6.	LONG-TERM DEBT

Credit Facility

On November 14, 2019, the Company entered into a 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”). Initially, the Credit Facility was 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”).

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 or, if the borrowing of a Revolving Loan was to be repaid within 30 days of such borrowing, the Revolving Loan accrued 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 were secured by cash collateral. The ~~Lender received an unused facility fee of 0.50% per annum payable quarterly in arrears on the unused portions of the Revolving Loan and the Line of Credit Loan.~~

~~Index~~

In addition to the foregoing, the Credit 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 Agreement 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 cash dividend limit to $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.

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

On September 23, 2021, in connection with entering into the agreements relating to the sale leaseback transaction for the Company’s Denver, Grand Prairie and Nashville campuses (collectively, the “Property Transactions”), the Company and certain of its subsidiaries entered into a Consent and Waiver Letter Agreement (the “Consent Agreement”) to the Company’s Credit Agreement with its Lender.Company. The Consent Agreement provides the Lender’s consent to the Property Transactions and waives certain covenants in the Credit Agreement, subject to certain specified conditions. In addition, in connection with the consummation of the Property Transactions, the Lender released its mortgages and other liens on the subject-properties upon the Company’s payment in full of the outstanding principal and accrued interest on the Term Loan and any swap obligations arising from any swap transaction. Upon the consummation of the Property Transaction on October 29, 2021 the Company paid the Lender approximately $16.7 million in repayment of the Term Loan and the swap termination fee and no further borrowings may be made under the Term Loan or the Delayed Draw Term Loan. ~~Further, during the second quarter of 2022, the Company sold a property located in Suffield, Connecticut for net proceeds of approximately~~ ~~$2.4 million. Prior to the consummation of the transaction, Lincoln obtained consent from the Lender to enter into the sale of this property.~~

Pursuant to certain amendments and modifications to the Credit Agreement and other loan documents, the Term Loan and the Delayed Draw Term Loan were paid off in full and on January 21, 2021, the Line of Credit expired by the terms, conditions and provisions of the Credit Agreement and the Credit Agreement was ~~extended and would have matured~~amended on ~~November 14, 2023.~~various occasions.

As of September 30, 2022, and December 31, 2021, the Company had zero debt outstanding under the Credit Facility for both periods and was in compliance with all debt covenants. As of September 30, 2022, and December 31, 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~~On November 4, 2022, the Company agreed with its Lender to terminate the Credit Agreement and the remaining Revolving Loan. The Lender ~~has~~ agreed to allow the Company’s existing letters of credit to remain outstanding, provided that they are cash collateralized. As of June 30, 2023, the letters of credit, in the aggregate outstanding principal amount of $4.0 million, remained outstanding, were cash collateralized, and were classified as restricted cash on the Condensed Consolidated Balance Sheet. As of June 30, 2023, the Company did not have a credit facility and did not have any debt outstanding. The Company is continuing to consider potential lenders for its future credit needs.

7.	STOCKHOLDERS’ EQUITY

Common Stock

Holders of our ~~common stock~~Common Stock are entitled to receive dividends when and as declared by our Board of Directors and have the right to one vote per share on all matters requiring shareholder approval. The Company has not declared or paid any cash dividends on our ~~common stock~~Common Stock since the Company’s Board of Directors discontinued our quarterly cash dividend program in February 2015. The Company currently has no ~~current intentions~~intention to ~~resume the payment of~~pay cash dividends to holders of ~~common stock~~Common Stock in the foreseeable future.

~~Preferred Stock~~

On November 14, 2019, the Company raised gross proceeds of $12.7 million from the sale of 12,700 shares of its newly designated Series A Convertible Preferred Stock, no par value per share (the “Series A Preferred Stock”). The Series A Preferred Stock was designated by the Company’s Board of Directors pursuant to a certificate of amendment to the Company’s amended and restated certificate of incorporation (the “Charter Amendment”). The liquidation preference associated with the Series A Preferred Stock was $1,000 per share as of December 31, 2021. Upon issuance each share of Series A Preferred Stock was convertible at $2.36 per share of common stock (as may be adjusted pursuant to the Charter Amendment, the “Conversion Price”) into 423,729 shares of common stock (the number of shares into which the Series A Preferred Stock is convertible at any time, the “Conversion Shares”). The Company incurred issuance costs of $0.7 million as part of this transaction.

Index

~~The description below provides~~Preferred Stock

On November 30, 2022, the Company exercised in full its right of mandatory conversion of the Company’s Series A Preferred Stock. In connection with the conversion, each share of Series A Preferred Stock was cancelled and converted into the right to receive 423,729 shares of the Company’s Common Stock, no par value per share. No shares of the Series A Preferred Stock remain outstanding and all rights of the holders to receive future dividends have been terminated. As a ~~summary~~result of ~~certain material~~the conversion, the aggregate 12,700 shares of Series A Preferred Stock outstanding were converted into 5,381,356 shares of Common Stock.

Dividends

Pursuant to the terms of the Series A Preferred ~~Stock:~~

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

~~Dividends.~~ ~~Dividends~~dividends on the Series A Preferred Stock (“Series A Dividends”), at the initial annual rate of 9.6% ~~is to be~~, were paid, in arrears, from the date of issuance quarterly on each December 31, March 31, June 30 and September 30, with September 30, 2020 being the first dividend payment date. The Company, at its option, may pay dividends either (a) in cash or (b) by increasing the number of Conversion Shares by the dollar amount of the dividend divided by the Conversion Price. The dividend rate is subject to increase (a) 2.4% per annum on the fifth anniversary of the issuance of the Series A Preferred Stock and (b) by 2% per annum but in no event above 14% per annum should the Company fail to perform certain obligations under the Charter Amendment. The Series A Preferred Stock is not currently redeemable and may not become redeemable in the future. As a result, the Company is not required to re-measure the Series A Preferred Stock and does not accrete changes in the redemption value. As of ~~September 30, 2022, and~~ December 31, ~~2021,~~2022, we had paid ~~$0.9~~$1.1 million ~~and $1.2 million, respectively,~~ in cash dividends on the outstanding shares of Series A Preferred Stock. With the exercise of the mandatory conversion of the Company’s Series A Preferred Stock ~~rather than increasing~~as noted above, there will not be any further dividend payments related to the ~~number of Conversion Shares.~~Series A Preferred Stock. Dividends paid in the prior year are included in the ~~condensed consolidated balance sheets~~Condensed Consolidated Balance Sheets within additional paid-in-capital when the Company maintains an accumulated deficit.

Treasury Stock

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

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

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

~~Change of Control.~~On May 24, 2022 In the event of certain changes of control, some of which are not in the Company’s control, as defined in the Charter Amendment as a “Fundamental Change” or a “Liquidation” (as defined in the Charter Amendment), the ~~holders~~Board of ~~Series A Preferred Stock shall be entitled to receive~~Directors authorized the Liquidation Preference, unless such Fundamental Change is a stock merger in which certain value and volume requirements are met, in which case the Series A Preferred Stock will be converted into common stock in connection with such stock merger. The Company has classified the Series A Preferred Stock as mezzanine equity on the condensed consolidated balance sheet based upon the termscancellation of ~~a change of control which could be outside the Company’s control.~~

~~Voting.~~ ~~Holders of~~5,910,541 shares of ~~Series A Preferred~~Treasury Stock, ~~are entitled to vote with the holders of shares of common stock~~which reduced Treasury Stock and not as a separate class, at any annual or special meeting of shareholders of the Company, on an as-converted basis, in all cases subject to the Hard Cap. In addition, a majority of the voting power of the Series A PreferredCommon Stock must approve certain significant actions of the Company, including (i) declaring a dividend or otherwise redeeming or repurchasing any shares of common stock and other junior securities, if any, subject to certain exceptions, (ii) incurring indebtedness, except for certain permitted indebtedness and (iii) creating a subsidiary other than a wholly-owned subsidiary.by $82.9 million.

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

~~Index~~

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

Restricted Stock

The Company currently has three stock incentive plans: (1) a Long-Term Incentive Plan (the “LTIP”),; (2) a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”); and (3) the Lincoln Educational Services Corporation 2020 Incentive Compensation Plan (the “2020 Plan”).

2020 Plan

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

~~Subject~~ On February 23, 2023, the Board of Directors approved, subject to ~~adjustment as described in~~shareholder approval, the amendment of the 2020 Plan to increase the aggregate number of ~~common~~ shares available ~~for issuance~~ under the 2020 Plan from 2,000,000 shares to 4,000,000 shares. The amendment was ~~2,000,000 shares.~~approved and adopted by the shareholders at the Annual Meeting of Shareholders held on May 5, 2023.

LTIP

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

Index

Non-Employee Directors Plan

Pursuant to the Non-Employee Directors Plan, each non-employee director of the Company receives an annual award of restricted shares of ~~common stock~~Common Stock on the date of the Company’s ~~annual meeting~~Annual Meeting of ~~shareholders.~~Shareholders. The number of shares granted to each non-employee director is based on the fair market value of a share of ~~common stock~~Common Stock on that date. The restricted shares vest on the first anniversary of the grant date. There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares.

For the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, the Company completed a net share settlement for ~~268,654~~297,380 and ~~154,973~~268,654 restricted shares, respectively, on behalf of certain employees that participate in the LTIP upon the vesting of the restricted shares pursuant to the terms of the LTIP. The net share settlement was in connection with income taxes incurred on restricted shares that vested and were transferred to the employees during ~~2021~~2023 and/or ~~2020,~~2022, creating taxable income for the employees. At the employees’ request, the Company has paid these taxes on behalf of the employees in exchange for the employees returning an equivalent value of restricted shares to the Company. These transactions resulted in a decrease of ~~$2.0~~$1.8 million and ~~less than $1.0~~$2.0 million for each of the ~~three and nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively, to equity on the ~~condensed consolidated balance sheets~~Condensed Consolidated Balance Sheets as the cash payment of the taxes effectively was a repurchase of the restricted shares granted in previous years.

~~Index~~

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

	Shares			Weighted Average Grant Date Fair Value Per Share		Shares			Weighted Average Grant Date Fair Value Per Share
Nonvested restricted stock outstanding at December 31, 2021		1,743,846		$	3.89
Nonvested Restricted Stock outstanding at December 31, 2022							1,548,266		$	5.18
Granted		606,950			7.21		751,240			6.10
Canceled		-			-		(37,941	)		6.15
Vested		(802,530	)		4.18		(862,890	)		4.01

Nonvested restricted stock outstanding at September 30, 2022		1,548,266			5.18
Nonvested Restricted Stock outstanding at June 30, 2023							1,398,675			6.33

The ~~restricted stock~~Restricted Stock expense for the three months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$0.6~~$2.6 million and ~~$0.8~~$0.5 million, respectively. The ~~restricted stock~~Restricted Stock expense for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~and 2021~~ was ~~$2.4~~$3.4 million and ~~$2.1~~$1.7 million, respectively. The unrecognized ~~restricted stock~~Restricted Stock expense as of ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 was ~~$8.0~~$6.8 million and ~~$4.4~~$7.9 million, respectively. As of ~~September~~June 30, ~~2022,~~2023, the outstanding ~~restricted~~ shares ~~under the Prior Plan~~of Restricted Stock had an aggregate intrinsic value of ~~$8.4~~$9.4 million.

~~Stock Options~~

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

Shares
Weighted
Average Exercise
Price Per Share

Weighted
Average
Remaining
Contractual
Term

Aggregate
Intrinsic Value
(in thousands)

Outstanding at December 31, 2021
81,000 $ 7.79 0.17 $ -
Granted/Vested - - - -
Canceled (81,000 ) 7.79 - -

Outstanding at September 30, 2022
- - - -

Vested as of September 30, 2022
- - - -

Exercisable as of September 30, 2022
- - - -

~~As of September 30~~,~~2022, there was~~ no ~~unrecognized pre-tax compensation expense.~~

Share Repurchase Plan

On May 24, 2022, the Company announced that its Board of Directors ~~has~~had authorized a share repurchase program of up to $30.0 million of the Company’s outstanding ~~common stock.~~Common Stock. The repurchase program ~~has been~~was authorized for ~~twelve~~12 months. ~~Purchases~~Pursuant to the program, purchases may be made, from time to time, in open-market transactions at prevailing market prices, in privately negotiated transactions or by other means as determined by the Company’s management and in accordance with applicable federal securities laws. The timing of purchases and the number of shares repurchased under the program will depend on a variety of factors including price, trading volume, corporate and regulatory requirements and market conditions. The Company retains the right to limit, terminate or extend the share repurchase program at any time without prior notice.

On February 27, 2023, the Board of Directors extended the share repurchase program for an additional 12 months and authorized the repurchase of an additional $10 million of the Company’s Common Stock, for an aggregate of up to $30.6 million in additional repurchases.

During the three months ended ~~September~~ June 30, ~~2022,~~2023, the Company repurchased ~~668,440~~61,034 shares of its ~~common stock~~Common Stock at an aggregate cost of approximately ~~$4.2~~$0.3 million. During the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company repurchased ~~1,083,403~~165,064 shares of its ~~common stock~~Common Stock at an aggregate cost of approximately ~~$6.7~~$0.9 million. These shares were subsequently canceled and recorded as a reduction of ~~common stock.~~Common Stock.

1817

Index

8.	INCOME TAXES

The provision for income ~~tax~~taxes was $6.8 million, or 28.2% of pre-tax income for the three months ended June 30, 2023 compared to a provision for income taxes of $0.1 million, or 28.3% of pre-tax income in the prior year comparable period. The provision for income taxes was $6.2 million, or 26.6% of pre-tax income for the six months ended June 30, 2023 compared to a benefit for income taxes of $0.5 million in the comparable prior year period. The provision for the three months ended ~~September~~June 30, 2023 and 2022 was primarily due to a pre-tax income position driven by gains of $30.9 million in the current year resulting from the sale of our Nashville, Tennessee campus and a $0.2 million gain in the prior year resulting from the sale of our Suffield, Connecticut property. The provision for income taxes for the six months ended June 30, 2023 was primarily driven by a pre-tax income position, resulting from a gain of $30.9 million in the current year. The benefit for the six months ended June 30, 2022 was due primarily to a pre-tax book loss and ~~2021 was $1.3 million, or 26.8% of pre-tax income, compared~~a discrete item relating to ~~$1.6 million, or 29.6% of pre-tax income, respectively.~~Restricted Stock vesting. The income tax provision for the nine months ended September 30, 2022 and 2021 was approximately $0.8 million, or 15.7% of pre-tax income, and approximately $3.6 million, or 25.0% of pre-tax income, respectively. The decrease in effective tax rate for the three and six months ended June 30, 2023 and 2022 was ~~due to a higher discrete benefit relating to restricted stock vesting.~~28.0% and 28.2%, respectively.

