UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

Form 10-Q
(Mark One)

☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 20212022

orOr

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from______ to______

Commission File Number 000-51371

LINCOLN EDUCATIONAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)

New Jersey 57-1150621
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)

14 Sylvan Way, Suite A 07054
Parsippany, NJ (Zip Code)
(Address of principal executive offices)  

(973) 736-9340
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, no par value per shareLINCThe NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer ��☐
Accelerated filer ☒
 
Non-accelerated filer ☐
Smaller reporting company ☒
 
Emerging growth company ☐
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐No ☒

As of  November 4, 2021,7, 2022, there were 27,000,68726,255,580 shares of the registrant’s common stock outstandingoutstanding.

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 20212022

PART I.FINANCIAL INFORMATION 
Item 1.
Financial Statements
1
 
Condensed Consolidated Balance Sheets at September 30,, 2021 2022 and December 31, 20202021 (Unaudited)
1
 
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 20212022 and 20202021 (Unaudited)
3
 
Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 20212022 and 20202021 (Unaudited)
4
 
Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity for the nine months ended and (Unaudited)September 30, 202120202022 and 2021 (Unaudited)
5
 
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20212022 and 20202021 (Unaudited)
6
 
Notes to Unaudited(Unaudited) Condensed Consolidated Financial Statements (Unaudited)
8
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
2524
Item 3.
Quantitative and Qualitative Disclosure About Market Risk
39
Item 4.
Controls and Procedures
40
39
PART II.
OTHER INFORMATION
40
39
Item 1.
Legal Proceedings
4039
Item 1A.
Risk Factors
41
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
41
Item 3.
Defaults Upon Senior Securities
42
Item 4.
Mine Safety Disclosure
42
Item 5.
Other Information
4142
Item 6.
Exhibits
41
42
 
SIGNATURES
4244

Index
PART I – FINANCIAL INFORMATION

Item 1.Financial Statements

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)

  September 30,   December 31, 

 
September 30,
2021
  
December 31,
2020
  2022  2021 
ASSETS            
CURRENT ASSETS:            
Cash and cash equivalents $47,150  $38,026  $69,619  $83,307 
Accounts receivable, less allowance of $26,303 and $25,174 at September 30, 2021 and December 31, 2020, respectively
  29,985   30,021 
Accounts receivable, less allowance of $27,364 and $26,837 at September 30, 2022 and December 31, 2021, respectively
  31,902   26,159 
Inventories  3,155   2,394   2,714   2,721 
Prepaid income taxes  238   0 
Prepaid expenses and other current assets  2,973   3,723   2,255   4,881 
Assets held for sale
  27,452   0   4,559   4,559 
Total current assets  110,953   74,164   111,049   121,627 
                
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $152,217 and $176,300 at September 30, 2021 and December 31, 2020, respectively
  23,251   48,388 
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $147,843 and $153,335 at September 30, 2022 and December 31, 2021, respectively
  23,842   23,119 
                
OTHER ASSETS:                
Noncurrent receivables, less allowance of $4,789 and $3,465 at September 30, 2021 and December 31, 2020, respectively
  18,805   16,463 
Noncurrent receivables, less allowance of $6,438 and $5,084 at September 30, 2022 and December 31, 2021, respectively
  21,864   20,028 
Deferred income taxes, net  32,082   35,718   23,644   23,708 
Operating lease right-of-use assets  53,033   55,187   95,522   91,487 
Goodwill  14,536   14,536   14,536   14,536 
Other assets, net  796   734   819   794 
Total other assets  119,252   122,638   156,385   150,553 
TOTAL ASSETS $253,456  $245,190  $291,276  $295,299 

See notes to unaudited condensed consolidated financial statements.

1
Index
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
(Continued)

  September 30,   December 31, 

 
September 30,
2021
  
December 31,
2020
  2022  2021 
LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY            
CURRENT LIABILITIES:            
Current portion of credit agreement $2,000  $2,000 
Unearned tuition  24,691   23,453  $22,744  $25,405 
Accounts payable  16,036   15,676   16,242   12,297 
Accrued expenses  15,778   16,692   10,038   15,669 
Income taxes payable  0   491   514   1,017 
Current portion of operating lease liabilities  10,314   8,504   10,313   11,479 
Other short-term liabilities  56   26   32   15 
Total current liabilities  68,875   66,842   59,883   65,882 
                
NONCURRENT LIABILITIES:                
Long-term credit agreement  13,848   15,212 
Pension plan liabilities  4,850   4,252   1,250   1,607 
Long-term portion of operating lease liabilities  49,135   52,702   91,999   86,410 
Other long-term liabilities  2,803   3,133 
Total liabilities  139,511   142,141   153,132   153,899 
                
COMMITMENTS AND CONTINGENCIES  0
   0
       
                
SERIES A CONVERTIBLE PREFERRED STOCK                
Preferred stock, 0 par value - 10,000,000 shares authorized, Series A convertible preferred shares, 12,700 shares issued and outstanding at September 30, 2021 and December 31, 2020
  11,982   11,982 
Preferred stock, no par value - 10,000,000 shares authorized, Series A convertible preferred shares, 12,700 shares issued and outstanding at September 30, 2022 and December 31, 2021
  11,982   11,982 
                
STOCKHOLDERS’ EQUITY:                
Common stock, 0 par value - authorized: 100,000,000 shares at September 30, 2021 and December 31, 2020; issued and outstanding: 26,978,432 shares at September 30, 2021 and 26,476,329 shares at December 31, 2020
  141,377   141,377 
Common stock, no par value - authorized: 100,000,000 shares at September 30, 2022 and December 31, 2021; issued and outstanding: 26,255,580 shares at September 30, 2022 and 27,000,687 shares at December 31, 2021
  51,784   141,377 
Additional paid-in capital  31,643   30,512   32,814   32,439 
Treasury stock at cost - 5,910,541 shares at September 30, 2021 and December 31, 2020
  (82,860)  (82,860)
Treasury stock at cost - 0 and 5,910,541 shares at September 30, 2022 and December 31, 2021, respectively
  -  (82,860)
Retained earnings  16,045   6,203   42,865   39,702 
Accumulated other comprehensive loss  (4,242)  (4,165)  (1,301)  (1,240)
Total stockholders’ equity  101,963   91,067   126,162   129,418 
TOTAL LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY $253,456  $245,190 
TOTAL LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY $291,276  $295,299 

See notes to unaudited condensed consolidated financial statements.

2
Index
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

  Three Months Ended   Nine Months Ended 

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  September 30,  September 30, 
 2021  2020  2021  2020  2022  2021  2022  2021 
                        
REVENUE $89,059  $78,792  $247,520  $211,303  $91,813  $89,059  $256,510  $247,520 
COSTS AND EXPENSES:                                
Educational services and facilities  38,105   34,251   104,143   90,733   39,933   38,105   112,234   104,143 
Selling, general and administrative  45,209   40,700   128,159   117,011   46,984   45,209   139,503   128,159 
Loss (gain) on disposition of assets  0   1  1   (96)  16  -   (178)  1 
Total costs & expenses  83,314   74,952   232,303   207,648   86,933   83,314   251,559   232,303 
OPERATING INCOME
  5,745   3,840   15,217   3,655  4,880   5,745   4,951   15,217 
OTHER:                                
Interest expense  (292)  (278)  (874)  (960)  (36)  (292)  (114)  (874)
INCOME BEFORE INCOME TAXES  5,453   3,562   14,343   2,695  4,844   5,453   4,837  14,343 
PROVISION FOR INCOME TAXES  1,614   50   3,589   150   1,300   1,614   761  3,589 
NET INCOME
 $3,839  $3,512  $10,754  $2,545 $3,544  $3,839  $4,076  $10,754 
PREFERRED STOCK DIVIDENDS  304   1,074   912   1,074   304   304   912   912 
INCOME AVAILABLE TO COMMON SHAREHOLDERS $3,535  $2,438  $9,842  $1,471 $3,240 $3,535  $3,164 $9,842 
Basic and diluted                                
Net income per common share $0.11  $0.08  $0.30  $0.05 $0.10 $0.11  $0.10 $0.30 
Weighted average number of common shares outstanding:                                
Basic and diluted  25,135   24,822   25,043   24,721   25,381   25,135   25,692   25,043 

See notes to unaudited condensed consolidated financial statements.

3
Index
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)

  Three Months Ended   Nine Months Ended 

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  September 30,  September 30, 
 2021  2020  2021  2020  2022  2021  2022  2021 
Net income
 $3,839  $3,512  $10,754  $2,545 $3,544  $3,839  $4,076  $10,754 
Other comprehensive income (loss)                                
Derivative qualifying as a cash flow hedge, net of taxes (nil)
  65   57  326   (786)  -   65   -   326 
Employee pension plan adjustments, net of taxes (nil)
  (134)  140   (403)  420   (21)  (134)  (61)  (403)
Comprehensive income
 $3,770  $3,709  $10,677  $2,179 $3,523  $3,770  $4,015  $10,677 

See notes to unaudited condensed consolidated financial statements.

4
Index
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)


 Stockholders’ Equity     Stockholders’ Equity    
 Common Stock  
Additional
Paid-in
  Treasury  Retained  
Accumulated
Other
Comprehensive
     
Series A
Convertible
Preferred Stock
              Accumulated     Series A 
 Shares  Amount  Capital  Stock  Earnings  Loss  Total  Shares  Amount     Additional        Other     Convertible 
BALANCE - January 1, 2021  26,476,329  $141,377  $30,512  $(82,860) $6,203  $(4,165) $91,067   12,700  $11,982 
 Common Stock  Paid-in  Treasury  Retained  Comprehensive     Preferred Stock 
 Shares  Amount  Capital  Stock  Earnings  Loss  Total  Shares  Amount 
BALANCE - January 1, 2022  27,000,687  $141,377  $32,439  $(82,860) $39,702  $(1,240) $129,418   12,700  $11,982 
Net income  -   0   0   0   4,489   0   4,489   -   0   -   -   -   -   272   -   272   -   - 
Preferred stock dividend  -   0   0   0   (304)  0   (304)  -   0   -   -   -   -   (304)  -   (304)  -   - 
Employee pension plan adjustments  -   0   0   0   0   (134)  (134)  -   0   -   -   -   -   -   (30)  (30)  -   - 
Derivative qualifying as cash flow hedge  -   0   0   0   0   211   211   -   0 
Stock-based compensation expense                                                                        
Restricted stock  574,614   0   493   0   0   0   493   0   0   528,121   -   1,239   -   -   -   1,239   -   - 
Net share settlement for equity-based compensation  (154,973)  0   (962)  0   0   0   (962)  0   0   (268,654)  -   (1,992)  -   -   -   (1,992)  -   - 
BALANCE - March 31, 2021
  26,895,970   141,377   30,043   (82,860)  10,388   (4,088)  94,860   12,700   11,982 
BALANCE - March 31, 2022
  27,260,154   141,377   31,686   (82,860)  39,670   (1,270)  128,603   12,700   11,982 
Net income  -
   0   0   0   2,426   0   2,426   -   0   -   -   -   -   259   -   259   -   - 
Preferred stock dividend  -
   0   0   0   (304)  0   (304)  -   0   -   -   -   -   (304)  -   (304)  -   - 
Employee pension plan adjustments  -
   0   0   0   0   (134)  (134)  -   0   -   -   -   -   -   (10)  (10)  -   - 
Derivative qualifying as cash flow hedge  -
   0   0   0   0   49   49   -   0 
Stock-based compensation expense                                                                        
Restricted stock  76,195   0   844   0   0   0   844   0   0   78,829   -   491   -   -   -   491   -   - 
Net share settlement for equity-based compensation
  0   0   0   0   0   0   0   0   0 
BALANCE - June 30, 2021  26,972,165  $
141,377  $
30,887  $
(82,860) $
12,510  $
(4,173) $
97,741   12,700  $
11,982 
Treasury stock cancellation  -   (82,860)  -   82,860   -   -   -   -   - 
Share repurchase  (414,963)  (2,538)  -   -   -   -   (2,538)  -   - 
BALANCE - June 30, 2022  26,924,020  
55,979  
32,177  
-  
39,625  
(1,280) 
126,501   12,700  
11,982 
Net income  -   0   0   0   3,839   0   3,839   -   0   -   -   -   -   3,544   -   3,544   -   - 
Preferred stock dividends  -   0   0   0   (304)  0   (304)  -   0   -   -   -   -   (304)  -   (304)  -   - 
Employee pension plan adjustments  -   0   0   0   0   (134)  (134)  -   0   -   -   -   -   -   (21)  (21)  -   - 
Derivative qualifying as cash flow hedge  -   0   0   0   0   65   65   -   0 
Stock-based compensation expense                                                                        
Restricted stock  6,267   0   756   0   0   0   756   0   0   -   -   637   -   -   -   637   -   - 
Net share settlement for equity-based compensation  0   0   0   0   0   0   0   0   0 
BALANCE - September 30, 2021
  26,978,432  $141,377  $31,643  $(82,860) $16,045  $(4,242) $
101,963   12,700  $11,982 
Share repurchase  (668,440)  (4,195)  -   -   -   -   (4,195)  -   - 
BALANCE - September 30, 2022
  26,255,580  $51,784  $32,814  $-  $42,865  $(1,301) $126,162   12,700  $11,982 
 

 Stockholders’ Equity     Stockholders’ Equity    
 Common Stock  
Additional
Paid-in
  Treasury  Accumulated  
Accumulated
Other
Comprehensive
     
Series A
Convertible
Preferred Stock
              Accumulated     Series A 
 Shares  Amount  Capital  Stock  Deficit  Loss  Total  Shares  Amount     Additional        Other     Convertible 
BALANCE - January 1, 2020  25,231,710  $141,377  $30,145  $(82,860) $(42,058) $(3,456) $43,148   12,700  $11,982 
Net loss  -   0   0   0   (1,750)  0   (1,750)  -   0 
 Common Stock  Paid-in  Treasury  Retained  Comprehensive     Preferred Stock 
 Shares  Amount  Capital  Stock  Earnings  Loss  Total  Shares  Amount 
BALANCE - January 1, 2021  26,476,329  $141,377  $30,512  $(82,860) $6,203  $(4,165) $91,067   12,700  $11,982 
Net income  -   -   -   -   4,489   -   4,489   -   - 
Preferred stock dividend  -   -   -   -   (304)  -   (304)  -   - 
Employee pension plan adjustments  -   0   0   0   0   140   140   -   0   -   -   -   -   -   (134)  (134)  -   - 
Derivative qualifying as cash flow hedge  -   0   0   0   0   (748)  (748)  -   0   -   -   -   -   -   211   211   -   - 
Stock-based compensation expense                                                                        
Restricted stock  1,191,262   0   291   0   0   0   291   0   0   574,614   -   493   -   -   -   493   -   - 
Net share settlement for equity-based compensation  (58,451)  0   (172)  0   0   0   (172)  0   0   (154,973)  -   (962)  -   -   -   (962)  -   - 
BALANCE - March 31, 2020
  26,364,521   141,377   30,264   (82,860)  (43,808)  (4,064)  40,909   12,700   11,982 
BALANCE - March 31, 2021
  26,895,970   141,377   30,043   (82,860)  10,388   (4,088)  94,860   12,700   11,982 
Net income  -
   0   0   0   783   0   783   -   0   -   -   -   -   2,426   -   2,426   -   - 
Preferred stock dividend  -   -   -   -   (304)  -   (304)  -   - 
Employee pension plan adjustments  -
   0   0   0   0   140   140   -   0   -   -   -   -   -   (134)  (134)  -   - 
Derivative qualifying as cash flow hedge  -
   0   0   0   0   (95)  (95)  -   0   -   -   -   -   -   49   49   -   - 
Stock-based compensation expense                                                                        
Restricted stock  111,376   0   325   0   0   0   325   0   0   76,195   -   844   -   -   -   844   -   - 
Net share settlement for equity-based compensation  0   0   0   0   0   0   0   0   0 
BALANCE - June 30, 2020  26,475,897  $
141,377  $
30,589  $
(82,860) $
(43,025) $
(4,019) $
42,062   12,700  $
11,982 
BALANCE - June 30, 2021  26,972,165  
141,377  
30,887  
(82,860) 
12,510  
(4,173) 
97,741   12,700  
11,982 
Net income  -   0   0   0   3,512   0   3,512   -   0
   -   -   -   -   3,839   -   3,839   -   - 
Preferred stock dividends
  -   0   (1,074)  0   0   0   (1,074)  -
   0
   -   -   -   -   (304)  -   (304)  -   - 
Employee pension plan adjustments  -   0   0   0   0   140��  140   -   0
   -   -   -   -   -   (134)  (134)  -   - 
Derivative qualifying as cash flow hedge
  -
   0   0   0   0   57   57   -
   0
   -   -   -   -   -   65   65   -   - 
Stock-based compensation expense                                                                        
Restricted stock  17,096   0   670   0   0   0   670   0   0   6,267   -   756   -   -   -   756   -   - 
Net share settlement for equity-based compensation  (16,664)  0   (72)  0   0   0   (72)  0   0 
BALANCE - September 30, 2020
  26,476,329  $141,377  $30,113  $(82,860) $(39,513) $(3,822) $45,295   12,700  $11,982 
BALANCE - September 30, 2021
  26,978,432  $141,377  $31,643  $(82,860) $16,045  $(4,242) $101,963   12,700  $11,982 
 
See notes to unaudited condensed consolidated financial statements.

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LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

  Nine Months Ended 

 
Nine Months Ended
September 30,
  September 30, 
 2021  2020  2022  2021 
            
CASH FLOWS FROM OPERATING ACTIVITIES:            
Net income
 $10,754  $2,545  $4,076  $10,754 
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization  5,620   5,546   4,618   5,620 
Amortization of deferred finance charges  136   136   -   136 
Deferred income taxes  3,636   0   64   3,636 
Loss (gain) on disposition of assets  1   (96)
(Gain) loss on disposition of assets
  (178)  1 
Fixed asset donations  (2,050)  (334)  (245)  (2,050)
Provision for doubtful accounts  19,816   21,692   24,888   19,816 
Stock-based compensation expense  2,093   1,286   2,367   2,093 
(Increase) decrease in assets:                
Accounts receivable  (22,122)  (35,946)  (32,467)  (22,122)
Inventories  (761)  (1,258)  7  (761)
Prepaid income taxes and income taxes payable  (729)  272   (503)  (729)
Prepaid expenses and current assets  725   1,296   2,550   725
Other assets, net  274   (77)  329  274 
Increase (decrease) in liabilities:                
Accounts payable  (186)  1,656   3,800   (186)
Accrued expenses  (914)  4,663   (5,631)  (914)
CARES Act student funds liability  0   1,073 
CARES Act institutional funds liability  0   10,387 
Unearned tuition  1,238   (4,057)  (2,661)  1,238
Other liabilities  219   1,438   (402)  219 
Total adjustments  6,996   7,677   (3,464)  6,996
Net cash provided by operating activities  17,750   10,222   612  17,750 
CASH FLOWS FROM INVESTING ACTIVITIES:                
Capital expenditures  (5,252)  (3,554)  (7,053)  (5,252)
Proceeds from insurance  0   97 
Proceeds from sale of property and equipment
  2,390   - 
Net cash used in investing activities  (5,252)  (3,457)  (4,663)  (5,252)
CASH FLOWS FROM FINANCING ACTIVITIES:                
Payments on borrowings  (1,500)  (27,501)  -   (1,500)
Proceeds from borrowings  0   11,000 
Dividend payment for preferred stock  (912)  (1,074)  (912)  (912)
Credit of deferred finance fees  0   3 
Share repurchase
  (6,733)  - 
Net share settlement for equity-based compensation  (962)  (244)  (1,992)  (962)
Net cash used in financing activities  (3,374)  (17,816)  (9,637)  (3,374)
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH  9,124   (11,051)
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period  38,026   38,644 
CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period $47,150  $27,593 
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
  (13,688)  9,124
CASH AND CASH EQUIVALENTS —Beginning of period  83,307   38,026 
CASH AND CASH EQUIVALENTS—End of period $69,619  $47,150 

See notes to unaudited condensed consolidated financial statements.

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LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(Continued)

  Nine Months Ended 

 
Nine Months Ended
September 30,
  September 30, 
 2021  2020  2022  2021 
            
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:            
Cash paid for:            
Interest $795  $845  $132  $795 
Income taxes $681  $121  $1,216  $681 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:              
 
Liabilities accrued for or noncash purchases of fixed assets $2,684  $1,847 
Liabilities accrued for or noncash additions of fixed assets $501  $2,684 

See notes to unaudited condensed consolidated financial statements.

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LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 20212022 AND 20202021
(In thousands, except share and per share amounts and unless otherwise stated)
(Unaudited)

1.DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Business Activities— - Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults.  The Company, which currently operates 22 schools in 14 states, offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electronic systems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology.  The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names.  Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study.  NaNFive of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas.  All of the campuses are nationally or regionally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (the “DOE” or the “Department”) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid.

The Company’s business is organized into 2two reportable business segments: (a) Transportation and Skilled Trades, and (b) Healthcare and Other Professions (“HOPS”).

Liquidity—As of September 30, 2021, the Company had cash and cash equivalents of $47.2 million and a net cash balance of $31.3 million calculated as cash and cash equivalents, less both the short-term and long-term portions of the Company’s Credit Facility (defined below) and can borrow an additional $21.0 million under its Credit Facility.  As of December 31, 2020, the Company had a net cash balance of $20.8 million.

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements.  Certain information and footnote disclosures normally included in annual financial statements have been omitted or condensed pursuant to such regulations.  These financial statements, which should be read in conjunction with the December 31, 20202021 audited consolidated financial statements and notes thereto and related disclosures of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 (“Form 10-K”), reflect all adjustments, consisting of normal recurring adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows for such periods.  The results of operations for the nine months ended September 30, 20212022 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2021.2022.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements – The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period.  On an ongoing basis, the Company evaluates the estimates and assumptions, including those used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate lease cost, revenue recognition, bad debts, impairments, useful lives of fixed assets, income taxes, benefit plans and certain accruals.  Actual results could differ from those estimates.

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New Accounting Pronouncements– In March 2020,October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. This amendment introduced the requirement for an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with the requirements of FASB Accounting Standards Codification (“ASC”) “Topic 606, Revenue from Contracts with Customers”, rather than at fair value. The Company has evaluated the ASU and has determined that there is no impact on its condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, “Reference“Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provideprovided temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU providesprovided optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It iswas intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01, “Reference“Reference Rate Reform (Topic 848): Scope”Scope” which clarifiesclarified that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company has evaluated the ASU and has determined that there is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company is continuing to assess ASU 2020-04 and itsno impact on the Company’s transition away from LIBOR for its loan and other financial instruments.

In October 2020, the FASB issued ASU 2020-10, “Codification Improvements”, which makes minor technical corrections and clarifications to the ASU. The amendments in Sections B and C of the ASU are effective for annual periods beginning after December 15, 2020, for public business entities. This update did not have an impact on the Company’s condensed consolidated financial statements.
statements and related disclosures.

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In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This ASU simplifiessimplified the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU removesremoved separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and hence most of the instruments will be accounted for as a single model (either debt or equity). The ASU also states that entities must apply the if-converted method to all convertible instruments for calculation of diluted EPS and the treasury stock method is no longer available. An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance. ASU No. 2020-06 is effective for the Company as a smaller reporting company for fiscal years beginning after December 15, 2023, and for interim periods within those fiscal years. For convertible instruments that include a down-round feature, entities may early adopt the amendments that apply to the down-round features if they have not yet adopted the amendments in ASU 2017-11. The Company has evaluated the ASU and has determined that there is currently assessing theno impact that this ASU will have on its condensed consolidated financial statements and related disclosures.

