Financial Data and Key Metrics Changes - Revenue for Q3 2022 increased by 3.1% or $2.7 million to $91.8 million, driven by a 5.9% increase in average revenue per student, which offset a 2.7% decline in average population [55][60] - Consolidated operating expenses rose to $86.9 million, up 4.3% year-over-year, primarily due to increased staffing levels and additional rent expenses [57][58] - Adjusted EBITDA for Q3 was $7.4 million, reflecting the impact of non-cash stock compensation and other adjustments [59] Business Line Data and Key Metrics Changes - Enrollments and graduation rates remained strong across 22 campuses, although starts during Q3 declined by 500 students compared to the previous year [11][44] - The new hybrid teaching model began contributing to topline performance, with expectations for further efficiencies as more programs transition to this model [10][17] Market Data and Key Metrics Changes - The company is experiencing a tight labor market, which has affected student starts, with a noted decline across various programs [39][105] - The demand for skilled students remains strong, with corporate partnerships helping to fill the skills gap in essential positions [21][45] Company Strategy and Development Direction - The company is focused on centralizing and automating its financial aid process and rolling out a new hybrid curriculum to improve student experience and operational efficiency [12][14] - A new campus is being established in the Atlanta area, with plans to open in Q3 2023, as part of a strategy to develop at least five new campuses nationally within five years [23][28] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges from a low unemployment economy and rising interest rates but remains optimistic about growth opportunities and operational efficiencies [39][45] - The company expects to see positive growth in student starts for Q4, despite a decline in Q3, with a focus on improving retention and placement rates [40][106] Other Important Information - The company terminated a $15 million credit facility to enhance flexibility in cash management and investment opportunities [48][50] - The closure of the Somerville campus is expected to have a minimal financial impact, as it has been one of the smallest in terms of revenue and profitability [51][52] Q&A Session Summary Question: How did the third quarter results compare to expectations? - Management indicated that results were in line with expectations, although new student starts were slightly lower than anticipated due to postponed starts at the Somerville campus [64][65] Question: What is the outlook for student starts in Q4? - Management expressed confidence in a strong increase in student starts for Q4, projecting growth of about 6% to 7% [66][67] Question: Can you clarify the impact of the Series A preferred stock conversion? - Management confirmed that approximately 5.3 million shares would be converted, eliminating $304,000 in preferred dividends quarterly [70][72] Question: What is the strategic reasoning behind closing the Somerville campus? - The decision was based on overlapping opportunities with the Lincoln, Rhode Island campus and the lack of attractive growth prospects for the Somerville location [86][87] Question: How does the new hybrid model differ from the previous COVID-era model? - The new hybrid model is designed for optimal blended learning, allowing for shorter in-person sessions and better utilization of faculty, compared to the reactive model implemented during COVID [110][111]

Investor Presentation □ LINCOLN TECH® BRIDGING THE SKILLS GAP LINCOLN TECH. Quarter Ended June 30, 2022 Safe Harbor Statement Statements in this presentation regarding Lincoln's business that are not historical facts may be "forward-looking statements" that involve risks and uncertainties. Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Fo ...

Lincoln Educational Services Corporation (NASDAQ:LINC) Q2 2022 Earnings Conference Call August 8, 2022 10:00 AM ET CompanyParticipants Michael Polyviou - IR Scott Shaw - President and CEO Brian Meyers - CFO Conference Call Participants Alex Paris - Barrington Research Eric Martinuzzi - Lake Street Capital Markets Rajiv Sharma - B. Riley Justin Putman - Talanta Investment Group Operator Good day, and thank you for standing by. Welcome to the Second Quarter 2022 Lincoln Educational Services Earnings Conferenc ...

[Form 10-Q Cover Page](index=1&type=section&id=Form%2010-Q%20Cover%20Page) This quarterly report (Form 10-Q) for the period ended June 30, 2022, details LINCOLN EDUCATIONAL SERVICES CORPORATION's financial status - This is a Quarterly Report (Form 10-Q) filed by LINCOLN EDUCATIONAL SERVICES CORPORATION for the quarterly period ended **June 30, 2022**[2](index=2&type=chunk) - The registrant's common stock (**LINC**) is registered on The NASDAQ Stock Market LLC[3](index=3&type=chunk) - As of August 8, 2022, there were **26,819,501 shares** of the registrant's common stock outstanding[4](index=4&type=chunk) [Index to Form 10-Q](index=2&type=section&id=Index%20to%20Form%2010-Q) This section provides a comprehensive table of contents for the Form 10-Q filing [PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This part presents the company's unaudited condensed consolidated financial statements and management's analysis [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements and related notes [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section details the company's financial position, including assets, liabilities, and equity Condensed Consolidated Balance Sheets (in thousands) | Metric | June 30, 2022 | December 31, 2021 | | :--------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $285,416 | $295,299 | | Total Liabilities | $146,933 | $153,899 | | Total Stockholders' Equity | $126,501 | $129,418 | | Cash and cash equivalents | $66,985 | $83,307 | - Total assets decreased by **$9.9 million** from $295.3 million at December 31, 2021, to **$285.4 million** at June 30, 2022[8](index=8&type=chunk) - Total liabilities decreased by **$7.0 million** from $153.9 million at December 31, 2021, to **$146.9 million** at June 30, 2022[11](index=11&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section details the company's financial performance, including revenue, operating income, and net income Condensed Consolidated Statements of Operations (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | YoY Change | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | YoY Change | | :--------------------------------- | :--------------------------- | :--------------------------- | :--------- | :--------------------------- | :--------------------------- | :--------- | | Revenue | $82,142 | $80,464 | 2.1% | $164,697 | $158,461 | 3.9% | | Operating income | $396 | $3,452 | -88.5% | $70 | $9,472 | -99.3% | | Net income | $259 | $2,426 | -89.3% | $532 | $6,915 | -92.3% | | Net (loss) income per common share (Basic and diluted) | $(0.00) | $0.06 | -100% | $(0.00) | $0.19 | -100% | [Condensed Consolidated Statements of Comprehensive Income](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) This section presents the company's net income and other comprehensive income, reflecting total changes in equity Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income | $259 | $2,426 | $532 | $6,915 | | Other comprehensive income (loss) | $(10) | $(85) | $(40) | $(8) | | Comprehensive income | $249 | $2,341 | $492 | $6,907 | [Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders%27%20Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Convertible%20Preferred%20Stock%20and%20Stockholders%27%20Equity) This section outlines changes in the company's equity, including common stock, preferred stock, and treasury stock - Stockholders' equity decreased from **$129.4 million** at December 31, 2021, to **$126.5 million** at June 30, 2022[11](index=11&type=chunk)[21](index=21&type=chunk) - The company repurchased **414,963 shares** at a cost of approximately **$2.5 million** during the six months ended June 30, 2022, which were subsequently canceled[21](index=21&type=chunk)[91](index=91&type=chunk) - Treasury stock of **5,910,541 shares**, valued at **$82.9 million**, was canceled, resulting in a reduction of common stock and treasury stock[21](index=21&type=chunk)[91](index=91&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section details cash flows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | YoY Change (in thousands) | | :-------------------------------- | :--------------------------- | :--------------------------- | :------------------------ | | Net cash (used in) provided by operating activities | $(9,992) | $1,067 | $(11,059) | | Net cash used in investing activities | $(1,192) | $(3,516) | $2,324 | | Net cash used in financing activities | $(5,138) | $(2,570) | $(2,568) | | Net decrease in cash and cash equivalents | $(16,322) | $(5,019) | $(11,303) | | Cash and cash equivalents — End of period | $66,985 | $33,007 | $33,978 | - Cash paid for interest decreased from **$566 thousand** in 2021 to **$118 thousand** in 2022, while cash paid for income taxes increased from **$652 thousand** to **$1,206 thousand** for the six months ended June 30[26](index=26&type=chunk) [Notes to Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information for the financial statements [Note 1. Description of Business and Basis of Presentation](index=10&type=section&id=Note%201.