9.	COMMITMENTS AND CONTINGENCIES

InOn November 16, 2022, the U.S. District Court for the Northern District of California granted final approval of a settlement agreement in the lawsuit Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.). Under the settlement agreement, the DOE agreed to discharge loans and refund all prior loan 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, which includes former students at our institutions as well as at a long list of other institutions. Subsequently, we and two other intervening school companies filed notices of appeal and asked the District Court to stay the settlement from taking effect until the appeals were decided. Plaintiffs and the DOE thereafter filed oppositions to our stay request and, after a hearing, the District Court denied our stay request, but extended the temporary stay of loan discharges and refunds associated with the three school companies for seven days to allow us to file a motion for a stay with the U.S. Court of Appeals for the Ninth Circuit. On February 27, 2023, we and the two other school companies that appealed filed a joint motion for a stay with the Ninth Circuit. On March 29, 2023, the Ninth Circuit denied our motion to stay the judgment pending appeal. On April 4, 2023, we and the two other school companies filed an emergency application with the Supreme Court of the United States to stay the District Court’s judgment. On April 13, 2023, the Supreme Court denied our petition.

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

10.

SEGMENTS

~~We operate our~~

As of January 1, 2023, the Company’s business in is now organized into two reportable business segments: (a) ~~the Transportation and Skilled Trades segment;~~Campus Operations; and (b) ~~the Healthcare~~Transitional. Based on trends in student demand and ~~Other Professions segment. Our reportable segments~~our program expansions, there have been ~~determined based on a method by which we now evaluate~~more cross-offerings of programs among the various campuses. Given this change, the Company has revised the way it manages the business, evaluates performance, and ~~allocate resources. Each reportable~~allocates resources, resulting in an updated segment ~~represents~~structure. As a ~~group of post-secondary education providers~~result, the Company has shifted its focus to two new segments defined below:

Index

Campus Operations– The Campus Operations segment includes all campuses that ~~offer a variety of degree~~are continuing in operation and ~~non-degree academic programs. These segments are organized by key market segments~~contribute to ~~enhance operational alignment within each segment to more effectively execute our strategic plan. Each of~~ the Company’s ~~schools~~core operations and performance.

Transitional –The Transitional segment refers to businesses that are marked for closure and are currently being taught-out. As of June 30, 2023, the only campus classified in the Transitional segment is ~~a reporting unit~~the Somerville, Massachusetts campus, which is no longer enrolling new students and ~~an operating segment. Our operating segments are described below.~~will be fully taught-out and closed by December 31, 2023.

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

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

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

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

~~Index~~

Summary financial information by reporting segment is as follows:

	For the Three Months Ended September 30,																For the Three Months Ended June 30,
	Revenue										Operating income (Loss)						Revenue										Operating Income (Loss)
	2022		% of Total			2021		% of Total			2022			2021			2023		% of Total			2022		% of Total			2023			2022
Transportation and Skilled Trades	$	67,329		73.3	%	$	64,950		72.9	%	$	11,768		$	11,842
Healthcare and Other Professions		24,484		26.7	%		24,109		27.1	%		1,180			1,833
Campus Operations																	$	88,213		99.5	%	$	80,349		97.8	%	$	4,169		$	8,791
Transitional																		433		0.5	%		1,793		2.2	%		(482	)		(88	)
Corporate		-					-					(8,068	)		(7,930	)		-					-					19,828			(8,307	)
Total	$	91,813		100.0	%	$	89,059		100.0	%	$	4,880		$	5,745		$	88,646		100.0	%	$	82,142		100.0	%	$	23,515		$	396

	For the Nine Months Ended September 30,																For the Six Months Ended June 30,
	Revenue										Operating income (Loss)						Revenue										Operating income (Loss)
	2022		% of Total			2021		% of Total			2022			2021			2023		% of Total			2022		% of Total			2023			2022
Transportation and Skilled Trades	$	184,087		71.8	%	$	177,586		71.7	%	$	26,108		$	35,423
Healthcare and Other Professions		72,423		28.2	%		69,934		28.3	%		4,095			7,743
Campus Operations																	$	174,565		99.2	%	$	161,130		97.8	%	$	14,278		$	17,406
Transitional																		1,364		0.8	%		3,567		2.2	%		(679	)		(150	)
Corporate		-					-					(25,252	)		(27,949	)		-					-					8,801			(17,186	)
Total	$	256,510		100.0	%	$	247,520		100.0	%	$	4,951		$	15,217		$	175,929		100.0	%	$	164,697		100.0	%	$	22,400		$	70

	Total Assets				Total Assets
	September 30, 2022		December 31, 2021		June 30, 2023		December 31, 2022
Transportation and Skilled Trades	$	150,715	$	156,531
Healthcare and Other Professions		36,263		33,959
Campus Operations					$	178,374	$	190,473
Transitional						900		1,498
Corporate		104,298		104,809		132,144		99,595
Total	$	291,276	$	295,299	$	311,418	$	291,566

11.	FAIR VALUE

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

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

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

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

Index

The Company measures the fair value of money market funds using Level 1 inputs. As of June 30, 2023, the Company has two treasury bills, one with a maturity date of three months or less, which is classified as a cash equivalent, and the other with a maturity date of greater than three months, which is classified as a short-term investment. The treasury bills are valued using Level 1 inputs. Pricing sources may include industry standard data providers, security master files from large financial institutions and other third-party sources used to determine a daily market value. The following charts reflect the fair market value of cash equivalents and short-term investments as of June 30, 2023 and December 31, 2022, respectively.

	June 30, 2023
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Cash equivalents:
Money market fund	$	23,709	$	23,709	$	-	$	-	$	23,709
Treasury bill		5,043		5,043		-		-		5,043

Short-term investments:
Treasury bill		24,344		24,353		-		-		24,353
Total cash equivalents and short-term investments	$	53,096	$	53,105	$	-	$	-	$	53,105

	December 31, 2022
	Carrying		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	Amount		(Level 1)		(Level 2)		(Level 3)		Total
Cash equivalents:
Money market fund	$	18,160	$	18,160	$	-	$	-	$	18,160
Treasury bill		10,383		10,383		-		-		10,383

Short-term investments:
Treasury bill		14,758		14,758		-		-		14,758
Total cash equivalents and short-term investments	$	43,301	$	43,301	$	-	$	-	$	43,301

The carrying ~~amounts reported on~~amount of the ~~condensed consolidated balance sheet for Cash and~~Company’s financial instruments, including cash equivalents, ~~approximate fair value because they are highly liquid.~~

~~The carrying amounts reported on the condensed consolidated balance sheet for Prepaid~~short-term investments, prepaid expenses and other current assets, ~~Accrued~~accrued expenses and ~~Other~~other short-term liabilities, ~~approximate~~approximates fair value due to the short-term nature of these items.

~~Qualifying Hedge Derivative~~

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

~~Index~~

The loan had a 10-year straight line amortization. A principal amount of $0.2 million was paid monthly. This interest rate swap converted the floating interest rate Term Loan to a fixed rate, plus a borrowing spread. The interest rate was variable based on LIBOR plus 3.50% and the Company’s fixed rate is 5.36%. The Company designated this interest rate swap as a cash flow hedge to hedge exposure resulting from the interest rate risk. The purpose of the hedge was to reduce the variability of the interest rate based on LIBOR. The Company managed this exposure within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes.

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

Three Months Ended Nine Months Ended
September 30, September 30,
2022
2021
2022
2021

Interest Expense
Interest Rate Swap
$
-

$
100

$
-

$
200

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

Three Months Ended Nine Months Ended

September 30,

September 30,

2022

2021

2022

2021

Derivative qualifying as cash flow hedge
Interest rate swap income
$
-

$
65

$
-

$
326

12.	COVID-19 PANDEMIC AND CARES ACT

The Company began seeing the impact of the global COVID-19 pandemic on its business in early March 2020 and some of the effects of the pandemic have continued. The spread of COVID-19 has had an unprecedented impact on higher educational institutions across the country, including our schools, and has led to the closure of campuses and the transition of academic programs from in-person instruction to online, remote learning and back. The impact for the Company primarily related to transitioning classes from in-person, hands-on learning to online, remote learning, which resulted in, among other things, additional expenses. Further, related to this transition, some students were placed on a leave of absence, as they could not complete their externships, and some students chose not to participate in online learning. As a result, certain programs were extended due to restricted access to externship sites and classroom labs, which did not have a material impact on our ~~consolidated financial statements.~~Condensed Consolidated Financial Statements. In accordance with phased ~~re-opening~~reopening, as applied on a state-by-state basis, all of our schools have now ~~re-opened~~reopened, and the majority of the students who were on a leave of absence or had deferred their programs returned to school to finish their programs.

In response to the COVID-19 pandemic, in 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law, providing a $2 trillion federal economic relief package of financial assistance and other relief to individuals and businesses impacted by the pandemic. Among other things, the CARES Act includes a $14 billion ~~higher education emergency relief fund~~Higher Education Emergency Relief Fund (“HEERF”) for the DOE to distribute directly to institutions of higher education. The DOE has allocated funds to each institution of higher education based on a formula contained in the CARES Act. The formula is heavily weighted toward institutions with large numbers of Pell Grant recipients. The DOE allocated $27.4 million to our schools, distributed in two equal installments, and required them to be utilized by April 30, 2021 and May 14, 2021, respectively. As of September 30, 2021, the Company had distributed the full $13.7 million of its first installment as emergency grants to students and ~~has~~had utilized the full $13.7 million of its second installment. Proceeds from the second installment for permitted expenses were primarily utilized to either offset original expenses incurred or to reduce student accounts receivable, driving a decrease in bad debt expense. Both uses resulted in a decrease in our selling, general, and administrative expenses. Institutions are required to use at least half of the HEERF funds for emergency grants to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.). The law requires ~~institutions~~an institution receiving such funds to continue, to the greatest extent practicable, to pay its employees and contractors during the period of any disruptions or closures related to the COVID-19 emergency, which the Company has done. The Company was also permitted to defer payment of FICA payroll taxes through January 1, 2021 and did so, but pursuant to requirements of the deferment, repaid 50% of the deferred payments byin January 3, 2022 and, ~~will need to repay~~in accordance with the deferment, repaid the remaining 50% byin January 3, 2023. ~~As of September 30, 2022, the Company had deferred payments of $2.3 million included in accrued expenses in the condensed consolidated balance sheet.~~

2120

Index

In December 2020, the Consolidated Appropriations Act, 2021 was enacted, which included the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“CRRSAA”). The CRRSAA provided an additional $81.9 billion to the Education Stabilization Fund, including $22.7 billion for the HEERF, which ~~were~~was originally created by the CARES Act in March 2020. The higher education provisions of the CRRSAA are intended in part to provide additional financial assistance benefitting students and their postsecondary institutions in the wake of the spread of COVID-19 across the country and its impact on higher educational institutions. 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. The DOE ~~has~~ allocated a total of $24.4 million to our schools from the funds made available under CRRSAA and ARPA. As of ~~September 30,~~December 31, 2022, the Company has drawn down and distributed to our students $14.8 million of these allocated funds. The availability of the remainder of the funds ~~are on hold by~~has expired as of June 30, 2023 and the ~~DOE and~~Company will ~~be distributed~~no longer have access to ~~the students upon release.~~such funds. Failure to comply with requirements for the usage and reporting of these funds could result in requirements to repay some or all of the allocated funds and in other sanctions.

13.	Property Sale ~~Agreements~~Agreement

Property Sale Agreement - Nashville, Tennessee Campus

On September 24, 2021, Nashville Acquisition, LLC, a subsidiary of the Company, ~~(“Nashville Acquisition”),~~ entered into a Contract for the Purchase of Real Estate (the “Nashville Contract”) to sell the nearly 16-acre property located at 524 Gallatin Avenue, Nashville, Tennessee 37206, at which the Company operates its Nashville campus, to SLC Development, LLC, a subsidiary of Southern Land Company (“SLC”)~~, for an aggregate~~.

On June 8, 2023, the Company closed on the sale ~~price~~ of ~~$34.5 million, subject to customary adjustments at closing. The Company intends to relocate~~ its Nashville, ~~campus~~Tennessee property to ~~a more efficient and technologically advanced facility in the~~East Nashville ~~metropolitan area but has not yet determined a location.~~

~~The Company and~~Owner, LLC, an affiliate of SLC, ~~have agreed~~for $33.8 million pursuant to ~~an extension of the due diligence period under~~ the Nashville Contract. Consequently, this transaction is expected to close during the second quarter of 2023. During this time, non-refundable payments will be made to the Company by SLC totaling $1.1 million in the aggregate through March 2023. The payments will be applied towards the purchase price assuming a closing does occur. As of September 30, 2022, the Company has received approximately $0.2 million in non-refundable payments from SLC. The Nashville, Tennessee property is currently classified as assets held for sale in the condensed consolidated balance sheet as of September 30, 2022.

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

On September 24, 2021, Lincoln Technical Institute, Inc. and LTI Holdings, LLC, each a wholly-owned subsidiary of the Company (collectively, “Lincoln”), entered into an Agreement for Purchase and Sale of Property for the sale of the properties located at 11194 E. 45th Avenue, Denver, Colorado 80239 and 2915 Alouette Drive, Grand Prairie, Texas 75052, at which the Company operates its Denver and Grand Prairie campuses, respectively, to LNT Denver (Multi) LLC, a subsidiary of LCN Capital Partners (“LNT”), for an aggregate sale price of $46.5 million, subject to customary adjustments at closing. Closing of the sale occurred on October 29, 2021. ConcurrentlyIn connection with ~~consummation of~~ the sale, the parties entered into a ~~triple-net~~ lease agreement ~~for each of~~allowing Lincoln to continue to occupy the ~~properties pursuant to which the properties are being leased back to Lincoln Technical Institute, Inc.~~campus and operate it on a rent-free basis for a ~~twenty-year~~period of 15 months while the Company seeks to relocate to a more modern facility within the Nashville market. In addition to the initial 15-month term, ~~at an initial annual base rent, payable quarterly in advance,~~the lease includes three options to extend the term for consecutive 30-day terms for a rental payment of ~~approximately $2.6~~$150,000 per extension term. While the new campus location has not yet been determined, the Company intends to invest between $15.0 million to $20.0 million for the ~~first year~~buildout of the new campus, which will include twonew programs with ~~annual 2.00% increases thereafter~~the addition of HVAC and ~~includes four subsequent five-year renewal options in~~electrical.