In December 2019, the FASB issued ASU 2019-12, “Simplifying the Accounting for Income Taxes”, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, “Income Taxes”. ASU 2019-12 also clarifies and amends GAAP for other areas of Topic 740. This ASU is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company adopted ASU 2019-12 on January 1, 2021, which did not have a material impact on the Company’s condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequently issued additional guidance that modified ASU 2016-13. The ASU and the subsequent modifications arewere identified as Accounting Standards Codification (“ASC”)ASC Topic 326. The standard requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. Further, the FASB issued ASU No. 2019-04, ASU No. 2019-05 and ASU 2019-11 to provide additional guidance on the credit losses standard. In November 2019, FASB issued ASU No. 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)”.  This ASU defersdeferred the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  Additionally, in February and March 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)” ASU 2020-02 addsadded a SEC paragraph pursuant to the issuance of SEC Staff Accounting Bulletin No. 119 on loan losses to FASB Codification Topic 326 and also updatesupdated the SEC section of the Codification for the change in the effective date of Topic 842. Early adoption is permitted. We are currently assessing the impact that these ASUs will have on our condensed consolidated financial statements and related disclosures.

Income Taxes – The Company accounts for income taxes in accordance with ASC Topic 740, “Income Taxes” (“ASC 740”). This statement requires an asset and a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases 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, the Company assesses 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, the Company considers, 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 the Company’s 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 the Company’s valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.

On August 16, 2022, the Inflation Reduction Act was enacted and signed into law. The act is a budget reconciliation package that includes significant changes relating to tax, climate change, energy, and health care. The tax provisions include, among other items, a corporate alternative minimum tax of 15%, an excise tax of 1% on corporate stock buy-backs, energy-related tax credits, and additional IRS funding. The Company does not expect the tax provisions of the act to have a material impact to our condensed consolidated financial statements.

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During the three and nine months ended September 30, 20212022 and 2020,2021, the Company did 0tnot recognize any interest andor penalties expense associated with uncertain tax positions.

Derivative Instruments— - The Company records the fair value of derivative instruments as either assets or liabilities on the condensed consolidated balance sheet. The accounting for gains and losses resulting from changes in fair value is dependent on the use of the derivative and whether it is designated and qualifies for hedge accounting.

All qualifying hedging activities are documented at the inception of the hedge and must meet the definition of highly effective in offsetting changes to future cash. The Company utilizes the change in variable cash flows method to evaluate hedge effectiveness quarterly. We record the fair value of the qualifying hedges in other long-term liabilities (for derivative liabilities) and other assets (for derivative assets). All unrealized gains and losses on derivatives that are designated and qualify for hedge accounting are reported in other comprehensive income (loss) and recognized when the underlying hedged transaction affects earnings. Changes in the fair value of these derivatives are recognized in other comprehensive income (loss).income.  The Company classifies the cash flows from a cash flow hedge within the same category as the cash flows from the items being hedged.

2.NET INCOME PER COMMON SHARE

The Company presents basic and diluted income per common share using the two-class method which requires all outstanding Series A Preferred Stock and unvested restricted common stock that includecontain rights to non-forfeitable dividends (and,and therefore participate in undistributed income with common shareholders)shareholders to be included in computing income per common share. Under the two-class method, net income is reduced by the amount of dividends declared in the period for each class of common stock and participating security. The remaining undistributed income is then allocated to common stock and participating securities, based on their respective rights to receive dividends. Series A Preferred Stock and unvested restricted common stock contain non-forfeitable rights to dividends on an if-converted basis and on the same basis as common shares, respectively, and are considered participating securities. The Series A Preferred Stock and unvested restricted common stock are not included in the computation of basic income per common share in periods in which we have a net loss, as the Series A Preferred Stock and unvested restricted common stock are not contractually obligated to share in our net losses. However, the cumulative dividends on preferred stockSeries A Preferred Stock for the period decreases the income or increases the net loss allocated to common shareholders unless the dividend is paid in the period. Basic income per common share has been computed by dividing net income allocated to common shareholders by the weighted-average number of common shares outstanding. The basic and diluted net income amounts are the same for the three and nine months ended September 30, 20212022 and 20202021 as a result of the anti-dilutive impact of the potentially dilutive securities.securities
.

The Company uses the more dilutive method of calculating the diluted income per share by applying the more dilutive of either (a) the treasury stock method, if-converted method, or (b) the two-class method in its diluted income per common share calculation. Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of restricted stock. Potentially dilutive shares issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method.

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The following is a reconciliation of the numerator and denominator of the diluted net income per share computations for the periods presented below:

 Three Months Ended  Nine Months Ended 

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  September 30,  September 30, 
(in thousands, except share data) 2021  2020  2021  2020  2022  2021  2022  2021 
Numerator:                        
Net income $3,839  $3,512  $10,754  $2,545  $3,544  $3,839  $4,076  $10,754 
Less: preferred stock dividend  (304)  (1,074)  (912)  (1,074)  (304)  (304)  (912)  (912)
Less: allocation to preferred stockholders  (582)  (433)  (1,629)  (259)  (540)  (582)  (522)  (1,629)
Less: allocation to restricted stockholders  (232)  (120)  (635)  (65)  (155)  (232)  (153)  (634)
Net income allocated to common stockholders $2,721  $1,885  $7,579  $1,147  $2,545  $2,721  $2,489  $7,579 
                                
Basic income per share:                                
Denominator:                                
Weighted average common shares outstanding  25,135,381   24,821,665   25,043,357   24,720,817   25,381,447   25,135,381   25,692,094   25,043,357 
Basic income per share $0.11  $0.08  $0.30  $0.05  $0.10 $0.11  $0.10 $0.30 
                                
Diluted income per share:                                
Denominator:                                
Weighted average number of:                                
Common shares outstanding  25,135,381   24,821,665   25,043,357   24,720,817   25,381,447   25,135,381   25,692,094   25,043,357 
Dilutive potential common shares outstanding:                                
Series A Preferred Stock  0   0   0   0   -   -   -   - 
Unvested restricted stock  0   0   0   0   -   -   -   - 
Dilutive shares outstanding  25,135,381   24,821,665   25,043,357   24,720,817   25,381,447   25,135,381   25,692,094   25,043,357 
Diluted income per share $0.11  $0.08  $0.30  $0.05  $0.10 $0.11  $0.10 $0.30 

The following table summarizes the potential weighted average shares of common stock that were excluded from the determination of our diluted shares outstanding as they were anti-dilutive:

  Three Months Ended   Nine Months Ended 

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  September 30,  September 30, 
(in thousands, except share data) 2021  2020  2021  2020  2022  2021  2022  2021 
Series A Preferred Stock  5,381,356   0   5,381,356   0   5,381,356   5,381,356   5,381,356   5,381,356 
Unvested restricted stock  815,383   767,056   823,662   566,370   1,548,265   815,383   1,582,493   823,662 
  6,196,739   767,056   6,205,018   566,370   6,929,621   6,196,739   6,963,849   6,205,018 

3.REVENUE RECOGNITION

Substantially all of our revenues are considered to be revenues from our contracts with students.  The related accounts receivable balances are recorded in our condensed consolidated balance sheets as student accounts receivable.  We do not have significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in our unearned tuition.  We record revenue for students who withdraw from our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.  Unearned tuition represents contract liabilities primarily related to our tuition revenue. We have elected not to provide disclosure about transaction prices allocated to unsatisfied performance obligations if original contract durations are less than one-year, or if we have the right to consideration from a student in an amount that corresponds directly with the value provided to the student for performance obligations completed to date in accordance with ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”. We have assessed the costs incurred to obtain a contract with a student and determined them to be immaterial.

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Unearned tuition in the amount of $24.7$22.7 million and $23.5$25.4 million is recorded in the current liabilities section of the accompanying condensed consolidated balance sheets as of September 30, 20212022 and December 31, 2020,2021, respectively. The change in this contract liability balance during the nine-month period ended September 30, 20212022 is the result of payments received in advance of satisfying performance obligations, offset by revenue recognized during that period. Revenue recognized for the nine-month period ended September 30, 20212022 that was included in the contract liability balance at the beginning of the year was $22.6$24.6 million.

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The following table depicts the timing of revenue recognition:


 Three months ended September 30, 2022  Nine months ended September 30, 2022 
  
Transportation
and Skilled
Trades Segment
  
Healthcare
and Other
Professions
Segment
  Consolidated  
Transportation
and Skilled
Trades Segment
  
Healthcare
and Other
Professions
Segment
  Consolidated 
Timing of Revenue Recognition                  
Services transferred at a point in time $6,059  $1,651  $7,710  $12,904  $4,570  $17,474 
Services transferred over time  61,270   22,833   84,103   171,183   67,853   239,036 
Total revenues $67,329  $24,484  $91,813  $184,087  $72,423  $256,510 


 Three months ended September 30, 2021  Nine months ended September 30, 2021 
  
Transportation
and Skilled
Trades Segment
  
Healthcare
and Other
Professions
Segment
  Consolidated  
Transportation
and Skilled
Trades Segment
  
Healthcare
and Other
Professions
Segment
  Consolidated 
Timing of Revenue Recognition                  
Services transferred at a point in time $6,203  $1,618  $7,821  $14,788  $4,234  $19,022 
Services transferred over time  58,747   22,491   81,238   162,798   65,700   228,498 
Total revenues $64,950  $24,109  $89,059  $177,586  $69,934  $247,520 


 Three months ended September 30, 2020 Nine months ended September 30, 2020 
  
Transportation
and Skilled
Trades Segment
 
Healthcare
and Other
Professions
Segment
 Consolidated 
Transportation
and Skilled
Trades Segment
 
Healthcare
and Other
Professions
Segment
 Consolidated 
Timing of Revenue Recognition             
Services transferred at a point in time $

5,520 $

1,466 $

6,986 $

10,056 $

3,479 $

13,535 
Services transferred over time   51,308   20,498   71,806   138,743   59,025   197,768 
Total revenues $

56,828 $

21,964 $

78,792 $

148,799 $

62,504 $

211,303 

4.LEASES

The Company determines if an arrangement is a lease at inception. The Company considers any contract where there is an identified asset andas to which the Company has the right to control its use in determining whether the use of such asset ascontract contains a lease. An operating lease ROUright-of-use (“ROU”) asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are to be recognized at the commencement date based on the present value of lease payments over the lease term. As all of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available on the adoptioncommencement date in determining the present value of lease payments. We estimate the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of our credit facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease. The operating lease ROU assets include any lease payments made prior to the rent commencement date and exclude lease incentives. Our leases have remaining lease terms of one year to 1119 years. Lease terms may include options to extend the lease term used in determining the lease obligation when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments are recognized on a straight-line basis over the lease term for operating leases.

See Note 13 which discusses the sale lease-backleaseback transaction relating to the Company’s Denver and Grand Prairie campuses which closed on October 29, 2021.

OperatingOn June 30, 2022, the Company executed a lease costs for approximately 55,000 square feet of space to serve as the Company’s new campus, in Atlanta, Georgia. The lease commenced on August 2022 with total payments due over the lease term, on an undiscounted basis of $12.2 million over the 12-year lease term. The lease contains two five-year renewal options that may be exercised by the Company at the end of the initial lease term. The Company had no involvement in the construction or design of the underlying asset and were not deemed to be in control of the asset prior to the lease commencement date. During the three months ended September 30, 2022, the Company incurred approximately $0.1 million in capital expenditures, mostly relating to architectural fees and approximately $0.1 million in rent.

Our operating lease cost for the three months ended September 30, 2022 and 2021 and 2020 werewas $3.84.8 million and $3.93.8 million, respectively. Operating costsOur operating lease cost for the nine months ended September 30, 20212022 and 20202021 was $11.414.1 million and $11.4 million, respectively. Our variable lease costscost for the three and nine months ended September 30, 2021 were2022 was less than $0.1 million. The net change in the ROU asset and operating lease liability areis included in other assets in the condensed consolidated cash flows for the nine months ended September 30, 20212022 and 2020.2021.

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Supplemental cash flow information and non-cash activity related to our operating leases are as follows:

  Three Months Ended   Nine Months Ended 

 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
  September 30,  September 30, 
 2021  2020  2021  2020  2022  2021  2022  2021 
Operating cash flow information:                        
Cash paid for amounts included in the measurement of operating lease liabilities $3,972  $3,894  $11,009  $11,537  $4,382  $3,972  $13,702  $11,009 
Non-cash activity:                                
Lease liabilities arising from obtaining right-of-use assets $1,220  $6,311  $4,421  $15,092  $5,844  $1,220  $12,561  $4,421 

During the nine months ended September 30, 2022, the Company entered into two new leases and one lease modification that resulted in noncash re-measurement of the related ROU asset and operating lease liability of $12.6 million.This re-measurement includes the Atlanta, Georgia location, the lease of which commenced in August 2022.

Weighted-average remaining lease term and discount rate for our operating leases is as follows:

  As of 

 As of September 30,   September 30, 
 2021  2020  2022  2021 
Weighted-average remaining lease term 5.49 years  6.29 years  11.36 years  5.49 years 
Weighted-average discount rate  10.77%  11.38%  7.21%  10.77%

Maturities of lease liabilities by fiscal year for our operating leases as of September 30, 20212022 are as follows:

Year ending December 31,   
2021 (excluding the nine months ended September 30, 2021) $3,938 
2022  15,926 
2023  14,981 
2024  13,413 
2025  11,399 
2026  3,241 
Thereafter  15,441 
Total lease payments  78,339 
Less: imputed interest  (18,890)
Present value of lease liabilities $59,449 

Year ending December 31,   
2022 (excluding the nine months ended September 30, 2022)
 $4,741 
2023  16,167 
2024  16,780 
2025  14,841 
2026  12,416 
2027  9,532 
Thereafter  69,499 
Total lease payments  143,976 
Less: imputed interest  (41,664)
Present value of lease liabilities $102,312 

5.GOODWILL AND LONG-LIVED ASSETS

The Company reviews the carrying value of its long-lived assets and identifiable intangibles for recoverabilitypossible impairment whenever events or changes in circumstances indicate that itsthe carrying amountamounts may not be recoverable. There were 0For other long-lived asset impairments during the nine months ended September 30, 2021 and 2020.

The Company reviews goodwill for impairment when indicators of impairment exist. Annually, or more frequently if necessary,assets, including right-of-use lease assets, the Company evaluates goodwillassets for recoverability when there is an indication of potential impairment. If the undiscounted cash flows from a group of assets being evaluated is less than the carrying value of that group of assets, the fair value of the asset group is determined and the carrying value of the asset group is written down to fair value.

When we perform the quantitative impairment with any resultingtest for long-lived assets, we examine estimated future cash flows using Level 3 inputs. 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 the Company determines that an asset’s carrying value is impaired, it will record a write-down of the carrying value of the asset and charge the impairment reflected as an operating expense. The Company has concluded that, asexpense in the period in which the determination is made. As of September 30,, 2022 and 2021 there were no indicators of potential impairment and, accordingly, the Company did not test goodwill for impairment.long-lived asset impairments.

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On December 31, 2021, as a result of impairment testing it was determined that there was an impairment of our property in Suffield, Connecticut of $0.7 million.  The impairment was the result of an assessment of the current market value, obtained via third-party engagement, as compared to the current carrying value of the assets.  The carrying value for the Suffield, Connecticut property was approximately $2.9 million.  The fair value estimate provided indicated that the current value of the property was approximately $2.2 million.  As such, the aforementioned $0.7 million impairment was recorded and the assets carrying value reduced. This property was sold during the second quarter of 2022, generating net proceeds of approximately $2.4 million and resulting in a gain on sale of asset of $0.2 million.

The carrying amount of goodwill at September 30, 20212022 and 20202021 is as follows:


 
Gross
Goodwill
Balance
  
Accumulated
Impairment
Losses
  
Net
Goodwill
Balance
 
Balance as of January 1, 2021 $117,176  $(102,640) $14,536 
Adjustments  0   -   0 
Balance as of September 30, 2021
 $117,176  $(102,640) $14,536 

 
Gross
Goodwill
Balance
  
Accumulated
Impairment
Losses
  
Net
Goodwill
Balance
 
Balance as of January 1, 2022 $117,176  $(102,640) $14,536 
Adjustments  -   -   - 
Balance as of September 30, 2022
 $117,176  $(102,640) $14,536 


 
Gross
Goodwill
Balance
  
Accumulated
Impairment
Losses
  
Net
Goodwill
Balance
 
Balance as of January 1, 2020 $117,176  $(102,640) $14,536 
Adjustments  0   -   0 
Balance as of September 30, 2020
 $117,176  $(102,640) $14,536 

 
Gross
Goodwill
Balance
  
Accumulated
Impairment
Losses
  
Net
Goodwill
Balance
 
Balance as of January 1, 2021 $117,176  $(102,640) $14,536 
Adjustments  -   -   - 
Balance as of September 30, 2021
 $117,176  $(102,640) $14,536 

As of each of September 30, 20212022 and 2020,2021, the goodwill balance of $14.5 million is related to the Transportation and Skilled Trades segment.

6.LONG-TERM DEBT

Long-term debt consists of the following:
Credit Facility

 
September 30,
2021
  
December 31,
2020
 
Credit agreement $16,333  $17,833 
Deferred Financing Fees  (485)  (621)
   15,848   17,212 
Less current maturities  (2,000)  (2,000)
  $13,848  $15,212 

Credit Facility with Sterling National Bank

On November 14, 2019, the Company entered into a new senior secured credit agreement (the “Credit Agreement”) with its lender, Sterling National Bank (the “Lender”), providing for borrowing in the aggregate principal amount of up to $60 million (the “Credit Facility”).

The Initially, the Credit Facility iswas comprised of 4four facilities: (1) a $20$20 million senior secured term loan maturing on December 1, 2024 (the “Term Loan”), with monthly interest and principal payments based on 120-montha 120-month amortization with the outstanding balance due on the maturity date; (2) a $10$10 million senior secured delayed draw term loan maturing on December 1, 2024 (the “Delayed Draw Term Loan”), with monthly interest payments for the first 18 months and thereafter monthly payments of interest and principal based on 120-montha 120-month amortization and all balances due on the maturity date; (3) a $15$15 million senior secured committed revolving line of credit providing a sublimit of up to $10$10 million for standby letters of credit maturing on November 13, 2022 (the “Revolving Loan”), with monthly payments of interest only; and (4) a $15$15 million senior secured non-restoring line of credit maturing on January 31, 2021 (the “Line of Credit Loan”). The

At the closing of the Credit Facility, the Company entered into a swap transaction with the Lender for 100% of the principal balance of the Term Loan maturing on the same date as the Term Loan.  Under the terms of the Credit Facility accrued interest on each loan was payable monthly in arrears with the Term Loan and the Delayed Draw Term Loan bearing interest at a floating interest rate based on the then one-month London Interbank Offered Rate (“LIBOR”) plus 3.50% and subject to a LIBOR interest rate floor of 0.25% if there was no swap agreement. Revolving Loans bore interest at a floating interest rate based on the then LIBOR plus an indicative spread determined by the Company’s leverage as defined in the Credit Agreement givesor, if the Company the rightborrowing of a Revolving Loan was to permanently terminate, in its entirety,be repaid within 30 days of such borrowing, the Revolving Loan oraccrued interest at the Lender’s prime rate plus 0.50% with a floor of 4.0%.  Line of Credit Loans bore interest at a floating interest rate based on the Lender’s prime rate of interest.  Letters of credit issued under the Revolving Loan reduced, on a dollar-for-dollar basis, the availability of borrowings under the Revolving Loan. Letters of credit were charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) 0.25%, paid quarterly in arrears, in addition to the Lender’s customary fees for issuance, amendment and other standard fees.  Borrowings under the Line of Credit Loan or permanently reducewere secured by cash collateral. The Lender received an unused facility fee of 0.50% per annum payable quarterly in arrears on the amount available for borrowing underunused portions of the Revolving Loan orand the Line of Credit Loan.

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In April 2020,addition to the Company terminatedforegoing, the LineCredit Agreement contained customary representations, warranties, and affirmative and negative covenants (including financial covenants that (i) restricted capital expenditures, (ii) restricted leverage, (iii) required maintaining minimum tangible net worth, (iv) required maintaining a minimum fixed charge coverage ratio and (v) required the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with the Lender, which, if not maintained, would result in the assessment of a quarterly fee of $12,500), as well as events of default customary for facilities of this type. The Credit Loan. On November 10, 2020,Agreement also limited the Company entered intopayment of cash dividends during the first 24-months of the agreement to $1.7 million but an amendment to itsthe Credit Agreement entered into on November 10, 2020 raised the cash dividend limit to extend the Delayed Draw Availability Period by one year to May 31,2022 and$2.3 million in such 24-month period to increase the amount of permitted cash dividends that the Company can pay on its Series A Preferred Stock during the first twenty-four months ofStock.

As further discussed below, the Credit Agreement from $1.7 million to $2.3 million.

The Credit Facility iswas secured by a first priority lien in favor of the Lender on substantially all of the personal property owned by the Company, as well as a pledge of the stock and other equity in the Company’s subsidiaries and mortgages on parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which 3three of the Company’s schools are located, as well as a former school property owned by the Company located in Connecticut.

14
At the closing of the Credit Facility, the Lender advanced the Term Loan to the Company, the net proceeds of which were $19.7 million after deduction of the Lender’s origination fee in the amount of $0.3 million and other Lender fees and reimbursements to the Lender that are customary for facilities of this type.  The Company used the net proceeds of the Term Loan, together with cash on hand, to repay the existing credit facility and transaction expenses.

Pursuant to the terms of the Credit Agreement, letters of credit issued under the Revolving Loan reduce dollar for dollar the availability of borrowings under the Revolving Loan.

Accrued interest on each loan under the Credit Facility is payable monthly in arrears.  The Term Loan and the Delayed Draw Term Loan bear interest at a floating interest rate based on the then one month London Interbank Offered Rate (“LIBOR”) plus 3.50%.  At the closing of the Credit Facility, the Company entered into a swap transaction with the Lender for 100% of the principal balance of the Term Loan, which matures on the same date as the Term Loan.  At the end of the borrowing availability period for the Delayed Draw Term Loan, the Company is required to enter into a swap transaction with the Lender for 100% of the principal balance of the Delayed Draw Term Loan, which will mature on the same date as the Delayed Draw Term Loan, pursuant to a swap agreement between the Company and the Lender or the Lender’s affiliate.  The Term Loan and Delayed Draw Term Loan are subject to a LIBOR interest rate floor of 0.25% if there is no swap agreement.

Revolving Loans bear interest at a floating interest rate based on the then LIBOR plus an indicative spread determined by the Company’s leverage as defined in the Credit Agreement or, if the borrowing of a Revolving Loan is to be repaid within 30 days of such borrowing, the Revolving Loan will accrue interest at the Lender’s prime rate plus 0.50% with a floor of 4.0%. Revolving Loans are subject to a LIBOR interest rate floor of 0.00%.

Letters of credit are charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) 0.25%, paid quarterly in arrears, in addition to the Lender’s customary fees for issuance, amendment and other standard fees.  Letters of credit totaling $4 million that were outstanding under the existing credit facility are treated as letters of credit under the Revolving Loan.

Under the terms of the Credit Agreement, the Company may prepay the Term Loan and/or the Delayed Draw Term Loan in full or in part without penalty except for any amount required to compensate the Lender for any swap breakage or other costs incurredOn September 23, 2021, in connection with such prepayment.  The Lender receives an unused facility fee of 0.50% per annum payable quarterly in arrears onentering into the unused portions of the Revolving Loan.