%20Description%20of%20Business%20and%20Basis%20of%20Presentation) This note describes the company's business, operating segments, and financial statement presentation - The Company operates **22 schools** in **14 states**, offering programs in automotive technology, skilled trades, healthcare services, hospitality services, and information technology[29](index=29&type=chunk) - The business is organized into two reportable segments: **Transportation and Skilled Trades**, and **Healthcare and Other Professions (HOPS)**[30](index=30&type=chunk) - The Company is currently assessing the impact of new accounting pronouncements, **ASU 2021-08 (Business Combinations)** and **ASU 2020-06 (Convertible Instruments)**, on its financial statements[34](index=34&type=chunk)[37](index=37&type=chunk) [Note 2. Net (Loss) Income Per Common Share](index=12&type=section&id=Note%202.%20Net%20(Loss)%20Income%20Per%20Common%20Share) This note details the calculation of basic and diluted net (loss) income per common share Net (Loss) Income Per Common Share (in thousands, except per share data) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net (loss) income allocated to common stockholders | $(45) | $1,630 | $(76) | $4,858 | | Basic and diluted net (loss) income per common share | $(0.00) | $0.06 | $(0.00) | $0.19 | - Potential common shares outstanding excluded from diluted EPS calculation due to anti-dilutive impact: **6,928,480 shares** for Q2 2022 and **6,981,247 shares** for YTD Q2 2022[46](index=46&type=chunk) [Note 3. Revenue Recognition](index=13&type=section&id=Note%203.%20Revenue%20Recognition) This note explains the company's policies for recognizing revenue from student contracts - Unearned tuition decreased from **$25.4 million** at December 31, 2021, to **$21.7 million** at June 30, 2022[49](index=49&type=chunk) - Revenue recognized for the six months ended June 30, 2022, that was included in the contract liability balance at the beginning of the year was **$24.4 million**[49](index=49&type=chunk) Timing of Revenue Recognition (in thousands) | Timing of Revenue Recognition | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :----------------------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Services transferred at a point in time | $4,973 | $6,348 | $9,763 | $11,200 | | Services transferred over time | $77,169 | $74,116 | $154,934 | $147,261 | | Total revenues | $82,142 | $80,464 | $164,697 | $158,461 | [Note 4. Leases](index=14&type=section&id=Note%204.%20Leases) This note details the company's operating lease assets, liabilities, and new lease agreements Lease Metrics (in thousands) | Lease Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :-------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Operating lease cost | $4,700 | $3,800 | $9,300 | $7,600 | | Cash paid for operating lease liabilities | $4,665 | $3,829 | $9,320 | $7,037 | - A new **12-year lease** for a school in Atlanta, Georgia, with total undiscounted payments of **$12.2 million**, is expected to commence in Q3 2022[53](index=53&type=chunk) Lease Term/Rate | Lease Term/Rate | June 30, 2022 | December 31, 2021 | | :---------------------- | :------------ | :---------------- | | Weighted-average remaining lease term | 11.35 years | 5.71 years | | Weighted-average discount rate | 7.36% | 10.93% | [Note 5. Goodwill and Long-Lived Assets](index=15&type=section&id=Note%205.%20Goodwill%20and%20Long-Lived%20Assets) This note provides information on goodwill, long-lived asset impairments, and property sales - Goodwill balance was **$14.5 million** as of June 30, 2022, and December 31, 2021, entirely attributable to the Transportation and Skilled Trades segment[61](index=61&type=chunk) - No long-lived asset impairments were recorded for the three or six months ended June 30, 2022 or 2021[59](index=59&type=chunk) - A **$0.7 million impairment** on the Suffield, Connecticut property was recorded on December 31, 2021, which was subsequently sold in Q2 2022 for net proceeds of **$2.4 million**, resulting in a **$0.2 million gain**[60](index=60&type=chunk) [Note 6. Long-Term Debt](index=16&type=section&id=Note%206.%20Long-Term%20Debt) This note details the company's long-term debt, Credit Facility, and compliance with covenants - **Zero debt outstanding** under the Credit Facility as of June 30, 2022, and December 31, 2021[68](index=68&type=chunk) - Letters of credit outstanding totaled **$4.0 million** as of June 30, 2022, and December 31, 2021[68](index=68&type=chunk) - The maturity date of the revolving loan was extended to **November 14, 2023**, through a third amendment to the Credit Agreement on August 5, 2022[68](index=68&type=chunk) [Note 7. Stockholders%27%20Equity](index=17&type=section&id=Note%207.%20Stockholders%27%20Equity) This note outlines changes in stockholders' equity, including dividends, share repurchases, and treasury stock - Preferred stock dividends of **$0.6 million** were paid in cash for the six months ended June 30, 2022[73](index=73&type=chunk) - A share repurchase program of up to **$30.0 million** was authorized on May 24, 2022, for twelve months[91](index=91&type=chunk) - By June 30, 2022, the company repurchased **414,963 shares** at a cost of approximately **$2.5 million** under the new program, with **$27.5 million** remaining authorized[91](index=91&type=chunk)[225](index=225&type=chunk) - The Board of Directors authorized the cancellation of **5,910,541 shares** of treasury stock, reducing treasury stock and common stock by **$82.9 million**[91](index=91&type=chunk) [Note 8. Income Taxes](index=21&type=section&id=Note%208.%20Income%20Taxes) This note presents the company's income tax provision or benefit and the effective tax rate Income Tax Provision (Benefit) (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Provision (benefit) for income taxes | $102 | $729 | $(539) | $1,975 | | Effective tax rate | 28.3% | 23.1% | 28.2% | N/A | [Note 9. Commitments and Contingencies](index=21&type=section&id=Note%209.%20Commitments%20and%20Contingencies) This note discloses the company's involvement in legal proceedings, investigations, and claims - The CFPB is assessing whether the company is subject to its supervisory authority regarding student credit extensions and has requested information[95](index=95&type=chunk) - The Massachusetts AGO issued a civil investigative demand to Lincoln Technical Institute in Somerville, MA, investigating possible unfair or deceptive practices related to fee refunds and disclosures[96](index=96&type=chunk) [Note 10. Segments](index=21&type=section&id=Note%2010.%20Segments) This note provides financial information for the company's two reportable segments Segment Performance (in thousands) | Segment | 3 Months Ended June 30, 2022 Revenue | 3 Months Ended June 30, 2021 Revenue | 3 Months Ended June 30, 2022 Operating Income | 3 Months Ended June 30, 2021 Operating Income | | :--------------------- | :----------------------------------- | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Transportation and Skilled Trades | $57,973 | $56,965 | $7,094 | $11,256 | | Healthcare and Other Professions | $24,169 | $23,499 | $1,609 | $2,962 | | Corporate | - | - | $(8,307) | $(10,766) | | Total | $82,142 | $80,464 | $396 | $3,452 | Segment Performance (in thousands) | Segment | 6 Months Ended June 30, 2022 Revenue | 6 Months Ended June 30, 2021 Revenue | 6 Months Ended June 30, 2022 Operating Income | 6 Months Ended June 30, 2021 Operating Income | | :--------------------- | :----------------------------------- | :----------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Transportation and Skilled Trades | $116,758 | $112,636 | $14,340 | $23,581 | | Healthcare and Other Professions | $47,939 | $45,825 | $2,916 | $5,911 | | Corporate | - | - | $(17,186) | $(20,020) | | Total | $164,697 | $158,461 | $70 | $9,472 | [Note 11. Fair Value](index=22&type=section&id=Note%2011.