The net proceeds from the Nashville sale are approximately $33.3 million, net of closing costs, which will be available for working capital, acquisitions, other strategic initiatives and general corporate purposes. The property’s carrying value is approximately $4.5 million and the ~~base rent is reset at~~estimated fair value of the ~~commencement of each renewal term at then current fair market~~ rent for the ~~first year~~15-month rent-free period is approximately $2.3 million, which is currently included in prepaid expenses and other current asset on the Company’s balance sheet.

14.	STUDENT RECEIVABLES

Student receivables represent funds owed to us in exchange for the educational services provided to a student. Student receivables are reflected net of ~~each renewal term~~an allowance for credit losses at the end of the reporting period. Student receivables, net, are reflected on our Condensed Consolidated Balance Sheets as components of both current and non-current assets.

Our students pay for their costs through a variety of funding sources, including federal loan and grant programs, institutional payment plans, Veterans Administration and other military funding and grants, private and institutional scholarships and cash payments. Cash receipts from government-related sources are typically received during the current academic term. Students who have not applied for any type of financial aid generally set up a payment plan with ~~annual 2.00% increases thereafter~~the institution and make payments on a monthly basis as per the terms of the payment plan. A student receivable balance is written off when deemed uncollectable, which is typically once a student is out of school and there has been no payment activity on the account for 150 days. If, however, the student does remit a payment during this time period, the 150-day policy for write-off starts again until the students either (1) continues making payments or (2) the student does not make any additional payments and is then subsequently written off after 150 days.

Index

Effective January 1, 2023, the Company adopted ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” commonly known as “CECL.” On the January 1, 2023 date of adoption, based on forecasts of macroeconomic conditions and exposures at that time, the aggregate impact to the Company resulted in ~~each such renewal term. The lease,~~an opening balance sheet adjustment increasing the allowance for credit losses related to the Company’s accounts receivables of approximately $10.8 million, a decrease in ~~each case, provides Lincoln~~retained earnings of $7.9 million, after-tax and a deferred tax asset increase of $2.9 million

Students enrolled in the Company’s programs are provided with a ~~right~~variety of ~~first~~funding resources, including financial aid, grants, scholarships and private loans. After exhausting all fund options, if the student is still in need of additional financing, the Company may offer ~~should LNT wish~~an institutional loan as a lender of last resort. Institutional loan terms are pre-determined at enrollment and are not typically restructured.

Our standard student receivable allowance is based on an estimate of lifetime expected credit losses on student receivables that considers vintages of receivables to ~~sell~~determine a loss rate. In considering lifetime credit losses, if the ~~property.~~ expected life goes beyond the Company’s reasonable ability to forecast, the Company then reverts back to historical loss experience as an indicator of collections. In determining the expected credit losses for the period, student receivables were disaggregated and pooled into two different categories to refine the calculation. Other information considered included external factors outside the Company’s control, which included, but was not limited to, the effects of COVID-19. Given that collection history during the pandemic was not considered to be a reliable indicator of a student’s repayment history, the Company adjusted the historical loss calculation by normalizing the financial data relating to that time period. Our estimation methodology further considered a number of quantitative and qualitative factors that, based on our collection experience, we believe have an impact on our repayment risk and ability to collect student receivables. Changes in the trends in any of these factors may impact our estimate of the allowance for credit losses. These factors include, but are not limited to: internal repayment history, student status, changes in the current economic condition, legislative or regulatory environments, internal cash collection forecasts and the ability to complete the federal financial aid process with the student. These factors are monitored and assessed on a regular basis. Overall, our allowance estimation process for student receivables is validated by trending analysis and comparing estimated and actual performance.

Student Receivables

The Company has ~~provided a guaranty~~student receivables that are due greater than 12 months from the date of our Condensed Consolidated Balance Sheet. As of June 30, 2023 and December 31, 2022, the ~~financial~~amount of non-current student receivables under payment plans that is longer than 12 months in duration, net of allowance for credit losses, was $15.3 million and ~~other obligations~~$22.7 million, respectively. The following table presents the amortized cost basis of ~~Lincoln Technical Institute, Inc.~~ ~~under each lease.~~ student receivables as of June 30, 2023 by year of origination.

			June 30, 2023
	Student		Three Months Ended		Six Months Ended
Year	Receivables (1)		Write-Off’s (2)		Write-Off’s (2)
2023	$	53,823	$	-	$	-
2022		20,331		7,916		14,246
2021		8,865		939		2,027
2020		3,935		210		385
2019		2,662		178		387
Thereafter		1,545		96		159
Total	$	91,161	$	9,339	$	17,204

(1)	Student receivables are presented gross and only relate to amounts owed directly from the individual student. These receivables do not include amounts owed relating to federal subsidy or from corporate partnerships.

(2)	Write-off amounts included only relate to the three months and six months ended June 30, 2023.

The Company ~~evaluated factors in ASC Topic 606,~~ ~~Revenue Recognition~~,does not utilize or maintain data pertaining to conclude that the transaction qualified as a sale. This included analyzing the right of first offer clause to determine whether it represents a repurchase agreement that would preclude the transaction from being accounted for as a successful sale. At the consummation of the sale, the Company recognized a gain on sale of assets of $22.5 million. Additionally, the Company evaluated factors in ASC Topic 842, ~~Leases~~, and concluded that the newly created leases met the definition of an operating lease. The Company also recorded ROU Asset and lease liabilities of $40.1 million. The sale leaseback transaction provided the Company with net proceeds of approximately $~~45.4~~ ~~million, with the proceeds partially used for the repayment of the Company’s outstanding term loan of $16.2 million and swap termination fee of $0.5~~ ~~million.~~student credit information.

Index

~~14.~~

~~Subsequent EventS~~

Allowance for Credit Losses

~~On November 3, 2022,~~

We define student receivables as a portfolio segment under ASC Topic 326. Changes in our current and non-current allowance for credit losses related to our student receivable portfolio are calculated in accordance with the ~~Board~~guidance effective January 1, 2023 under CECL for the three months and six months ended June 30, 2023.

	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2023			2023
Balance, beginning of period	$	46,599		$	35,370
Cumulative effect of ASC 326		-			10,841
Adjusted beginning of period balance		46,599			46,211
Provision for credit losses		10,347			18,600
Write-off’s		(9,339	)		(17,204	)
Balance, at end of period	$	47,607		$	47,607

Fair Value Measurements

The carrying amount reported in our Condensed Consolidated Balance Sheets for the current portion of ~~Directors approved a plan to close the Somerville, Massachusetts campus. The owner~~student receivables approximates fair value because of the ~~Somerville property has exercised an option~~nature of these financial instruments as they generally have short maturity periods. It is not practicable to ~~terminate~~estimate the l~~ease on~~ ~~December 8, 2023~~ ~~and t~~he Company has since determined not to pursue relocating the campus in this geographic region. For the nine months ended September 30, 2022, campus revenues were $5.3 million, representing 2.1% of total revenues, with an operating loss of $0.2 million. The Company has developed a plan to deliver instruction for the approximately 300 students at the Somerville campus, which will be reported in the Transitional Segment beginning in the fourth quarter. Total costs to close the campus including the teach-out will be approximately $2.0 million and should be completed by the end of 2023.

~~Additionally, subsequent to the end~~fair value of the ~~quarter, on November 4, 2022, the Company agreed with its Lender to terminate the Credit Agreement~~non-current portion of student receivables, since observable market data is not readily available, and ~~the remaining Revolving Loan. The Lender has agreed to allow the Company’s existing letters of credit to remain outstanding provided that they are cash collateralized.~~no reasonable estimation methodology exists.

Index

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references in this Quarterly Report on Form 10-Q (“Form 10-Q”) to “we,” “our,” “us” and the ~~“Company,”~~“Company” refer to Lincoln Educational Services Corporation and its subsidiaries unless the context indicates otherwise.

The following discussion may contain forward-looking statements regarding the Company, our business, prospects, and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects, and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” ~~“may,”~~"may," “will,” “forecast,” “outlook,” “plan,” “project,” or similar words and include, without limitation, statements relating to future enrollment, revenues, revenues per student, earnings growth, operating expenses, capital expenditures, and effect of pandemics such as the COVID-19 pandemic and its ultimate effect on the Company’s business and results. These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. Additional factors that could cause or contribute to differences between our actual results and those anticipated include, but are not limited to, those described in the “Risk Factors” section of our Form 10-K and in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this ~~Quarterly Report~~Form 10-Q and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.

As of January 1, 2023, the Company’s business is now organized into two reportable business segments: (a) Campus Operations; and (b) Transitional. Based on trends in student demand and program expansion, there have been more cross-offerings of programs among the various campuses. Given this change, the Company has revised the way it manages the business, evaluates performance and allocates resources, resulting in an updated segment structure. The Campus Operations segment includes campuses that are continuing in operation and contribute to the Company’s core operations and performance. The Transitional segment refers to businesses that are marked for closure and are currently being taught-out. As of June 30, 2023, the only campus classified in the Transitional segment is the Somerville, Massachusetts campus, which is no longer enrolling new students and will be fully taught-out and closed by December 31, 2023.

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

Index

The interim financial statements and related notes thereto appearing elsewhere in this Form 10-Q and the discussions contained herein should be read in conjunction with the annual financial statements and notes thereto included in our Form 10-K, which includes audited ~~consolidated financial statements~~Consolidated Financial Statements for ~~our~~the last two fiscal years ended December 31, ~~2021.~~2022.

General

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

~~Our business is organized~~Property Sale Agreement - Nashville, Tennessee Campus

On September 24, 2021, Nashville Acquisition, LLC, a subsidiary of the Company, entered into ~~two reportable business segments: (a) Transportation and Skilled Trades, and (b) Healthcare and Other Professions or “HOPS”~~a Contract for the Purchase of Real Estate (the “Nashville Contract”) to sell the nearly 16-acre property located at 524 Gallatin Avenue, Nashville, Tennessee 37206, at which the Company operates its Nashville campus, to SLC Development, LLC, a subsidiary of Southern Land Company (“SLC”).

On June 8, 2023, the Company closed on the sale of its Nashville, Tennessee property to East Nashville Owner, LLC, an affiliate of SLC, for $33.8 million pursuant to the Nashville Contract. In connection with the sale, the parties entered into a lease agreement allowing Lincoln to continue to occupy the campus and operate it on a rent-free basis for a period of 15 months while the Company seeks to relocate to a more modern facility within the Nashville market. In addition to the initial 15-month term, the lease includes three options to extend the term for consecutive 30-day terms for a rental payment of $150,000 per extension term. While the new campus location has not yet been determined, the Company intends to invest between $15.0 million to $20.0 million for the buildout of the new campus, which will include two new programs with the addition of HVAC and electrical.

~~Index~~

The net proceeds from the Nashville sale are approximately $33.3 million, net of closing costs, which will be available for working capital, acquisitions, other strategic initiatives and general corporate purposes. The property’s carrying value is approximately $4.5 million and the estimated fair value of the rent for the 15-month rent-free period is approximately $2.3 million, which is currently included in prepaid expenses and other current asset on the Company’s balance sheet.

Critical Accounting Policies and Estimates

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

Allowance for Credit Losses

On January 1, 2023, the ~~quarter ended September 30, 2022.~~Company adopted ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” As a result of the adoption, the Company has revised the way in which it calculates reserves on outstanding student accounts receivable balances. Details considered by management in the estimate include the following:

We extend credit to a portion of the students who are enrolled at our academic institutions for tuition and certain other educational costs. Based upon past experience and judgment, we establish an allowance for credit losses with respect to student receivables which we estimate will ultimately not be collectible. Our standard student receivable allowance is based on an estimate of lifetime expected credit losses for student receivables that considers vintages of receivables to determine a loss rate. Our estimation methodology considers a number of quantitative and qualitative factors that, based on our collection experience, we believe have an impact on our repayment risk and ability to collect student receivables. Changes in the trends in any of these factors may impact our estimate of the allowance for credit losses. These factors include, but are not limited to: internal repayment history, changes in the current economic, legislative or regulatory environments, internal cash collection forecasts and the ability to complete the federal financial aid process with the student. These factors are monitored and assessed on a regular basis. Overall, our allowance estimation process for student receivables is validated by trending analysis and comparing estimated and actual performance.

Index

Management makes a range of assumptions to determine what is believed to be the appropriate level of allowance for credit losses. Management determines a reasonable and supportable forecast based on the expectation of future conditions over a supportable forecast period as described above, as well as qualitative adjustments based on current and future conditions that may not be fully captured in the historical modeling factors described above. All of these estimates are susceptible to significant change.

We monitor our collections and write-off experience to assess whether or not adjustments to our allowance percentage estimates are necessary. Changes in trends in any of the factors that we believe impact the collection of our student receivables, as noted above, or modifications to our collection practices, and other related policies may impact our estimate of our allowance for credit losses and our results from operations.

Because a substantial portion of our revenue is derived from Title IV Programs, any legislative or regulatory action that significantly reduces the funding available under Title IV Programs, or the ability of our students or institutions to participate in Title IV Programs, would likely have a material impact on the realizability of our receivables.

Effect of Inflation

Inflation has not had a material effect on our operations, except for some inflationary pressures on certain instructional expenses, including consumables, and in instances where potential students have not wanted to incur additional debt or increased travel expense.

