iXBRL 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, 20176, 2023 | By: | /s/ Brian Meyers | |
| | | Brian Meyers | |
| | | Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit Index
10.1(1) | | PurchaseAmended and Sale Agreement, dated March 14, 2017, between New England InstituteRestated Certificate of Technology at Palm Beach, Inc. and Tambone Companies, LLC, as amendedIncorporation of the Company (incorporated by First Amendmentreference to Purchase and Sale Agreement dated as of April 18, 2017, and as further amended by Second Amendment to Purchase and Sale Agreement dated as of May 12, 2017the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005. |
| |
|
| | Employment Agreement,Certificate of Amendment, dated asNovember 14, 2019, to the Amended and Restated Certificate of November 8, 2017, betweenIncorporation of the Company and Scott M. Shaw.(incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-3 filed October 6, 2020). |
| |
|
| | Employment Agreement, dated asBylaws of November 8, 2017, between the Company and Brian K. Meyers.as amended on March 8, 2019 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed April 30, 2020). |
| |
|
| | 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 Formthe Company’s 10-Q for the quarter ended September 30, 2017,2023, 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 iXBRL 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. |