%20Fair%20Value) This note discusses the fair value of financial instruments and the interest rate swap - The interest rate swap, designated as a cash flow hedge for the Term Loan, was paid in full on **October 29, 2021**, upon repayment of the Term Loan[107](index=107&type=chunk) Interest Expense (in thousands) | Interest Expense | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | | :------------------------------ | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Interest Rate Swap | $0 | $100 | $0 | $200 | [Note 12. COVID-19 Pandemic and CARES Act](index=23&type=section&id=Note%2012.%20COVID-19%20Pandemic%20and%20CARES%20Act) This note details the impact of COVID-19 on operations and funds received under the CARES Act - The company received **$27.4 million** from the HEERF under the CARES Act, fully distributed by September 30, 2021[112](index=112&type=chunk) - An additional **$24.4 million** was allocated under CRRSAA and ARPA, with **$14.8 million** distributed to students by June 30, 2022[114](index=114&type=chunk) - The company deferred **$2.3 million** in FICA payroll taxes, with **50% repaid** by January 3, 2022, and the remaining **50% due by January 3, 2023**[112](index=112&type=chunk) [Note 13. Property Sale Agreements](index=24&type=section&id=Note%2013.%20Property%20Sale%20Agreements) This note describes significant property sale agreements, including the Nashville campus and sale-leasebacks - Contract to sell Nashville campus property for **$34.5 million**, with an expected closing within the next fifteen months, and the property is included in assets held for sale[115](index=115&type=chunk)[116](index=116&type=chunk) - Sale-leaseback of Denver and Grand Prairie campuses closed on **October 29, 2021**, for **$46.5 million**[117](index=117&type=chunk) - The Denver and Grand Prairie sale-leaseback resulted in a **$22.5 million gain** on sale of assets and the recognition of **$40.1 million** in ROU assets and lease liabilities[117](index=117&type=chunk) [Item 2. Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations](index=25&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the company's financial condition, operations, and regulatory updates [General](index=25&type=section&id=General) This section provides a general overview of the company's business, educational offerings, and segments - The Company provides career-oriented post-secondary education through **22 schools** in **14 states**, with programs in automotive technology, skilled trades, healthcare, hospitality, and IT[122](index=122&type=chunk) - Business is organized into two reportable segments: **Transportation and Skilled Trades**, and **Healthcare and Other Professions (HOPS)**[123](index=123&type=chunk) [Critical Accounting Policies and Estimates](index=25&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines the key accounting policies and estimates impacting financial reporting - Critical accounting policies and estimates include revenue recognition, allowance for doubtful accounts, goodwill, long-lived assets, stock-based compensation, derivative instruments, borrowings, ROU assets, lease cost, income taxes, and employee benefit plans[125](index=125&type=chunk) [Effect of Inflation](index=25&type=section&id=Effect%20of%20Inflation) This section discusses the impact of inflation on operations, expenses, and student behavior - Inflation has not had a material effect on operations, except for inflationary pressures on instructional expenses and student reluctance to incur additional debt or travel costs[126](index=126&type=chunk) [Results of Continuing Operations](index=26&type=section&id=Results%20of%20Continuing%20Operations) This section analyzes the company's consolidated financial performance, including revenue, expenses, and net income [Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021](index=26&type=section&id=Three%20Months%20Ended%20June%2030%2C%202022%20Compared%20to%20Three%20Months%20Ended%20June%2030%2C%202021) This section compares the company's financial performance for Q2 2022 to the prior year Consolidated Performance (in thousands) | Metric | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | YoY Change | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------- | | Revenue | $82,142 | $80,464 | 2.1% | | Educational services and facilities expense | $36,106 | $33,694 | 7.2% | | Selling, general and administrative expense | $45,835 | $43,318 | 5.8% | | Operating income | $396 | $3,452 | -88.5% | | Net income | $259 | $2,426 | -89.3% | - Revenue increase was driven by a **1.2% increase** in average student population[129](index=129&type=chunk) - Educational services and facilities expense increased due to higher instructional salaries (market conditions, staffing levels) and facility expenses (additional rent from sale-leaseback)[131](index=131&type=chunk)[132](index=132&type=chunk) - Selling, general and administrative expense increased due to additional bad debt expense (decreased repayment rates), higher medical expenses, and one-time growth initiative expenses[133](index=133&type=chunk) [Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021](index=27&type=section&id=Six%20Months%20Ended%20June%2030%2C%202022%20Compared%20to%20Six%20Months%20Ended%20June%2030%2C%202021) This section compares the company's financial performance for YTD Q2 2022 to the prior year Consolidated Performance (in thousands) | Metric | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | YoY Change | | :---------------------------------------- | :--------------------------- | :--------------------------- | :--------- | | Revenue | $164,697 | $158,461 | 3.9% | | Educational services and facilities expense | $72,302 | $66,037 | 9.5% | | Selling, general and administrative expense | $92,520 | $82,951 | 11.5% | | Operating income | $70 | $9,472 | -99.3% | | Net income | $532 | $6,915 | -92.3% | - Revenue increase was mainly due to a **2.8% increase** in average student population[138](index=138&type=chunk) - Educational services and facilities expense increased due to higher instructional salaries (market conditions, staffing, return to in-person instruction), increased consumables prices, and higher facility expenses (additional rent, maintenance)[140](index=140&type=chunk)[141](index=141&type=chunk) - Selling, general and administrative expense increased due to additional bad debt expense (lower repayment rates, prior year HEERF adjustment), higher medical expenses, stock compensation, and growth initiative expenses[142](index=142&type=chunk)[143](index=143&type=chunk) [Segment Results of Operations](index=28&type=section&id=Segment%20Results%20of%20Operations) This section analyzes the financial performance of the company's two operating segments [Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021](index=29&type=section&id=Three%20Months%20Ended%20June%2030%2C%202022%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030%2C%202021) This section compares segment-level financial performance for Q2 2022 to the prior year Segment Performance (in thousands) | Segment Performance | 3 Months Ended June 30, 2022 Revenue | 3 Months Ended June 30, 2021 Revenue | YoY % Change Revenue | 3 Months Ended June 30, 2022 Operating Income | 3 Months Ended June 30, 2021 Operating Income | YoY % Change Operating Income | | :--------------------------------- | :----------------------------------- | :----------------------------------- | :------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------ | | Transportation and Skilled Trades | $57,973 | $56,965 | 1.8% | $7,094 | $11,256 | -37.0% | | Healthcare and Other Professions | $24,169 | $23,499 | 2.9% | $1,609 | $2,962 | -45.7% | | Corporate | - | - | N/A | $(8,307) | $(10,766) | 22.8% | Student Metrics | Student Metrics | 3 Months Ended June 30, 2022 | 3 Months Ended June 30, 2021 | YoY % Change | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :----------- | | Total Starts | 3,852 | 3,703 | 4.0% | | Transportation and Skilled Trades Average Population | 8,315 | 8,014 | 3.8% | | Healthcare and Other Professions Average Population | 4,322 | 4,468 | -3.3% | - Corporate expenses decreased due to reduced incentive compensation and a **$0.2 million gain** from the sale of the Suffield, Connecticut property[158](index=158&type=chunk) [Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021](index=31&type=section&id=Six%20Months%20Ended%20June%2030%2C%202022%20Compared%20to%20the%20Six%20Months%20Ended%20June%2030%2C%202021) This section compares segment-level financial performance for YTD Q2 2022 to the prior year Segment Performance (in thousands) | Segment Performance | 6 Months Ended