Results of Continuing Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023

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

													Three Months Ended						Six Months Ended
	Three Months Ended September 30,						Nine Months Ended September 30,						June 30,						June 30,
	2022			2021			2022			2021			2023			2022			2023			2022
Revenue		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%		100.0	%
Costs and expenses:
Educational services and facilities		43.5	%		42.8	%		43.8	%		42.1	%		45.2	%		44.0	%		44.4	%		43.9	%
Selling, general and administrative		51.2	%		50.8	%		54.4	%		51.8	%		58.5	%		55.8	%		58.0	%		56.2	%
Loss (gain) on sale of assets		0.0	%		0.0	%		-0.1	%		0.0	%
Gain on sale of assets														-34.9	%		-0.2	%		-17.6	%		-0.1	%
Impairment of goodwill and long-lived assets														4.8	%		0.0	%		2.4	%		0.0	%
Total costs and expenses		94.7	%		93.6	%		98.1	%		93.9	%		73.5	%		99.5	%		87.3	%		100.0	%
Operating income		5.3	%		6.4	%		1.9	%		6.1	%		26.5	%		0.5	%		12.7	%		0.0	%
Interest expense, net		0.0	%		-0.3	%		0.0	%		-0.4	%
Income from operations before income taxes		5.3	%		6.1	%		1.9	%		5.8	%
Provision for income taxes		1.4	%		1.8	%		0.3	%		1.4	%
Interest income, net														0.6	%		0.0	%		0.5	%		0.0	%
Income (loss) from operations before income taxes														27.1	%		0.4	%		13.3	%		0.0	%
Provision (benefit) for income taxes														7.7	%		0.1	%		3.5	%		-0.3	%
Net income		3.9	%		4.3	%		1.6	%		4.3	%		19.5	%		0.3	%		9.7	%		0.3	%

Three Months Ended ~~September~~June 30, ~~2022~~2023 Compared to Three Months Ended ~~September~~June 30, ~~2021~~2022

Consolidated Results of Operations

Revenue. Revenue increased ~~$2.7~~$6.5 million, or ~~3.1%~~7.9% to ~~$91.8~~$88.6 million for the three months ended ~~September~~June 30, ~~2022~~2023 from ~~$89.1~~$82.1 million in the prior year comparable period. Excluding the Transitional segment revenue of $0.4 million and $1.8 million for the three months ended June 30, 2023 and 2022, respectively, our revenue would have increased $7.9 million, or 9.8%. The remaining revenue increase was ~~driven by a 5.9% increase in~~due to average revenue per student ~~which more than offset~~up 8.6%, driven in part by the continuing roll-out of the Company’s hybrid teaching model in combination with tuition increases. The Company’s hybrid teaching model increases program efficiency and delivers accelerated revenue recognition in certain evening programs. Revenue also benefited from the 17.9% growth in student starts

Index

For a ~~2.7% decline~~general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.

Educational services and facilities expense. Our educational services and facilities expense increased $3.9 million, or 10.9% to $40.0 million for the three months ended June 30, 2023 from $36.1 million in the ~~average student population~~prior year comparable period. Excluding the Transitional segment educational services and facilities expense of $0.5 million and $0.8 million for the ~~quarter. Average~~three months ended June 30, 2023 and 2022, respectively, our educational services and facilities expense would have increased $4.2 million, or 12.0%. Increased costs were primarily concentrated in instructional expense, facilities expense and books and tools expense.

Instructional expenses increased $1.6 million driven by several factors including higher staffing levels resulting from increased student ~~population declined~~starts, merit salary increases for instructors and the transition to the Company’s hybrid teaching model.

Facilities expense increased by approximately $1.3 million, driven by several factors including additional rent expense of $0.3 million resulting from the new Atlanta, Georgia campus lease, and the sale of our Nashville, Tennessee property. Additional costs included an increase in utility expense resulting from higher usage and inflation in addition to increases in real estate taxes.

Books and tools expense increased $1.3 million, driven by a 17.9% increase in student starts quarter-over-quarter.

Educational services and facilities expense, as a percentage of revenue, increased to 45.2% from 44.0% for the three months ended June 30, 2023 and 2022, respectively.

Selling, general and administrative expense. Our selling, general and administrative expense increased $6.0 million, or 13.0% to $51.8 million for the three months ended June 30, 2023, from $45.8 million in the prior year comparable period. Excluding the Transitional segment selling, general and administrative expense of $0.4 million and $1.1 million for the three months ended June 30, 2023 and 2022, respectively, our selling general and administrative expense would have increased $6.6 million, or 14.8%. Increased costs were driven by the following:

Administrative cost increases of $5.4 million, driven by several factors including increased salaries expense, stock-based compensation, performance-based incentives, bad debt expense and legal costs (see Part II, Item 1. “Legal Proceedings”). Bad debt expense increased driven in part by revenue growth quarter-over-quarter in addition to a higher accounts receivable balance in the current year resulting in part from student start growth. Further contributing to additional bad debt expense were increases in reserve rates resulting from the implementation of ASC Topic 326, which requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” methodology to a “current expected credit loss” methodology (“CECL”). Partially offsetting the administrative costs was a reduction in medical expense of $1.0 million resulting from reduced claims.

Marketing investments increased $0.6 million as a result of a continuing shift in marketing strategy to include additional spending in digital channels that generate higher quality, better converting leads but which come at a higher cost-per-lead. These efforts are driven primarily through the paid search and paid social media channels. We continue to reduce our dependency on lower cost third-party affiliate/pay-per-lead inquiries, which convert at relatively lower levels. Additional investments in marketing have contributed to the increase in starts quarter-over-quarter.

Student services increased $0.6 million primarily resulting from costs associated with the centralization of our financial aid department.

Selling, general and administrative expense, as a percentage of revenue, increased to 58.5% from 55.8% for the three months ended June 30, 2023 and 2022, respectively.

Gain on sale of assets. Gain on sale of assets was $30.9 million, resulting from the sale of the Company’s Nashville, Tennessee property. Net proceeds from the sale were approximately $33.3 million.

Impairment of goodwill and long-lived assets. Impairment of goodwill and long-lived assets was $4.2 million as a result of the ~~9.2% decline~~sale of the Nashville, Tennessee property on June 8, 2023. The result of the sale created a change in ~~new student starts~~the trajectory of the fair value of the Nashville, Tennessee operations and as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to goodwill and an additional $0.4 million impairment relating to long-lived assets. As of June 30, 2022, there were no impairments of goodwill or long-lived assets.

Index

Net interest income / expense. Net interest income was $0.5 million for the ~~quarter~~three months ended June 30, 2023 compared to ~~last year.~~net interest expense of less than $0.1 million in the prior year comparable period. The ~~higher~~increase to net interest income was primarily driven by the Company’s investment of its cash reserves into various short-term investments.

Income taxes. Our provision for income taxes was $6.8 million and $0.1 million for each of the three months ended June 30, 2023 and 2022, respectively. The increase in provision for the three months ended June 30, 2023 was due primarily to the gain on the sale of the Nashville, Tennessee property, which drove an increase in the Company’s pre-tax income. The effective tax rate for both periods remained essentially flat at 28.2%.

Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Consolidated Results of Operations

Revenue. Revenue increased $11.2 million, or 6.8% to $175.9 million for the six months ended June 30, 2023 from $164.7 million in the prior year comparable period. Excluding the Transitional segment revenue of $1.4 million and $3.6 million for the six months ended June 30, 2023 and 2022, respectively, our revenue would have increased $13.4 million, or 8.3%. The remaining revenue increase was due to average revenue per student ~~resulted from tuition increases combined with more efficient program delivery through~~up 8.8%, driven in part by the continuing roll-out of the Company’s ~~new~~ hybrid teaching ~~model.~~model in combination with tuition increases. The Company’s hybrid teaching model increases program efficiency and delivers ~~higher daily~~accelerated revenue ~~rates~~recognition in certain ~~programs as their overall duration can be shortened~~.evening programs. Revenue also benefited from the 12.5% growth in student starts..

For a general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.

Educational services and facilities expense. Our educational services and facilities expense increased ~~$1.8~~$5.8 million, or ~~4.8%~~8.1% to ~~$39.9~~$78.1 million for the ~~three~~six months ended ~~September~~June 30, ~~2022~~2023 from ~~$38.1~~$72.3 million in the prior year comparable period. Excluding the Transitional segment educational services and facilities expense of $1.1 million and $1.6 million for the six months ended June 30, 2023 and 2022, respectively, our educational services and facilities expense would have increased $6.4 million, or 9.0%. Increased costs were primarily concentrated in instructional expense, facilities expense and ~~facilities~~books and tools expense.

Instructional ~~salaries~~expenses increased ~~mainly due to~~$3.2 million driven by several factors including higher staffing levels ~~in addition to expenses incurred in connection with~~resulting from increased student starts, merit salary increases for instructors and the transition to ~~our new~~the Company’s hybrid teaching model.

~~Facility expenses~~Facilities expense increased ~~as a result of~~by approximately ~~$0.8~~$1.6 million, ofdriven by several factors including additional rent expense of $0.5 million resulting from the new Atlanta, Georgia campus lease, and the sale ~~leaseback transaction relating~~of our Nashville, Tennessee property. Additional costs included an increase in utility expense resulting from higher usage and inflation in addition to ~~our Denver and Grand Prairie campuses consummated~~increases in ~~the fourth quarter of 2021.~~real estate taxes.

Books and tools expense increased $1.6 million, driven by the 12.5% increase in student starts year-over-year.

~~Index~~

Educational services and facilities expense, as a percentage of revenue, increased to ~~43.5%~~44.4% from ~~42.8%~~43.9% for the ~~three~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021,~~2022, respectively.

Selling, general and administrative expense. Our selling, general and administrative expense increased ~~$1.8~~$9.6 million, or ~~3.9%~~10.4% to ~~$47.0~~$102.1 million for the ~~three~~six months ended ~~September~~June 30, ~~2022,~~2023, from ~~$45.2~~$92.5 million in the prior year comparable period. ~~The increase was~~Excluding the Transitional segment selling, general and administrative expense of $0.9 million and $2.1 million for the six months ended June 30, 2023 and 2022, respectively, our selling general and administrative expense would have increased $10.7 million, or 11.9%. Increased costs were driven by the following:

Administrative cost increases of $8.2 million, driven by several factors including increased ~~salary~~salaries expense, stock-based compensation, performance-based incentives, bad debt expense and ~~benefits~~legal costs (see Part II, Item 1. “Legal Proceedings”). Bad debt expense increased driven in part by revenue growth year-over-year in addition to a higher ~~salary and~~accounts receivable balance in the current year resulting in part from student start growth. Further contributing to additional bad debt expense were increases in reserve rates resulting from the implementation of ASC Topic 326, which requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” methodology to a “current expected credit loss” methodology (“CECL”). Partially offsetting the administrative costs was a reduction in medical ~~claims, severance~~ expense of $1.0 million resulting from reduced claims.

Index

Marketing investments increased $1.5 million as ~~we better align our cost structure~~a result of a continuing shift in ~~certain functions,~~marketing strategy to include additional spending ~~for~~in digital channels that generate higher quality, better converting leads but which come at a higher cost-per-lead. These efforts are driven primarily through the paid search and paid social media channels. We continue to reduce our dependency on lower cost third-party affiliate/pay-per-lead inquiries, which convert at relatively lower levels. Additional marketing investments have contributed to the increase in starts year-over-year.

Student services increased $1.0 million primarily resulting from costs associated with the centralization of our financial aid ~~expected to be completed by year-end and one-time expenses in connection with growth initiatives.~~department,

Selling, general and administrative expense, as a percentage of revenue, increased to ~~51.2%~~58.0% from ~~50.8%~~56.2% for the ~~three~~six months ended ~~September~~June 30, 2023 and 2022, ~~and 2021,~~ respectively.

~~Net interest expense.~~ Net interest expense decreased by approximately $0.3 million, or 87.7% to less than $0.1 million for the three months ended September 30, 2022 from $0.3 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 the prior year in connection with the sale leaseback transaction.

~~Income taxes.~~ Our income tax provision for the three months ended September 30, 2022 was $1.3 million, or 26.8% of pre-tax income, compared to $1.6 million, or 29.6% of pre-tax income, in the prior year comparable period. The decrease in effective tax rate was due to a higher discrete benefit relating to restricted stock vesting.

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

~~Consolidated Results of Operations~~

~~Revenue.~~ Revenue increased $9.0 million, or 3.6% to $256.5 million for the nine months ended September 30, 2022 from $247.5 million in the prior year comparable period. The increase in revenue was driven by several factors including a slight increase in average student population, beginning the year with approximately 740 more students than in the prior year comparable period, average revenue per student, up 2.7% driven by tuition increases combined with more efficient program delivery through the roll-out of the Company’s new hybrid teaching model. The hybrid model delivers higher daily revenue rates in certain programs as their overall duration can be shortened.

~~For a general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.~~

~~Educational services and facilities expense.~~ Our educational services and facilities expense increased $8.1 million, or 7.8% to $112.2 million for the nine months ended September 30, 2022 from $104.1 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. Further contributing to the increase were current market conditions, program expansion and the 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 expenses increased as a result of approximately $2.4 million of additional rent expense relating to our Denver and Grand Prairie campuses which are now leased subsequent to the consummation of the sale leaseback transaction relating to those campuses in the fourth quarter of 2021.

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

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

~~Index~~

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

~~Selling, general and administrative expense, as a percentage of revenue, increased to 54.4% from 51.8% for the nine months ended September 30, 2022 and 2021, respectively.~~

Gain on sale of ~~assets~~.assets. Gain on sale of assets ~~increased~~was $30.9 million, resulting from the sale of the Company’s Nashville, Tennessee property. Net proceeds from the sale were approximately $33.3 million.

Impairment of goodwill and long-lived assets. Impairment of goodwill and long-lived assets was $4.2 million as a result of the sale of the Nashville, Tennessee property on June 8, 2023. The result of the sale created a change in the trajectory of the fair value of the Nashville, Tennessee operations and as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to ~~$0.2~~goodwill and an additional $0.4 million impairment relating to long-lived assets. As of June 30, 2022, there were no impairments of goodwill or long-lived assets.

Net interest income / expense. Net interest income was $1.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022 from~~2023 compared to net interest expense of less than $0.1 million in the prior year comparable period. The increase ~~year over year~~to net interest income was primarily driven by the ~~result~~Company’s investment of the sale of our Suffield, Connecticut property during the second quarter of 2022, which was previously a former campus. Net proceeds received from the sale were approximately $2.4 million resulting in a $0.2 million gain in the current year.its cash reserves into various short-term investments.

~~Net interest expense.~~Income taxes. ~~Net interest expense decreased by approximately $0.8 million, or 87.0% to $0.1~~Our provision for income taxes was $6.2 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022 from $0.9~~2023 compared to a benefit for income taxes of $0.5 million in the prior year comparable period. The ~~decrease in expense~~provision for the six months ended June 30, 2023 was due to the ~~payoff of all outstanding debt during the fourth quarter of last year in connection with~~gain on the sale ~~leaseback transaction.~~

~~Income taxes.~~ ~~Our income tax provision~~of the Nashville, Tennessee property, which drove an increase in the Company’s pre-tax income. The benefit for the ~~nine~~six months ended ~~September~~June 30, 2022 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 primarily to a ~~higher~~pre-tax book loss and a discrete ~~benefit~~item relating to ~~restricted stock~~Restricted Stock vesting.

Segment Results of Operations

~~We operate our~~As of January 1, 2023, the Company’s business inis now organized into two reportable business segments: (a) ~~the Transportation and Skilled Trades segment;~~Campus Operations; and (b) Transitional. Based on trends in student demand and our program expansions, there have been more cross-offerings of programs among the ~~Healthcare~~various campuses. Given this change, the Company has revised the way it manages the business, evaluates performance, and ~~Other Professions (“HOPS”) segment.~~ allocates resources, resulting in an updated segment structure. As a result, the Company has shifted its focus to the two new segments as defined below:

Campus Operations – The ~~Company also utilizes~~Campus Operations segment includes all campuses that are continuing in operation and contribute to the Company’s core operations and performance.