In additionagreements relating to the foregoing,sale leaseback transaction for the Credit Agreement contains customary representations, warrantiesCompany’s Denver, Grand Prairie and affirmative and negative covenants (including financial covenants that (i) restrict capital expenditures, (ii) restrict leverage, (iii) require maintaining minimum tangible net worth, (iv) require maintaining a minimum fixed charge coverage ratio and (v) requireNashville campuses (collectively, the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with the Lender, which, if not maintained, will result in the assessment of a quarterly fee of $12,500)“Property Transactions”), as well as events of default customary for facilities of this type. As of September 30, 2021, the Company was in compliance with all debt covenants.  The Credit Agreement also limited the payment of cash dividends during the first twenty-four months of the agreement to $1.7 million but an amendment to the Credit Agreement entered into on November 10, 2020 raised the cash dividend limit to $2.3 million in such twenty-four-month period.

On September 23, 2021, the Company and certain of its subsidiaries entered into a Consent and Waiver Letter Agreement (the “Consent Agreement”) to the Company’s existing Credit Agreement.Agreement with its Lender. The Consent Agreement consents to certain real estate transactions with respectprovides the Lender’s consent to the Nashville, Denver and Grand Prairie campuses (collectively, the “Property Transactions”)Property Transactions and waives certain covenants in the Credit Agreement, subject to certain conditions specified therein.conditions. In addition, in connection with the consummation of the Property Transactions, the Lender has agreed to releasereleased its mortgages and other liens on the subject-properties. In connection therewith, atsubject-properties upon the closing of the Property Transactions, the Company is required to payCompany’s payment in full of the outstanding principal and accrued interest ofon the Term Loan and any swap obligations arising from any swap transaction entered intotransaction. Upon the consummation of the Property Transaction on October 29, 2021 the Company paid the Lender approximately $16.7 million in connection withrepayment of the Term Loan. NaNLoan and the swap termination fee and no further borrowings may be made under the Term Loan or the Delayed Draw Term Loan. Further, during the second quarter of 2022, the Company sold a property located in Suffield, Connecticut for net proceeds of approximatelyOne $2.4 million. Prior to the consummation of the Property Transactions,transaction, Lincoln obtained consent from the Lender to enter into the sale lease-backof this property.

Pursuant to certain amendments and modifications to the Credit Agreement and other loan documents, the Term Loan and the Delayed Draw Term Loan were paid off in full and on January 21, 2021, the Line of Credit expired by the terms, conditions and provisions of the Denver and Grand Prairie campuses, was consummated on October 29, 2021.  In connection with the closing, the Company paid its Lender approximately $16.5 million in repayment of the term loanCredit Agreement and the swap termination fee.Credit Agreement was extended and would have matured on November 14, 2023.

As of September 30,, 2021 2022, and December 31,2020, 2021, the Company had $16.3 million and $17.8 million, respectively,zero debt outstanding under the Credit Facility offset by $0.5 millionfor both periods and $0.6 million of deferred finance fees, respectively.was in compliance with all debt covenants.  As of September 30,,2021 2022, and December 31, 2020,2021, letters of credit in the aggregate outstanding principal amount of $4.0$4.0 million and $4.0 million, respectively, were outstanding under the Credit Facility.

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Index
Scheduled maturities of long-term debt at September 30, 2021 are as follows:

Year ending December 31,   
2021 (excluding the nine months ended September 30, 2021) $500 
2022  2,000 
2023  2,000 
2024  11,833 
  $16,333 
Subsequent to the end of the quarter, on November 4, 2022, the Company agreed with its Lender to terminate the Credit Agreement and the remaining Revolving Loan.  The Lender has agreed to allow the Company’s existing letters of credit to remain outstanding provided that they are cash collateralized.

7.
STOCKHOLDERS’ EQUITY

Common Stock

Holders of our common stock are entitled to receive dividends when and as declared by our Board of Directors and have the right to 1one vote per share on all matters requiring shareholder approval. The Company has 0tnot declared or paid any cash dividends on our common stock since the Company’s Board of Directors discontinued our quarterly cash dividend program in February 2015. The Company has no current intentions to resume the payment of cash dividends to holders of common stock in the foreseeable future.

Preferred Stock

On November 14, 2019, the Company raised gross proceeds of $12.7 million from the sale of 12,700 shares of its newly designated Series A Convertible Preferred Stock, 0no par value per share (the “Series A Preferred Stock”). The Series A Preferred Stock was designated by the Company’s Board of Directors pursuant to a certificate of amendment to the Company’s amended and restated certificate of incorporation (the “Charter Amendment”). The liquidation preference associated with the Series A Preferred Stock was $1,000 per share atas of December 31, 2020.2021. Upon issuance each share of Series A Preferred Stock was convertible at $2.36 per share of common stock (as may be adjusted pursuant to the Charter Amendment, the “Conversion Price”) into 423,729 shares of common stock (the number of shares into which the Series A Preferred Stock is convertible at any time, the “Conversion Shares”). The Company incurred issuance costs of $0.7 million as part of this transaction.

15
Index
The description below provides a summary of certain material terms of the Series A Preferred Stock:

Securities Purchase Agreement.

The Series A Preferred Stock was sold by the Company pursuant to a Securities Purchase Agreement dated as of November 14, 2019 (the “SPA”) among the Company, Juniper Targeted Opportunity Fund, L.P. and Juniper Targeted Opportunities, L.P. (together, the “Juniper Purchasers”) and Talanta Investment, Inc. (“Talanta,” together with the Juniper Purchasers, the “Investors”). Among other things, the SPA includes covenants relating to the appointment of a director to the Company’s Board of Directors to be selected solely by the holders of the Series A Preferred Stock.

Dividends. Dividends on the Series A Preferred Stock (“Series A Dividends”), at the initial annual rate of 9.6% is to be paid, in arrears, from the date of issuance quarterly on each December 31, March 31, June 30 and September 30 with September 30, 2020 being the first dividend payment date.  The Company, at its option, may pay dividends either (a) in cash or (b) by increasing the number of Conversion Shares by the dollar amount of the dividend divided by the Conversion Price.  The dividend rate is subject to increase (a) 2.4% per annum on the fifth anniversary of the issuance of the Series A Preferred Stock and (b) by 2% per annum but in no event above 14% per annum should the Company fail to perform certain obligations under the Charter Amendment.  The Series A Preferred Stock is not currently redeemable and may not become redeemable in the future. As a result, the Company is not required to re-measure the Series A Preferred Stock and does not accrete changes in the redemption value. As of September 30, 20212022, and December 31, 2020,2021, we paid $0.9 million and $1.4$1.2 million, respectively, in cash dividends on the outstanding shares of Series A Preferred Stock rather than increasing the number of Conversion Shares. Dividends are included in the condensed consolidated balance sheets within additional paid-in-capital when the Company maintains an accumulated deficit.

Holders of Series A Preferred Stock Right to Convert into Common Stock. Each share of Series A Preferred Stock, at any time, is convertible into a number of shares of common stock equal to (i) the sum of (A) $1,000 (subject to adjustment as provided in the Charter Amendment) plus (B) the dollar amount of any declared Series A Dividends not paid in cash divided by (ii) the Conversion Price ($2.36 per share subject to anti-dilution adjustments) as of the applicable Conversion Date (as defined in the Charter Amendment). At all times, however, the number of Conversion Shares that can be issued to any holder of Series A Preferred Stock may not result in such holder and its affiliates owning more than 19.99% of the total number of shares of common stock outstanding after giving effect to the conversion (the “Hard Cap”), unless prior shareholder approval is obtained or no longer required by the rules of the principal stock exchange on which the Company’s common stock trades.

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Index
Mandatory Conversion.If, at any time following November 14, 2022, the volume weighted average price of the Company’s common stock equals or exceeds 2.25 times the Conversion Price (currently $5.31 per share) for a period of 20 consecutive trading days and on each suchduring this period the average trading day at leastvolume exceeds 20,000 shares of common stock, was traded, the Company may, at its option and subject to the Hard Cap, require that any or all of the then outstanding shares of Series A Preferred Stock be automatically converted into Conversion Shares.

Redemption. Beginning November 14, 2024, the Company may redeem all or any of the Series A Preferred Stock for a cash price equal to the greater of (“Liquidation Preference”) (i) the sum of $1,000 (subject to adjustment as provided in the Charter Amendment) plus the dollar amount of any declared Series A Dividends not paid in cash and (ii) the value of the Conversion Shares were such Series A Preferred Stock converted (as determined in the Charter Amendment) without regard to the Hard Cap.

Change of Control.  In the event of certain changes of control, some of which are not in the Company’s control, as defined in the Charter Amendment as a “Fundamental Change” or a “Liquidation” (as defined in the Charter Amendment), the holders of Series A Preferred Stock shall be entitled to receive the Liquidation Preference, unless such Fundamental Change is a stock merger in which certain value and volume requirements are met, in which case the Series A Preferred Stock will be converted into common stock in connection with such stock merger.  The Company has classified the Series A Preferred Stock as mezzanine equity on the Consolidated Balance Sheetcondensed consolidated balance sheet based upon the terms of a change of control which could be outside the Company’s control.

Voting. Holders of shares of Series A Preferred Stock will beare entitled to vote with the holders of shares of common stock and not as a separate class, at any annual or special meeting of shareholders of the Company, on an as-converted basis, in all cases subject to the Hard Cap.  In addition, a majority of the voting power of the Series A Preferred Stock must approve certain significant actions of the Company, including (i) declaring a dividend or otherwise redeeming or repurchasing any shares of common stock and other junior securities, if any, subject to certain exceptions, (ii) incurring indebtedness, except for certain permitted indebtedness and (iii) creating a subsidiary other than a wholly-owned subsidiary.

Additional Provisions.  The Series A Preferred Stock is perpetual and, therefore, does not have a maturity date.  The conversion price of the Series A Preferred Stock is subject to anti-dilution protections if the Company affects a stock split, stock dividend, subdivision, reclassification or combination of its common stock and certain other economically dilutive events.

16
Registration Rights Agreement. The Company also is a party to a Registration Rights Agreement (“RRA”) with the holders of the Series A Preferred Stock. The RRA provides for unlimited demand registration rights, of which there can be 2two underwritten offerings each for at least $5 million in gross proceeds, and piggyback registration rights, with respect to the Conversion Shares. In addition, the RRA obligated the Company to register “for the shelf” the resale of the Conversion Shares through the filing of a registration statement to such effect (the “Resale Shelf Registration Statement”) and have such Resale Shelf Registration Statement declared effective by the Securities and Exchange Commission (the “SEC”). The SEC declared the Resale Shelf Registration Statement effective on October 16, 2020.


Restricted Stock

The Company currently issues restrictedhas three stock awards underincentive plans: a Long-Term Incentive Plan (the “LTIP”), a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”) and the Lincoln Educational Services Corporation 2020 Long-Term Incentive Compensation Plan (the “2020 Plan”). As more fully described below, the Company continues to maintain the Lincoln Educational Services Corporation 2005 Long Term Incentive Plan, as amended and amended and restated (the “Prior Plan”) only with respect to awards made thereunder, but, as no shares remain available under the Prior Plan, the Company no longer makes grants under such plan.

2020 Plan

On March 26, 2020, the Board adopted the 2020 Plan to provide an incentive to certain directors, officers, employees and consultants of the Company to align their interests in the Company’s success with those of its shareholders through the grant of equity-based awards. On June 16, 2020, the shareholders of the Company approved the 2020 Plan. The 2020 Plan is administered by the Compensation Committee of the Board, or such other qualified committee appointed by the Board, who will, among other duties, have full power and authority to take all actions and to make all determinations required or provided for under the 2020 Plan. Pursuant to the 2020 Plan, the Company may grant options, share appreciation rights, restricted shares, restricted share units, incentive stock options and nonqualified stock options. Under the 2020 Plan, employees may surrender shares as payment of applicable income tax withholding on the vested restricted stock. The 2020 Plan has a duration of 10 years.

Subject to adjustment as described in the 2020 Plan, the aggregate number of shares of common stockshares available for issuance under the 2020 Plan iswas 2,000,000 shares.

17LTIP

On August 5, 2021, 6,267Under the LTIP, certain employees have received awards of restricted shares of common stock were issuedbased on service and performance. The number of shares granted to each employee is based on the amount of the award and the fair market value of a share of common stock on the date of grant. The 2020 Plan makes it clear that there will be no new grants under the LTIP effective as of the date of shareholder approval, June 16, 2020. The 2020 Plan also states that the shares available under the 2020 Plan will be two million shares plus the number of shares remaining available under the LTIP. As no shares remain available under the LTIP there can be no additional grants under the LTIP. Grants under the LTIP remain in effect according to their terms. Therefore, those grants are subject to the particular award agreement relating thereto and to the LTIP to the extent that the prior plan provides rules relating to those grants. The LTIP remains in effect only to that extent.

Non-Employee Directors Plan

Pursuant to the Non-Employee Directors Plan, each non-employee director which vest on May 6,2022.

On May 6, 2021, 76,195of the Company receives an annual award of restricted shares of common stock were issuedon the date of the Company’s annual meeting of shareholders. The number of shares granted to each non-employee directors whichdirector is based on the fair market value of a share of common stock on that date. The restricted shares vest on the first anniversary of the grant date.

On June 16, 2020, 111,376 restricted shares of common stock were issued to non-employee directors which are fully vested on June 16, 2021.

On August 7, 2020, 2 non-employee directors were appointed to the Company’s Board of Directors and 17,096 restricted shares of common stock were granted to each of those individuals. These shares vested on June 16, 2021.

Also on August 7, 2020, a non-employee director retired from his position on the Company’s Board of Directors and 12,762 restricted shares of common stock held by him which were unvested were accelerated to vest effective August 7, 2020.

On February 25,2021, performance-based restricted shares were granted to certain employees of the Company. The shares vest ratably on the first, second and third anniversary dates of the grant based upon the attainment of a financial target during each of the fiscal years ending December 31, 2021, 2022 and 2023, respectively, except in extraordinary circumstances.  There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares. For the three and nine months ended September 30, 2021, the Company recorded expense of $0.3 million and $0.7 million, respectively, as the expectation of attainment of the target is probable.

On February 20,2020, performance-based restricted shares were granted to certain employees of the Company. The shares vest 20%, 30% and 50% on the first, second and third anniversary dates of the grant, respectively, based upon the attainment of a financial target during each fiscal years ending December 31, 2020, 2021 and 2022, respectively, except in extraordinary circumstances. There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares. For the three months ended September 30, 2021 and 2020, the Company recorded expense of $0.2 million and $0.2 million, respectively, as the expectation of attainment of the target is probable. For the nine months ended September 30, 20212022 and 2020, the Company recorded expense of $0.6 million and $0.4 million, respectively, as the expectation of attainment of the target is probable.

Prior Plan

Under the Prior Plan, certain employees received awards of restricted shares of common stock based on service and performance. The number of shares granted to each employee was based on the amount of the award and the fair market value of a share of common stock on the date of grant. The 2020 Plan provides that there will be no new grants under the Prior Plan effective as of the date of shareholder approval, June 16, 2020, of the 2020 Plan. The 2020 Plan also states that the shares available under the 2020 Plan will be 2 million shares plus the number of shares remaining available under the Prior Plan.  As no shares remain available under the Prior Plan, there can be no additional grants thereunder. Outstanding grants under the Prior Plan remain in effect according to their terms. Therefore, those grants are subject to the particular award agreement relating thereto and to the Prior Plan to the extent that the plan addresses those grants. The Prior Plan remains in effect only to that extent.

On February 28, 2019, restricted shares were granted to certain employees of the Company under the Prior Plan, which shares ratably vest over three years. There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares. For each of the three months ended September 30,2021, and 2020, the Company recorded expense of $0.1 million in connection with that grant. For the nine months ended September 30, 2021 and 2020, the Company recorded expense of $0.4 million and $0.4 million, respectively, in connection with that grant.

For the three months ended September 30, 2021 and 2020, respectively, the Company completed a net share settlement for 0268,654 and 16,664154,973 restricted shares, and for the nine month ended September 30, 2021 and 2020, respectively, the Company completed a net share settlement for 154,973 and 75,115 shares on behalf of certain employees whothat participate in the Prior PlanLTIP upon the vesting of the restricted shares pursuant to the terms of the Prior Plan.LTIP.  The net share settlement was in connection with income taxes incurred on restricted shares that vested and were transferred to the employees during 2021 and/or 2020, creating taxable income for the employees. At the employees’ request, the Company will pay thosehas paid these taxes on behalf of the employees in exchange for the employees’employees returning an equivalent value of restricted shares to the Company. ThoseThese transactions resulted in a decrease of 0$2.0 million and $0.1less than $1.0 million for each of the three months ended September 30, 2021 and 2020 and a decrease of $1.0 million and $0.2 million for the nine months ended September 30, 20212022 and 2020,2021, respectively, to equity on the condensed consolidated balance sheets as the cash payment of the taxes effectively was a repurchase of the restricted shares granted in previous years.

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17

The following is a summary of transactions pertaining to restricted stock:


 Shares  
Weighted
Average Grant
Date Fair Value
Per Share
  Shares  
Weighted
Average Grant
Date Fair Value
Per Share
 
Nonvested restricted stock outstanding at December 31, 2020  1,572,159  $2.77 
Nonvested restricted stock outstanding at December 31, 2021  1,743,846  $3.89 
Granted  657,076   5.97   606,950   7.21 
Canceled  0   0   -   - 
Vested  (498,936)  3.04   (802,530)  4.18 
                
Nonvested restricted stock outstanding at September 30, 2021
  1,730,299   3.87 
Nonvested restricted stock outstanding at September 30, 2022
  1,548,266   5.18 

The restricted stock expense for the three months ended September 30,,2021 2022 and 20202021 was $0.8$0.6 million and $0.7$0.8 million, respectively. The restricted stock expense for the nine months ended September 30, 2022 and 2021 and 2020 was $2.1$2.4 million and $1.3$2.1 million, respectively. The unrecognized restricted stock expense as of September 30, 20212022 and December 31, 20202021 was $6.7$8.0 million and $3.2$4.4 million, respectively.  As of September 30,,2021, 2022, outstanding restricted shares under the Prior Plan had aggregate intrinsic value of $11.6$8.4 million.

Stock Options

The fair value of the stock options used to compute stock-based compensation is the estimated present value at the date of grant using the Black-Scholes option pricing model. The following is a summary of transactions pertaining to stock options:


 Shares  
Weighted
Average
Exercise Price
Per Share
 
Weighted
Average
Remaining
Contractual
Term
 
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding at December 31, 2020
  81,000  $7.79 1.17 years $0 
Granted/Vested  0   0   
0 
Canceled  0   0    0 
              
Outstanding at September 30, 2021
  81,000   7.79 0.42 years  0 
              
Vested as of September 30, 2021
  81,000   7.79 0.42 years  0 
              
Exercisable as of September 30, 2021
  81,000   7.79 0.42 years  0 
 Shares  
Weighted
Average Exercise
Price Per Share
  
Weighted
Average
Remaining
Contractual
Term
  
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding at December 31, 2021
  81,000  $7.79   0.17  $- 
Granted/Vested  -   -   -   - 
Canceled  (81,000)  7.79   -   - 
                 
Outstanding at September 30, 2022
  -   -   -   - 
                 
Vested as of September 30, 2022
  -   -   -   - 
                 
Exercisable as of September 30, 2022
  -   -   -   - 


As of September 30, 20212022, there was 0no unrecognized pre-tax compensation expense.

Share Repurchase Plan

On May 24, 2022, the Company announced that its Board of Directors has authorized a share repurchase program of up to $30.0 million of the Company’s outstanding common stock.  The repurchase program has been authorized for twelve months. Purchases may be made, from time to time, in open-market transactions at prevailing market prices, in privately negotiated transactions or by other means as determined by the Company’s management and in accordance with applicable federal securities laws. The timing of purchases and the number of shares repurchased under the program will depend on a variety of factors including price, trading volume, corporate and regulatory requirements and market conditions. The Company retains the right to limit, terminate or extend the share repurchase program at any time without prior notice. During the three months ended September 30, 2022, the Company repurchased 668,440 shares of its common stock at an aggregate cost of approximately $4.2 million. During the nine months ended September 30, 2022, the Company repurchased 1,083,403 shares of its common stock at an aggregate cost of approximately $6.7 million. These shares were subsequently canceled and recorded as a reduction of common stock.

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8.INCOME TAXES

The provision for income taxestax provision for the three months ended September 30, 2022 and 2021 and 2020 was $1.6$1.3 million, or 29.6%26.8% of pretaxpre-tax income, and approximately $0.1compared to $1.6 million, or 1.4%29.6% of pretaxpre-tax income, respectively. The provision for income taxestax provision for the nine months ended September 30, 2022 and 2021 and 2020 was $3.6approximately $0.8 million, or 25.0%15.7% of pretaxpre-tax income, and approximately $0.2$3.6 million, or 5.6%25.0% of pretax loss,pre-tax income, respectively. The increase for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020decrease in effective tax rate was due to the reversal of a full valuation allowance at December 31, 2020, resulting in an effective tax rate of 25.0% for the nine months ended September 30, 2021.higher discrete benefit relating to restricted stock vesting.

9.COMMITMENTS AND CONTINGENCIES

In the ordinary conduct of its business, the Company is subject to certain lawsuits, investigations and claims, including, but not limited to, claims involving students or graduates and routine employment matters. Although the Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it, the Company does not believe that any currently pending legal proceedings to which it is a party will have a material adverse effect on the Company’s business, financial condition, and results of operations or cash flows.

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Information regarding certain specific legal proceedings in which the Company is involved is contained in Part II, Item 1 hereof as well as in Part I, Item 3, and in Note 15 to the Notes to the Consolidated Financial Statements included in the Company’s Form 10-K. 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, 2021.

10.SEGMENTS

We operate our business in 2two reportable segments: (a) the Transportation and Skilled Trades segment; and (b) the Healthcare and Other Professions 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 unit and an operating segment.  Our operating segments are described below.

Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly in the career-oriented disciplines of transportation and skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).

Healthcare and Other Professions – The Healthcare and Other Professions segment offers academic programs in the career-oriented disciplines of health sciences, hospitality and business and information technology (e.g. dental assistant, medical assistant, practical nursing, culinary arts and cosmetology).

The Company also utilizes the Transitional segment on a limited basis solely when and if it closes a school.

We evaluate segment performance based on operating results.  Adjustments to reconcile segment results to consolidated results are included under the caption “Corporate,” which primarily includes unallocated corporate activity.

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Summary financial information by reporting segment is as follows:


 For the Three Months Ended September 30,  For the Three Months Ended September 30, 
 Revenue  Operating Income (Loss)  Revenue  Operating income (Loss)
 
 2021  
% of
Total
  2020  
% of
Total
  2021  2020  2022  
% of
Total
  2021  
% of
Total
  2022  2021 
Transportation and Skilled Trades $64,950   72.9% $56,828   72.1% $11,842  $9,138  $67,329   73.3% $64,950   72.9% $11,768  $11,842 
Healthcare and Other Professions  24,109   27.1%  21,964   27.9%  1,833   1,654   24,484   26.7%  24,109   27.1%  1,180   1,833 
Corporate  0       0       (7,930)  (6,952)  -       -       (8,068)  (7,930)
Total $89,059   100.0% $78,792   100.0% $5,745  $3,840  $91,813   100.0% $89,059   100.0% $4,880  $5,745 


 For the Nine Months Ended September 30,  For the Nine Months Ended September 30, 
 Revenue  Operating Income (Loss)  Revenue  Operating income (Loss)
 
 2021  
% of
Total
  2020  
% of
Total
  2021  2020  2022  
% of
Total
  2021  
% of
Total
  2022  2021 
Transportation and Skilled Trades $177,586   71.7% $148,799   70.4% $35,423  $18,848  $184,087   71.8% $177,586   71.7% $26,108  $35,423 
Healthcare and Other Professions  69,934   28.3%  62,504   29.6%  7,743   6,388   72,423   28.2%  69,934   28.3%  4,095   7,743 
Corporate  0       0       (27,949)  (21,581)  -       -       (25,252)  (27,949)
Total $247,520   100.0% $211,303   100.0% $15,217  $3,655 $256,510   100.0% $247,520   100.0% $4,951  $15,217


 Total Assets  Total Assets 
 September 30, 2021  December 31, 2020  September 30, 2022  December 31, 2021 
Transportation and Skilled Trades $132,948  $133,078  $150,715  $156,531 
Healthcare and Other Professions  33,516   32,753   36,263   33,959 
Corporate  86,992   79,359   104,298   104,809 
Total $253,456  $245,190  $291,276  $295,299 

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11.
FAIR VALUE


The accounting framework for determining fair value includes a hierarchy for ranking the quality and reliability of the information used to measure fair value, which enables the reader of the financial statements to assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers:

Level 1:    Defined as quoted market prices in active markets for identical assets or liabilities.