June 30, 2022 Revenue | 6 Months Ended June 30, 2021 Revenue | YoY % Change Revenue | 6 Months Ended June 30, 2022 Operating Income | 6 Months Ended June 30, 2021 Operating Income | YoY % Change Operating Income | | :--------------------------------- | :----------------------------------- | :----------------------------------- | :------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------ | | Transportation and Skilled Trades | $116,758 | $112,636 | 3.7% | $14,340 | $23,581 | -39.2% | | Healthcare and Other Professions | $47,939 | $45,825 | 4.6% | $2,916 | $5,911 | -50.7% | | Corporate | - | - | N/A | $(17,186) | $(20,020) | 14.2% | Student Metrics | Student Metrics | 6 Months Ended June 30, 2022 | 6 Months Ended June 30, 2021 | YoY % Change | | :------------------------------------------------ | :--------------------------- | :--------------------------- | :----------- | | Total Starts | 7,205 | 7,251 | -0.6% | | Transportation and Skilled Trades Average Population | 8,417 | 8,016 | 5.0% | | Healthcare and Other Professions Average Population | 4,344 | 4,394 | -1.1% | - Corporate expenses decreased due to reduced incentive compensation and a **$0.2 million gain** from the sale of the Suffield, Connecticut property, partially offset by increased stock-based compensation and severance[164](index=164&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) This section discusses the company's ability to generate and manage cash from all activities [Operating Activities](index=33&type=section&id=Operating%20Activities) This section analyzes cash flows generated from or used in the company's primary business operations - Net cash used in operating activities was **$10.0 million** for the six months ended June 30, 2022, compared to **$1.1 million provided** in the prior year, driven by working capital changes and decreased net earnings[170](index=170&type=chunk) [Investing Activities](index=33&type=section&id=Investing%20Activities) This section details cash flows related to the acquisition and disposal of long-term assets - Net cash used in investing activities decreased to **$1.2 million** for the six months ended June 30, 2022, from **$3.5 million** in the prior year[171](index=171&type=chunk) - The decrease in cash used was driven by **$2.4 million** in net proceeds from the sale of the former Suffield, Connecticut campus[171](index=171&type=chunk) - Capital expenditures are expected to approximate **3% of revenues** in 2022[175](index=175&type=chunk) [Financing Activities](index=34&type=section&id=Financing%20Activities) This section outlines cash flows from debt, equity, and other financing transactions - Net cash used in financing activities increased to **$5.1 million** for the six months ended June 30, 2022, from **$2.6 million** in the prior year[176](index=176&type=chunk) - The increase in cash used was driven by the implementation of a share repurchase program during Q2 2022[176](index=176&type=chunk) [Credit Facility](index=34&type=section&id=Credit%20Facility) This section provides an update on the company's credit facility, outstanding debt, and covenants - **Zero debt outstanding** under the Credit Facility as of June 30, 2022, and December 31, 2021[183](index=183&type=chunk) - The revolving loan maturity date was extended to **November 14, 2023**, via a third amendment on August 5, 2022[183](index=183&type=chunk) - The company was in compliance with all debt covenants as of June 30, 2022[183](index=183&type=chunk) [Contractual Obligations](index=35&type=section&id=Contractual%20Obligations) This section details the company's financial commitments, including lease and loan obligations - No outstanding debt as of June 30, 2022[184](index=184&type=chunk) - Outstanding institutional loan principal commitments to active students totaled **$30.0 million** as of June 30, 2022[185](index=185&type=chunk) [Regulatory Updates](index=35&type=section&id=Regulatory%20Updates) This section provides an overview of recent and proposed regulatory changes impacting operations [Borrower Defense to Repayment Regulations](index=35&type=section&id=Borrower%20Defense%20to%20Repayment%20Regulations) This section discusses proposed DOE regulations and a class action settlement impacting student loan discharges - Proposed DOE regulations (July 13, 2022) would establish a new process for evaluating borrower applications for loan discharges, applying to all claims submitted or pending as of **July 1, 2023**, making it easier for borrowers to obtain discharges and for the DOE to recoup costs from institutions[188](index=188&type=chunk)[189](index=189&type=chunk) - A proposed class action settlement (June 22, 2022) could lead to automatic loan discharges and refunds for students at listed institutions, including Lincoln's, without individual adjudication of borrower defense claims[195](index=195&type=chunk)[198](index=198&type=chunk) - The company submitted a motion to intervene in the class action lawsuit to protect its interests, arguing against automatic discharges without adjudication and potential recoupment without due process[199](index=199&type=chunk) [The %2290%2F10%20Rule%22](index=37&type=section&id=The%20%2290%2F10%20Rule%22) This section explains changes to the 90/10 rule, including federal funds and its expected impact - ARPA amended the 90/10 rule to include other "Federal funds" (e.g., veterans' benefits, which were **~7% of 2021 cash revenues**) in the 90% calculation, expected to increase the company's 90/10 rule calculations[202](index=202&type=chunk) - Proposed regulations (July 28, 2022) confirm these changes apply to fiscal years ending on or after **January 1, 2023**, with final regulations expected by **November 1, 2022**, for a **July 1, 2023**, effective date[203](index=203&type=chunk)[205](index=205&type=chunk)[206](index=206&type=chunk) [Negotiated Rulemaking](index=38&type=section&id=Negotiated%20Rulemaking) This section outlines the DOE's rulemaking processes and anticipated timelines for new regulations - Proposed regulations on gainful employment, administrative capability, financial responsibility, eligibility certification, and ability to benefit are delayed until **April 2023**, with an earliest effective date of **July 1, 2024**[207](index=207&type=chunk) - Proposed regulations regarding the 90/10 rule and changes in ownership are expected to be published in **2022**, potentially taking effect **July 1, 2023**[208](index=208&type=chunk) [Compliance with Regulatory Standards and Effect of Regulatory Violations](index=39&type=section&id=Compliance%20with%20Regulatory%20Standards%20and%20Effect%20of%20Regulatory%20Violations) This section addresses the company's compliance with federal and state regulations and audit outcomes - Title IV Program compliance audits for 2020 at New Britain, Iselin, and Indianapolis institutions found alleged noncompliance, which were resolved, but serious findings were referred to a separate DOE office for potential adverse action[211](index=211&type=chunk) - An OIG audit of the Indianapolis institution regarding HEERF funds was resolved, with the DOE accepting responses to findings and imposing no liabilities or sanctions[212](index=212&type=chunk) [School Acquisitions](index=39&type=section&id=School%20Acquisitions) This section discusses the regulatory implications of school acquisitions, Title IV eligibility, and ownership rules - School acquisitions result in a change of ownership, suspending Title IV Program eligibility until recertification by the DOE, state education agencies, and accrediting commissions[214](index=214&type=chunk) - Proposed DOE regulations on changes in ownership, expected in **2022** and effective **July 1, 2023**, may expand requirements, potentially making future acquisitions more difficult[214](index=214&type=chunk) [Change of Control](index=40&type=section&id=Change%20of%20Control) This section explains how various transactions can trigger a change of control, impacting Title IV eligibility - A change of control can occur from corporate reorganizations or board changes, potentially affecting Title IV Program eligibility and discouraging stock transactions[215](index=215&type=chunk) - Proposed DOE regulations on ownership and control, expected in **2022** and effective **July 1, 2023**, could further influence future corporate decisions and stock market prices[215](index=215&type=chunk) [Seasonality](index=40&type=section&id=Seasonality) This section describes the seasonal fluctuations in the company's revenue, student population, and operating results - Revenue and operating results fluctuate seasonally, with lower student populations in Q1 and Q2, and larger class starts in Q3[216](index=216&type=chunk) - Expenses typically do not vary significantly with changes in student population and revenue[216](index=216&type=chunk) [Item 3. Quantitative and Qualitative Disclosure About Market Risk](index=40&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosure%20About%20Market%20Risk) As a smaller reporting company, Lincoln Educational Services Corporation is not required to provide market risk disclosures - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[217](index=217&type=chunk) [Item 4. Controls and Procedures](index=40&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of disclosure controls and procedures and absence of material internal control changes - Disclosure controls and procedures were deemed adequate and effective as of **June 30, 2022**[218](index=218&type=chunk) - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[219](index=219&type=chunk) [PART II. OTHER INFORMATION](index=38&type=section&id=PART%20II.