Transitional – The Transitional segment refers to businesses that are marked for closure and are currently being taught-out. As of March 31, 2023, the only campus classified in the Transitional segment ~~solely when~~is the Somerville, Massachusetts campus, which is no longer enrolling new students and ~~if it closes a school. Our reportable segments have been determined based on a method~~will be fully taught-out and closed 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.

~~Index~~

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

Three Months Ended September 30,
2022 2021 % Change
Revenue:
Transportation and Skilled Trades
$
67,329

$
64,950
3.7 %
Healthcare and Other Professions
24,484

24,109
1.6 %
Total $ 91,813 $ 89,059 3.1 %

Operating Income (loss):
Transportation and Skilled Trades
$
11,768

$
11,842
-0.6 %
Healthcare and Other Professions
1,180

1,833
-35.6 %
Corporate
(8,068
)

(7,930
)
-1.7 %
Total $ 4,880 $ 5,745 -15.1 %

Starts:
Transportation and Skilled Trades 3,585 3,976
-9.8
%
Healthcare and Other Professions 1,344 1,454
-7.6
%
Total 4,929 5,430
-9.2
%

Average Population:
Transportation and Skilled Trades 8,748 8,863
-1.3
%
Leave of Absence - COVID-19 - (9 )
100.0
%
Transportation and Skilled Trades Excluding Leave of Absence - COVID-19 8,748 8,854
-1.2
%

Healthcare and Other Professions 4,076 4,326
-5.8
%
Leave of Absence - COVID-19 - (2 )
100.0
%
Healthcare and Other Professions Excluding Leave of Absence - COVID-19 4,076 4,324
-5.7
%

Total 12,824 13,189
-2.8
%
Total Excluding Leave of Absence - COVID-19 12,824 13,178
-2.7
%

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
%

~~Index~~

~~Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021~~

~~Transportation and Skilled Trades~~

Operating income remained relatively flat at $11.8 million for the three months ended September 30, 2022 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 $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 change quarter over quarter was driven by the following factors:

Revenue increased by $0.4 million, or 1.6% to $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.

Index

The following table presents results for our two reportable segments for the ~~nine~~three months ended ~~September~~June 30, 2023 and 2022:

	Three Months Ended June 30,
	2023		2022		% Change
Revenue:
Campus Operations	$	88,213	$	80,349		9.8	%
Transitional		433		1,793		-75.9	%
Total	$	88,646	$	82,142		7.9	%

Operating Income (loss):
Campus Operations	$	4,169		$	8,791		-52.6	%
Transitional		(482	)		(88	)	447.7	%
Corporate		19,828			(8,307	)	338.7	%
Total	$	23,515		$	396		5838.1	%

Starts:
Campus Operations	4,411	3,742	17.9	%
Transitional	-	110	-100.0	%
Total	4,411	3,852	14.5	%

Average Population:
Campus Operations	12,369	12,326	0.3	%
Transitional	84	311	-73.0	%
Total	12,453	12,637	-1.5	%

End of Period Population:
Campus Operations	12,959	12,704	2.0	%
Transitional	45	298	-84.9	%
Total	13,004	13,002	0.0	%

Campus Operations

Operating income was $4.2 million and $8.8 million for each of the three months ended June 30, 2023 and 2022, ~~and 2021:~~respectively. The change quarter-over-quarter was mainly driven by the following factors:

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
%

Revenue increased $7.9 million, or 9.8% to $88.2 million for the three months ended June 30, 2023 from $80.3 million in the prior year comparable period. The remaining revenue increase was due to average revenue per student up 8.6%, driven in part by the continuing roll-out of the Company’s hybrid teaching model in combination with tuition increases. The Company’s hybrid teaching model increases program efficiency and delivers accelerated revenue recognition in certain evening programs. Revenue also benefited from the 17.9% growth in student starts.

•

Educational services and facilities expense increased $4.2 million, or 12.0% to $39.5 million for the three months ended June 30, 2023 from $35.3 million in the prior year comparable period. Increased costs were primarily concentrated in instructional, facilities expense and books and tools expense.

Instructional expenses increased $1.6 million driven by several factors including higher staffing levels resulting from increased student starts, merit salary increases for instructors and the transition to the Company’s hybrid teaching model.

Index

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

Books and tools increased $1.3 million, driven by the 17.9% increase in student starts quarter-over-quarter.

~~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 $177.6 million in the prior year comparable period. The increase in revenue was primarily driven by a 2.8% increase in average student population mainly due to a higher beginning of period population in the current year of approximately 730 students.

Educational services and facilities expense increased $5.1 million, or 7.2% to $76.5 million for the nine months ended September 30, 2022 from $71.4 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. Further contributing to the increase were current market conditions, program expansion and the 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.

Selling, general and administrative expense increased ~~$10.7~~$4.0 million, or ~~15.0%~~11.1% to ~~$81.4~~$40.3 million for the ~~nine~~three months ended ~~September~~June 30, ~~2022~~2023, from ~~$70.7~~$36.3 million in the prior year comparable period. The increase was primarily driven by additional salaries expense, performance-based incentives, bad debt expense, ~~salary expense~~increased investments in ~~sales~~marketing and ~~increased spending in~~additional costs for student services, ~~and career services as~~all of which are discussed above in the consolidated results of operations.

~~Healthcare~~ and ~~Other Professions~~as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to goodwill and an additional $0.4 million impairment relating to long-lived assets. As of June 30, 2022, there were no impairments of goodwill or long-lived assets.

~~Operating income was $4.1~~Transitional

On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus. The owner of the Somerville property has exercised an option to terminate the lease on December 8, 2023 and the Company has since determined not to pursue relocating the campus in this geographic region. The Company has also developed a plan to deliver instruction for the remaining students prior to the closing. Total costs to close the campus including the teach-out will be approximately $2.0 million. The campus will be fully taught-out and closed by December 31, 2023.

Revenue decreased $1.4 million, or 75.9% to $0.4 million for the ~~nine~~three months ended ~~September~~June 30, ~~2022 compared to $7.7~~2023, from $1.8 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~~Total operating expenses decreased $1.0 million, or ~~9.0%~~51.4% to ~~$35.7~~$0.9 million for the ~~nine~~three months ended ~~September~~June 30, ~~2022~~2023, from ~~$32.7~~$1.9 million in the prior year comparable period. ~~Increased costs were primarily concentrated in instructional expense~~

Decreased operating performance is the result of closing the campus and ~~facilities expense. Instructional salaries increased mainly due to higher staffing levels in addition to expenses incurred in connection with the transition to our~~no longer enrolling new hybrid teaching model. Further contributing to the increase were current market conditions, program expansion and 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.students.

Selling, general and administrative expense increased $3.2 million, or 10.8% to $32.6 million for the nine months ended September 30, 2022 from $29.4 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.

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses were ~~$25.3~~$11.1 million and ~~$27.9~~$8.5 million ~~for~~after excluding a $30.9 million gain in the ~~nine months ended September 30, 2022 and 2021, respectively. The decrease in expense~~current year, ~~over year was primarily driven by a reduction in incentive compensation and a gain~~ resulting from the sale of our Nashville, Tennessee property and a $0.2 million gain in the prior year driven by the sale of our former campus property in Suffield, ~~Connecticut property during the second quarter of 2022, which was previously a former campus.~~Connecticut. Increased costs were driven by several factors including additional salaries expense, stock-based compensation, performance-based incentives and an increase in legal costs (see Part II, Item 1. “Legal Proceedings”). Partially offsetting these ~~cost savings are increased salaries and benefits expenses~~costs was a decrease in ~~addition to severance and stock-based compensation related to severance.~~medical expense resulting from reduced claims.

Index

The following table presents results for our two reportable segments for the six months ended June 30, 2023 and 2022:

	Six Months Ended June 30,
	2023		2022		% Change
Revenue:
Campus Operations	$	174,565	$	161,130		8.3	%
Transitional		1,364		3,567		-61.8	%
Total	$	175,929	$	164,697		6.8	%

Operating Income (loss):
Campus Operations	$	14,278		$	17,406		-18.0	%
Transitional		(679	)		(150	)	352.7	%
Corporate		8,801			(17,186	)	151.2	%
Total	$	22,400		$	70		31900.0	%

Starts:
Campus Operations	7,851	6,976	12.5	%
Transitional	-	229	-100.0	%
Total	7,851	7,205	9.0	%

Average Population:
Campus Operations	12,297	12,444	-1.2	%
Transitional	123	317	-61.2	%
Total	12,420	12,761	-2.7	%

End of Period Population:
Campus Operations	12,959	12,704	2.0	%
Transitional	45	298	-84.9	%
Total	13,004	13,002	0.0	%

Campus Operations

Operating income was $14.3 million and $17.4 million for each of the six months ended June 30, 2023 and 2022, respectively. The change year-over-year was mainly driven by the following factors:

Revenue increased $13.4 million, or 8.3% to $174.5 million for the six months ended June 30, 2023 from $161.1 million in the prior year comparable period. The remaining revenue increase was due to average revenue per student up 8.8%, driven in part by the continuing roll-out of the Company’s hybrid teaching model in combination with tuition increases. The Company’s hybrid teaching model increases program efficiency and delivers accelerated revenue recognition in certain evening programs. Revenue also benefited from the 12.5% growth in student starts.

•

Educational services and facilities expense increased $6.4 million, or 9.0% to $77.0 million for the six months ended June 30, 2023 from $70.6 million in the prior year comparable period. Increased costs were primarily concentrated in instructional, facilities expense and books and tools expense.

Instructional expenses increased $3.2 million driven by several factors including higher staffing levels resulting from increased student starts, merit salary increases for instructors and the transition to the Company’s hybrid teaching model.

Facilities expense increased by approximately $1.6 million, driven by several factors including additional rent expense of $0.5 million resulting from the new Atlanta, Georgia campus lease, and the sale of our Nashville, Tennessee property. Additional costs included an increase in utility expense resulting from higher usage and inflation in addition to increases in real estate taxes

Index

Books and tools increased $1.6 million, driven by the 12.5% increase in student starts year-over-year.

Selling, general and administrative expense increased $6.0 million, or 8.2% to $79.0 million for the six months ended June 30, 2023, from $73.0 million in the prior year comparable period. The increase was primarily driven by additional salaries expense, performance-based incentives, bad debt expense, increased investments in marketing and additional costs for student services, all of which are discussed above in the consolidated results of operations.

Impairment of goodwill and long-lived assets was $4.2 million as a result of the sale the Nashville, Tennessee property on June 8, 2023. The result of the sale created a change in the trajectory of the fair value of the Nashville, Tennessee operations and as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to goodwill and an additional $0.4 million impairment relating to long-lived assets. As of June 30, 2022, there were no impairments of goodwill or long-lived assets.

Transitional

Revenue decreased $2.2 million, or 61.7% to $1.4 million for the six months ended June 30, 2023, from $3.6 million in the prior year comparable period.

Total operating expenses decreased $1.7 million, or 45.0% to $2.0 million for the six months ended June 30, 2023, from $3.7 million in the prior year comparable period.

Decreased operating performance is the result of closing the campus and no longer enrolling new students.

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses were $22.1 million and $17.4 million after excluding a $30.9 million gain in the current year, resulting from the sale of our Nashville, Tennessee property and a $0.2 million gain in the prior year driven by the sale of our former campus property in Suffield, Connecticut. Increased costs were driven by several factors including additional salaries expense, stock-based compensation, performance-based incentives and an increase in legal costs (see Part II, Item 1. “Legal Proceedings”). Partially offsetting these costs was a decrease in medical expense resulting from reduced claims.

LIQUIDITY AND CAPITAL RESOURCES

Our primary capital requirements are for the 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, prior to the termination thereof (as described below), borrowings under our Credit Facility. The following chart summarizes the principal elements of our cash flow for each of the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 and ~~2021, respectively:~~2022:

Nine Months Ended
September 30,

2022 2021
Net cash provided by operating activities
$
612

$
17,750

Net cash used in investing activities
(4,663
)

(5,252
)
Net cash used in financing activities
(9,637
)

(3,374
)

	Six Months Ended
	June 30,
	2023			2022
Net cash provided by (used in) operating activities	$	10,403		$	(9,992	)
Net cash provided by (used in) investing activities		12,823			(1,192	)
Net cash used in financing activities		(2,945	)		(5,138	)

As of ~~September~~June 30, ~~2022,~~2023, the Company had $70.6 million in cash and cash equivalents ~~of $69.6~~and restricted cash, in addition to $24.3 million in short-term investments, compared to ~~$83.3~~$50.3 million cash and cash equivalents and restricted cash, including $14.7 million in short-term investments as of December 31, ~~2021.~~2022. The ~~decrease~~increase in cash ~~position from year end~~ was primarily driven by the ~~result~~sale of our Nashville, Tennessee property, which yielded proceeds of approximately $33.3 million. Partially offsetting the increase in cash are several factors including $10.9 million in capital expenditure investments made during the six months ended June 30, 2023, which were primarily due to the ongoing buildout of the new Atlanta, Georgia campus, incentive compensation payments, share repurchases made under the share repurchase ~~plan,~~program, and ~~a decrease~~one-time costs incurred in ~~net income. Partially offsetting~~connection with the ~~decrease~~teach-out of our Somerville, Massachusetts campus. In addition, our cash position in ~~cash and cash equivalents was~~prior years benefited from $2.4 million in net proceeds received as a result of the sale of a former campus located in Suffield, Connecticut, ~~executed~~which was consummated during the second quarter of ~~the current year.~~2022.

Index

On May 24, 2022, the Company announced that its Board of Directors ~~has~~had authorized a share repurchase program of up to $30.0 million of the Company’s outstanding ~~common stock.~~Common Stock. The share repurchase program ~~has been~~was authorized for 12 months. On February 27, 2023, the Board of Directors extended the share repurchase program for an additional 12 months and authorized the repurchase of an additional $10.0 million of the Company’s Common Stock, for an aggregate of up to $30.6 million in additional repurchases. As of ~~September~~June 30, ~~2022,~~2023, the Company has approximately $29.7 million remaining for repurchases.

During the six months ended June 30, 2023, the Company repurchased ~~1,083,403~~165,064 shares at a cost of approximately ~~$6.7~~$0.9 million. Total repurchases made since the inception of the share repurchase program through June 30, 2023 were 1,737,478 shares at a total cost of approximately $10.3 million.

Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV Programs, which represented approximately ~~75%~~74% of our cash receipts relating to revenues in ~~2021.~~2022. Pursuant to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV 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 for tuition payments to us or any restriction on our eligibility to receive Title IV Program funds would have a significant impact on our operations and our financial condition. For more information, see Part I, Item 1A. “Risk Factors - Risks Related to Our Industry” of our Form 10-K.

Operating Activities

Operating cash flow results primarily from cash received from our students, offset by changes in working capital demands. Working capital can vary at any point in time based on several factors including seasonality, timing of cash receipts and payments and vendor payment terms.

Net cash provided by operating activities was ~~$0.6~~$10.4 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023 compared to ~~$17.8~~net cash used of $10.0 million in the prior year comparable period. The main drivers for the cash ~~used in or~~ provided by operating activities ~~is subject to changes~~included a $4.3 million increase in ~~working capital, which at any point in time is subject to many variables including~~accounts payable during the six months ended June 30, 2023 resulting from the timing of cash ~~receipts~~disbursements, an increase in accrued expense of $8.5 million over the prior year resulting from a $6.1 million performance-based incentive payment made during the first quarter of 2022 and ~~cash payments~~a $6.2 million increase in prepaid income taxes and ~~vendor payment terms. For the nine months ended September 30, 2022 net cash used in operating activities was~~income taxes payable, resulting from increased pre-tax earnings driven by ~~changes in working capital in addition to a decrease in net earnings year over year.~~the sale of the Nashville, Tennessee property during the second quarter of 2023.

Investing Activities

Net cash provided by investing activities was $12.8 million for the six months ended June 30, 2023 compared to net cash used in investing activities ~~was $4.7 million for the nine months ended September 30, 2022 compared to $5.3~~of $1.2 million in the prior year comparable period. ~~The decrease~~Cash provided by investing activities in ~~net cash used~~the current year was primarily driven by ~~an increase in liquidity resulting from $2.4~~$33.3 million in ~~net~~ proceeds received from the sale of our ~~former~~Nashville, Tennessee campus, ~~located~~partially offset by investments of $10.9 million in ~~Suffield, Connecticut executed during the second quarter~~capital expenditures primarily relating to our new Atlanta, Georgia campus and net purchases of short-term investment totaling $9.6 million in the current year.

Index

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. Additionally, the Company has reinvested $24.3 million for the purchase of short-term investments.

~~Index~~

~~We currently lease a majority of our campuses. We own our campus in Nashville, Tennessee, which currently is subject to a sale leaseback agreement (described elsewhere in this Form 10-Q) for~~As we have now consummated the sale of the Nashville, Tennessee property, ~~which is~~we currently ~~expected to be consummated within the next 12 months.~~lease all of our campuses.

Capital expenditures were 2%3% of revenues in ~~2021~~2022 and are expected to approximate 3%11% of revenues in ~~2022.~~2023. The significant increase in planned capital expenditures over the prior year will be driven by several factors that include, but are not limited to, the buildout of our new Atlanta, Georgia area campus, additional space, the planned introduction of three new programs at the Lincoln, Rhode Island campus, and the anticipated introduction of new programs at five other campuses. We expect to fund future capital expenditures with cash generated from operating activities and cash on hand.

Financing Activities

Net cash used in financing activities ~~was $9.6 million~~ for the ~~nine~~six months ended ~~September~~June 30, 2023 and 2022 ~~compared~~was $2.9 million and $5.1 million, respectively. The decrease in cash used of $2.2 million was primarily driven by a $1.6 million reduction in repurchases made under the Company’s share repurchase program in the current year, in addition to ~~$3.4~~$0.6 million of dividends payments made in the prior ~~year comparable period. The increase in net cash used of $6.2 million was driven by the implementation of a share repurchase program during the second quarter of the current~~ year.

Credit Facility

~~Index~~

On September 23, 2021, in connection with entering into the agreements relating to the sale leaseback transaction for the Company’s Denver, Grand Prairie and Nashville campuses (collectively, the “Property Transactions”), the Company and certain of its subsidiaries entered into a Consent and Waiver Letter Agreement (the “Consent Agreement”) to the Company’s Credit Agreement with its Lender.Company. The Consent Agreement provides the Lender’s consent to the Property Transactions and waives certain covenants in the Credit Agreement, subject to certain specified conditions. In addition, in connection with the consummation of the Property Transactions, the Lender released its mortgages and other liens on the subject-properties upon the Company’s payment in full of the outstanding principal and accrued interest on the Term Loan and any swap obligations arising from any swap transaction. Upon the consummation of the Property Transaction on October 29, 2021 the Company paid the Lender approximately $16.7 million in repayment of the Term Loan and the swap termination fee and no further borrowings may be made under the Term Loan or the Delayed Draw Term Loan. Further, during the second quarter of 2022, the Company sold a property located in Suffield, Connecticut for net proceeds of approximately $2.4 million. Prior to the consummation of the transaction, Lincoln obtained consent from the Lender to enter into the sale of this property.

~~Subsequent to the end of the quarter, on~~On November 4, 2022, the Company agreed with its Lender to terminate the Credit Agreement and the remaining Revolving Loan. The Lender ~~has~~ agreed to allow the Company’s existing letters of credit to remain outstanding provided that they are cash collateralized. As of June 30, 2023, the letters of credit, in the aggregate outstanding principal amount of $4.0 million, remained outstanding, were cash collateralized, and were classified as restricted cash on the Condensed Consolidated Balance Sheet. As of June 30, 2023, the Company did not have a credit facility and did not have any debt outstanding. The Company is continuing to consider potential lenders for its future credit needs.

Contractual Obligations

Current portion of Long-Term Debt, Long-Term Debt and Lease Commitments. As of ~~September~~June 30, ~~2022,~~2023, we ~~have~~had no debt outstanding. We lease offices, educational facilities and various items of equipment for varying periods through the year 2041 at basic annual rentals (excluding taxes, insurance, and other expenses under certain leases).

As of ~~September~~June 30, ~~2022,~~2023, we had outstanding loan principal commitments to our active students of ~~$31.4~~$29.4 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 required to fund their education using these funds and they are not reported on our financial statements.

~~Regulatory Updates~~

~~Borrower Defense to Repayment Regulations~~.

The DOE’s current Borrower Defense to Repayment regulations establish processes for borrowers to receive from the DOE a discharge of the obligation to repay certain Title IV Program loans based on certain acts or omissions by the institution or a covered party. The current 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 “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 a new process and standard for evaluating borrower applications for loan discharges that would apply to all claims submitted or pending as of the anticipated 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 each of 3 categories of loans depending on the date the loans were disbursed to students (i.e., prior to July 1, 2017, between July 1, 2017 and June 30, 2020, and on or after July 1, 2020). As a result, the new 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.

~~Index~~

The final DOE regulations continue to permit the imposition of liabilities on institutions for the amount of discharged loans. For 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 regulations 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 list of substantial misrepresentations; 2) a new section regarding substantial omissions of fact; 3) breaches of contract; 4) a new section regarding aggressive and deceptive recruitment; or 5) state or federal judgments or final DOE actions that could result in a borrower defense claim. Some of these forms of conduct also could result in other sanctions against the institutions. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – Substantial Misrepresentation.” The new regulations also make it easier for borrowers to qualify for loan discharges by enabling the DOE to 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 broad group of claims 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 will make it easier for borrowers to obtain discharges of their loans and for the DOE to recover liabilities from institutions and impose other sanctions. The implementation of new borrower defense to repayment regulations by the DOE and the enforcement of the existing borrower defense to repayment regulations could have a material adverse effect on our business and results of operations. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – Negotiated Rulemaking.”

In April 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 our 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 would provide to us the applications and allow us the opportunity to submit responses to them. Further, the communication outlines certain information requests, relating to the period between 2007 and 2013, in connection with the DOE’s preliminary review of the borrower defense applications. Based upon publicly available information, it appears that the DOE has undertaken similar reviews of other educational institutions which have also been the subject of various borrower defense applications. We have received the borrower application claims and have completed the process of thoroughly reviewing and responding to each borrower application as well as providing information in response to the DOE’s requests.

Given the early stage of this matter, management is not able to predict the outcome of the DOE’s review at this time. If the DOE disagrees with our legal and factual grounds for contesting the applications, the DOE may impose liabilities on the Company based on the discharge of the loans at issue in the pending applications which could have a material adverse effect on our business and results of operations. If 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.

Index

ItRegulatory Updates

Negotiated Rulemaking

The DOE initiated rulemaking on several topics in January 2022 and, after delays in the process, announced in January 2023 its intention to reinitiate the rulemaking process on topics including gainful employment, financial responsibility, administrative capability, certification procedures, ability to benefit and improving income driven repayment of loans. See our Form 10-K at “Business – Regulatory Environment – Negotiated Rulemaking.” On May 19, 2023, the DOE published a notice of proposed rulemaking in the Federal Register that includes proposed regulations on topics including:

•

Gainful Employment: The proposed regulations would replace prior gainful employment regulations, rescinded by the DOE in 2019, that required each of our educational programs to achieve threshold rates in at least one of two debt measure categories. See our Form 10-K at “Business – Regulatory Environment – Gainful Employment.” The proposed regulations would establish rules for annually evaluating each of our educational programs based on the calculation of debt-to-earnings rates (an annual debt-to-earnings rate and a discretionary debt-to-earnings rate) and a median earnings measure. The DOE would calculate these rates and measures under complex regulatory formulas outlined in the proposed regulations and using data such as student debt (including not only Title IV loans but also certain private loans and extensions of credit), student earnings data, and comparative median earnings data for young working adults with only a high school diploma or GED. If one or more of our educational programs were to yield debt-to-earnings rates or a median earnings measures that do not comply with regulatory benchmarks for two of three consecutive years, we would lose Title IV eligibility for each of the impacted educational programs. The proposed regulations also would require us to provide warnings to current and prospective students for programs in danger of losing of Title IV eligibility (which could deter prospective students from enrolling and current students from continuing their respective programs). The regulations also require providing certifications and reporting data to the DOE and providing required student disclosures related to gainful employment.

The proposed regulations include gainful employment rates and measures that would be based in part on data that is ~~possible~~not readily accessible to us and other institutions, which would make it difficult for us to predict with certainty how our educational programs will perform under the new gainful employment benchmarks and the extent to which certain programs could become ineligible for Title IV participation. The DOE released performance data at the time it published the proposed regulations that ~~we may receive~~calculates rates for each school’s program while acknowledging that the methodology used to produce the calculations differs from the ~~DOE~~methodology in the ~~future borrower defense applications submitted by~~proposed regulations due to limitations in data availability. Because neither we nor the DOE have access to all of the data that would ultimately be used under the proposed regulations to evaluate our programs, we cannot predict, whether or the extent to which our programs could fail to comply with the new gainful employment benchmarks. Moreover, we would not have control over some of the factors that could impact the rates and measures for our programs, which would limit our ability to eliminate or mitigate the impact of the proposed regulations on ~~behalf~~us and our educational programs.

We cannot predict the substance or extent of ~~prior, current,~~the final regulations or ~~future students~~how our programs will perform under the final version of the gainful employment metrics.

•

Financial Responsibility: The DOE’s proposed financial responsibility regulations include an expanded list of mandatory and discretionary triggering events that could result in the DOE determining that an institution lacks financial responsibility and must submit to the DOE a letter of credit or other form of acceptable financial protection and accept other conditions on the institution’s Title IV Program eligibility. See our Form 10-K at “Business – Regulatory Environment – Financial Responsibility Standards.”

The proposed regulations if adopted would, among other things, modify and substantially expand the number of triggers and, as a result, increase the likelihood that the DOE could ~~seek to recover liabilities from~~impose a financial protection requirement and other conditions on us for discharged loans. If the DOE grants any pending or future borrower applications, the DOE regulations state that the DOE may initiate an appropriate proceeding to recover liabilities arising from the loans in the applications. If the DOE initiates such a proceeding, we would request reconsideration of the liabilities. We cannot predict the timing or amount of all borrower defense applications that borrowers may submit to the DOE or that the DOE may grant in the future, or the timing or amount of any possible liabilities that the DOE may seek to recover from the Company, if any.

~~On June 22, 2022, the 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 plaintiffs in the suit contend, among other things, that the DOE has failed to timely decide and resolve borrower defense to repayment applications submitted to the DOE. If approved, the settlement would result in full discharge and refund payments to covered student borrowers who have asserted a borrower defense to repayment to the DOE and whose borrower defense claims have not yet been granted or denied on the merits.

~~The lawsuit is a class action 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~~The proposed rules require the institution 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 fromnotify the DOE of a triggering event and provide information demonstrating why the ~~total number~~event does not warrant the submission of ~~student borrowers who have submitted borrower defense to repayment claims related to our institutions.~~

a letter of credit or imposition of other requirements. 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 filingrules state 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~~requires financial protection as a result of more than one mandatory or ~~accounting for legal and factual information provided to~~discretionary trigger, the DOE ~~by us and other schools or without providing us and other schools with notice and an opportunity to respond to some~~will require separate financial protection for each individual trigger, which could substantially increase the amount 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 thatfinancial protection we and other institutions ~~can defend against allegations asserted in individual borrower-defense applications. In addition, we also asserted that it would~~could be ~~unlawful and inappropriate if~~required to provide to the ~~DOE sought recoupment against us based on loans that were forgiven~~DOE.

Examples of mandatory triggering events under the proposed ~~settlement agreement without providing us an opportunity~~regulations are a lawsuit by a federal or state authority, or through a qui tam lawsuit, in which the federal government has intervened where the suit has been pending for 120 days, where the DOE seeks to ~~address~~recover the cost of adjudicated claims in favor of borrowers under the borrower loan discharge regulations and the claims would lower the institution’s composite score below 1.0, certain debts or ~~accounting~~settlements in certain judicial, administrative or arbitration proceedings, certain withdrawals of owner’s equity including by dividend, gainful employment issues, accreditor requirements to submit a teach-out plan, certain state actions by state licensing agencies, certain actions taken against a publicly traded company or failure to file timely certain annual or quarterly reports, 90/10 issues, cohort default rate issues, loss of eligibility 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 educational assistance programs, contributions and ~~state agencies~~distributions occurring near the fiscal year end that materially impact the composite score, certain defaults or ~~by current and former students.~~other adverse events under a financing arrangement or certain financial exigencies or receiverships.