Level 2:    Defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3:    Defined as unobservable inputs that are not corroborated by market data.

The carrying amount and estimated fair value of the Company’s financial instrument assets and liabilities, which are not measured at fair value on the Condensed Consolidated Balance Sheet, are listed in the table below:


 September 30, 2021 
  
Carrying
Amount
  
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  
Significant Other
Observable Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  Total 
Financial Assets:               
Cash and cash equivalents $47,150  $47,150  $0  $0  $47,150 
Prepaid expenses and other current assets  2,973   0   2,973   0
   2,973 
                     
Financial Liabilities:                    
Accrued expenses $15,778  $0  $15,778  $0  $15,778 
Other short term liabilities  56   0
   56   0
   56 
Derivative qualifying cash flow hedge  552   0
   552   0
   552 
Credit facility  15,848   0
   14,488   0
   14,488 


 December 31, 2020 
  
Carrying
Amount
  
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
  
Significant Other
Observable Inputs
(Level 2)
  
Significant
Unobservable
Inputs
(Level 3)
  Total 
Financial Assets:               
Cash and cash equivalents $38,026  $38,026  $0  $0  $38,026 
Prepaid expenses and other current assets  3,723   0   3,723   0   3,723 
                     
Financial Liabilities:                    
Accrued expenses $16,692  $0  $16,692  $0  $16,692 
Other short term liabilities  26   0   26   0   26 
Derivative qualifying cash flow hedge  877   0   877   0   877 
Credit facility  17,212   0   15,487   0   15,487 


As of September 30, 2021 and December 31, 2020, we estimated the fair value of the Credit Facility based on a present value analysis utilizing aggregate market yields obtained from independent pricing sources for similar financial instruments.

The carrying amounts reported on the Consolidated Balance Sheetscondensed consolidated balance sheet for Cash and cash equivalents approximate fair value because they are highly liquid.



The carrying amounts reported on the Consolidated Balance Sheetscondensed consolidated balance sheet for Prepaid expenses and other current assets, Accrued expenses and Other short termshort-term liabilities approximate fair value due to the short-term nature of these items.



Qualifying Hedge Derivative



On November 14, 2019, in connection with its Credit Facility, the Company entered into an interest rate swap for the Term Loan with a notional amount of $20 million which expires on December 1, 2024.  On October 29, 2021 the Term Loan was repaid and the interest rate swap was paid in full.


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The loan hashad a 10-year straight line amortization.  A principal amount of $0.2 million iswas paid monthly.  This interest rate swap convertsconverted the floating interest rate Term Loan to a fixed rate, plus a borrowing spread.  The interest rate iswas variable based on LIBOR plus 3.50% and the Company’s fixed rate is 5.36%. The Company designated this interest rate swap as a cash flow hedge.

The Company entered into this interest rate swaphedge to hedge exposure resulting from the interest rate risk. The purpose of thisthe hedge iswas to reduce the variability of the interest rate based on LIBOR.  The Company manages these exposuresmanaged this exposure within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes.

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The following summarizes the fair value of the outstanding derivative:


 September 30, 2021  December 31, 2020 
  
Liability(1)
  
Liability(1)
 
  Notional  Fair Value  Notional  Fair Value 
Derivative derived as a hedging instrument:            
Interest Rate Swap $16,333  $552  $17,833  $877 


(1)The Company’s derivative liability is measured at fair value using observable market inputs such as interest rates and our own credit risk as well as an evaluation of our counterparty’s credit risk.  Based on these inputs the derivative liability is classified within Level 2 of the valuation hierarchy. The liability is included in other long-term liabilities in the condensed consolidated balance sheets.

The following summarizes the financial statement classification and amount of interest expense recognized on hedging instruments:


   Three Months Ended   Nine Months Ended 
  September 30,  September 30, 
  2022
  2021
  2022
  2021
 
Interest Expense            
Interest Rate Swap 
$
-
  
$
100
  
$
-
  
$
200
 



 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021  2020  2021  2020 
Interest Expense            
Interest Rate Swap $100  $100  $200  $100 

The following summarizes the effect of derivative instruments designated as hedging instruments in Other Comprehensive Income (Loss):
Income:


 
Three Months Ended
September 30,
  
Nine Months Ended
September 30,
 
  2021  2020  2021  2020 
Derivative qualifying as cash flow hedge            
Interest rate swap income (loss) $65  $56 $326  $(786)

   Three Months Ended   Nine Months Ended 
  
September 30,
  
September 30,
 
  
2022
  
2021
  
2022
  
2021
 
Derivative qualifying as cash flow hedge            
Interest rate swap income 
$
-
  
$
65
  
$
-
  
$
326
 


12.COVID-19 PANDEMIC AND CARES ACT

The Company began seeing the impact of the global COVID-19 pandemic on its business in early March 2020 and some effects of the pandemic have continued. The spread of COVID-19 has had an unprecedented impact on higher educational institutions across the country, including our schools, and has led to the closure of campuses and the transition of academic programs from in-person instruction to online, remote learning and back.  The impact for the Company was primarily related to transitioning classes from in-person, hands-on learning to online, remote learning which resulted in, among other things, additional expenses.  Further, related to this transition, some students were placed on leave of absence as they could not complete their externships and some students chose not to participate in online learning. As a result, certain programs were extended due to restricted access to externship sites and classroom labs which did not have a material impact on our consolidated financial statements.  In accordance with phased re-opening as applied on a state-by-state basis, all of our schools have now re-opened and the majority of the students who were on leave of absence or had deferred their programs returned to school to finish their programs.  The Company has considered the impact of COVID-19 on the assumptions and estimates used to prepare its consolidated financial statements and has determined that there were no material adverse impacts on the Company’s results of operations and financial position at September 30, 2021. The Company expects to continue to be impacted by COVID-19 as the situation remains dynamic and evolving and subject to rapid and possibly material change. Additional impacts may arise of which the Company is not currently aware. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted.

On March 27,In response to the COVID-19 pandemic, in 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law, which includesproviding a $2 trillion federal economic relief package providingof financial assistance and other relief to individuals and businesses impacted by the spread of COVID-19. The CARES Act includes provisions for financial assistance and other regulatory relief benefitting students and their postsecondary institutions. pandemic.  Among other things, the CARES Act includes a $14 billion higher education emergency relief fund (“HEERF”) for the DOE to distribute directly to institutions of higher education. Institutions are required to use at least half of the HEERF funds for emergency grants to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.).  Institutions are permitted to use the remainder of the funds for additional emergency grants to students or to cover institutional costs associated with significant changes to the delivery of instruction due to the COVID-19 emergency, provided that those costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship.  The law requires institutions receiving funds to continue to the greatest extent practicable to pay its employees and contractors during the period of any disruptions or closures related to the COVID-19 emergency.  Other than as disclosed below, the CARES Act had no material impact on the Company’s income tax provision for the year ended December 31, 2020 or the nine months ended September 30, 2021.  The Company continues to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows.

The DOE has allocated funds to each institution of higher education based on a formula contained in the CARES Act. The formula is heavily weighted toward institutions with large numbers of Pell Grant recipients.  The DOE allocated $27.4 million to our schools distributed in 2two equal installments and required them to be utilized by April 30, 2021 and May 14, 2021, respectively. As of September 30, 2021, the Company had distributed the full $13.7 million of its first installment as emergency grants to students and has utilized the full $13.7 million of its second installment. Proceeds from the second installment for permitted expenses were primarily utilized to either offset original expenses incurred or to reduce student accounts receivable, driving a decrease in bad debt expense, bothexpense. Both uses resulted in a decrease in our selling, general and administrative expenses.

On March 19, 2021, Institutions are required to use at least half of the DepartmentHEERF funds for emergency grants to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.).  The law requires institutions receiving funds to continue to the greatest extent practicable to pay its employees and contractors during the period of Education released guidance clarifying previous guidance on permitted institutional uses of funds received fromany disruptions or closures related to the HEERF. In accordance with this guidance,COVID-19 emergency which the Company was able to provide financial relief for students who dropped out of school due to COVID-19 related circumstances with unpaid accounts receivable balances covering the period from March 15, 2020 to March 31, 2021. This relief was provided using the Company’s financial resources combined with HEERF funds resulting in a net benefit to bad debt expense of approximately $3.0 million.

has done.  The Company was also permitted to delaydefer payment of FICA payroll taxes through January 1, 2021 and has done so. The Company will havedid so but, pursuant to repayrequirements of the deferment, repaid 50% of the deferred payments by January 3, 2022, and will need to repay the remaining 50% by January 3, 2023. As of September 30, 2021,2022, the Company had deferred payments of $4.5 million.$2.3 million included in accrued expenses in the condensed consolidated balance sheet.

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In December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law.  This annual appropriations bill containedenacted which included the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“CRRSAA”).  CRRSAA provided an additional $81.9 billion to the Education Stabilization Fund including $22.7 billion for the HEERF, which were originally created by the CARES Act in March 2020.  The higher education provisions of the CRRSAA are intended in part to provide additional financial assistance benefitting students and their postsecondary institutions in the wake of the spread of COVID-19 across the country and its impact on higher educational institutions.

Like In March 2021, the CARES$1.9 trillion American Rescue Plan Act of 2021 (“ARPA”) was signed into law. Among other things, the CRRSAA directs the majority of HEERFARPA provides $40 billion in relief funds that will go directly to a general program providing direct grantscolleges and universities with $395.8 million going to for-profit institutions.  Institutions generally must designate “at least the same amount” of the funds for direct grants to students as was required under the CARES Act.  We may only use the new HEERF funds for grants to students. The student grants must prioritize students with exceptional need and may be used for any component of the student’s cost of attendance or for emergency costs that arise due to coronavirus, such as tuition, food, housing, health care (including mental health care), or child care.  We may use the remaining HEERF funds to (1) defray expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll); (2) carry out student support activities authorized by the Higher Education Act that address needs related to coronavirus; or (3) for additional financial aid grants to students.

Upon the passage of the CRRSAA, DOE began allocating the funds to each institution of higher education based on a formula contained in the law.  The DOE has allocated a total of $15.4$24.4 million to our schools andfrom the funds becamemade available in February 2021.under CRRSAA and ARPA.  As of September 30, 2022, the Company has drawn down and distributed to our students $14.8 million of these allocated funds. The remainder of the funds are on hold by the DOE has begun releasing guidance relatingand will be distributed to the use of these funds and is expected to provide additional information in the coming weeks.students upon release. Failure to comply with requirements for the usage and reporting of these funds could result in requirements to repay some or all of the allocated funds and in other sanctions. As of September 30, 2021, the Company has not drawn down any of these allocated funds.

13.Property Sale Agreements

Property Sale Agreement - Nashville, Tennessee Campus

On September 24, 2021, Nashville Acquisition, LLC, a subsidiary of the Company (“Nashville Acquisition”), entered into a Contract for the Purchase of Real Estate (the “Nashville Contract”) to sell the property located at 524 Gallatin Road,Avenue, Nashville, Tennessee 37206, at which the Company operates its Nashville campus, to SLC Development, LLC, a subsidiary of Southern Land Company (“SLC”), for an aggregate sale price of $34.5 million, subject to customary adjustments at closing. The Company intends to relocate its Nashville campus to a more efficient and technologically advanced facility in the Nashville metropolitan area but has not yet determined a location. Under the terms

The Company and SLC have agreed to an extension of the Nashville Contract, the closing of the sale, which is subject to various conditions, is scheduled to take place after a 90-day due diligence period (with an optional 30-day extension thereof). During the due diligence period SLC has the right to terminateunder the Nashville Contract for any reason at its discretion. Upon closing, Nashville Acquisition is permitted to occupy the property and continue to operate the Nashville campus on a rent-free basis for a lease-back period of 12 months, and, thereafter, has the option to extend the lease-back period for one 90-day term and 3 additional 30-day terms pursuant to a lease agreement to be negotiated by the parties during the due diligence period. The closing of the saleContract. Consequently, this transaction is expected to occurclose during the second quarter of 2023. During this time, non-refundable payments will be made to the Company by SLC totaling $1.1 million in the first quarter of 2022 subject to various closing conditions which must be satisfied or waived; therefore, there can be no assurance that the saleaggregate through March 2023. The payments will be consummated onapplied towards the purchase price assuming a timely basis or at all.closing does occur. As of September 30, 2022, the Company has received approximately $0.2 million in non-refundable payments from SLC. The Nashville, Tennessee property is included incurrently classified as assets held for sale in the condensed consolidated balance sheet as of September 30, 2021.2022.

Sale-LeasebackSale Leaseback Transaction - Denver, Colorado and Grand Prairie, Texas Campuses

On September 24, 2021, Lincoln Technical Institute, Inc. and LTI Holdings, LLC, each a wholly-owned subsidiary of the Company (collectively, “Lincoln”), entered into an Agreement for Purchase and Sale of Property (the “Colorado/Texas Sale Agreement”) for the sale of the properties located at 11194 E. 45th Avenue, Denver, Colorado 80239 and 2915 Alouette Drive, Grand Prairie, Texas 75052, at which the Company operates its Denver and Grand Prairie campuses, respectively, to LNT Denver (Multi) LLC, a subsidiary of LCN Capital Partners (“LNT”), for an aggregate sale price of $46.5 million, subject to customary adjustments at closing. Simultaneously with the closingClosing of the sale which occurred on October 29, 2021,2021. Concurrently with consummation of the sale, the parties entered into a triple-net lease agreement for each of the properties pursuant to which the properties are being leased back to Lincoln Technical Institute, Inc. for a twenty-year term at an initial annual base rent, payable quarterly in advance, of approximately $2.6 million for the first year with annual 2.00% increases thereafter and includes 4four subsequent five-year renewal options in which the base rent is reset at the commencement of each renewal term at then current fair market rent for the first year of each renewal term with annual 2.00% increases thereafter in each such renewal term. The lease, in each case, provides Lincoln with a right of first offer should LNT wish to sell the property. The Company has provided a guaranty of the financial and other obligations of Lincoln Technical Institute, Inc. under each lease.  The Denver and Grand Prairie properties areCompany evaluated factors in ASC Topic 606, Revenue Recognition, to conclude that the transaction qualified as a sale. This included in assets heldanalyzing the right of first offer clause to determine whether it represents a repurchase agreement that would preclude the transaction from being accounted for sale inas a successful sale. At the condensed consolidated balance sheet asconsummation of September 30, 2021. On October 29, 2021 the sale, lease-backthe Company recognized a gain on sale of assets of $22.5 million. Additionally, the Company evaluated factors in ASC Topic 842, Leases, and concluded that the newly created leases met the definition of an operating lease. The Company also recorded ROU Asset and lease liabilities of $40.1 million. The sale leaseback transaction closed providingprovided the Company with net proceeds of approximately $28.5$45.4 million, after deduction of transaction-related expenses of approximately $1.2 million andwith the proceeds partially used for the repayment of the Company’s outstanding term loan of $16.2 million and swap termination fee of approximately $16.8$0.5 million.

24
22
14.Subsequent EventS

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. For the nine months ended September 30, 2022, campus revenues were $5.3 million, representing 2.1% of total revenues, with an operating loss of $0.2 million. The Company has developed a plan to deliver instruction for the approximately 300 students at the Somerville campus, which will be reported in the Transitional Segment beginning in the fourth quarter. Total costs to close the campus including the teach-out will be approximately $2.0 million and should be completed by the end of 2023.

Additionally, subsequent to the end of the quarter, on November 4, 2022, the Company agreed with its Lender to terminate the Credit Agreement and the remaining Revolving Loan. The Lender has agreed to allow the Company’s existing letters of credit to remain outstanding provided that they are cash collateralized.

23
Item 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
All references in this Quarterly Report on Form 10-Q (“Form 10-Q”) to “we,” “our,” “us” and the “Company,” refer to Lincoln Educational Services Corporation and its subsidiaries unless the context indicates otherwise.

The following discussion may contain forward-looking statements regarding the Company, our business, prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements.  Such 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 differences between our actual results and those anticipated include, but are not limited to, those described in the “Risk Factors” section of our Form 10-K 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 Quarterly Report and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.

The interim financial statements and related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and the discussions contained herein should be read in conjunction with the annual financial statements and notes thereto included in our Form 10-K which includes audited consolidated financial statements for our two fiscal years ended December 31, 2020.2021.

General

The Company provides diversified career-oriented post-secondary education to recent high school graduates and working adults.  The Company offers programs in automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electrical and electronic systems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology programs.  The schools, currently consisting of 22 schools in 14 states, operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names.  Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study.  Five of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas.  All of the campuses are nationally or regionally accredited and are eligible to participate in federal financial aid programs by the DOE and applicable state education agencies and accrediting commissions, which allow students to apply for and access federal student loans as well as other forms of financial aid.

Our business is organized into two reportable business segments: (a) Transportation and Skilled Trades, and (b) Healthcare and Other Professions or “HOPS”.

Impact of COVID-19 on the Company

During the first quarter of 2020, COVID-19 began to spread worldwide and has caused significant disruptions to the U.S. and world economies.  In early March 2020, the Company began seeing the impact of the COVID-19 pandemic on our business. The circumstances related to COVID-19 are unprecedented, dynamic and evolving and currently, with variants of the virus arising, remain unpredictable.  As the economic impact of the COVID-19 pandemic continues to evolve, we could see significant changes to our operations.

To date, the impact of COVID-19 has primarily related to transitioning classes from in-person, hands-on instruction to online, remote learning and back.  As part of this transition, the Company has incurred additional expenses.  Related to this transition, 102 students were placed on leave of absence as they could not complete their externships and certain programs were extended due to restricted access to externship sites and classroom labs.   In response to COVID-19, we implemented initiatives to safeguard our students and our employees. Due to phased re-opening on a state-by-state basis, our schools have been reopening since May 2020. Currently, all of our schools are open and following applicable guidelines.

2524
Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 1 to the Condensed Consolidated Financial Statements included in our Form 10-K and Note 1 to the Condensed Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2021.

In addition, due to the impact of the COVID-19 pandemic, we have reassessed those of our accounting policies whose application places the most significant demands on management’s judgment, for instance, revenue recognition, allowance for doubtful account, goodwill, and long-lived assets, stock-based compensation, derivative instruments and hedging activity, borrowings, assumptions related to ROU assets, lease cost, income taxes and assets and obligations related to employee benefit plans. Such reassessments did not have a significant impact on our results of operations and cash flows for the periods presented.2022.

Effect of Inflation

Inflation has not had a material effect on our operations except for some inflationary pressures on certain instructor salaries.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, 20212022

The following table sets forth selected condensed consolidated statements of operations data as a percentage of revenues for each of the periods indicated:

 
Three Months Ended
Sept 30,
  
Nine Months Ended
Sept 30,
  
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
 2021  2020  2021  2020  2022 2021 2022 2021 
Revenue 100.0% 100.0% 100.0% 100.0% 
100.0
%
 
100.0
%
 
100.0
%
 
100.0
%
Costs and expenses:                     
Educational services and facilities 42.8% 43.5% 42.1% 42.9% 
43.5
%
 
42.8
%
 
43.8
%
 
42.1
%
Selling, general and administrative  50.8%  51.7%  51.8%  55.4% 
51.2
%
 
50.8
%
 
54.4
%
 
51.8
%
Loss (gain) on sale of assets  
0.0
%
  
0.0
%
  
-0.1
%
  
0.0
%
Total costs and expenses  93.6%  95.2%  93.9%  98.3%  
94.7
%
  
93.6
%
  
98.1
%
  
93.9
%
Operating income 6.4% 4.8% 6.1% 1.7% 
5.3
%
 
6.4
%
 
1.9
%
 
6.1
%
Interest expense, net  -0.3%  -0.4%  -0.4%  -0.5%  
0.0
%
  
-0.3
%
  
0.0
%
  
-0.4
%
Income before income taxes 6.1% 4.4% 5.8% 1.2%
Income from operations before income taxes 
5.3
%
 
6.1
%
 
1.9
%
 
5.8
%
Provision for income taxes  1.8%  0.1%  1.4%  0.1%  
1.4
%
  
1.8
%
  
0.3
%
  
1.4
%
Net Income  4.3%  4.3%  4.3%  1.1%
Net income  
3.9
%
  
4.3
%
  
1.6
%
  
4.3
%

Three Months Ended September 30, 20212022 Compared to Three Months Ended September 30, 20202021

Consolidated Results of Operations

Revenue.  Revenue.  Revenue increased $10.3$2.7 million,, or 13.0%3.1% to $89.1$91.8 million for the three months ended September 30, 20212022 from $78.8$89.1 million in the prior year comparable period.The revenue increase in revenue was the result of an 8.3% increase in average population driven by the nine month start growth of 8.8% in addition to a 4.3%5.9% increase in average revenue per student which more than offset a 2.7% decline in the currentaverage student population for the quarter.  Average student population declined as a result of the 9.2% decline in new student starts for the quarter compared to last year.  The higher revenue per student resulted from tuition increases combined with more efficient program delivery through the roll-out of the Company’s new hybrid teaching model.  The hybrid model delivers higher daily revenue rates in certain programs as their overall duration can be shortened.

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 increased $3.9$1.8 million, or 11.3%4.8% to $38.1$39.9 million for the three months ended September 30, 20212022 from $34.2$38.1 million in the prior year comparable period.  AdditionalIncreased costs were primarily concentrated in instruction expense, books and toolsinstructional expense and facilities expense.

Instructional increases were driven in part by inflationary pressures on instructor salaries increased mainly due to widespread instructor shortageshigher staffing levels in addition to expenses incurred in connection with the transition to our new hybrid teaching model.

Facility expenses increased as a larger student population, which also droveresult of approximately $0.8 million of additional books and tools expense.  Facilitiesrent expense increased from the normalizationsale leaseback transaction relating to our Denver and Grand Prairie campuses consummated in the fourth quarter of housing expenses for students during the quarter.2021.

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Educational services and facilities expense, as a percentage of revenue, decreased slightlyincreased to 42.8%43.5% from 43.5%42.8% for the three months ended September 30, 20212022 and 2020,2021, respectively.

26
Selling, general and administrative expense.Our selling, general and administrative expense increased $4.5$1.8 million, or 11.1%3.9% to $45.2$47.0 million for the three months ended September 30, 20212022, from $40.7$45.2 million in the prior year comparable period.  The increase quarter over quarter was driven primarily by incentiveseveral factors, including increased salary and stock based compensation due to our improved financial performance in addition to increased marketing investments.

Marketing investments increasedbenefits expense driven by higher salary and medical claims, severance expense as we continuebetter align our cost structure in certain functions, additional spending for the centralization of financial aid, expected to test, evaluatebe completed by year-end and adjust spending to optimize our resultsone-time expenses in an effort to increase both lead generation and brand awareness. The majority of our marketing spend today is invested in digital channels driven primarily by search engine marketing which is focused on our core student demographics and the geographic areas surrounding our campuses. We have gradually, but steadily, expanded our presence in various paid social media channels as well as both digital display and video advertising. While we continue to maintain a presence in traditional media such as television and radio, we are now utilizing a mix of broadcast, cable and streaming media to effectively reach prospective students.connection with growth initiatives.