%20OTHER%20INFORMATION) This part provides additional information on legal proceedings, risk factors, equity sales, and other disclosures [Item 1. Legal Proceedings](index=38&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in ordinary course lawsuits, investigations, and claims, including CFPB and Massachusetts AGO assessments - The CFPB is assessing whether the company is subject to its supervisory authority based on activities related to student credit extensions[221](index=221&type=chunk) - The Massachusetts AGO issued a civil investigative demand to Lincoln Technical Institute in Somerville, MA, investigating possible unfair or deceptive practices regarding fee refunds and disclosures[223](index=223&type=chunk) [Item 1A. Risk Factors](index=41&type=section&id=Item%201A.%20Risk%20Factors) The company reported no changes to the Risk Factors previously disclosed in its Form 10-K - No changes to the Risk Factors disclosed in the company's Form 10-K[224](index=224&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=41&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the company's share repurchase program, including authorization and shares repurchased - A share repurchase program of up to **$30.0 million** was authorized on **May 24, 2022**, for twelve months[225](index=225&type=chunk) Share Repurchase Program | Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Value of Shares Purchased (approx.) | Remaining Authorized (approx.) | | :-------------------------- | :------------------------------- | :--------------------------- | :---------------------------------------- | :----------------------------- | | April 1, 2022 to June 30, 2022 | 414,963 | $6.12 | $2.5 million | $27.5 million | [Item 3. Defaults Upon Senior Securities](index=41&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) The company reported no defaults upon senior securities - No defaults upon senior securities[227](index=227&type=chunk) [Item 4. Mine Safety Disclosure](index=41&type=section&id=Item%204.%20Mine%20Safety%20Disclosure) The company reported no mine safety disclosures - No mine safety disclosures[228](index=228&type=chunk) [Item 5. Other Information](index=41&type=section&id=Item%205.%20Other%20Information) This section includes an update on the third amendment to the Credit Agreement, extending the revolving loan maturity - On **August 5, 2022**, the company extended the maturity date of its revolving loan through **November 14, 2023**, via a third amendment to its Credit Agreement[229](index=229&type=chunk) [Item 6. Exhibits](index=42&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including key corporate documents and financial statements - Key exhibits include amendments to the Certificate of Incorporation and Bylaws, the Second and Third Amendments to the Credit Agreement, CEO/CFO certifications, and financial statements in iXBRL format[230](index=230&type=chunk) [SIGNATURES](index=43&type=section&id=SIGNATURES) This section contains the official signatures certifying the accuracy and completeness of the Form 10-Q - The report was signed on **August 8, 2022**, by Brian Meyers, Executive Vice President, Chief Financial Officer and Treasurer[235](index=235&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 or ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from______ to______ Commission File Number 000-51371 LINCOLN EDUCATIONAL SERVICES CORPORATION (Exact name of registrant as specified in its charter) New Jersey 57- ...

Lincoln Educational Services Corporation (NASDAQ:LINC) Q1 2022 Earnings Conference Call May 9, 2022 10:00 AM ET Company Participants Michael Polyviou - IR Scott Shaw - President and CEO Brian Meyers - CFO Conference Call Participants Rajiv Sharma - B. Riley Alex Paris - Barrington Research Operator Good day, everyone and thank you for standing by, and welcome to the First Quarter of 2022 Lincoln Educational Services Earnings Conference Call. [Operator Instructions] I would now like to hand over the conferen ...

U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2021 Commission File Number 000-51371 LINCOLN EDUCATIONAL SERVICES CORPORATION (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.) New Jersey 57-1150621 14 Sylvan Way, Suite A Parsippany, NJ 07054 (Address of prin ...

Lincoln Educational Services Corporation (NASDAQ:LINC) Q4 2021 Earnings Conference Call February 28, 2022 10:00 AM ET Company Participants Michael Polyviou - Investor Relations Scott Shaw - President & Chief Executive Officer Brian Meyers - Chief Financial Officer Conference Call Participants Alex Paris - Barrington Research Steven Frankel - Collier Austin Moldow - Canaccord Raj Sharma - B. Riley Operator Good day and thank you for standing by and welcome to the Q4 2021 Lincoln Educational Services Earnings ...

PART I. FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion and analysis for the company [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited condensed consolidated financial statements for Lincoln Educational Services Corporation and its subsidiaries, including balance sheets, statements of operations, comprehensive income (loss), changes in equity, and cash flows, along with detailed notes explaining business activities, accounting policies, and specific financial items for the periods ended September 30, 2021, and December 31, 2020 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) This section presents the unaudited condensed consolidated balance sheets as of September 30, 2021, and December 31, 2020 Balance Sheet Metrics | Metric | Sep 30, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :-------------------------------- | :-------------------------- | :-------------------------- | | **ASSETS** | | | | Cash and cash equivalents | $47,150 | $38,026 | | Total current assets | $110,953 | $74,164 | | Property, equipment and facilities, net | $23,251 | $48,388 | | Total assets | $253,456 | $245,190 | | **LIABILITIES & EQUITY** | | | | Total current liabilities | $68,875 | $66,842 | | Total liabilities | $139,511 | $142,141 | | Total stockholders' equity | $101,963 | $91,067 | | Total liabilities, preferred stock and equity | $253,456 | $245,190 | - Total assets increased by **$8.266 million (3.37%)** from December 31, 2020, to September 30, 2021, primarily driven by an increase in cash and cash equivalents and assets held for sale[8](index=8&type=chunk) - Total stockholders' equity increased by **$10.896 million (11.96%)** from December 31, 2020, to September 30, 2021[11](index=11&type=chunk) [Condensed Consolidated Statements of Operations](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Operations) This section presents the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021 and 2020 Statements of Operations Metrics | Metric | Three Months Ended Sep 30, 2021 (in thousands) | Three Months Ended Sep 30, 2020 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2020 (in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Revenue | $89,059 | $78,792 | $247,520 | $211,303 | | Total costs & expenses | $83,314 | $74,952 | $232,303 | $207,648 | | Operating income | $5,745 | $3,840 | $15,217 | $3,655 | | Net income | $3,839 | $3,512 | $10,754 | $2,545 | | Income available to common shareholders | $3,535 | $2,438 | $9,842 | $1,471 | | Basic and diluted net income per common share | $0.11 | $0.08 | $0.30 | $0.05 | - Revenue increased by **13.0%** for the three months ended September 30, 2021, and by **17.1%** for the nine months ended September 30, 2021, compared to the prior year periods[14](index=14&type=chunk) - Operating income significantly increased by **49.6%** for the three months and **316.3%** for the nine months ended September 30, 