Index

~~The court granted preliminary approval~~Examples of discretionary triggering events under the proposed regulations are certain accrediting agency actions, certain creditor events, fluctuations in Title IV volume, high annual dropout rates, indicators of material change in the financial condition of the ~~proposed settlement agreement on August 4, 2022, and also granted our motion for permissive intervention for~~institution, the ~~purpose of objecting to and opposing the class action settlement. On September 22, 2022,~~formation by the DOE ~~and the plaintiffs filed~~of a ~~joint motion for final approval of the settlement. In that joint motion, the DOE and plaintiffs reported that approximately 179,000 new~~group process to consider borrower defense ~~applications had been submitted~~claims against the institution, the institution’s discontinuation of education programs affecting at least 25 percent of enrolled students, the institution’s closure of most of its locations, certain state licensing agency actions, certain instances of short-term borrowing, the loss of program eligibility in another federal educational assistance program, a requirement to disclose in a public filing that the ~~DOE as~~company is under investigation for possible violations of ~~September 20, 2022. We~~law or if the institution is cited and ~~the three other intervenor schools filed briefs opposing final approval.~~faces loss of education assistance funds from another federal agency if it does not comply with agency requirements. The ~~court has scheduled~~proposed regulations also establish new rules for evaluating financial responsibility during a ~~final approval hearing for November 9, 2022, and we intend to participate~~change in ~~the hearing and present arguments. We cannot predict whether the court will grant or deny final approval~~ownership.

•

Administrative Capability: The DOE assesses the administrative capability of each institution that participates in Title IV Programs under a series ofseparate standards. Failure to satisfy any of the standards may lead the DOE to find the institution ineligible to participate in Title IV Programs or to place the institution on provisional certification as a condition of its participation. See our Form 10-K at “Business – Regulatory Environment – Administrative Capability.” Newly proposed rules would add more standards related to topics such as the provision of adequate financial aid counseling and career services, ensuring the availability of clinical and externship opportunities, the disbursement of Title IV funds in a timely manner, compliance with high school diploma requirements, preventing misrepresentations, complying with gainful employment requirements and avoiding significant negative actions with a federal, state, or accrediting agency.

•

Certification Regulations: The proposed regulations expand the grounds for placing institutions on provisional certification, expand the types of conditions the DOE may impose on provisionally certified institutions and expand the number of requirements contained in the institution’s program participation agreement with the DOE (including, among other requirements, an obligation to comply generally with state consumer protection laws). The DOE typically provides provisional certification to an institution following a change in ownership resulting in a change of control and also may provisionally certify an institution for other reasons including, but not limited to, noncompliance with certain standards of administrative capability and financial responsibility. The DOE provisionally certified all of our institutions based on findings in recent audits of each institution’s Title IV Program compliance that the DOE alleges identified deficiencies related to DOE regulations regarding an institution’s level of administrative capability. An institution that is provisionally certified receives fewer due process rights than those received by other institutions in the event the DOE takes certain adverse actions against the institution, is required to obtain prior DOE approvals of new campuses and educational programs and may be subject to heightened scrutiny by the DOE. Provisional certification makes it easier for the DOE to revoke or decline to renew our Title IV eligibility if the DOE under the current administration chooses to take such an action against us and other provisionally certified for-profit schools without undergoing a formal administrative appeal process. See our Form 10-K at “Business – Regulatory Environment – Regulation of Federal Student Financial Aid Programs.”

The 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 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 approved applications, weregulations if adopted would ~~consider options for challenging the legal and factual basis for attempting to recoup these liabilities. The settlement agreement also requires~~allow 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 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 if the proposed settlement is approved (including the ultimate timing or amount of borrower defense applications that 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.

~~The “90/10 Rule.”~~

Under the Higher Education Act, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs (its “90/10 Rule percentage”) for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until the end of at least two fiscal years. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – The 90/10 Rule.” An institution with revenues exceeding 90% for a single fiscal year will be placedplace institutions on provisional certification ~~and may be subject to~~if, among other ~~enforcement measures, including a potential requirement~~reasons, the institution does not meet financial responsibility factors or administrative capability standards, if the institution is required by the DOE to submit a letter of credit. 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 Title IV Programs but continued to disburse Title IV Program funds,credit as a result of a mandatory or discretionary triggering event or if the DOE ~~would require~~deems the institution to ~~repay all Title IV Program funds received by the institution after the effective date~~be at risk of ~~the loss of eligibility.~~

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

The ARPA states that the amendments to the 90/10 rule apply to institutional fiscal years beginning on or after January 1, 2023 and are subject to the HEA’s negotiated rulemaking process. Accordingly, the ARPA change to the 90/10 rule is not expected to apply to our 90/10 rule calculations until 2024 relating to our fiscal year ended 2023. Beginning in January 2022,proposed regulations also would allow the DOE ~~convened negotiated rulemaking committee meetings~~to determine whether to certify or impose conditions on ~~a variety~~an institution based on consideration of ~~topics~~factors including, for example, the ~~90/10 rule. The committee reached consensus on proposed 90/10 rule regulations during meetings in March 2022.~~

~~On July 28, 2022,~~institution’s withdrawal rate, 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 fiscal years ending on or after January 1, 2023; noting that the DOE plans to identify the types of Federal funds to be included in the 90/10 rule in a notice in the Federal Register (which we anticipate will include a wide range of Federal student aid programsinstitution’s gainful employment metrics such as its debt-to-earnings rates and earnings premium measures, the ~~veterans’ benefits programs); requiring institutions~~amounts the institution spent on recruiting activities, advertising, and other pre-enrollment activities, and the passage rate for licensure exams for programs that are designed to ~~disburse funds that students are eligible to receive~~meet the educational requirements for a ~~fiscal year before the end of the fiscal year rather than delaying disbursements until a subsequent fiscal year; updating requirements~~professional license required for counting revenues generated from certain educational activities associated with institutional programs, from certain non-Title IV eligible educational programs, and from institutional aid programs such as institutional loans, scholarships, and income share agreements; updating technical rules for the 90/10 rule calculation; including rules for sanctions for noncompliance with the 90/10 rule and for required notifications to students and the DOE by the institution of noncompliance with the 90/10 rule.

~~The DOE published final regulations on October 28, 2022 with a general effective date of July 1, 2023. We are~~employment in the process of evaluating the impact of these new regulations on our business and any changes from the proposed regulations, but the final regulations on the 90/10 rule could have a material adverse effect on us and other schools like ours.an occupation.

Index

~~School Acquisitions.~~The proposed regulations expand the types of conditions the DOE can impose on provisionally certified institutions including, for example, restrictions on the addition of new programs or locations, restrictions on the rate of growth or new enrollment of students or of Title IV volume, restrictions on the institution providing a teach-out on behalf of another institution, restrictions on the acquisition of another participating institution (including financial protection requirements), additional reporting requirements, limitations on entering into certain written arrangements with institutions or entities for providing part of an educational program, requirements to submit marketing and recruiting materials to the DOE for approval (if the institution is alleged or found to have engaged in misrepresentations to students, engaged in aggressive recruiting practices, or violated incentive compensation rules) and other potential conditions imposed by the DOE.

~~When a company acquires a school that is eligible~~The DOE will receive public comments 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~~proposed regulations and consider whether to ~~participate in Title IV Programs is generally suspended until it has applied for recertification by~~modify the proposed regulations before publishing the final regulations. If the DOE as an eligible school under its new ownership, which requires that the school also re-establish its state authorization and accreditation. See Form 10-K at Part I, Item 1. “Business – Regulatory Environment – School Acquisitions.” Thus, any plans to expand our business through acquisition of additional schools and have them certified by the DOE to participate in Title IV Programs must take into account the approval requirements of the DOE and the relevant state education agencies and accrediting commissions. On July 28, 2022, the DOE published proposed regulations on topics including changes in ownership. The DOE publishedpublishes final regulations ~~on October 28, 2022 with~~by November 1, 2023, the regulations typically would have a general effective date of July 1, ~~2023.~~2024. We are instill reviewing the ~~process of evaluating~~proposed regulations and cannot predict the ultimate timing, content and impact of ~~these new~~the final regulations on all of these topics. However, the final version of these regulations is expected to impose a broad range of additional requirements on institutions, especially on for-profit institutions like our ~~business, but~~schools which would likely increase the possibility that our schools could be subject to additional reporting requirements, to potential liabilities and sanctions and to potential loss of Title IV eligibility if our efforts to modify our operations to comply with the regulations ~~among other things, expand~~are unsuccessful.

Accreditation

Accreditation by an accrediting agency recognized by the ~~requirements applicable~~DOE is required for an institution to ~~school acquisitions~~be certified to participate in ~~ways~~Title IV Programs. As of June 30, 2023, all 22 of our campuses are nationally accredited by the Accrediting Commission of Career Schools and Colleges (the “ACCSC”). On October 28, 2021, the DOE announced that it had notified ACCSC that a decision on the recognition by the DOE of ACCSC as an accrediting agency was being deferred pending the submission of additional information about ACCSC’s monitoring, evaluation and actions related to high-risk institutions. ACCSC’s loss of DOE recognition could ~~make it more difficult~~have led to ~~acquire additional schools.~~adverse consequences to our schools including, but not limited to, their loss of Title IV eligibility. See our Form 10-K ~~at Part I, Item 1.~~ at “Business – Regulatory Environment ~~- Negotiated Rulemaking.~~– Accreditation.”

~~Change~~ On May 25, 2023, the DOE notified ACCSC that it would continue the DOE’s recognition 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~~agency as a result of future transactions in which the Company or our schools are involved. Some corporate reorganizations and some changes in the board of directors of the Company are examples of such transactions. Moreover, the potential adverse effects of a change of control could influence future decisions by us and our shareholders regarding the sale, purchase, transfer, issuance or redemption of our stock. In addition, the adverse regulatory effect of a change of control also could discourage bidsnationally recognized accreditor 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.”three years.

~~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 Secretary 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 the 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 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 law also requires the NJOSHE and NJDLWD to take action on a program that does not meet the minimum acceptable level of performance, including suspending or terminating that program, as well as possibly taking additional action to suspend or revoke the license of the institution of higher education, proprietary degree-granting institution or private career school to award postsecondary credentials.

Neither the NJOSHE, nor NJDLWD, has officially initiated the rulemaking process that must be conducted in accordance with New Jersey’s Administrative Procedures Act. We are in the process of evaluating the potential impact of this new law on our business and will be monitoring the 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 due 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. The growth that we generally experience in the second half of the year is largely dependent on a successful high school recruiting season. We recruit high school students several months ahead of their scheduled start dates and, 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.

~~Index~~

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 Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this ~~report,~~Form 10-Q, have concluded that our disclosure controls and procedures are adequate and effective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the 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.

Index

(b) Changes in Internal Control Over Financial Reporting. There were no changes made during our most recently completed fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial ~~reporting.~~reporting, except for new internal controls related to ASC 326 and accounts payable payment processing that have been implemented.

PART II. OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

On ~~June 22,~~November 16, 2022, the ~~DOE and plaintiffs in~~U.S. District Court for the Northern District of California granted final approval of a ~~lawsuit before a federal court in California submitted a proposed~~ settlement agreement toin the ~~court. The plaintiffs contend, among other things, that~~lawsuit Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.). Under the settlement agreement, the DOE ~~has failed~~agreed to ~~timely decide~~discharge loans and ~~resolve borrower defense to repayment applications submitted to the DOE. If approved, the settlement would result in full discharge and~~ refund all prior loan payments to covered student borrowers who have asserted a ~~borrower defense~~Borrower Defense to ~~repayment~~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~~merits, which includes former students ~~none of whom attended any of~~at 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.

~~Index~~

~~The proposed settlement agreement includes~~institutions as well as at a long list of ~~institutions, including Lincoln Technical Institute~~other institutions. Subsequently, we and ~~Lincoln College~~two other intervening school companies filed notices of ~~Technology,~~appeal and ~~under~~asked the ~~proposed~~District Court to stay the settlement from taking effect until the appeals were decided. Plaintiffs and the DOE ~~would agree~~thereafter filed oppositions to ~~discharge loans~~our stay request and, ~~refund all prior~~after a hearing, the District Court denied our stay request, but extended the temporary stay of loan ~~payments to each class member with loan debt~~discharges and refunds associated with ~~an institution on~~ the ~~list (which includes our institutions), including borrowers whose applications~~three school companies for seven days to allow us to file a motion for a stay with the ~~DOE previously denied after October 30, 2019. The DOE~~U.S. Court of Appeals for the Ninth Circuit. On February 27, 2023, we 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~~two 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 plaintiffsappealed filed a joint motion for ~~final approval~~a stay with the Ninth Circuit. On March 29, 2023, the Ninth Circuit denied our motion to stay the judgment pending appeal. On April 4, 2023, we and the two other school companies filed an emergency application with the Supreme Court of the ~~settlement. In~~United States to stay the District Court’s judgment. On April 13, 2023, the Supreme Court denied our petition.

Despite the denials of our stay requests, we have filed a joint appeal with the Ninth Circuit to overturn the District Court’s judgment approving the final settlement and expect that ~~joint motion,~~oral argument will be scheduled for late 2023 or early 2024 However, as previously reported, as a result of the denials of our stay requests, 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 tocould 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 have 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~~without waiting for the Ninth Circuit 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.~~rule on our appeal. The settlement ~~agreement~~ also requires the DOE to review borrower defense applications submitted after June 22, 2022 and ~~by the date~~before November 16, 2022 within 36 months of the final ~~approval~~settlement date 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~~November 16, 2022. It is not possible at this time to ~~recoup from us the loan amounts in these applications. We cannot~~ predict whether the ~~currently proposed~~ settlement will be ~~approved,~~upheld on appeal, what actions the DOE might take if the ~~proposed~~ settlement is ~~approved~~upheld on appeal (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 or sanctions that the DOE may seek to recover from or impose on the Company, if any), whether the DOE or other agencies might take actions against us without waiting to see whether the settlement is upheld on appeal now that the stay requests have been denied or what the outcome of ~~any~~our 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.

~~Index~~

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

Item 1A.

RISK FACTORS

In ~~a class action before~~addition to the ~~U.S. District Court for~~other information set forth in this Form 10-Q, you should carefully consider the ~~Northern District~~factors discussed in Part I, Item 1A of ~~California (Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.)), a settlement is under consideration~~our Form 10-K and those contained in our previously filed Form 10-Q, which could ~~result~~affect our business, financial condition, or operating results. The risks we describe in our periodic reports are not the ~~automatic approval~~only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition, or operating results. For the quarter ended June 30, 2023, the Company is not aware of ~~all pending borrower defense applications submitted to the DOE on or before June 22, 2022 concerning our institutions~~any specific new and ~~if approval were to occur, the DOE could elect to seek recoupment from us of all loan amounts in the approved applications.~~additional risk factors not previously disclosed.

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 or 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 the 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.

Index

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

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

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a)

None.

(b)

None.