Selling, general and administrative expense, as a percentage of revenue, decreasedincreased to 50.8%51.2% from 51.7%50.8% for the three months ended September 30, 20212022 and 2020,2021, respectively.

Net interest expense.  Net interest expense remained essentially flat atdecreased by approximately $0.3 million, for the three months ended September 30, 2021 and 2020, respectively.

Income taxes.  Our provision for income taxes was $1.6 million comparedor 87.7% to approximatelyless than $0.1 million for the three months ended September 30, 2021 and 2020, respectively.2022 from $0.3 million in the prior year comparable period.  The higher provision for the third quarter of 2021 compared to prior yeardecrease in expense was due to the releasepayoff of all outstanding debt during the fourth quarter of the valuation allowance as of December 31, 2020.  The effectiveprior year in connection with the sale leaseback transaction.

Income taxes.  Our income tax rateprovision for the three months endingended September 30, 20212022 was $1.3 million, or 26.8% of pre-tax income, compared to $1.6 million, or 29.6%. of pre-tax income, in the prior year comparable period.  The decrease in effective tax rate was due to a higher discrete benefit relating to restricted stock vesting.

Nine Months Ended September 30, 20212022 Compared to Nine Months Ended September 30, 20202021

Consolidated Results of Operations

Revenue.  Revenue increased $36.2$9.0 million,, or 17.1%3.6% to $247.5$256.5 million for the nine months ended September 30, 20212022 from $211.3$247.5 million in the prior year comparable period.  The increase in revenue was the result of an 11.3%driven by several factors including a slight increase in average student population, driven by continued student start growth, up 8.8% in combination with startingbeginning the year with approximately 1,000740 more students than in the prior year comparable period.  Further contributing to the increase wasperiod, average revenue per student, up 5.2% and the normalization of our revenue stream2.7% driven by tuition increases combined with more efficient program delivery through the return to in-person instruction at all of our campuses.

The prior year financial results reflect the unprecedented impact from the COVID-19 pandemic which started in March of 2020.  As a result, certain financial and operational comparisons year over year may be distorted as a resultroll-out of the impact of COVID-19.Company’s new hybrid teaching model.  The hybrid model delivers higher daily revenue rates in certain programs as their overall duration can be shortened.

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 increased $13.4$8.1 million, or 14.8%7.8% to $104.1$112.2 million for the nine months ended September 30, 20212022 from $90.7$104.1 million in the prior year comparable period.  The higherIncreased costs were mainlyprimarily concentrated in instructional books and toolsexpense and facilities expenses.  expense.

Instructional increases were driven in part by inflationary pressures on instructor salaries increased mainly due to widespread instructor shortageshigher staffing levels in addition to a larger student population, which also drove additional books and tools expense.expenses incurred in connection with the transition to our new hybrid teaching model.  Further contributing to the increase was operating with a hybrid remotewere current market conditions, program expansion and the return to normalized levels of in-person instruction in the current year compared to remote learning in the prior year.  Additional facilities costs werepost COVID-19 restrictions.  In addition, consumables prices rose sharply driven by one-time rent reductions in the prior year coupled with overall facilities savings during campus closureson-going inflation and supply chain shortages

Facility expenses increased as a result of COVID-19.approximately $2.4 million of additional rent expense relating to our Denver and Grand Prairie campuses which are now leased subsequent to the consummation of the sale leaseback transaction relating to those campuses in the fourth quarter of 2021.

Educational services and facilities expense, as a percentage of revenue, decreasedincreased to 43.8% from 42.1% for the nine months ended September 30, 2022 and 2021, respectively.

Selling, general and administrative expense. Our selling, general and administrative expense increased $11.3 million, or 8.9% to $139.5 million for the nine months ended September 30, 2022 from 42.9%$128.2 million in the prior year comparable period.  The increase was driven by several factors including additional bad debt expense, increased salaries and benefits expense, severance and stock compensation related to severance, additional salary expense relating to sales aimed at continuing to grow high school population, increased spending in student services and career services as staffing levels were increased to accommodate an increasing number of students graduating and to assist with placements of graduates and lastly, one-time expenses made in connection with growth initiatives.

26
Bad debt expense for the nine months ended September 30, 2021 andwas lower than historical amounts due to an adjustment made in the first quarter of 2021 to qualifying student accounts receivables as permitted by the Higher Education Emergency Relieve Funds (“HEERF”).  In accordance with the applicable guidance, the Company combined HEERF funding with Company funds to provide financial relief to students who dropped from school due to COVID-19 related circumstances with unpaid accounts receivable balances during the period from March 15, 2020 respectively.to March 31, 2021.  The relief resulted in a net benefit to bad debt expense of approximately $3.0 million.

Selling, general and administrative expense.  Our selling, generalexpense, as a percentage of revenue, increased to 54.4% from 51.8% for the nine months ended September 30, 2022 and administrative expense2021, respectively.

Gain on sale of assets. Gain on sale of assets increased $11.2 million, or 9.5% to $128.2$0.2 million for the nine months ended September 30, 20212022 from $117.0less than $0.1 million in the prior year comparable period.  The increase year over year was driven by several factors includingthe result of the sale of our Suffield, Connecticut property during the second quarter of 2022, which was previously a $3.1former campus.  Net proceeds received from the sale were approximately $2.4 million increaseresulting in incentive and stock based compensation tied in part to a larger student population and improved financial performance, the normalization of operating expenses$0.2 million gain in the current year resulting from the return to in-person instruction at all of our campuses, an improved business climate as the country reopens and lastly, increased marketing investments year over year.

Marketing investments increased as we continue to test, evaluate and adjust spending to optimize our results in an effort to increase both lead generation and brand awareness. The majority of our marketing spend today is invested in digital channels driven primarily by search engine marketing which is focused on our core student demographics and the geographic areas surrounding our campuses. We have gradually, but steadily, expanded our presence in various paid social media channels as well as both digital display and video advertising. While we continue to maintain a presence in traditional media such as television and radio, we are now utilizing a mix of broadcast, cable and streaming media to effectively reach prospective students

27
Selling, general and administrative expense, as a percentage of revenue, decreased to 51.8% from 55.4% for the nine months ended September 30, 2021 and 2020, respectively.

Net interest expense.  Net interest expense remained essentially flat at $0.9decreased by approximately $0.8 million, or 87.0% to $0.1 million for the nine months ended September 30, 2021 and 2020, respectively.2022 from $0.9 million in the prior year comparable period.  The decrease in expense was due to the payoff of all outstanding debt during the fourth quarter of last year in connection with the sale leaseback transaction.    

Income taxes.  Our provision for income taxes was $3.6 million compared to $0.2 million for the nine months ended September 30, 2021 and 2020, respectively.  The highertax provision for the nine months ended September 30, 20212022 was $0.8 million, or 15.7% of pre-tax income, compared to $3.6 million, or 25.0% of pre-tax income, in the prior year comparable period.  The decrease in effective tax rate was due to the release of the valuation allowance as of December 31, 2020.  The effective tax rate for the nine months ending September 30, 2021 was 25.0%.a higher discrete benefit relating to restricted stock vesting.
 
Segment Results of Operations
 
We operate our business in two reportable segments: (a) the Transportation and Skilled Trades segment; and (b) the Healthcare and Other Professions (“HOPS”) segment.  The Company also utilizes the Transitional segment solely when and if it closes a school.  Our reportable segments have been determined based on a method by which we now evaluate performance and allocate resources.  Each reportable segment represents a group of post-secondary education providers that offer a variety of degree and non-degree academic programs.  These segments are organized by key market segments to enhance operational alignment within each segment to more effectively execute our strategic plan.  Each of the Company’s schools is a reporting unit and an operating segment.  Our operating segments are described below.

Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly in the career-oriented disciplines of transportation and skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).

Healthcare and Other Professions – The Healthcare and Other Professions segment offers academic programs in the career-oriented disciplines of health sciences, hospitality and business and information technology (e.g. dental assistant, medical assistant, practical nursing, culinary arts and cosmetology).

The Company also utilizes the Transitional segment solely when and if it closes a school.

We evaluate segment performance based on operating results.  Adjustments to reconcile segment results to consolidated results are included under the caption “Corporate,” which primarily includes unallocated corporate activity.

28
27
The following table presents results for our two reportable segments for the three months ended September 30, 20212022 and 2020:2021:

 Three Months Ended September 30,  Three Months Ended September 30, 
 2021  2020  % Change  2022 2021 % Change 
Revenue:                
Transportation and Skilled Trades $64,950  $56,828  14.3% 
$
67,329
 
$
64,950
 3.7%
HOPS  24,109   21,964   9.8%
Healthcare and Other Professions  
24,484
  
24,109
  1.6%
Total $89,059  $78,792   13.0% $91,813 $89,059  3.1%
                
Operating Income (Loss):         
Operating Income (loss):       
Transportation and Skilled Trades $11,842  $9,138  29.6% 
$
11,768
 
$
11,842
 -0.6%
Healthcare and Other Professions 1,833  1,654  10.8% 
1,180
 
1,833
 -35.6%
Corporate  (7,930)  (6,952)  -14.1%  
(8,068
)
  
(7,930
)
  -1.7%
Total $5,745  $3,840   49.6% $4,880 $5,745  -15.1%
                
Starts:                
Transportation and Skilled Trades 3,976  3,982  -0.2% 3,585 3,976 
-9.8
%
Healthcare and Other Professions  1,454   1,528   -4.8%  1,344  1,454  
-7.6
%
Total  5,430   5,510   -1.5%  4,929  5,430  
-9.2
%
                
Average Population:                
Transportation and Skilled Trades 8,863  8,349  6.2% 8,748 8,863 
-1.3
%
Leave of Absence - COVID-19  (9)  (333)  97.3%  -  (9)  
100.0
%
Transportation and Skilled Trades Excluding Leave of Absence - COVID-19  8,854   8,016   10.5%  8,748  8,854  
-1.2
%
                
Healthcare and Other Professions 4,326  4,286  0.9% 4,076 4,326 
-5.8
%
Leave of Absence - COVID-19  (2)  (137)  98.5%  -  (2)  
100.0
%
Healthcare and Other Professions Excluding Leave of Absence - COVID-19  4,324   4,149   4.2%  4,076  4,324  
-5.7
%
                      
Total  13,189   12,635   4.4%  12,824  13,189  
-2.8
%
Total Excluding Leave of Absence - COVID-19  13,178   12,165   8.3%  12,824  13,178  
-2.7
%
                
End of Period Population:                
Transportation and Skilled Trades 9,473  8,811  7.5% 9,298 9,473 
-1.8
%
Leave of Absence - COVID-19  -   (67)  100.0%
Transportation and Skilled Trades Excluding Leave of Absence - COVID-19  9,473   8,744   8.3%
         
Healthcare and Other Professions 4,533  4,462  1.6%  4,288  4,533  
-5.4
%
Leave of Absence - COVID-19  -   (37)  100.0%
Healthcare and Other Professions Excluding Leave of Absence - COVID-19  4,533   4,425   2.4%
            
Total  14,006   13,273   5.5%  13,586  14,006  
-3.0
%
Total Excluding Leave of Absence - COVID-19  14,006   13,169   6.4%

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28
Three Months Ended September 30, 20212022 Compared to the Three Months Ended September 30, 20202021
 
Transportation and Skilled Trades
Student starts remained essentially flat at approximately 4,000 for the three months ended September 30, 2021 and 2020, respectively.

Operating income increased $2.7 million toremained relatively flat at $11.8 million for the three months ended September 30, 20212022 and 2021.  The changes in revenue and expenses quarter over quarter were driven by the following factors:
Revenue increased $2.4 million, or 3.7% to $67.3 million for the three months ended September 30, 2022 from $9.1$64.9 million in the prior year comparable period.  Revenue increased due to the 4.9% increase in average revenue per student, driven by tuition increases and the greater efficiency through the hybrid delivery as detailed in the consolidated results of operations.
Educational services and facilities expense increased $0.9 million, or 3.6% to $27.7 million for the three months ended September 30, 2022 from $26.8 million in the prior year comparable period.  Increased costs were primarily concentrated in instructional expense and facilities expense.  Instructional salaries increased mainly due to higher staffing levels in addition to expenses incurred in connection with the transition to our new hybrid teaching model.  Facility expense increases were the result of approximately $0.8 million of additional rent expense relating to our Denver and Grand Prairie campuses, which are now leased following the consummation of the sale leaseback transaction of these campuses in the fourth quarter of 2021.  Partially offsetting the additional costs were reductions in books and tools expense.
Selling, general and administrative expense increased $1.4 million, or 5.6% to $27.8 million for the three months ended September 30, 2022 from $26.4 million in the prior year comparable period.  Increased costs were related to additional spending in student services and career services as staffing levels were increased to accommodate an increasing number of students graduating and to assist with placements of graduates.

Healthcare and Other Professions
Operating income was $1.2 million for the three months ended September 30, 2022 compared to $1.8 million in the prior year comparable period.  The increasechange quarter over quarter was mainly driven by the following factors:

Revenue increased $8.1by $0.4 million, or 14.3%1.6% to $64.9$24.5 million for the three months ended September 30, 2022 from $24.1 million in the prior year comparable period.  Revenue increased due to the 7.7% increase in average revenue per student, driven by tuition increases and the greater efficiency through the hybrid delivery as detailed in the consolidated results of operations.
Educational services and facilities expense increased $0.9 million, or 7.5% to $12.2 million for the three months ended September 30, 2022 from $11.3 million in the prior year comparable period.  Increased costs were primarily concentrated in instructional expense and facilities expense.  Instructional salaries increased mainly due to higher staffing levels in addition to expenses incurred in connection with the transition to our new hybrid teaching model.  Facility expense increases were primarily due to additional spending for common area maintenance quarter over quarter.
Selling, general and administrative expense remained essentially flat at $11.1 million and $10.9 million for each of the three months ended September 30, 2022 and 2021, respectively.

Corporate and Other
This category includes unallocated expenses incurred on behalf of the entire Company.  Corporate and other expenses remained essentially flat at $8.1 million and $7.9 million for the three months ended September 30, 2022 and 2021, respectively.

29
The following table presents results for our two reportable segments for the nine months ended September 30, 2022 and 2021:

  Nine Months Ended September 30, 
  2022  2021  % Change 
Revenue:         
Transportation and Skilled Trades 
$
184,087
  
$
177,586
   3.7%
Healthcare and Other Professions  
72,423
   
69,934
   3.6%
Total $256,510  $247,520   3.6%
             
Operating Income (loss):            
Transportation and Skilled Trades 
$
26,108
  
$
35,423
   -26.3%
Healthcare and Other Professions  
4,095
   
7,743
   -47.1%
Corporate  
(25,252
)
  
(27,949
)
  9.6%
Total $4,951  $15,217   -67.5%
             
Starts:            
Transportation and Skilled Trades  8,346   8,824   
-5.4
%
Healthcare and Other Professions  3,788   3,857   
-1.8
%
Total  12,134   12,681   
-4.3
%
             
Average Population:            
Transportation and Skilled Trades  8,527   8,312   
2.6
%
Leave of Absence - COVID-19  -   (16)  
100.0
%
Transportation and Skilled Trades Excluding Leave of Absence - COVID-19  8,527   8,296   
2.8
%
             
Healthcare and Other Professions  4,254   4,414   
-3.6
%
Leave of Absence - COVID-19  -   (44)  
100.0
%
Healthcare and Other Professions Excluding Leave of Absence - COVID-19  4,254   4,370   
-2.7
%
             
Total  12,781   12,726   
0.4
%
Total Excluding Leave of Absence - COVID-19  12,781   12,666   
0.9
%
             
End of Period Population:            
Transportation and Skilled Trades  9,298   9,473   
-1.8
%
Healthcare and Other Professions  4,288   4,533   
-5.4
%
Total  13,586   14,006   
-3.0
%

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Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Transportation and Skilled Trades
Operating income was $26.1 million for the nine months ended September 30, 2022 compared to $35.4 million in the prior year comparable period.  The change year over year was driven by the following factors:
Revenue increased $6.5 million, or 3.7% to $184.1 million for the nine months ended September 30, 2022 from $56.8$177.6 million in the prior year comparable period.  The increase in revenue was the result ofprimarily driven by a 2.8% increase in average student population up 10.5%, driven by a 10.2% increase in student starts for the nine months in additionmainly due to a 3.5% increase in average revenue per studenthigher beginning of period population in the current quarter.year of approximately 730 students.
Educational services and facilities expense increased $2.9$5.1 million, or 12.1%7.2% to $26.8$76.5 million for the threenine months ended September 30, 20212022 from $23.9$71.4 million in the prior year comparable period.  The increase was driven by additionalIncreased costs were primarily concentrated in instructional expense, books and tools expense and facilities expense.  Instructional increases were driven in part by inflationary pressures on instructor salaries increased mainly due to widespread instructor shortageshigher staffing levels in addition to a larger student population, which also drove booksexpenses incurred in connection with the transition to our new hybrid teaching model.  Further contributing to the increase were current market conditions, program expansion and toolsthe return to normalized levels of in-person instruction post COVID-19 restrictions.  In addition, consumables prices rose sharply driven by on-going inflation and supply chain shortages.  Facility expense increases were the result of approximately $2.4 million of additional rent expense relating to our Denver and Grand Prairie campuses following the consummation of the sale leaseback transaction of these campuses in the fourth quarter of 2021.  Partially offsetting the additional facility costs are reductions in depreciation expense.  Facilities expense increased from the normalization of housing expenses for students during the quarter.
Selling, general and administrative expense increased $2.5$10.7 million, or 10.6%15.0% to $26.4$81.4 million for the threenine months ended September 30, 20212022 from $23.8 million in the prior year comparable period.  The increase in costs were the result of a larger student population in combination with additional investments in marketing initiatives during the quarter.

Healthcare and Other Professions
Student starts remained essentially flat at approximately 1,500 for the three month ended September 30, 2021 and 2020, respectively.

Operating income increased $0.1 million to $1.8 million for the three months ended September 30, 2021 from $1.7 million in the prior year comparable period.  The increase quarter over quarter was mainly driven by the following factors:

Revenue increased $2.1 million, or 9.8% to $24.1 million for the three months ended September 30, 2021 from $22.0 million in the prior year comparable period.  The increase in revenue was the result of average student population, up 4.2%, driven by a 5.6% increase in student starts for the nine months in addition to a 5.3% increase in average revenue per student in the current quarter.
Educational services and facilities expense increased $0.9 million, or 9.2% to $11.3 million for the three months ended September 30, 2021 from $10.4$70.7 million in the prior year comparable period.  The increase was primarily driven by additional bad debt expense, salary expense in sales and increased spending in student services and career services as discussed in the consolidated results of operations above.

Healthcare and Other Professions
Operating income was $4.1 million for the nine months ended September 30, 2022 compared to $7.7 million in the prior year comparable period.  The change year over year was driven by the following factors:

•
Revenue increased $2.5 million, or 3.6% to $72.4 million for the nine months ended September 30, 2022 from $69.9 million in the prior year comparable period.  The revenue increase was driven by a 6.4% increase in average revenue per student which more than offset a 2.7% decline in the average student population for the quarter.  Average student population declined as a result of the 1.8% decline in new student starts for the year.  The higher revenue per student resulted from tuition increases combined with more efficient program delivery through the roll-out of the Company’s new hybrid teaching model.  The hybrid model delivers higher daily revenue rates in certain programs as their overall duration can be shortened.
Educational services and facilities expense increased $3.0 million, or 9.0% to $35.7 million for the nine months ended September 30, 2022 from $32.7 million in the prior year comparable period.  Increased costs were primarily concentrated in instructional expense and books and tools expensefacilities expense.  Instructional increases were driven in part by inflationary pressures on instructor salaries increased mainly due to widespread instructor shortages, especially in the nursing fieldhigher staffing levels in addition to a larger student population, which also drove booksexpenses incurred in connection with the transition to our new hybrid teaching model.  Further contributing to the increase were current market conditions, program expansion and tools expense.the return to normalized levels of in-person instruction post COVID-19 restrictions.  Facility expense increases were primarily due to additional spending for common area maintenance year over year.
Selling, general and administrative expense increased $1.0$3.2 million, or 10.2%10.8% to $10.9$32.6 million for the threenine months ended September 30, 20212022 from $9.9$29.4 million in the prior year comparable period. Additional costs wereThe increase was primarily driven by additional bad debt expense, salary expense in sales and increased spending in student services and career services as discussed in the resultconsolidated results of an increased student population in combination with a slight increase in bad debt.operations above.

Corporate and Other
This category includes unallocated expenses incurred on behalf of the entire Company.  Corporate and other expenses were $7.9$25.3 million and $6.9 million for each of the three months ended September 30, 2021 and 2020, respectively.  The additional expense quarter over quarter was primarily due to incentive and stock based compensation tied in part to improved financial performance.

30
The following table present results for our two reportable segments for the nine months ended September 30, 2021 and 2020:

  Nine Months Ended September 30, 
  2021  2020  % Change 
Revenue:         
Transportation and Skilled Trades $177,586  $148,799   19.3%
HOPS  69,934   62,504   11.9%
Total $247,520  $211,303   17.1%
             
Operating Income (Loss):            
Transportation and Skilled Trades $35,423  $18,848   87.9%
Healthcare and Other Professions  7,743   6,388   21.2%
Corporate  (27,949)  (21,581)  -29.5%
Total $15,217  $3,655   316.3%
             
Starts:            
Transportation and Skilled Trades  8,824   8,004   10.2%
Healthcare and Other Professions  3,857   3,651   5.6%
Total  12,681   11,655   8.8%
             
Average Population:            
Transportation and Skilled Trades  8,312   7,651   8.6%
Leave of Absence - COVID-19  (16)  (260)  93.8%
Transportation and Skilled Trades Excluding Leave of Absence - COVID-19  8,296   7,391   12.2%
             
Healthcare and Other Professions  4,414   4,176   5.7%
Leave of Absence - COVID-19  (44)  (188)  76.6%
Healthcare and Other Professions Excluding Leave of Absence - COVID-19  4,370   3,988   9.6%
             
Total  12,726   11,827   7.6%
Total Excluding Leave of Absence - COVID-19  12,666   11,379   11.3%
             
End of Period Population:            
Transportation and Skilled Trades  9,473   8,811   7.5%
Leave of Absence - COVID-19  -   (67)  100.0%
Transportation and Skilled Trades Excluding Leave of Absence - COVID-19  9,473   8,744   8.3%
             
Healthcare and Other Professions  4,533   4,462   1.6%
Leave of Absence - COVID-19  -   (37)  100.0%
Healthcare and Other Professions Excluding Leave of Absence - COVID-19  4,533   4,425   2.4%
             
Total  14,006   13,273   5.5%
Total Excluding Leave of Absence - COVID-19  14,006   13,169   6.4%

Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020

Transportation and Skilled Trades
Student starts increased 10.2%, to approximately 8,800 for the nine months ended September 30, 2021 from approximately 8,000 in the prior year comparable period.

Operating income increased $16.6 million to $35.4$27.9 million for the nine months ended September 30, 2022 and 2021, from $18.8 millionrespectively.  The decrease in the prior year comparable period.  The increaseexpense year over year was mainlyprimarily driven by a reduction in incentive compensation and a gain resulting from the following factors:sale of our Suffield, Connecticut property during the second quarter of 2022, which was previously a former campus.  Partially offsetting these cost savings are increased salaries and benefits expenses in addition to severance and stock-based compensation related to severance.