2021, year-over-year[14](index=14&type=chunk) [Condensed Consolidated Statements of Comprehensive Income (Loss)](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20(Loss)) This section presents the unaudited condensed consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 2021 and 2020 Comprehensive Income (Loss) Metrics | Metric | Three Months Ended Sep 30, 2021 (in thousands) | Three Months Ended Sep 30, 2020 (in thousands) | Nine Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2020 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :-------------------------------------- | :-------------------------------------- | | Net income | $3,839 | $3,512 | $10,754 | $2,545 | | Other comprehensive income (loss) | | | | | | Derivative qualifying as a cash flow hedge, net of taxes | $65 | $57 | $326 | $(786) | | Employee pension plan adjustments, net of taxes | $(134) | $140 | $(403) | $420 | | Comprehensive income | $3,770 | $3,709 | $10,677 | $2,179 | - Comprehensive income increased by **1.6%** for the three months and **389.9%** for the nine months ended September 30, 2021, compared to the prior year periods[17](index=17&type=chunk) [Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Equity](index=7&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Convertible%20Preferred%20Stock%20and%20Stockholders'%20Equity) This section presents changes in convertible preferred stock and stockholders' equity for the nine months ended September 30, 2021 Changes in Equity Metrics | Metric | Balance Jan 1, 2021 (in thousands) | Balance Sep 30, 2021 (in thousands) | | :--------------------------------------- | :--------------------------------- | :--------------------------------- | | Common Stock Amount | $141,377 | $141,377 | | Additional Paid-in Capital | $30,512 | $31,643 | | Treasury Stock | $(82,860) | $(82,860) | | Retained Earnings | $6,203 | $16,045 | | Accumulated Other Comprehensive Loss | $(4,165) | $(4,242) | | Total Stockholders' Equity | $91,067 | $101,963 | | Series A Convertible Preferred Stock Amount | $11,982 | $11,982 | - Total stockholders' equity increased by **$10.896 million** from January 1, 2021, to September 30, 2021, primarily due to net income and stock-based compensation expense, partially offset by preferred stock dividends and employee pension plan adjustments[20](index=20&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) This section presents the unaudited condensed consolidated statements of cash flows for the nine months ended September 30, 2021 and 2020 Cash Flow Metrics | Metric | Nine Months Ended Sep 30, 2021 (in thousands) | Nine Months Ended Sep 30, 2020 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $17,750 | $10,222 | | Net cash used in investing activities | $(5,252) | $(3,457) | | Net cash used in financing activities | $(3,374) | $(17,816) | | Net increase (decrease) in cash, cash equivalents and restricted cash | $9,124 | $(11,051) | | Cash, cash equivalents and restricted cash—End of period | $47,150 | $27,593 | - Net cash provided by operating activities increased by **$7.528 million (73.6%)** for the nine months ended September 30, 2021, compared to the prior year, primarily driven by higher net income[22](index=22&type=chunk)[183](index=183&type=chunk) - Net cash used in financing activities decreased significantly by **$14.442 million (81.07%)** for the nine months ended September 30, 2021, mainly due to a decrease in net payments on borrowings[22](index=22&type=chunk)[187](index=187&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed notes explaining the company's business activities, accounting policies, and specific financial items [Note 1. Description of Business and Basis of Presentation](index=10&type=section&id=1.%20DESCRIPTION%20OF%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) Lincoln Educational Services Corporation provides diversified career-oriented post-secondary education across 22 schools in 14 states, offering programs in automotive technology, skilled trades, healthcare services, hospitality, and information technology. The company operates under two reportable segments: Transportation and Skilled Trades, and Healthcare and Other Professions (HOPS). The financial statements are unaudited and prepared in accordance with GAAP for interim reporting, reflecting all necessary adjustments - The Company operates **22 schools** in **14 states** under brands like Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences[28](index=28&type=chunk) - Business is organized into two reportable segments: Transportation and Skilled Trades, and Healthcare and Other Professions (HOPS)[29](index=29&type=chunk) Liquidity Position | Metric | September 30, 2021 (in millions) | December 31, 2020 (in millions) | | :---------------- | :------------------------------- | :------------------------------- | | Cash and cash equivalents | $47.2 | $38.0 | | Net cash balance | $31.3 | $20.8 | | Additional borrowing capacity | $21.0 | N/A | [Note 2. Net Income Per Common Share](index=12&type=section&id=2.%20NET%20INCOME%20PER%20COMMON%20SHARE) The Company calculates basic and diluted income per common share using the two-class method, which includes Series A Preferred Stock and unvested restricted common stock as participating securities. For the three and nine months ended September 30, 2021, basic and diluted EPS were $0.11 and $0.30, respectively, showing an increase from the prior year - Basic and diluted net income per common share for the three months ended September 30, 2021, was **$0.11**, up from **$0.08** in the prior year[14](index=14&type=chunk)[48](index=48&type=chunk) - Basic and diluted net income per common share for the nine months ended September 30, 2021, was **$0.30**, up from **$0.05** in the prior year[14](index=14&type=chunk)[48](index=48&type=chunk) Net Income Allocated to Common Stockholders (in thousands) | Period | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | $2,721 | $1,885 | | Nine Months Ended September 30 | $7,579 | $1,147 | [Note 3. Revenue Recognition](index=13&type=section&id=3.%20REVENUE%20RECOGNITION) The Company recognizes revenue primarily from student contracts, with unearned tuition representing contract liabilities. Revenue recognized from contract liabilities at the beginning of the year for the nine months ended September 30, 2021, was $22.6 million. The majority of revenue is transferred over time, reflecting the ongoing educational services - Unearned tuition, a contract liability, was **$24.7 million** as of September 30, 2021, compared to **$23.5 million** at December 31, 2020[50](index=50&type=chunk) - Revenue recognized for the nine months ended September 30, 2021, that was included in the beginning-of-year contract liability balance was **$22.6 million**[50](index=50&type=chunk) Consolidated Revenue by Timing of Recognition (in thousands) | Timing of Revenue Recognition | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :---------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Services transferred at a point in time | $7,821 | $6,986 | $19,022 | $13,535 | | Services transferred over time | $81,238 | $71,806 | $228,498 | $197,768 | | Total revenues | $89,059 | $78,792 | $247,520 | $211,303 | [Note 4. Leases](index=14&type=section&id=4.%20LEASES) The Company recognizes operating lease right-of-use (ROU) assets and liabilities based on the present value of lease payments. Operating lease costs remained stable at $3.8 million for the three months and $11.4 million for the nine months ended September 30, 2021 and 2020, respectively. A sale-leaseback transaction for the Denver and Grand Prairie campuses closed in October 2021 Operating Lease Costs (in millions) | Period | 2021 | 2020 | | :-------------------------------- | :--- | :--- | | Three Months Ended September 30 | $3.8 | $3.9 | | Nine Months Ended September 30 | $11.4 | $11.4 | Weighted-Average Lease Metrics | Metric | As of September 30, 2021 | As of September 30, 2020 | | :-------------------------- | :----------------------- | :----------------------- | | Remaining lease term | 5.49 years | 6.29 years | | Discount rate | 10.77% | 11.38% | - A sale-leaseback transaction for the Denver and Grand Prairie campuses closed on October 29, 2021, generating approximately **$28.5 million** in net proceeds after expenses and debt repayment[54](index=54&type=chunk)[132](index=132&type=chunk) [Note 5. Goodwill and Long-Lived Assets](index=15&type=section&id=5.