(c)

~~Issuer Purchases of Equity Securities.~~

On May 24, 2022, the Company announced that the Board of Directors had approved a share repurchase program for 12 months authorizing purchases of up to $30.0 million. Subsequently, on February 27, 2023, the Board of Directors extended the share repurchase program for an additional 12 months and authorized the repurchase of an additional $10 million of the Company’s Common Stock, for an aggregate of up to $30.6 million in additional repurchases.

The following table presents the number and average price of shares purchased during the three months ended ~~September~~June 30, ~~2022.~~2023. The remaining authorized amount for share repurchases under the program isas of June 30, 2023 was approximately ~~$23.3~~$29.7 million.

~~Index~~

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

Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publically Announced Plan		Maximum Dollar Value of Shares Remaining to be Purchased Under the Plan
April 1, 2023 to April 30, 2023		58,875	$	5.49		58,875	$	29,675,533
May 1, 2023 to May 31, 2023		2,159		5.50		2,159		29,663,667
June 1, 2023 to June 30, 2023		-		-		-		-
Total		61,034		5.49		61,034

For more information on the share repurchase plan, see Note 7 to our ~~condensed consolidated financial statements.~~Condensed Consolidated Financial Statements.

Item 3.

DEFAULTS ONUPON SENIOR SECURITIES

(a)

None.

(b)

None

Item 4.

MINE SAFETY DISCLOSURES

None.

Item 5.

OTHER INFORMATION

(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.

None.

~~On November 3, 2022, the Board of Directors of the Company approved the Lincoln Educational Services Corporation Severance and Retention Payment Policy.~~

(b)

None.

(c)

None.

Index

Item 6.

EXHIBITS

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 Exhibit 3.1 of the Company’s Form 8-K filed April 30, 2020).

10.1*	~~Lincoln Educational Services Corporation Severance and Retention Policy.~~

~~Index~~

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~~the Company’s 10-Q for the quarter ended ~~September~~June 30, ~~2022,~~2023, formatted in Inline ~~Extensible~~eXtensible Business Reporting Language (“iXBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.

104	Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101).

*	Filed herewith.

Furnished herewith. This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

4341

Index

SIGNATURES

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

		LINCOLN EDUCATIONAL SERVICES CORPORATION

Date: ~~November~~August 7, ~~2022~~2023	By:	/s/ Brian Meyers
		Brian Meyers
		Executive Vice President, Chief Financial Officer and Treasurer

4442

Index

Exhibit Index

3.1	Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005.

3.2	Certificate of Amendment, dated November 14, 2019, to the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-3 filed October 6, 2020).

3.3	Bylaws of the Company as amended on March 8, 2019 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed April 30, 2020).

10.1*	~~Lincoln Educational Services Corporation Severance and Retention Pay Policy.~~

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~~the Company’s 10-Q for the quarter ended ~~September~~June 30, ~~2022,~~2023, formatted in Inline ~~Extensible~~eXtensible Business Reporting Language (“iXBRL”): (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Changes in Stockholders’ Equity, (v) Condensed Consolidated Statements of Cash Flows and (vi) the Notes to Condensed Consolidated Financial Statements, tagged as blocks of text and in detail.

104	Cover Page Interactive Data File (formatted as iXBRL and contained in Exhibit 101)

*	Filed herewith.

4543

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

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

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

	Large accelerated filer ☐	Accelerated filer ☒

	Non-accelerated filer ☐	Smaller reporting company ☒

	Emerging growth company ☐

	September 30,		December 31,		June 30,		December 31,
	2022		2021		2023		2022
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	69,619	$	83,307	$	66,356	$	46,074
Accounts receivable, less allowance of $27,364 and $26,837 at September 30, 2022 and December 31, 2021, respectively		31,902		26,159
Restricted cash						4,212		4,213
Short-term investments						24,344		14,758
Accounts receivable, less allowance for credit losses of $31,742 and $28,560 at June 30, 2023 and December 31, 2022, respectively						32,050		37,175
Inventories		2,714		2,721		2,555		2,618
Prepaid expenses and other current assets		2,255		4,881		7,973		4,738
Assets held for sale		4,559		4,559		-		4,559
Total current assets		111,049		121,627		137,490		114,135

PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $147,843 and $153,335 at September 30, 2022 and December 31, 2021, respectively		23,842		23,119
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $138,699 and $146,367 at June 30, 2023 and December 31, 2022, respectively						32,508		23,940

OTHER ASSETS:
Noncurrent receivables, less allowance of $6,438 and $5,084 at September 30, 2022 and December 31, 2021, respectively		21,864		20,028
Noncurrent receivables, less allowance for credit losses of $15,865 and $6,810 at June 30, 2023 and December 31, 2022, respectively						15,341		22,734
Deferred income taxes, net		23,644		23,708		25,210		22,312
Operating lease right-of-use assets		95,522		91,487		88,966		93,097
Goodwill		14,536		14,536		10,742		14,536
Other assets, net		819		794		1,161		812
Total other assets		156,385		150,553		141,420		153,491
TOTAL ASSETS	$	291,276	$	295,299	$	311,418	$	291,566

PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements	12
	Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2022~~2023 and December 31, ~~2021~~2022 (Unaudited)	12
	Condensed Consolidated Statements of Operations for the ~~three~~Three and ~~nine months ended September~~Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	34
	Condensed Consolidated Statements of Comprehensive Income for the ~~three~~Three and ~~nine months ended September~~Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	45
	Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders’ Equity for the ~~nine months ended September~~Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	56
	Condensed Consolidated Statements of Cash Flows for the ~~nine months ended September~~Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022 (Unaudited)	67
	Notes to ~~(Unaudited)~~ Condensed Consolidated Financial Statements (Unaudited)	89
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative ~~Disclosure~~Disclosures About Market Risk	3938
Item 4.	Controls and Procedures	3938
PART II.	OTHER INFORMATION	39
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	4139
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4140
Item 3.	Defaults Upon Senior Securities	4240
Item 4.	Mine Safety ~~Disclosure~~Disclosures	4240
Item 5.	Other Information	4240
Item 6.	Exhibits	4241
	SIGNATURES	4442

	Three Months Ended						Nine Months Ended						Three Months Ended						Six Months Ended
	September 30,						September 30,						June 30,						June 30,
	2022			2021			2022			2021			2023			2022			2023			2022

REVENUE	$	91,813		$	89,059		$	256,510		$	247,520		$	88,646		$	82,142		$	175,929		$	164,697
COSTS AND EXPENSES:
Educational services and facilities		39,933			38,105			112,234			104,143			40,030			36,106			78,123			72,302
Selling, general and administrative		46,984			45,209			139,503			128,159			51,814			45,835			102,119			92,520
Loss (gain) on disposition of assets		16			-			(178	)		1
Gain on sale of assets														(30,933	)		(195	)		(30,933	)		(195	)
Impairment of goodwill and long-lived assets														4,220			-			4,220			-
Total costs & expenses		86,933			83,314			251,559			232,303			65,131			81,746			153,529			164,627
OPERATING INCOME		4,880			5,745			4,951			15,217			23,515			396			22,400			70
OTHER:
Interest income														547			-			1,013			-
Interest expense		(36	)		(292	)		(114	)		(874	)		(28	)		(35	)		(53	)		(77	)
INCOME BEFORE INCOME TAXES		4,844			5,453			4,837			14,343
PROVISION FOR INCOME TAXES		1,300			1,614			761			3,589
INCOME (LOSS) BEFORE INCOME TAXES														24,034			361			23,360			(7	)
PROVISION (BENEFIT) FOR INCOME TAXES														6,784			102			6,219			(539	)
NET INCOME	$	3,544		$	3,839		$	4,076		$	10,754		$	17,250		$	259		$	17,141		$	532
PREFERRED STOCK DIVIDENDS		304			304			912			912			-			304			-			608
INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	3,240		$	3,535		$	3,164		$	9,842
Basic and diluted
Net income per common share	$	0.10		$	0.11		$	0.10		$	0.30
INCOME (LOSS) AVAILABLE TO COMMON SHAREHOLDERS													$	17,250		$	(45	)	$	17,141		$	(76	)
Basic
Net income (loss) per common share													$	0.57		$	(0.00	)	$	0.57		$	(0.00	)
Diluted
Net income (loss) per common share													$	0.57		$	(0.00	)	$	0.57		$	(0.00	)
Weighted average number of common shares outstanding:
Basic and diluted		25,381			25,135			25,692			25,043
Basic														30,140			25,963			30,090			25,842
Diluted														30,397			25,963			30,333			25,842

	Stockholders’ Equity
															Accumulated						Series A
							Additional								Other						Convertible
	Common Stock						Paid-in			Treasury		Retained			Comprehensive						Preferred Stock
	Shares			Amount			Capital			Stock		Earnings			Loss			Total			Shares		Amount
BALANCE - January 1, 2023		31,147,925		$	49,072		$	45,540		$	-	$	51,225		$	(960	)	$	144,877			-	$	-
Net cumulative effect from adoption of ASC 326 (a)		-			-			-			-		(7,943	)		-			(7,943	)		-		-
Net loss		-			-			-			-		(109	)		-			(109	)		-		-
Employee pension plan adjustments		-			-			-			-		-			(48	)		(48	)		-		-
Stock-based compensation expense
Restricted stock		652,042			-			812			-		-			-			812			-		-
Share repurchase		(104,030	)		(556	)		-			-		-			-			(556	)		-		-
Net share settlement for equity-based compensation		(297,380	)		-			(1,779	)		-		-			-			(1,779	)		-		-
BALANCE - March 31, 2023		31,398,557			48,516			44,573			-		43,173			(1,008	)		135,254			-		-
Net income		-			-			-			-		17,250			-			17,250			-		-
Employee pension plan adjustments		-			-			-			-		-			(5	)		(5	)		-		-
Stock-based compensation expense
Restricted stock		61,257			-			2,576			-		-			-			2,576			-		-
Share repurchase		(61,034	)		(335	)		-			-		-			-			(335	)		-		-
Net share settlement for equity-based compensation		(39,670	)		-			(275	)		-		-			-			(275	)		-		-
BALANCE - June 30, 2023		31,359,110		$	48,181		$	46,874		$	-	$	60,423		$	(1,013	)	$	154,465			-	$	-

	Three months ended September 30, 2022						Nine months ended September 30, 2022						Three months ended June 30, 2023						Six months ended June 30, 2023
	Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Consolidated		Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Consolidated		Campus Operations		Transitional		Consolidated		Campus Operations		Transitional		Consolidated
Timing of Revenue Recognition
Services transferred at a point in time	$	6,059	$	1,651	$	7,710	$	12,904	$	4,570	$	17,474	$	5,895	$	3	$	5,898	$	10,595	$	12	$	10,607
Services transferred over time		61,270		22,833		84,103		171,183		67,853		239,036		82,318		430		82,748		163,970		1,352		165,322
Total revenues	$	67,329	$	24,484	$	91,813	$	184,087	$	72,423	$	256,510	$	88,213	$	433	$	88,646	$	174,565	$	1,364	$	175,929

	Three months ended September 30, 2021						Nine months ended September 30, 2021						Three months ended June 30, 2022						Six months ended June 30, 2022
	Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Consolidated		Transportation and Skilled Trades Segment		Healthcare and Other Professions Segment		Consolidated		Campus Operations		Transitional		Consolidated		Campus Operations		Transitional		Consolidated
Timing of Revenue Recognition
Services transferred at a point in time	$	6,203	$	1,618	$	7,821	$	14,788	$	4,234	$	19,022	$	4,886	$	87	$	4,973	$	9,598	$	165	$	9,763
Services transferred over time		58,747		22,491		81,238		162,798		65,700		228,498		75,463		1,706		77,169		151,532		3,402		154,934
Total revenues	$	64,950	$	24,109	$	89,059	$	177,586	$	69,934	$	247,520	$	80,349	$	1,793	$	82,142	$	161,130	$	3,567	$	164,697

	As of						As of
	September 30,						June 30,
	2022			2021			2023			2022
Weighted-average remaining lease term	11.36 years			5.49 years			11.13 years			11.35 years
Weighted-average discount rate		7.21	%		10.77	%		6.92	%		7.36	%

Year ending December 31,
2022 (excluding the nine months ended September 30, 2022)	$	4,741
2023		16,167
2023 (excluding the six months ended June 30, 2023)				$	7,897
2024		16,780			17,373
2025		14,841			15,702
2026		12,416			13,334
2027		9,532			10,053
2028					9,959
Thereafter		69,499			69,824
Total lease payments		143,976			144,142
Less: imputed interest		(41,664	)		(46,081	)
Present value of lease liabilities	$	102,312		$	98,061

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

	Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2021		81,000		$	7.79		0.17	$	-
Granted/Vested		-			-		-		-
Canceled		(81,000	)		7.79		-		-

Outstanding at September 30, 2022		-			-		-		-

Vested as of September 30, 2022		-			-		-		-

Exercisable as of September 30, 2022		-			-		-		-

	Three Months Ended September 30,
	2022			2021			% Change
Revenue:
Transportation and Skilled Trades	$	67,329		$	64,950			3.7	%
Healthcare and Other Professions		24,484			24,109			1.6	%
Total	$	91,813		$	89,059			3.1	%

Operating Income (loss):
Transportation and Skilled Trades	$	11,768		$	11,842			-0.6	%
Healthcare and Other Professions		1,180			1,833			-35.6	%
Corporate		(8,068	)		(7,930	)		-1.7	%
Total	$	4,880		$	5,745			-15.1	%

Starts:
Transportation and Skilled Trades		3,585			3,976			-9.8	%
Healthcare and Other Professions		1,344			1,454			-7.6	%
Total		4,929			5,430			-9.2	%

Average Population:
Transportation and Skilled Trades		8,748			8,863			-1.3	%
Leave of Absence - COVID-19		-			(9	)		100.0	%
Transportation and Skilled Trades Excluding Leave of Absence - COVID-19		8,748			8,854			-1.2	%

Healthcare and Other Professions		4,076			4,326			-5.8	%
Leave of Absence - COVID-19		-			(2	)		100.0	%
Healthcare and Other Professions Excluding Leave of Absence - COVID-19		4,076			4,324			-5.7	%

Total		12,824			13,189			-2.8	%
Total Excluding Leave of Absence - COVID-19		12,824			13,178			-2.7	%

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				Six Months Ended
	September 30,				June 30,
	2022		2021		2023		2022

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest	$	132	$	795	$	94	$	118
Income taxes	$	1,216	$	681	$	2,169	$	1,206
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Liabilities accrued for or noncash additions of fixed assets	$	501	$	2,684	$	1,094	$	591

	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	%