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
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.
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 | % | |
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.
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 | % |
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.
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.
| • | 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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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 |
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.
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.
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
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 |
| (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.
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 |
Item 4. | MINE SAFETY DISCLOSURES |
None.
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
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.
Exhibit Number | | Description |
| | |
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). |
| | |
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. |
| | |
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). |
** | 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. |
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, 2022 | By: | /s/ Brian Meyers | |
| | Brian Meyers |
| | Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit Index
| 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. |
| |
| 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). |
| |
| 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). |
| |
| 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) |
** | 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. |
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, 2021 | By: | /s/ Brian Meyers | |
| | Brian Meyers |
| | Executive Vice President, Chief Financial Officer and Treasurer |
Exhibit Index
| | 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. |
| | |
| | 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). |
| | |
| | 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)
|
** | 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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