%20GOODWILL%20AND%20LONG-LIVED%20ASSETS) The Company reviews long-lived assets for recoverability and goodwill for impairment annually or more frequently if indicators exist. As of September 30, 2021, no long-lived asset impairments were recognized, and no indicators of goodwill impairment were identified. The goodwill balance of $14.536 million is entirely related to the Transportation and Skilled Trades segment - No long-lived asset impairments were recognized during the nine months ended September 30, 2021 and 2020[59](index=59&type=chunk) - No indicators of potential goodwill impairment were identified as of September 30, 2021[60](index=60&type=chunk) Goodwill Carrying Amount (in thousands) | Metric | September 30, 2021 | September 30, 2020 | | :---------------- | :----------------- | :----------------- | | Gross Goodwill Balance | $117,176 | $117,176 | | Accumulated Impairment Losses | $(102,640) | $(102,640) | | Net Goodwill Balance | $14,536 | $14,536 | - The entire goodwill balance is related to the Transportation and Skilled Trades segment[61](index=61&type=chunk) [Note 6. Long-Term Debt](index=16&type=section&id=6.%20LONG-TERM%20DEBT) The Company's long-term debt primarily consists of a $60 million senior secured credit facility with Sterling National Bank, comprising a Term Loan, Delayed Draw Term Loan, and Revolving Loan. As of September 30, 2021, $16.3 million was outstanding under the Credit Facility. A recent Consent Agreement related to property transactions requires full repayment of the Term Loan and swap obligations upon closing, which occurred for the Denver and Grand Prairie campuses in October 2021 Long-Term Debt (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :---------------------- | :----------------- | :----------------- | | Credit agreement | $16,333 | $17,833 | | Deferred Financing Fees | $(485) | $(621) | | Less current maturities | $(2,000) | $(2,000) | | Long-term debt, net | $13,848 | $15,212 | - The Credit Facility includes a **$20 million** Term Loan, a **$10 million** Delayed Draw Term Loan, and a **$15 million** Revolving Loan[64](index=64&type=chunk) - As of September 30, 2021, the Company was in compliance with all debt covenants[73](index=73&type=chunk) - A Consent Agreement on September 23, 2021, required full repayment of the Term Loan and swap obligations upon closing of certain property transactions. Approximately **$16.5 million** was paid in October 2021 related to the Denver and Grand Prairie sale-leaseback[74](index=74&type=chunk) [Note 7. Stockholders' Equity](index=18&type=section&id=7.%20STOCKHOLDERS'%20EQUITY) Stockholders' equity includes common stock, Series A Convertible Preferred Stock, restricted stock, and stock options. The Series A Preferred Stock, issued in 2019, has a 9.6% annual dividend rate and is convertible into common stock, subject to certain caps. The Company issues restricted stock under the 2020 Long-Term Incentive Plan, with performance-based awards vesting over time. Stock options outstanding as of September 30, 2021, totaled 81,000 shares with a weighted-average exercise price of $7.79 - The Company has not declared or paid cash dividends on common stock since February 2015 and has no current intentions to resume[78](index=78&type=chunk) - Series A Convertible Preferred Stock has an initial annual dividend rate of **9.6%**, payable quarterly, and is convertible into common stock at **$2.36 per share**[81](index=81&type=chunk)[82](index=82&type=chunk) Restricted Stock Activity (Nine Months Ended Sep 30, 2021) | Metric | Shares | Weighted Average Grant Date Fair Value Per Share | | :--------------------------------------- | :------- | :--------------------------------------------- | | Nonvested restricted stock outstanding at Dec 31, 2020 | 1,572,159 | $2.77 | | Granted | 657,076 | $5.97 | | Vested | (498,936) | $3.04 | | Nonvested restricted stock outstanding at Sep 30, 2021 | 1,730,299 | $3.87 | - Restricted stock expense for the nine months ended September 30, 2021, was **$2.1 million**, up from **$1.3 million** in the prior year[104](index=104&type=chunk) Stock Options Outstanding (as of Sep 30, 2021) | Metric | Shares | Weighted Average Exercise Price Per Share | Weighted Average Remaining Contractual Term | | :-------------------------- | :------- | :-------------------------------------- | :------------------------------------------ | | Outstanding at Sep 30, 2021 | 81,000 | $7.79 | 0.42 years | | Vested as of Sep 30, 2021 | 81,000 | $7.79 | 0.42 years | | Exercisable as of Sep 30, 2021 | 81,000 | $7.79 | 0.42 years | [Note 8. Income Taxes](index=21&type=section&id=8.%20INCOME%20TAXES) The Company's provision for income taxes significantly increased for the three and nine months ended September 30, 2021, to $1.6 million and $3.6 million, respectively, compared to prior year periods. This increase is primarily due to the reversal of a full valuation allowance at December 31, 2020, resulting in an effective tax rate of 29.6% for the three months and 25.0% for the nine months ended September 30, 2021 Provision for Income Taxes (in millions) | Period | 2021 | 2020 | | :-------------------------------- | :--- | :--- | | Three Months Ended September 30 | $1.6 | $0.1 | | Nine Months Ended September 30 | $3.6 | $0.2 | Effective Tax Rate | Period | 2021 | 2020 | | :-------------------------------- | :----- | :----- | | Three Months Ended September 30 | 29.6% | 1.4% | | Nine Months Ended September 30 | 25.0% | 5.6% | - The increase in income tax provision is primarily due to the reversal of a full valuation allowance at December 31, 2020[106](index=106&type=chunk) [Note 9. Commitments and Contingencies](index=21&type=section&id=9.%20COMMITMENTS%20AND%20CONTINGENCIES) The Company is subject to various lawsuits, investigations, and claims in the ordinary course of business. While the ultimate resolution of these matters cannot be predicted with certainty, management does not believe any currently pending legal proceedings will have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows - The Company is subject to lawsuits, investigations, and claims, including those involving students, graduates, and employment matters[107](index=107&type=chunk) - Management believes that currently pending legal proceedings will not have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows[107](index=107&type=chunk) [Note 10. Segments](index=22&type=section&id=10.%20SEGMENTS) The Company operates in two reportable segments: Transportation and Skilled Trades, and Healthcare and Other Professions (HOPS). Segment performance is evaluated based on operating results, with unallocated corporate activities reported under 'Corporate.' Both segments showed revenue and operating income growth for the three and nine months ended September 30, 2021 - The two reportable segments are Transportation and Skilled Trades (automotive, diesel, HVAC, welding, manufacturing) and Healthcare and Other Professions (health sciences, hospitality, business, IT)[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk) Segment Revenue (in thousands) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Transportation and Skilled Trades | $64,950 | $56,828 | $177,586 | $148,799 | | Healthcare and Other Professions | $24,109 | $21,964 | $69,934 | $62,504 | | Total | $89,059 | $78,792 | $247,520 | $211,303 | Segment Operating Income (Loss) (in thousands) | Segment | Three Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2020 | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Transportation and Skilled Trades | $11,842 | $9,138 | $35,423 | $18,848 | | Healthcare and Other Professions | $1,833 | $1,654 | $7,743 | $6,388 | | Corporate | $(7,930) | $(6,952) | $(27,949) | $(21,581) | | Total | $5,745 | $3,840 | $15,217 | $3,655 | [Note 11. Fair Value](index=23&type=section&id=11.%20FAIR%20VALUE) The Company's financial instruments, including cash, prepaid expenses, accrued expenses, and credit facility, are reported at carrying amounts that approximate fair value due to their liquid or short-term nature. The interest rate swap, designated as a cash flow hedge, is measured at fair value using observable market inputs (Level 2) and is classified as a derivative liability - Cash and cash equivalents, prepaid expenses, accrued expenses, and other short-term liabilities approximate fair value due to their highly liquid or short-term nature[115](index=115&type=chunk) - The Credit Facility's fair value is estimated using a present value analysis with aggregate market yields from independent pricing sources[114](index=114&type=chunk) Derivative Qualifying Cash Flow Hedge (Interest Rate Swap) (in thousands) | Metric | September 30, 2021 | December 31, 2020 | | :---------------- | :----------------- | :----------------- | | Notional | $16,333 | $17,833 | | Fair Value (Liability) | $552 | $877 | | Interest Expense | $100 (3 months) / $200 (9 months) | $100 (3 months) / $100 (9 months) | | OCI (Loss) Income | $65 (3 months) / $326 (9 months) | $56 (3 months) / $(786) (9 months) | [Note 12. COVID-19 Pandemic and CARES Act](index=24&type=section&id=12.