31

•
Revenue increased $28.8 million, or 19.3% to $177.6 million for the nine months ended September 30, 2021 from $148.8 million in the prior year comparable period.  The increase in revenue was driven by several factors including average student population, up 12.2%, driven by a 10.2% increase in student starts, a 6.3% increase in average revenue per student and the normalization of our revenue stream with the return to in-person instruction at all of our campuses.
Educational services and facilities expense increased $9.4 million, or 15.1% to $71.4 million for the nine months ended September 30, 2021 from $62.0 million in the prior year comparable period.  The higher costs were mainly concentrated in instructional, books and tools and facilities expenses.  Instructional increases were driven in part by inflationary pressures on instructor salaries due to widespread instructor shortages in addition to a larger student population, which also drove books and tools expense.  Additional facilities costs were driven by one-time rent reductions in the prior year coupled with overall facilities savings during campus closures as a result of COVID-19.
Selling, general and administrative expense increased $2.7 million, or 4.0% to $70.7 million for the nine months ended September 30, 2021 from $68.0 million in the prior year comparable period. The increase in costs were the result of several factors including a larger student population, additional investments in marketing initiatives during the quarter and the return to in-person instruction at all of our campuses. 

Healthcare and Other Professions
Student starts increased 5.6%, to approximately 3,900 for the nine months ended September 30, 2021 from approximately 3,700 in the prior year comparable period.

Operating income increased $1.4 million to $7.7 million for the nine months ended September 30, 2021 from $6.4 million in the prior year comparable period.  The increase year over year was mainly driven by the following factors:


•
Revenue increased $7.4 million, or 11.9% to $69.9 million for the nine months ended September 30, 2021 from $62.5 million in the prior year comparable period. The increase in revenue was driven by several factors including average student population, up 9.6%, driven by a 5.6% increase in student starts, a 2.1% increase in average revenue per student and the normalization of our revenue stream with the return to in-person instruction at all of our campuses.
Educational services and facilities expense increased $4.0 million, or 14.0% to $32.7 million for the nine months ended September 30, 2021 from $28.7 million in the prior year comparable period.  The higher costs were mainly concentrated in instructional, books and tools and facilities expenses.  Instructional increases were driven in part by inflationary pressures on instructor salaries due to widespread instructor shortages, especially in the nursing field in addition to a larger student population, which also drove books and tools expense. Additional facilities costs were driven by one-time rent reductions in the prior year coupled with overall facilities savings during campus closures as a result of COVID-19.  
Selling, general and administrative expense increased $2.0 million, or 7.5% to $29.4 million for the nine months ended September 30, 2021 from $27.4 million in the prior year comparable period. The increase in costs was the result of several factors including a larger student population, additional investments in marketing initiatives during the quarter and the return to in-person instruction at all of our campuses. 

Corporate and Other
This category includes unallocated expenses incurred on behalf of the entire Company.  Corporate and other expenses were $27.9 million and $21.6 million for each of the nine months ended September 30, 2021 and 2020, respectively. The additional expenses quarter over quarter were driven by several factors including the normalization of operating expenses in the current year; an improved business climate as the country begins to reopen and a $3.1 million increase in to incentive and stock based compensation tied in part to improved financial performance.
3231
LIQUIDITY AND CAPITAL RESOURCES
Our primary capital requirements are for maintenance and expansion of our facilities and the development of new programs. Our principal sources of liquidity have been cash provided by operating activities and borrowings under our Credit Facility.  The following chart summarizes the principal elements of our cash flow for each of the nine months ended September 30, 20212022 and 2020,2021, respectively:

 
Nine Months Ended
September 30,
  
Nine Months Ended
September 30,
 
 2021  2020  2022 2021 
Net cash provided by operating activities $17,750  $10,222  
$
612
 
$
17,750
 
Net cash used in investing activities (5,252) (3,457) 
(4,663
)
 
(5,252
)
Net cash used in financing activities (3,374) (17,816) 
(9,637
)
 
(3,374
)

As of September 30, 2021,2022, the Company had a net cash balance of $31.3 million compared to a net cash balance of $20.8 million at December 31, 2020.   The net cash balance is calculated as our cash and cash equivalents less both short and long-term portion of the credit agreement.$69.6 million compared to $83.3 million as of December 31, 2021.  The increasedecrease in cash position from year-end can mainly be attributed toyear end was the result of several factors including incentive compensation payments, share repurchases made under the share repurchase plan, and a decrease in net income generatedincome.  Partially offsetting the decrease in cash and cash equivalents was $2.4 million in net proceeds received as a result of the sale of a former campus located in Suffield, Connecticut executed during the second quarter of the current year.

On May 24, 2022, the Company announced that its Board of Directors has authorized a share repurchase program of up to $30.0 million of the Company’s outstanding common stock.  The repurchase program has been authorized for 12 months. As of September 30, 2022, the Company repurchased 1,083,403 shares at a cost of approximately $6.7 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 Programs, which represented approximately 77%75% of our cash receipts relating to revenues in 2020.2021. Pursuant to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student’s academic year. Certain types of grants and other funding are not subject to a 31-day delay.  In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned tuition or prorated Title IV Program financial aid is refunded according to federal, state and accrediting agency standards.

As a result of the significant amount of Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the level of Title IV Program funds that our students are eligible to receive or any restriction on our eligibility to receive Title IV Program funds would have a significant impact on our operations and our financial condition.  For more information, see Part I, Item 1A. “Risk Factors - Risks Related to Our Industry” inof our Form 10-K.

Operating Activities

Net cash provided by operating activities was $17.8$0.6 million and $10.2 million for each of the nine months ended September 30, 2021 and 2020, respectively.  Included in cash provided by operating activities in the nine months ended September 30, 2020 was $11.5 million in federal funds received under the Cares Acts intended for reimbursement to students for expenses related to disruptions in campus operations as a direct result of the COVID-19 pandemic.  Excluding these funds, we would have reported net cash used in operating activities of $1.2 million.  The increase of $19.0 million in cash provided by operating activities was primarily driven by net income generated for the nine months ended September 30, 2021.2022 compared to $17.8 million in the prior year comparable period.  The cash used in or provided by operating activities is subject to changes in working capital, which at any point in time is subject to many variables including the timing of cash receipts and cash payments and vendor payment terms.  For the nine months ended September 30, 2022 net cash used in operating activities was driven by changes in working capital in addition to a decrease in net earnings year over year.

Investing Activities

Net cash used in investing activities was $5.3$4.7 million for the nine months ended September 30, 20212022 compared to $3.5$5.3 million in the prior year comparable period.  The decrease in net cash used was driven by an increase in liquidity resulting from $2.4 million in net proceeds received from the sale of our former campus located in Suffield, Connecticut executed during the second quarter of the current year.

One of our primary uses of cash in investing activities was capital expenditures associated with investments in training technology, classroom furniture, and new program buildouts.

32
We currently lease a majority of our campuses. We own our realcampus in Nashville, Tennessee, which currently is subject to a sale leaseback agreement (described elsewhere in this Form 10-Q) for the sale of the property in Grand Prairie, Texas; Nashville, Tennessee; and Denver, Colorado and our former school property located in Suffield, Connecticut.which is currently expected to be consummated within the next 12 months.

Capital expenditures were 2% of revenues in 20202021 and are expected to approximate 2%3% of revenues in 2021.2022.  We expect to fund future capital expenditures with cash generated from operating activities and borrowings under our credit facility.cash on hand.

33
Financing Activities

Net cash used in financing activities was $3.4$9.6 million for the nine months ended September 30, 20212022 compared to $17.8$3.4 million in the prior year comparable period.  The decreaseincrease in net cash used of $14.4$6.2 million was primarily driven by the implementation of a decrease in net payments on borrowingsshare repurchase program during the second quarter of $15.0 million year over year, partially offset by an increase of $0.7 million in equity based compensation.the current year.

Credit Facility with Sterling National Bank

On November 14, 2019, the Company entered into a new senior secured credit agreement (the “Credit Agreement”) with its lender, Sterling National Bank (the “Lender”), providing for borrowing in the aggregate principal amount of up to $60 million (the “Credit Facility”).

The Initially, the Credit Facility iswas comprised of four facilities: (1) a $20 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 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 million senior secured committed revolving line of credit providing a sublimit of up to $10 million for standby letters of credit maturing on November 13, 2022 (the “Revolving Loan”), with monthly payments of interest only; and (4) a $15 million senior secured non-restoring line of credit maturing on January 31, 2021 (the “Line of Credit Loan”).  The

At the closing of the Credit Facility, the Company entered into a swap transaction with the Lender for 100% of the principal balance of the Term Loan maturing on the same date as the Term Loan.  Under the terms of the Credit Facility accrued interest on each loan was payable monthly in arrears with the Term Loan and the Delayed Draw Term Loan bearing interest at a floating interest rate based on the then one-month London Interbank Offered Rate (“LIBOR”) plus 3.50% and subject to a LIBOR interest rate floor of 0.25% if there was no swap agreement. Revolving Loans bore interest at a floating interest rate based on the then LIBOR plus an indicative spread determined by the Company’s leverage as defined in the Credit Agreement givesor, if the Company the rightborrowing of a Revolving Loan was to permanently terminate, in its entirety,be repaid within 30 days of such borrowing, the Revolving Loan oraccrued interest at the Lender’s prime rate plus 0.50% with a floor of 4.0%.  Line of Credit Loans bore interest at a floating interest rate based on the Lender’s prime rate of interest.  Letters of credit issued under the Revolving Loan reduced, on a dollar-for-dollar basis, the availability of borrowings under the Revolving Loan. Letters of credit were charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) 0.25%, paid quarterly in arrears, in addition to the Lender’s customary fees for issuance, amendment and other standard fees.  Borrowings under the Line of Credit Loan or permanently reducewere secured by cash collateral. The Lender received an unused facility fee of 0.50% per annum payable quarterly in arrears on the amount available for borrowing underunused portions of the Revolving Loan orand the Line of Credit Loan.

In April 2020,addition to the Company terminatedforegoing, the LineCredit Agreement contained customary representations, warranties, and affirmative and negative covenants (including financial covenants that (i) restricted capital expenditures, (ii) restricted leverage, (iii) required maintaining minimum tangible net worth, (iv) required maintaining a minimum fixed charge coverage ratio and (v) required the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with the Lender, which, if not maintained, would result in the assessment of a quarterly fee of $12,500), as well as events of default customary for facilities of this type. The Credit Loan.  OnAgreement also limited the payment of cash dividends during the first 24-months of the agreement to $1.7 million but an amendment to the Credit Agreement entered into on November 10, 2020 raised the Company entered into an amendmentcash dividend limit to its Credit Agreement to extend the Delayed Draw Availability Period by one year to May 31, 2022 and$2.3 million in such 24-month period to increase the amount of permitted cash dividends that the Company can pay on its Series A Preferred Stock during the first twenty-four months ofStock.

As further discussed below, the Credit Agreement from $1.7 million to $2.3 million.

The Credit Facility iswas secured by a first priority lien in favor of the Lender on substantially all of the personal property owned by the Company, as well as a pledge of the stock and other equity in the Company’s subsidiaries and mortgages on parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as a former school property owned by the Company located in Connecticut.

At the closing of the Credit Facility, the Lender advanced the Term Loan to the Company, the net proceeds of which were $19.7 million after deduction of the Lender’s origination fee in the amount of $0.3 million and other Lender fees and reimbursements to the Lender that are customary for facilities of this type.  The Company used the net proceeds of the Term Loan, together with cash on hand, to repay the existing credit facility and transaction expenses.

Pursuant to the terms of the Credit Agreement, letters of credit issued under the Revolving Loan reduce dollar for dollar the availability of borrowings under the Revolving Loan.

Accrued interest on each loan under the Credit Facility is payable monthly in arrears.  The Term Loan and the Delayed Draw Term Loan bear interest at a floating interest rate based on the then one month London Interbank Offered Rate (“LIBOR”) plus 3.50%.  At the closing of the Credit Facility, the Company entered into a swap transaction with the Lender for 100% of the principal balance of the Term Loan, which matures on the same date as the Term Loan.  At the end of the borrowing availability period for the Delayed Draw Term Loan, the Company is required to enter into a swap transaction with the Lender for 100% of the principal balance of the Delayed Draw Term Loan, which will mature on the same date as the Delayed Draw Term Loan, pursuant to a swap agreement between the Company and the Lender or the Lender’s affiliate.  The Term Loan and Delayed Draw Term Loan are subject to a LIBOR interest rate floor of .25% if there is no swap agreement.

Revolving Loans bear interest at a floating interest rate based on the then LIBOR plus an indicative spread determined by the Company’s leverage as defined in the Credit Agreement or, if the borrowing of a Revolving Loan is to be repaid within 30 days of such borrowing, the Revolving Loan will accrue interest at the Lender’s prime rate plus .50% with a floor of 4.0%.  Revolving Loans are subject to a LIBOR interest rate floor of .00%.

Letters of credit are charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) .25%, paid quarterly in arrears, in addition to the Lender’s customary fees for issuance, amendment and other standard fees.  Letters of credit totaling $4 million that were outstanding under the existing credit facility are treated as letters of credit under the Revolving Loan.

34
33
Under the terms of the Credit Agreement, the Company may prepay the Term Loan and/or the Delayed Draw Term Loan in full or in part without penalty except for any amount required to compensate the Lender for any swap breakage or other costs incurred in connection with such prepayment.  The Lender receives an unused facility fee of 0.50% per annum payable quarterly in arrears on the unused portions of the Revolving Loan.

In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants (including financial covenants that (i) restrict capital expenditures, (ii) restrict leverage, (iii) require maintaining minimum tangible net worth, (iv) require maintaining a minimum fixed charge coverage ratio and (v) require the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with the Lender, which, if not maintained, will result in the assessment of a quarterly fee of $12,500), as well as events of default customary for facilities of this type. As of September 30, 2021, the Company was in compliance with all debt covenants.  The Credit Agreement also limited the payment of cash dividends during the first twenty-four months of the agreement to $1.7 million but an amendment to the Credit Agreement entered into on November 10, 2020 raised the cash dividend limit to $2.3 million in such twenty-four-month period.

On September 23, 2021, in connection with entering into the agreements relating to the sale leaseback transaction for the Company’s Denver, Grand Prairie and Nashville campuses (collectively, the “Property Transactions”), the Company and certain of its subsidiaries entered into a Consent and Waiver Letter Agreement (the “Consent Agreement”) to the Company’s existing Credit Agreement.Agreement with its Lender.  The Consent Agreement consents to certain real estate transactions with respectprovides the Lender’s consent to the Nashville, Denver and Grand Prairie campuses (collectively, the “Property Transactions”)Property Transactions and waives certain covenants in the Credit Agreement, subject to certain conditions specified therein.conditions. In addition, in connection with the consummation of the Property Transactions, the Lender has agreed to releasereleased its mortgages and other liens on the subject-properties. In connection withsubject-properties upon the Consent Agreement, at the closing of the Property Transactions, the Company is required to payCompany’s payment in full of the outstanding principal and accrued interest ofon the Term Loan and any swap obligations arising from any swap transaction entered intotransaction. Upon the consummation of the Property Transaction on October 29, 2021 the Company paid the Lender approximately $16.7 million in connection withrepayment of the Term Loan and the swap termination fee and no further borrowings may be made under the Term Loan or the Delayed Draw Term Loan.  On October 29, 2021,Further, during the sale lease-backsecond quarter of the Denver and Grand Prairie campuses was consummated which provided2022, the Company withsold a property located in Suffield, Connecticut for net proceeds of approximately $28.5 million after deduction of transaction-related expenses of approximately $1.2 million and repayment$2.4 million.  Prior to the consummation of the Company’s outstanding termtransaction, Lincoln obtained consent from the Lender to enter into the sale of this property.

Pursuant to certain amendments and modifications to the Credit Agreement and other loan documents, the Term Loan and swap termination feethe Delayed Draw Term Loan were paid off in full and on January 21, 2021, the Line of approximately $16.8 million.  The Company is exploring alternatives regarding a future credit facility.Credit expired by the terms, conditions and provisions of the Credit Agreement and the Credit Agreement was extended and would have matured on November 14, 2023.

As of September 30, 20212022, and December 31, 2020,2021, the Company had $16.3 million and $17.8 million, respectively,zero debt outstanding under the Credit Facility offset by $0.5 millionfor both periods and $0.6 million of deferred finance fees, respectively.was in compliance with all debt covenants.  As of September 30, 20212022, and December 31, 2020,2021, letters of credit in the aggregate outstanding principal amount of $4.0 million and $4.0 million, respectively, were outstanding under the Credit Facility.

Subsequent to the end of the quarter, on November 4, 2022, the Company agreed with its Lender to terminate the Credit Agreement and the remaining Revolving Loan.  The following table sets forth our long-term debt (in thousands):Lender has agreed to allow the Company’s existing letters of credit to remain outstanding provided that they are cash collateralized.

  
September 30,
2021
  
December 31,
2020
 
Credit agreement $16,333  $17,833 
Deferred Financing Fees  (485)  (621)
   15,848   17,212 
Less current maturities  (2,000)  (2,000)
  $13,848  $15,212 

Contractual Obligations

Current portion of Long-Term Debt, Long-Term Debt and Lease Commitments.  As of September 30, 2021, our current portion of long-term2022, we have no debt and long-term debt consisted of borrowings under our Credit Facility.outstanding.  We lease offices, educational facilities and various items of equipment for varying periods through the year 20312041 at basic annual rentals (excluding taxes, insurance, and other expenses under certain leases).

As of September 30, 2021,2022, we had outstanding loan principal commitments to our active students of $30.3$31.4 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 packagedrequired to fund their education using these funds and they are not reported on our financials.financial statements.

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Regulatory Updates

DOE and OIG Audit Findings.  Our schools are subject to audits, program reviews, site visits, and other reviews by various federal and state regulatory agencies, including, but not limited to, the DOE, the DOE’s Office of Inspector General (“OIG”), state education agencies and other state regulators, the U.S. Department of Veterans Affairs and other federal agencies, and by our accrediting commissions. In addition, each of our institutions must retain an independent certified public accountant to conduct an annual audit of the institution’s administration of Title IV Program funds.  The institution must submit the resulting audit report to the DOE for review.  See our Form 10-K at “Business – Regulatory Environment – Compliance with Regulatory Standards and Effect of Regulatory Violations.”  Some of the findings in the annual Title IV Program compliance audits for some of our institutions resulted in the DOE placing those institutions on provisional certification.  See Form 10-K at “Business - Regulatory Environment – Regulation of Federal Student Financial Aid Programs.”

On October 5, 2021, our New Britain institution received a final audit determination letter from the DOE in connection with the Title IV compliance audit for the 2020 fiscal year.  The letter contained 8 findings of alleged noncompliance with certain Title IV requirements.  The letter noted that several of the findings were repeat findings that had appeared in prior audit reports.  The total amount of questioned funds in the report totaled approximately $16,000, all of which had been repaid prior to the issuance of the final audit determination. The letter requires that the institution correct all of the deficiencies noted in the audit report and requires the auditor to comment in the 2021 fiscal year audit on the actions taken by the institution in response to the findings and required actions.  The letter indicates that repeat findings in future audits or failure to satisfactorily resolve the findings of the audit could lead to an adverse action.  The letter also notes that, due to the seriousness of one or more of the findings, the letter has been referred to a separate office within the DOE for consideration of possible adverse action.  The letter states that an adverse action may include the imposition of a fine; the limitation, suspension, or termination of the institution’s Title IV eligibility; the revocation of the institution’s provisional program participation agreement; or the denial of a future application for renewal of the institution’s Title IV certification.  The letter indicates that the DOE will notify the institution if the DOE initiates an adverse action and will notify the institution of its appeal rights and procedures on how to contest the action if any is taken.  We are continuing to cooperate with the audit process and to respond to the DOE’s requests for information in connection with the audits.

Our other two institutions had findings of noncompliance in their respective Title IV compliance audits for the 2020 fiscal year.  The DOE requested that, in connection with some of the findings in the audit reports, the institutions conduct a file review of all student files from the 2020 fiscal year in order to determine the extent of alleged noncompliance related to those findings.  We are in the process of conducting those reviews, preparing our responses to the findings, and ultimately submitting them to the DOE.  Once we have submitted our responses, the DOE will issue a final audit determination letter to each institution after it completes its review and consideration of our responses.  We cannot predict whether some of the findings may be referred to a separate office within the DOE for consideration of a possible adverse action.  We cannot predict the outcome of these audits, any action the DOE might initiate in response to the audit findings, or the outcome of any appeal that might result in response to a DOE action related to the findings.  We are continuing to cooperate with the audit process and to respond to the DOE’s requests for information in connection with the audits.

On December 16, 2020, the OIG began an audit of our Indianapolis institution to ensure we used the funds provided under the Higher Education Emergency Relief Fund (“HEERF”) for allowable and intended purposes and to perform limited work on the institution’s cash management practices and HEERF reporting.  We have been cooperating with the OIG during its audit of the institution.On September 24, 2021, the OIG issued a final audit report containing 3 findings of alleged non-compliance and 2 additional topics that were each classified as an “other matter.”  The final report is inclusive of our response to the findings and other matters.  The final audit report has been sent to the DOE for further consideration.  We cannot predict the outcome of the audit, any liabilities or other actions the DOE might initiate in response to the audit findings, or the outcome of any appeal that might result in response to a DOE action related to the findings.  We are continuing to cooperate with the ongoing audit process.

FTC and FSA Office of Enforcement.In recent years, Congress, the DOE, states, accrediting agencies, the Consumer Financial Protection Bureau (“CFPB”), the Federal Trade Commission (“FTC”), state attorneys general and the media have scrutinized the for-profit postsecondary education sector.  Under the current leadership of the DOE, there is an increased likelihood of scrutiny of our institutions by federal agencies.  See our Form 10-K at “Business – Regulatory Environment – Scrutiny of the For-Profit Postsecondary Education Sector.”

On October 6, 2021, the FTC issued an announcement regarding its plan to target false claims by for-profit colleges on topics such as promises about graduates’ job and earnings prospects and other outcomes, its intent to impose “significant financial penalties” on violators, and its intent to monitor the market carefully with federal and state partners.  The FTC indicated in the announcement that it had put 70 for-profit higher education institutions on notice that the agency would be “cracking down” on any such false promises.  All of our institutions were among the 70 institutions who received this notice.  Although the FTC stated that a school’s presence on the list of 70 institutions does not reflect any assessment as to whether they have engaged in deceptive or unfair conduct, the FTC’s announcement and its issuance of notices to schools could lead to further scrutiny, investigations, and potential attempted enforcement actions by the FTC and other regulators against for-profit schools, including our schools.

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On October 8, 2021, the DOE announced the establishment of an Office of Enforcement within the Federal Student Aid office that oversees institutions participating in the Title IV programs.  The action restored an office that previously was established in 2016 but deprioritized during the prior presidential administration.  The office will comprise four existing divisions including the Administrative Actions and Appeals Services Group (which among other things initiates adverse actions against institutions), the Borrower Defense Group (which analyzes borrower defense to repayment claims), the Investigations Group (which evaluates and investigations potential institutional noncompliance and collaborates with other federal and state regulators), and the Resolution and Referral Management Group (which tracks and resolves referrals, allegations and complaints about institutions and other parties that participate in the Title IV programs).  The establishment of the Office of Enforcement could result in an increase in enforcement actions and other activities against for-profit schools and school companies, including us.

The ARPA and the “90/10 Rule.”In March 2021, the $1.9 trillion American Rescue Plan Act of 2021 (“ARPA”) was signed into law.  Among other things, the ARPA provides $40 billion in relief funds that will go directly to colleges and universities with $395.8 million going to for-profit institutions.  We have been allocated approximately $8 million in funds that must be used entirely for student financial aid grants.  As of September 30, 2021, none of these funds have been drawn down.  We expect to distribute a majority of the funds in the fourth quarter of 2021.

In addition, the ARPA also includes a provision that amends the 90/10 rule.  A proprietary institution that derives more than 90% of its total revenue from Title IV Programs for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until the end of at least two fiscal years. An institution with revenues exceeding 90% for a single fiscal year will be placed on provisional certification and may be subject to other enforcement measures. See our Form 10-K at “Regulatory Environment – The ‘90/10 Rule’” and “Risk Factors – Our institutions would lose eligibility to participate in Title IV Programs if the percentage of their revenues derived from those programs exceeds 90%, which could reduce our student population and revenues.”   If Congress or the DOE were to amend the 90/10 Rule to treat other forms of federal financial aid as Title IV Program revenue for 90/10 Rule purposes, lower the 90% threshold, or otherwise change the calculation methodology, or make other changes to the 90/10 Rule, those changes could make it more difficult for our institutions to comply with the 90/10 Rule.

The ARPA amends the 90/10 rule by treating other “Federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution” in the same way as Title IV funds are currently treated in the 90/10 rule calculation.  This means that our institutions will be required to limit the combined amount of Title IV funds and applicable “Federal funds” revenue in a fiscal year to no more than 90% in a fiscal year as calculated under the rule.  Consequently, the ARPA change to the 90/10 rule is expected to increase the 90/10 rule calculations at our institutions.  The ARPA does not identify the specific Federal funding programs that will be covered by this provision, but it is expected to include funding from federal student aid programs such as the veterans’ benefits programs, which include the Post-9/11 GI Bill and Veterans Readiness and Employment services and from which we derived approximately 8% of our revenues on a cash basis in 2020.  For the year ended December 31, 2020, approximately 77% (calculated based on cash receipts) of our revenues were derived from the Title IV Programs.

The ARPA states that the amendments to the 90/10 rule apply to institutional fiscal years beginning on or after January 1, 2023 and are subject to the HEA’s negotiated rulemaking process which may not commence earlier than October 1, 2021.  Accordingly, the ARPA change to the 90/10 rule is not expected to apply to our 90/10 rule calculations until our 2023 fiscal year.  Moreover, we cannot predict the additional changes to the 90/10 rule or other regulations that might occur as a result of negotiated rulemaking to be conducted during 2021 and 2022 as required by the ARPA.  On October 4, 2021, the DOE published a notice in the Federal Register announcing its intention to establish a negotiated rulemaking committee to prepare proposed regulations affecting institutional and programmatic eligibility, including the 90/10 rule and the changes made by the ARPA.  The DOE stated that it anticipated that the negotiations would begin no earlier than January 2022, that negotiations would occur during three sessions of five days each with approximately 4 weeks between sessions, and that the DOE would announce the topics and schedule of committee meetings in a subsequent Federal Register notice.  We cannot predict the number and scope of regulations that the DOE may propose, but future regulations on 90/10 or other topics could have a materially adverse effect on us and other schools like ours.

We expect to make changes to our operations in order to address the future provisions in the 90/10 rule and in order to maintain the 90/10 percentages at our institutions below the 90% threshold as calculated under DOE regulations.  However, we do not have significant control over the amount of Title IV funds that our students may receive and borrow.  Our institutions’ 90/10 percentages can be increased by increases in Title IV aid availability (including, for example, increases in Pell Grant funds) and be decreased by decreases in the availability of state grant program funding and other sources of student aid that do not count as Title IV funds in the 90/10 calculation.  Our institutions’ 90/10 percentages also will increase when the ARPA amendments to the 90/10 rule take effect to the extent that students eligible to receive military and veteran education assistance enroll and use their financial assistance at our institutions.  We cannot be certain that the changes we make in the future will succeed in maintaining our institutions’ 90/10 percentages below required levels or that the changes will not materially impact our business operations, revenues, and operating costs.

If any of our institutions lose eligibility to participate in Title IV Programs, that loss would cause an event of default under our credit agreement, would also adversely affect our students’ access to various government-sponsored student financial aid programs, and would have a significant impact on the rate at which our students enroll in our programs and on our business and results of operations.

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Borrower Defense to Repayment Regulations.  RegulationsAs previously disclosed in our Form 10-K, the Company is subject to an extensive regulatory scheme which includes, without limitation, the Borrower Defense to Repayment regulations.  On July 1, 2020, the.

The DOE’s published finalcurrent Borrower Defense to Repayment regulations became effective. Among other things, these new regulations amend theestablish processes for borrowers to receive from the DOE a discharge of the obligation to repay certain Title IV Program loans first disbursed on or after July 1, 2020 based on certain acts or omissions by the institution or a covered party.  The newcurrent regulations also establish processes for the DOE to seek recovery from the institution of the amount of discharged loans. The regulations also have addressed other related topics including, for example, modifying certain components of the financial responsibility regulations. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – Borrower Defense to Repayment Regulations” and existing“Business - Regulatory Environment – Financial Responsibility Standards.”

On November 1, 2022, the DOE published final regulations on borrower defense to repayment and other topics with a general effective date of July 1, 2023.  The final regulations regarding borrower defense to repayment and regarding closed school loan discharges are extensive and generally make it easier for borrowers to obtain discharges of student loans and for the DOE to assess liabilities and other sanctions on institutions based on the loan discharges.

Among other things, the final borrower defense to repayment regulations establish detailed proceduresa new process and standardsstandard for evaluating borrower applications for loan discharges that would apply to all claims submitted or pending as of the loan discharge processesanticipated July 1, 2023 effective date of the regulations.  The new process and standard differ from the prior regulations that establish a separate process and standard for periodseach of 3 categories of loans depending on the date the loans were disbursed to students (i.e., prior to July 1, 2017, between July 1, 2017 and June 30, 2020, and on or after July 1, 2020, including2020).  As a result, the information requirednew process and standard will apply not only to loans disbursed on or after July 1, 2023, but also to older loans as long as the discharge requests are still pending as of July 1, 2023 or are submitted on or after July 1, 2023.

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The final DOE regulations continue to permit the imposition of liabilities on institutions for borrowers to receive a loan discharge, and the authority of the DOE to seek recovery from the institution of the amount of discharged loans.  TheFor loans disbursed prior to July 1, 2023, the DOE indicated that it will not use the same standard for determining institutional liabilities under the new regulations as it will use for determining whether to discharge the loans.  Instead, the DOE indicated that it will seek recoupment from an institution for such loans only if they would have been discharged under the standards used under current and future rules could have a material adverse effect on our schools’ business and results of operations, and the broad sweep of the rules may, in the future, require our schools to submit a letter of creditregulations based on the date the loans were disbursed to students.  However, the new regulations will make it easier for the DOE to recover from the institution the liabilities that the DOE elects to impose.

The new regulations also expand the types of conduct that could result in a discharge of student loans including:  1) an expanded standardslist of financial responsibility.substantial misrepresentations; 2) a new section regarding substantial omissions of fact; 3) breaches of contract; 4) a new section regarding aggressive and deceptive recruitment; or 5) state or federal judgments or final DOE actions that could result in a borrower defense claim.  Some of these forms of conduct also could result in other sanctions against the institutions.  See our Form 10-K at “RegulatoryPart I, Item 1. “Business – Regulatory Environment – Borrower Defense to Repayment Regulations” and “Risk Factors – We could be subject to liabilities, letter of credit requirements, and other sanctions under the DOE’s Borrower Defense to Repayment Regulations.Substantial Misrepresentation.”  The new regulations also make it easier for borrowers to qualify for loan discharges by enabling the DOE is currently conducting a negotiated rulemaking processto permit group consideration of borrower claims under certain circumstances either on its own initiative or at the request of state requestors or certain third-party legal assistance organizations (which could enable the DOE to evaluate and rule on a varietybroad group of topics, includingclaims more quickly than evaluating the claims individually), establishing a rebuttable presumption that borrowers in a group claim reasonably relied on (and were impacted by) acts or omissions giving rise to a borrower defense, establishing a borrower defense to repayment claim based on a separate state law standard if the DOE does not approve claims based on one of the other types of conduct for borrowers with loans first disbursed prior to July 1, 2017, and providing the DOE with the discretion to reopen its decisions at any time in accordance with regulatory requirements.

The new regulations also reinstitute a general prohibition on institutions requiring borrowers to agree to mandatory pre-dispute arbitration agreements and requiring students to waive the ability to participate in a class-action lawsuit with respect to a borrower defense claim.  The new regulations also require institutions to disclose publicly and notify the DOE of judicial and arbitration filings and awards pertaining to borrower defense claims. The new regulations also include provisions on other topics including public service loan forgiveness, eliminating capitalization on student loans in some cases, total and permanent disability discharges, and closed school loan discharges (see “Closed School Loan Discharges”), and false certification discharges (e.g., when an institution falsely certifies an ineligible student’s eligibility for loans).

We are in the process of evaluating the impact of these new and complex regulations on our business and the changes from the proposed regulations, but the final regulations impose new requirements and processes that could result in regulations that wouldwill make it easier for borrowers to obtain discharges of their loans and for the DOE to recover liabilities from institutions.institutions and impose other sanctions. The implementation of new borrower defense to repayment regulations by the DOE and the enforcement of the existing borrower defense to repayment regulations could have a material adverse effect on our business and results of operations. See “Negotiated Rulemaking” section below.Form 10-K at Part I, Item 1. “Business – Regulatory Environment – Negotiated Rulemaking.”

OnIn April 29, 2021, the Company received communication from the DOE indicating that the DOE was in receipt of a number of borrower defense applications containing allegations concerning usour schools and requiring the DOE to undertake a fact-finding process pursuant to DOE regulations. Among other things, the communication outlines a process by which the DOE willwould provide to us each application allowing the Companyapplications and allow us the opportunity to submit responses to the applications.them. Further, the communication outlines certain information requests, relating to the period between 2007 and 2013, in connection with the DOE’s preliminary review of the borrower defense applications. Based upon publicly available information, it appears that the DOE has undertaken similar reviews of other educational institutions which have also been the subject of various borrower defense applications. We subsequentlyhave received from the DOE one group of 175 borrower application claims in May 2021 and another group of 140 borrower application claims in July 2021.  We have completed the process of thoroughly reviewing and responding to each borrower application sent to us by the DOE as well as providing information in response to the DOE’s information requests in the April 29, 2021 communication.requests.

Given the early stage of this matter, management is not able to predict the outcome of the DOE’s review at this time. If the DOE disagrees with our legal and factual grounds for contesting the applications, the DOE may impose liabilities on the Company based on the discharge of the loans at issue in the pending applications which could have a material adverse effect on our business and results of operations.  If any or all of the borrower defense to repayment applications remain pending by the time the new borrower defense to repayment regulations generally take effect on July 1, 2023, the DOE could attempt to apply the new regulations to the pending applications which could increase the likelihood of the DOE granting the applications because the proposed regulations are more favorable to borrowers.

In August 2022, the Company received communication from the DOE regarding a single borrower defense application submitted on behalf of a group of students who were enrolled in a single educational program at two of our schools in Massachusetts between 2010 and 2013.  The communication, which did not state who submitted the application or when it was submitted, asked us to submit a response within 60 calendar days.  We timely responded to the DOE’s letter, notwithstanding the absence of a response to our request for additional information about the student claims.  We are waiting for the DOE’s reply to our response and to our request for information about the student claims.  Given the early stage of this matter, management is not able to predict the outcome of the DOE’s review at this time. If the DOE disagrees with our legal and factual grounds for contesting the application, the DOE may impose liabilities on the Company based on the discharge of the loans at issue in the pending application, which could have a material adverse effect on our business and results of operations.

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It is possible that we may receive from the DOE in the future borrower defense applications submitted by or on behalf of prior, current, or future Lincoln students and that the DOE could seek to recover liabilities from us for discharged loans.

If the DOE grants any pending or future borrower applications, the DOE regulations state that the DOE may initiate an appropriate proceeding to recover liabilities arising from the loans in the applications. If the DOE initiates such a proceeding, we would request reconsideration of the liabilities. We cannot predict the timing or amount of all borrower defense applications that borrowers may submit to the DOE or that the DOE may grant in the future, or the timing or amount of any possible liabilities that the DOE may seek to recover from the Company, if any.

Negotiated Rulemaking. On June 22, 2022, the plaintiffs in a lawsuit against the DOE before a federal court in California (Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.)) and the DOE submitted a proposed settlement agreement to the court.  The DOE periodically issues new regulations and guidance that can have an adverse effect on ourinstitutions.  See our Form 10-K at “Regulatory Environment – Negotiated Rulemaking” and “Risk Factors - The DOE has changed its regulations, and may make other changesplaintiffs in the future, in a manner which could require us to incur additional costs in connection with our administration of the Title IV Programs, affect our ability to remain eligible to participate in the Title IV Programs, impose restrictions on our participation in the Title IV Programs, affect the rate at which students enroll in our programs, or otherwise have a significant impact on our business and results of operations.”  We cannot predict the timing and content of any new regulations or guidancesuit contend, among other things, that the DOE mayhas failed to timely decide and resolve borrower defense to repayment applications submitted to the DOE. If approved, the settlement would result in full discharge and refund payments to covered student borrowers who have asserted a borrower defense to repayment to the DOE and whose borrower defense claims have not yet been granted or denied on the merits. 
The lawsuit is a class action filed against the DOE in the U.S. District Court for the Northern District of California by a group of students, none of whom attended any of our institutions.  We were not a party to the lawsuit when it was filed.  The plaintiffs requested the court to compel the DOE to start approving or denying the pending applications.  The court granted class certification and defined the class of plaintiffs generally to include all people who borrowed a Title IV Direct loan or FFEL loan, who have asserted a borrower defense to repayment claim to the DOE, and whose borrower defense claim has not been granted or denied on the merits.  We have not received notice or confirmation directly from the DOE of the total number of student borrowers who have submitted borrower defense to repayment claims related to our institutions.
The proposed settlement agreement sets forth a long list of institutions, including Lincoln Technical Institute and Lincoln College of Technology, and, under the proposed settlement, the DOE would agree to discharge loans and refund all prior loan payments to each class member with loan debt associated with an institution on the list (which includes our institutions), including borrowers whose applications the DOE previously denied after October 30, 2019.  The DOE and the plaintiffs stated in a court filing that this provision is intended to provide for automatic relief for students at the listed schools, which they estimate to total 200,000 class members.  We anticipate that the DOE believes that the class includes the borrowers with claims to which we have submitted responses to the DOE although it is possible that the class also includes borrowers with claims for which we have not received notice from the DOE or an opportunity to respond.  The parties also stated that the DOE has determined that attendance at one of the institutions on the list justifies presumptive relief based on strong indicia regarding substantial misconduct by the institutions, whether credibly alleged or in some instances proven, and the high rate of class members with applications related to the listed schools.  The proposed settlement agreement provides a separate process for reviewing claims associated with schools not on the list.  It is unclear whether the DOE would seek to impose liabilities on us or whether andother schools or take other actions or impose other sanctions on us or other schools based on relief provided to what extentstudents under the proposed settlement agreement (particularly if the DOE provides relief without evaluating or accounting for legal and factual information provided to the DOE by us and other schools or without providing us and other schools with notice and an opportunity to respond to some of the claims).
In July 2022, we and certain other school companies submitted motions to intervene in the lawsuit in order to protect our interests in the finalization and implementation of any settlement agreement the court might approve.  We noted in the motion that the proposed settlement agreement introduced, for the first time, the prospect that the DOE would “automatically” and fully discharge loans and refund payments to student borrowers without adjudication of the merits of the students’ borrower-defense applications in accordance with the DOE’s borrower-defense regulations and without ensuring that we and other institutions can defend against allegations asserted in individual borrower-defense applications. In addition, we also asserted that it would be unlawful and inappropriate if the DOE sought recoupment against us based on loans that were forgiven under the new administration may issue new regulations and guidanceproposed settlement agreement without providing us an opportunity to address the claims or accounting for our responses to the claims already submitted which we believe is required by the regulations.  We also asserted that could adversely impact for-profit schools including our institutions.  For example, the ARPA will require the DOE to initiate a process to amend its regulations regarding the 90/10 Rule.  On October 4, 2021, the DOE published a notice in the Federal Register announcing its intention to establish a negotiated rulemaking committee to prepare proposed regulations affecting institutional and programmatic eligibility, including the 90/10 rulelawsuit and the changes madepotential loan discharges could result in reputational harm to us and our institutions and could result in other actions against us by the ARPA.  See “The ARPAother federal and the ‘90/10 Rule.’”state agencies or by current and former students.

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In addition, inMay 2021,The court granted preliminary approval of the proposed settlement agreement on August 4, 2022, and also granted our motion for permissive intervention for the purpose of objecting to and opposing the class action settlement.  On September 22, 2022, the DOE announced its intentionand the plaintiffs filed a joint motion for final approval of the settlement.  In that joint motion, the DOE and plaintiffs reported that approximately 179,000 new borrower defense applications had been submitted to establish negotiated rulemaking committeesthe DOE as of September 20, 2022.  We and the three other intervenor schools filed briefs opposing final approval.  The court has scheduled a final approval hearing for November 9, 2022, and we intend to prepare proposed regulations on an extensive range of topics including without limitation changes of ownership and change in control of institutions of higher education, certification procedures for participationparticipate in the Title IV Programs, standardshearing and present arguments.  We cannot predict whether the court will grant or deny final approval of administrative capability, ability to benefit standards, borrower defense to repayment, discharges for borrowers with a total and permanent disability, closed school loan discharges, discharges for false certification of student eligibility, loan repayment plans, the public service loan forgiveness program, mandatory pre-dispute arbitration and prohibition of class action lawsuits provisions in institutional enrollment agreements, financial responsibility standards including events that indicate heightened financial risk, gainful employment, and Pell Grant eligibility for prison education programs.  The DOE also could consider additional topics for proposed regulations during the negotiated rulemaking process.  The negotiated rulemaking process could lead to future DOE regulations that could adversely impact for-profit schools including our institutions.

The negotiated rulemaking sessions began on October 4, 2021.  The topics have included total and permanent disability discharges, closed school discharges, public student loan forgiveness, borrower defense to repayment, pre-dispute arbitration and class action waivers, income driven repayment, interest capitalization, false certification discharges, and prison exchange programs and could include other issues thatsettlement agreement, or whether the DOE might addand plaintiffs will make amendments to the agenda. The remaining sessions are scheduled to occur periodically through mid-December 2021.  Theproposed settlement agreement.  If the proposed settlement agreement, as it is currently drafted, receives final approval by the court, the DOE is expected to publish proposed regulationsautomatically approve all of the pending borrower defense applications concerning our schools that were submitted to the DOE on or before June 22, 2022 and to provide such automatic approval without evaluating or accounting for any of the legal or factual grounds that we provided for contesting the applications that were provided to us. The DOE may or may not seek recoupment from the schools relating to the automatic approval of borrower defense applications.  If the DOE approves borrower defense applications concerning us and attempts to recoup from us the loan amounts in the Federal Registerapproved applications, we would consider options for public comment duringchallenging the periodlegal and factual basis for attempting to recoup these liabilities.  The settlement agreement also requires the DOE to review borrower defense applications submitted after June 22, 2022 and by the conclusiondate of the negotiated rulemaking sessions.final approval of the agreement within 3 years under procedures described in the agreement.  If the final regulations are published byDOE grants some or before November 1, 2022, thenall of these applications, the regulations typically would notDOE also could attempt to recoup the loan amounts in these applications from our schools. We cannot predict whether the currently proposed settlement will be approved, what actions the DOE might take effect until July 1, 2023.  However, we cannot predictif the proposed settlement is approved (including the ultimate timing or amount of borrower defense applications that the DOE may grant in the future and contentthe timing or amount of any final regulations followingpossible liabilities that the conclusionDOE may seek to recover from the Company, if any), or what the outcome of the rulemaking process.

We also cannot predict with certainty the ultimate combined impact of the regulatory changes which have occurred in recent years and that may occur as a result of the upcoming negotiated rulemaking, nor canany challenges we predict the effect of future legislative or regulatory action by federal, state or other agencies regulating our education programs or other aspects of our operations, how any resulting regulationsmight make to such actions will be, interpreted or whether we and our institutions will be able to comply with these requirements in the future. Anybut such actions by legislative or regulatory bodies that affect our programs and operations could have a material adverse effect on our student populationbusiness and our institutions, including the need to cease offering a numberresults of programs.operations. 

Closed School Loan Discharges. The DOE“90/10 Rule.”

Under the Higher Education Act, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs (its “90/10 Rule percentage”) for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may grant closed school loan dischargesnot reapply for eligibility until the end of Federal student loans based uponapplications by qualified students.at least two fiscal years. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – The DOE also90/10 Rule.” An institution with revenues exceeding 90% for a single fiscal year will be placed on provisional certification and may initiate discharges on its own for students who have not reenrolledbe subject to other enforcement measures, including a potential requirement to submit a letter of credit. See Form 10-K at Part I, Item 1. “Business - Regulatory Environment – Financial Responsibility Standards.” If an institution violated the 90/10 Rule and became ineligible to participate in anotherTitle IV Programs but continued to disburse Title IV Program eligible school within three yearsfunds, the DOE would require the institution to repay all Title IV Program funds received by the institution after the closureeffective date of the loss of eligibility.

In March 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law. Among other provisions, the ARPA includes a provision that amends the 90/10 rule by treating other “Federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution” in the same way as Title IV Program funds are currently treated in the 90/10 rule calculation. This means that our institutions will be required to limit the combined amount of Title IV Program funds and who attended campusesapplicable “Federal funds” revenue in a fiscal year to no more than 90% as calculated under the rule. Consequently, the ARPA change to the 90/10 rule is expected to increase the 90/10 rule calculations at our institutions. The ARPA does not identify the specific Federal funding programs that closedwill be covered by this provision, but it is expected to include funding from federal student aid programs such as the veterans’ benefits programs, which include the Post-9/11 GI Bill and Veterans Readiness and Employment services from which we derived approximately 7% of our revenues on a cash basis in 2021.

The ARPA states that the amendments to the 90/10 rule apply to institutional fiscal years beginning on or after NovemberJanuary 1, 2013, as did some of2023 and are subject to the HEA’s negotiated rulemaking process. Accordingly, the ARPA change to the 90/10 rule is not expected to apply to our former campuses. If90/10 rule calculations until 2024 relating to our fiscal year ended 2023. Beginning in January 2022, the DOE discharges some or all of these loans, the DOE may seek to recover the cost of the loan discharges from us.  The DOE is currently conducting aconvened negotiated rulemaking processcommittee meetings on a variety of topics including closed school loan discharges, which could resultthe 90/10 rule. The committee reached consensus on proposed 90/10 rule regulations during meetings in regulations that would make it easier for borrowers to obtain discharges of their loans and forMarch 2022.

On July 28, 2022, the DOE published proposed regulations regarding the 90/10 rule among other topics.  See Form 10-K at Part I, Item 1. at “Business – Regulatory Environment - Negotiated Rulemaking.” The proposed  90/10 rule regulations contain several new and amended provisions on a variety of topics including, among other things, confirming that the rules apply to recover liabilities from institutions.  See “Negotiated Rulemaking” section above.

We have received five separate letters from the DOE since September 3, 2020, asserting liabilities for closed school loan discharges in connection with the closure of some of our campuses.  The total liability paid to the DOE since September 3, 2020, has been approximately $345,000.  We previously operated four other campuses that closed in the past and that could be subject to closed school loan discharges in the future, including automatic closed school loan discharges that could be granted by the DOE.  We cannot predict any additional loan dischargesfiscal years ending on or after January 1, 2023; noting that the DOE may approve orplans to identify the liabilitiestypes of Federal funds to be included in the 90/10 rule in a notice in the Federal Register (which we anticipate will include a wide range of Federal student aid programs such as the veterans’ benefits programs); requiring institutions to disburse funds that students are eligible to receive for a fiscal year before the end of the fiscal year rather than delaying disbursements until a subsequent fiscal year; updating requirements for counting revenues generated from certain educational activities associated with institutional programs, from certain non-Title IV eligible educational programs, and from institutional aid programs such as institutional loans, scholarships, and income share agreements; updating technical rules for the 90/10 rule calculation; including rules for sanctions for noncompliance with the 90/10 rule and for required notifications to students and the DOE may seek from us for these campuses or other campuses that have closed in the past.

Financial Responsibility Standards.  As previously disclosed (see our Form 10-K at “Financial Responsibility Standards”), the DOE indicated in a January 13, 2020 letter its determination that our institutions were “in the zone” based on our composite score for the 2018 fiscal year and that we are required to operate under the Zone Alternative requirements, including the requirement to make disbursements under the Heightened Cash Monitoring 1 Payment Method (HCM1) payment method and to notify the DOE within 10 days of the occurrence of certain oversight and financial events. We also were required to submit to the DOE bi-weekly cash balance submissions outlining our available cash on hand, monthly actual and projected cash flow statements, and monthly student rosters.  Subsequently, on February 16, 2021, we received a letter from the DOE confirming our composite score of 1.5 for fiscal year 2019 as well as removing us from the Zone Alternative requirements but indicating that we would remain on HCM1 until we met certain requirements outlined by the DOE in its letter.  On August 26, 2021,institution of noncompliance with the DOE sent us correspondence stating that our three institutions had performed all of the requirements of the February 16, 2021, letter and notifying us that the DOE had returned our institutions to advance pay on August 19, 2021.90/10 rule.

Accreditation.  Accreditation by an accrediting agency recognized by theThe DOE is required for an institution to be certified to participate in the Title IV Programs.  Allpublished final regulations on October 28, 2022 with a general effective date of our institutionsJuly 1, 2023.  We are accredited by ACCSC, which is a DOE-recognized accrediting agency.  See our Form 10-K at “Regulation – Accreditation.”  Accrediting agencies are required to apply to the DOE on a periodic basis for continued recognition by the DOE.  ACCSC is in the process of applying for continued recognition byevaluating the DOE.

On October 28, 2021,impact of these new regulations on our business and any changes from the DOE announced that it had notified ACCSC thatproposed regulations, but the final regulations on the 90/10 rule could have a decisionmaterial adverse effect on its recognition by the DOE was deferred pending the submission of additional information about ACCSC’s monitoring, evaluation,us and actions related to high-risk institutions.  ACCSC reportedly will receive a period until January 10, 2022, to provide a written response to the DOE.  DOE staff reportedly will receive a period of up to 75 days after receipt of the written response to the DOE to provide a written response.  A designated senior DOE official is expected to make a decision regarding the continued recognition of ACCSC after the receipt and review of the responses.  The DOE regulations indicate that ACCSC may appeal an adverse decision to the DOE Secretary and potentially to federal court.other schools like ours.

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IfSchool Acquisitions.

When a company acquires a school that is eligible to participate in Title IV Programs, that school undergoes a change of ownership resulting in a change of control as defined by the DOE. Upon such a change of control, a school’s eligibility to participate in Title IV Programs is generally suspended until it has applied for recertification by the DOE withdraws the recognition ofas an accrediting agency, the HEA indicateseligible school under its new ownership, which requires that the DOE may continue the eligibilityschool also re-establish its state authorization and accreditation. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – School Acquisitions.”  Thus, any plans to expand our business through acquisition of qualified institutions accreditedadditional schools and have them certified by the DOE to participate in Title IV Programs must take into account the approval requirements of the DOE and the relevant state education agencies and accrediting agency forcommissions. On July 28, 2022, the DOE published proposed regulations on topics including changes in ownership. The DOE published final regulations on October 28, 2022 with a period of up to 18 months from thegeneral effective date of July 1, 2023.  We are in the withdrawalprocess of evaluating the impact of these new regulations on our business, but the regulations, among other things, expand the requirements applicable to school acquisitions in ways that could make it more difficult to acquire additional schools. See Form 10-K at Part I, Item 1. at “Business – Regulatory Environment - Negotiated Rulemaking.”

Change of Control.
In addition to school acquisitions, other types of transactions can also cause a change of control. The DOE, most state education agencies and our accrediting commissions have standards pertaining to the change of control of schools, but these standards are not uniform. See Form 10-K at Part 1, Item 1. “Business – Regulatory Environment – Change of Control.”  A change of control could occur as a result of future transactions in which the Company or our schools are involved. Some corporate reorganizations and some changes in the board of directors of the DOE’s recognitionCompany are examples of such transactions. Moreover, the potential adverse effects of a change of control could influence future decisions by us and our shareholders regarding the sale, purchase, transfer, issuance or redemption of our stock. In addition, the adverse regulatory effect of a change of control also could discourage bids for shares of our common stock and could have an adverse effect on the market price of our shares.  On July 28, 2022, the DOE published proposed regulations on topics including regulations associated with the ownership and control of Title IV participating schools. The DOE published final regulations on October 28, 2022 with a general effective date of general effective date, July 1, 2023.   We are in the process of evaluating the impact of these new regulations, but the regulations, among other things, could further influence future decisions by us or by current or prospective shareholders regarding the sale, purchase, transfer, issuance or redemption of our stock, or that could impact our ability or willingness to make certain organizational changes. See Form 10-K at Part I, Item 1. at “Business – Regulatory Environment - Negotiated Rulemaking.”

State Legislation.
On June 19, 2022, the New Jersey Legislature passed a bill that was signed into law by the Governor of New Jersey on July 29, 2022 that will require the New Jersey Office of the accrediting agency.  If provided, this period would provide timeSecretary of Higher Education (“NJOSHE”) and New Jersey Department of Labor and Workforce Development (“NJDLWD”) to adopt regulations establishing a performance quality standard for career-oriented programs of study offered by institutions of higher education and proprietary degree-granting institutions, as well as all programs at private career schools in New Jersey.  Our six schools in New Jersey currently operate as private career schools and will be subject to applythe new regulations.
In establishing the standard, the NJOSHE and NJDLWD must consider the ratio of the tuition and fees charged to students, net of any institutional grant aid, to the average earnings of New Jersey workers employed in the specific occupation for accreditation from another DOE-recognized accrediting body.which the career-oriented program prepares students.   In addition, the NJOSHE and NJDLWD must ensure that career-oriented programs of study offered by institutions of higher education and degree-granting proprietary institutions, as well as all programs at private career schools meet a minimum acceptable level of performance.  The DOE could impose provisional certificationlaw also requires the NJOSHE and other conditions and restrictionsNJDLWD to take action on such institutions during this time period.  If the DOE declines to continue its recognition of ACCSC and if the subsequent period for obtaining accreditation from another DOE-recognized accrediting agency lapses before we obtain accreditation from another DOE-recognize accrediting agency (or if the DOEa program that does not provide such a period for institutionsmeet the minimum acceptable level of performance, including suspending or terminating that program, as well as possibly taking additional action to obtain other accreditation), our schools could lose our Title IV eligibility.

We cannot predictsuspend or revoke the timing and outcomelicense of the DOE’s decision oninstitution of higher education, proprietary degree-granting institution or private career school to award postsecondary credentials.
Neither the continuation of its recognition of ACCSC,NJOSHE, nor NJDLWD, has officially initiated the timing and outcome of any appealrulemaking process that ACCSC might pursuemust be conducted in accordance with New Jersey’s Administrative Procedures Act.  We are in the eventprocess of an adverse decision, orevaluating the durationpotential impact of this new law on our business and conditions of any periodwill be monitoring the DOE may elect to provide to institutions to obtain accreditation from another DOE-recognized accrediting agency.future rulemaking process.

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.

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Item 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required by this item.

Item 4.CONTROLS AND PROCEDURES

(a)   Evaluation of disclosure controlsDisclosure Controls and procedures.Procedures.  Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this report, have concluded that our disclosure controls and procedures are adequate and effective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’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.

As a result of the COVID-19 pandemic, certain employees of the Company began working remotely in March 2020 but these changes to the working environment did not have a material effect on the Company’s internal control over financial reporting. There was no other change in the Company’s internal control over financial reporting that occurred during the quarter ended September 30, 2021 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.PART II. OTHER INFORMATION

Item 1.LEGAL PROCEEDINGS

On June 22, 2022, the DOE and plaintiffs in a lawsuit before a federal court in California submitted a proposed settlement agreement to the court.  The plaintiffs contend, among other things, that the DOE has failed to timely decide and resolve borrower defense to repayment applications submitted to the DOE. If approved, the settlement would result in full discharge and refund payments to covered student borrowers who have asserted a borrower defense to repayment to the DOE and whose borrower defense claims have not yet been granted or denied on the merits.
The lawsuit (Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.)) is a class action filed against the DOE in the U.S. District Court for the Northern District of California submitted by a group of students, none of whom attended any of our institutions.  We were not a party to the lawsuit when it was filed.  The plaintiffs requested the court to compel the DOE to start approving or denying the pending applications.  The court granted class certification and defined the class of plaintiffs generally to include all people who borrowed a Title IV Direct loan or FFEL loan, who have asserted a borrower defense to repayment claim to the DOE, and whose borrower defense claim has not been granted or denied on the merits.  We have not received notice or confirmation directly from the DOE of the number of student borrowers who have submitted borrower defense to repayment claims related to our institutions.
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The proposed settlement agreement includes a long list of institutions, including Lincoln Technical Institute and Lincoln College of Technology, and, under the proposed settlement, the DOE would agree to discharge loans and refund all prior loan payments to each class member with loan debt associated with an institution on the list (which includes our institutions), including borrowers whose applications the DOE previously denied after October 30, 2019.  The DOE and the plaintiffs stated in a court filing that this provision is intended to provide for automatic relief for students at the listed schools, which they estimate to total 200,000 class members.  We anticipate that the DOE believes that the class includes the borrowers with claims to which we have submitted responses to the DOE although it is possible that the class also includes borrowers with claims for which we have not received notice from the DOE or an opportunity to respond.  The parties also stated that the DOE has determined that attendance at one of the institutions on the list justifies presumptive relief based on strong indicia regarding substantial misconduct by the institutions, whether credibly alleged or in some instances proven, and the high rate of class members with applications related to the listed schools.  The proposed settlement agreement provides a separate process for reviewing claims associated with schools not on the list.  It is unclear whether the DOE would seek to impose liabilities on us or other schools or take other actions or impose other sanctions on us or other schools based on relief provided to students under the proposed settlement agreement (particularly if the DOE provides relief without evaluating or accounting for legal and factual information provided to the DOE by us and other schools or without providing us and other schools with notice and an opportunity to respond to some of the claims).
In July 2022, the Company and certain other school companies submitted motions to intervene in the lawsuit in order to protect our interests in the finalization and implementation of any settlement agreement the court might approve.  We noted in the motion that the proposed settlement agreement introduced, for the first time, the prospect that the DOE would “automatically” and fully discharge loans and refund payments to student borrowers without adjudication of the merits of the students’ borrower-defense applications in accordance with the DOE’s borrower-defense regulations and without ensuring that we and other institutions can defend against allegations asserted in individual borrower-defense applications. In addition, we also asserted that it would be unlawful and inappropriate if the DOE sought recoupment against us based on loans that were forgiven under the proposed settlement agreement without providing us an opportunity to address the claims or accounting for our responses to the claims already submitted which we believe is required by the regulations.  We also asserted that the lawsuit and the potential loan discharges could result in reputational harm to us and our institutions and could result in other actions against us by other federal and state agencies or by current and former students.

The court granted preliminary approval of the proposed settlement agreement on August 4, 2022, and also granted our motion for permissive intervention for the purpose of objecting to and opposing the class action settlement.  On September 22, 2022, the DOE and the plaintiffs filed a joint motion for final approval of the settlement.  In that joint motion, the DOE and plaintiffs reported that approximately 179,000 new borrower defense applications had been submitted to the DOE as of September 20, 2022.  We and the three other intervenor schools filed briefs opposing final approval.  The court has scheduled a final approval hearing for November 9, 2022, and we intend to participate in the hearing and present arguments.  We cannot predict whether the court will grant or deny final approval of the proposed settlement agreement, or whether the DOE and plaintiffs will make amendments to the proposed settlement agreement.  If the proposed settlement agreement, as it is currently drafted, receives final approval by the court, the DOE is expected to automatically approve all of the pending borrower defense applications concerning us that were submitted to the DOE on or before June 22, 2022 and to provide such automatic approval without evaluating or accounting for any of the legal or factual grounds that we provided for contesting the applications that were provided to us. The DOE may or may not seek recoupment from the schools relating to approval of borrower defense applications concerning us.  If the DOE approves borrower defense applications concerning us and attempts to recoup from us the loan amounts in the approved applications, we would consider options for challenging the legal and factual basis for attempting to recoup these liabilities.  The settlement agreement also requires the DOE to review borrower defense applications submitted after June 22, 2022 and by the date of the final approval of the agreement within 3 years under procedures described in the agreement.  If the DOE grants some or all of these applications, the DOE also could attempt to recoup from us the loan amounts in these applications. We cannot predict whether the currently proposed settlement will be approved, what actions the DOE might take if the proposed settlement is approved (including the ultimate timing or amount of borrower defense applications the DOE may grant in the future and the timing or amount of any possible liabilities that the DOE may seek to recover from the Company, if any), or what the outcome of any challenges we might make to such actions will be, but such actions could have a material adverse effect on our business and results of operations.

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In the ordinary conduct of our business, we are subject to periodic lawsuits, investigations, and claims, including, but not limited to, claims involving students or graduates and routine employment matters.  Although we cannot predict with certainty the ultimate resolution of lawsuits, investigations, and claims asserted against us, we do not believe that any currently pending legal proceeding to which we are a party will have a material adverse effect on our business, financial condition, results of operations or cash flows. Information regarding certain specific

Item 1A.RISK FACTORS

In a class action before the U.S. District Court for the Northern District of California (Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.)), a settlement is under consideration which could result in the automatic approval of all pending borrower defense applications submitted to the DOE on or before June 22, 2022 concerning our institutions and, if approval were to occur, the DOE could elect to seek recoupment from us of all loan amounts in the approved applications.

On June 22, 2022, the DOE and plaintiffs in a class action lawsuit before a federal court in California submitted a proposed settlement agreement to the court.  The plaintiff class is not limited to students who attended our schools and generally includes all people who borrowed a Title IV Direct loan or FFEL loan, who have asserted a borrower defense to repayment claim to the DOE, and whose borrower defense claim has not been granted or denied on the merits.  The court is scheduled to consider the settlement agreement at a hearing on November 9, 2022.  If the court grants final approval of the settlement agreement, the DOE is expected to automatically approve all of the pending borrower defense applications submitted to the DOE concerning us on or before June 22, 2022 and to provide such automatic approval without evaluating or accounting for any of the legal proceedingsor factual grounds that we provided for contesting the applications that were provided to us and without providing notice and opportunity to respond to applications that were not provided to us.  The automatic approval of the applications would result in whichthe full discharge of the borrowers’ loans and the refund of payments made on the loans by the borrowers.  We have not received notice or confirmation directly from the DOE of the number of student borrowers who have submitted borrower defense to repayment claims related to our institutions.

The DOE could elect to seek to recoup from us the loan amounts in the approved applications and to take other actions or impose other sanctions on us based on the cost of providing relief to students under the proposed settlement agreement.  If the DOE approves borrower defense applications concerning us and attempts to recoup from us the loan amounts in the approved applications, we would consider options for challenging the legal and factual basis for attempting to recoup these liabilities.  The settlement agreement also requires the DOE to review borrower defense applications submitted after June 22, 2022, and by the date of the final approval of the agreement within 3 years under procedures described in the agreement.  If the DOE grants some or all of these applications, the DOE also could attempt to recoup from us the loan amounts in these applications.

We cannot predict whether the currently proposed settlement will be approved, what actions the DOE might take if the proposed settlement is approved (including the ultimate timing or amount of borrower defense applications the DOE may grant in the future and the timing or amount of any possible liabilities that the DOE may seek to recover from us, if any), or what the outcome of any challenges we might make to such actions will be,  but such actions could have a material adverse effect on our business and results of operations.  For more information, see “Part II. Item 1 – Legal Proceedings.”

Item 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


(a)None.

(b)None.

(c)Issuer Purchases of Equity Securities.

On May 24, 2022, the Company is involved is contained in Part I, Item 3,announced that the Board of Directors had approved a share repurchase program for 12 months authorizing purchases of up to $30.0 million.  The following table presents the number and in Note 15 toaverage price of shares purchased during the notes to the Condensed Consolidated Financial Statements included in the Company’s Form 10-K.  Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated herein or therein as having been concluded, remain outstanding as ofthree months ended September 30, 2021.2022.  The remaining authorized amount for share repurchases under the program is approximately $23.3 million.

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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, 2022 to July 31, 2022  
104,519
  
$
6.52
   
104,519
  
$
26,780,002
 
August 1, 2022 to August 31, 2022  
260,833
   
6.43
   
260,833
   
25,102,459
 
September 1, 2022 to September 30, 2022  
303,088
   
6.06
   
303,088
   
23,266,594
 
Total  
668,440
   
6.28
   
668,440
     
Following a wave of hundreds of class action lawsuits being served upon colleges and universities across
For more information on the country by students in connection with transitioning from in-personshare repurchase plan, see Note 7 to online classes due to COVID-19, a class action lawsuit was filed against the Company in New Jersey Federal District Court and served on December 21, 2020.  Like most of the other lawsuits across the country, the suit alleges breach of contract, unjust enrichment and conversion.  In lieu of an answer, on January 25, 2021 the Company filed a Motion to Dismiss Plaintiff’s Complaint for Failure to State a Claim. On July 9, 2021 the court granted the Company’s Motion to dismiss the breach of contract, unjust enrichment claims for tuition and registration fees and conversion claims in their entireties.  The only claim remaining is for student and technology fees, where the judge stated it was premature to dismiss those claims.  On July 23, 2021, the Company submitted its Motion for Reconsideration as to the remaining claim and awaits a ruling in this regard.  On November 3, 2021, this the court granted the Company’s Motion to dismiss the lawsuit in its entirety.our condensed consolidated financial statements.

Item 3.DEFAULTS ON SENIOR SECURITIES


(a)None.

(b)None

Item 4.MINE SAFETY DISCLOSURES

None.

Item 5.OTHER INFORMATION

Director Retirement

(a)
On November 4, 2022, the Company terminated the Company’s existing Credit Agreement, dated as of November 14, 2019, as amended (the “Credit Agreement”), with its lender, Webster Bank, National Bank, as successor-by-merger to Sterling National Bank (the “Lender”).  The Credit Agreement, as originally entered into, provided for various loans but, pursuant to certain amendments, had been modified such that only the Revolving Loan in the principal amount of $15.0 million remained in place. The Company was not in default under the Credit Agreement nor did it have any amounts outstanding thereunder other than standby letters of credit.  The Credit Agreement would have matured on November 14, 2023. Upon the termination of the Credit Agreement, all security interests and pledges granted to the secured parties thereunder were terminated and released.  Among the issues considered in the determination to terminate the Credit Agreement were the Company’s strong cash position, the elimination of certain fees associated with the Credit Agreement, including the .50% unused credit fee, as well as the elimination of affirmative and negative covenants.  The Company’s standby letters of credit with the Lender in the aggregate amount of $4.0 million remain in place with the Lender provided that they are cash collateralized.

On November 4, 2021, Celia H. Currin, one of3, 2022, the long-standing members of the Company’s Board of Directors advised of her intention to step down from the Board effective on November 4, 2021.  Concurrently, Ms. Currin will relinquish her positions as chair of the Company’s Nominating and Corporate Governance Committee (the “Governance Committee”) and member of the Company’s Audit Committee. Ms. Currin’s decision to retire and resign from the Board was not the result of any disagreement with the Company on any matter relating to its operations, policies or practices. The Board and management of the Company sincerely thank Ms. Currin for her dedicated service overapproved the past twenty plus years.Lincoln Educational Services Corporation Severance and Retention Payment Policy.

Committee Changes

(b)None.

Following the acceptance of Ms. Currin’s resignation from the Board and in response thereto, the Board made certain changes to committee composition by appointing John A. Bartholdson as chair of the Governance Committee, Felecia Pryor as member of the Governance Committee and appointing both Michael Plater and Carlton Rose as members of the Audit Committee.

Item 6.
EXHIBITS

Exhibit
Number
 
Description
  
3.1Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005.
  
3.2Certificate of Amendment, dated November 14, 2019, to the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-3 filed October 6, 2020).
  
3.3Bylaws of the Company as amended on March 8, 2019 (incorporated by reference to the Company’s Form 8-K filed June 28 2005).
10.1
Contract for the Purchase of Real Estate, dated as of September 24, 2021, by and between Nashville Acquisition, LLC and SLC Development, LLC (incorporated by reference to Exhibit 10.13.1 of the Company’s Form 8-K filed September 28, 2021)April 30, 2020).
  
10.2
10.1*
Agreement for Purchase and Sale of Property, dated as of September 24, 2021 by and between Lincoln Technical Institute, Inc. and LNT Denver (Multi) LLC (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed September 28, 2021).
10.3
Consent and Waiver Letter Agreement dated as of September 23, 2021, by and among Lincoln Educational Services Corporation Severance and certain of its subsidiaries, and Sterling National Bank (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed September 28, 2021).
Retention Policy.

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31.1*
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
31.2*
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
32**
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101*
The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021,2022, formatted in Inline Extensible Business Reporting Language (“iXBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.
  
104
Cover Page Interactive Data File (formatted as Inline XBRLiXBRL and contained in Exhibit 101).

*Filed herewith.
**
Furnished herewith.  This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 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.
43
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

LINCOLN EDUCATIONAL SERVICES CORPORATION
Date: November 7, 2022By:/s/ Brian Meyers
Brian Meyers
Executive Vice President, Chief Financial Officer and Treasurer

44
Exhibit Index

3.1
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005.
3.2
Certificate of Amendment, dated November 14, 2019, to the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-3 filed October 6, 2020).
3.3
Bylaws of the Company, as amended on March 8, 2019 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed April 30, 2020).
10.1*
Lincoln Educational Services Corporation Severance and Retention Pay Policy.
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in 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)

*Filed herewith.
**
Furnished herewith.  This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 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.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


LINCOLN EDUCATIONAL SERVICES CORPORATION
Date: November 8, 2021By:/s/ Brian Meyers
Brian Meyers
Executive Vice President, Chief Financial Officer and Treasurer

42
Exhibit Index

3.1
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005.
3.2
Certificate of Amendment, dated November 14, 2019, to the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-3 filed October 6, 2020).
3.3
Bylaws of the Company, as amended on March 8, 2019 (incorporated by reference to the Company’s Form 8-K filed June 28 2005).
Contract for the Purchase of Real Estate, dated as of September 24, 2021, by and between Nashville Acquisition, LLC and SLC Development, LLC (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed September 28, 2021).
Agreement for Purchase and Sale of Property, dated as of September 24, 2021 by and between Lincoln Technical Institute, Inc. and LNT Denver (Multi) LLC (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed September 28, 2021).
Consent and Waiver Letter Agreement dated as of September 23, 2021, by and among Lincoln Educational Services Corporation and certain of its subsidiaries, and Sterling National Bank (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed September 28, 2021).
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101*
The following financial statements from Lincoln Educational Services Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline Extensible Business Reporting Language (“iXBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.
104
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*Filed herewith.

**
Furnished herewith.  This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 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.


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