%20COVID-19%20PANDEMIC%20AND%20CARES%20ACT) The COVID-19 pandemic led to operational changes, including a transition to online learning and additional expenses, but did not have a material adverse impact on the Company's financial statements as of September 30, 2021. The Company received and utilized $27.4 million in HEERF funds from the CARES Act, distributing emergency grants to students and offsetting institutional costs. An additional $15.4 million from CRRSAA has been allocated but not yet drawn down - COVID-19 impact primarily involved transitioning to online learning and incurring additional expenses, but no material adverse impacts on financial results as of September 30, 2021[121](index=121&type=chunk) - The Company received **$27.4 million** in HEERF funds from the CARES Act, fully distributed as emergency grants to students and utilized for institutional costs by September 30, 2021[124](index=124&type=chunk) - An additional **$15.4 million** in HEERF funds from CRRSAA was allocated in February 2021, but none had been drawn down as of September 30, 2021[129](index=129&type=chunk) - The Company deferred **$4.5 million** in FICA payroll taxes through January 1, 2021, with repayment scheduled for January 2022 and January 2023[126](index=126&type=chunk) [Note 13. Property Sale Agreements](index=26&type=section&id=13.%20Property%20Sale%20Agreements) The Company entered into two significant property sale agreements: one to sell its Nashville campus for $34.5 million, with an expected closing in Q1 2022 and a lease-back period; and a sale-leaseback transaction for its Denver and Grand Prairie campuses for $46.5 million, which closed on October 29, 2021, providing $28.5 million in net proceeds after debt repayment - Agreement to sell Nashville campus for **$34.5 million**, with closing expected in Q1 2022, followed by a **12-month** rent-free lease-back period[131](index=131&type=chunk) - Sale-leaseback of Denver and Grand Prairie campuses for **$46.5 million** closed on October 29, 2021[132](index=132&type=chunk) - The Denver/Grand Prairie transaction yielded approximately **$28.5 million** in net proceeds after deducting **$1.2 million** in transaction expenses and repaying **$16.8 million** of outstanding term loan and swap termination fees[132](index=132&type=chunk) - The lease agreement for Denver and Grand Prairie properties is for a **twenty-year** term with an initial annual base rent of approximately **$2.6 million**, increasing by **2.00% annually**[132](index=132&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, condition, and future outlook, discussing revenue and expense trends, segment results, liquidity, capital resources, and the impact of regulatory changes and the COVID-19 pandemic for the three and nine months ended September 30, 2021 [General Business Overview and COVID-19 Impact](index=27&type=section&id=General%20Business%20Overview%20and%20COVID-19%20Impact) This section provides an overview of the company's business, its segments, and the operational impacts of the COVID-19 pandemic - The Company provides career-oriented post-secondary education across **22 schools** in **14 states**, with programs in automotive technology, skilled trades, healthcare services, hospitality, and information technology[136](index=136&type=chunk) - Business is organized into two reportable segments: Transportation and Skilled Trades, and Healthcare and Other Professions (HOPS)[137](index=137&type=chunk) - COVID-19 impact primarily involved transitioning to online learning, incurring additional expenses, and placing some students on leave of absence, though all schools have since reopened[139](index=139&type=chunk) [Critical Accounting Policies and Estimates](index=28&type=section&id=Critical%20Accounting%20Policies%20and%20Estimates) This section outlines the key accounting policies and estimates requiring significant management judgment, including revenue recognition and goodwill - Key accounting policies requiring significant management judgment include revenue recognition, allowance for doubtful accounts, goodwill and long-lived assets, stock-based compensation, derivative instruments, borrowings, lease assumptions, and income taxes[142](index=142&type=chunk) - Reassessment of accounting policies due to COVID-19 did not have a significant impact on results of operations and cash flows for the presented periods[142](index=142&type=chunk) [Results of Continuing Operations](index=28&type=section&id=Results%20of%20Continuing%20Operations) This section analyzes the company's consolidated financial performance, including revenue, expenses, and net income, for the reported periods [Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020](index=28&type=section&id=Three%20Months%20Ended%20September%2030,%202021%20Compared%20to%20Three%20Months%20Ended%20September%2030,%202020) This section compares the company's consolidated financial results for the three months ended September 30, 2021, and 2020 Consolidated Financial Performance (Three Months Ended Sep 30) | Metric | 2021 (in millions) | 2020 (in millions) | % Change | | :-------------------------------- | :----------------- | :----------------- | :------- | | Revenue | $89.1 | $78.8 | 13.0% | | Educational services and facilities expense | $38.1 | $34.2 | 11.3% | | Selling, general and administrative expense | $45.2 | $40.7 | 11.1% | | Operating income | $5.7 | $3.8 | 49.6% | | Net income | $3.8 | $3.5 | 9.1% | | Effective tax rate | 29.6% | 1.4% | N/A | - Revenue increase driven by an **8.3% increase in average student population** and a **4.3% increase in average revenue per student**[145](index=145&type=chunk) - Selling, general and administrative expense increased due to higher incentive and stock-based compensation and increased marketing investments[150](index=150&type=chunk) [Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020](index=29&type=section&id=Nine%20Months%20Ended%20September%2030,%202021%20Compared%20to%20Nine%20Months%20Ended%20September%2030,%202020) This section compares the company's consolidated financial results for the nine months ended September 30, 2021, and 2020 Consolidated Financial Performance (Nine Months Ended Sep 30) | Metric | 2021 (in millions) | 2020 (in millions) | % Change | | :-------------------------------- | :----------------- | :----------------- | :------- | | Revenue | $247.5 | $211.3 | 17.1% | | Educational services and facilities expense | $104.1 | $90.7 | 14.8% | | Selling, general and administrative expense | $128.2 | $117.0 | 9.5% | | Operating income | $15.2 | $3.7 | 310.8% | | Net income | $10.8 | $2.5 | 332.0% | | Effective tax rate | 25.0% | 5.6% | N/A | - Revenue increase driven by an **11.3% increase in average student population**, **8.8% student start growth**, and a **5.2% increase in average revenue per student**, along with normalization of in-person instruction[155](index=155&type=chunk) - Educational services and facilities expense increased due to inflationary pressures on instructor salaries, larger student population, and operating with a hybrid instruction model[158](index=158&type=chunk) - Selling, general and administrative expense increased due to a **$3.1 million** rise in incentive and stock-based compensation, normalization of operating expenses, and increased marketing investments[160](index=160&type=chunk) [Segment Results of Operations](index=30&type=section&id=Segment%20Results%20of%20Operations) This section analyzes the financial performance of the company's Transportation and Skilled Trades and Healthcare and Other Professions segments [Three Months Ended September 30, 2021 Compared to the Three Months Ended September 30, 2020](index=31&type=section&id=Three%20Months%20Ended%20September%2030,%202021%20Compared%20to%20the%20Three%20Months%20Ended%20September%2030,%202020) This section compares segment-level financial results for the three months ended September 30, 2021, and 2020 Segment Performance (Three Months Ended Sep 30) | Metric | Transportation and Skilled Trades (2021) | Transportation and Skilled Trades (2020) | HOPS (2021) | HOPS (2020) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :---------- | :---------- | | Revenue (in thousands) | $64,950 | $56,828 | $24,109 | $21,964 | | Operating Income (Loss) (in thousands) | $11,842 | $9,138 | $1,833 | $1,654 | | Starts | 3,976 | 3,982 | 1,454 | 1,528 | | Average Population (Excl. LOA) | 8,854 | 8,016 | 4,324 | 4,149 | - Transportation and Skilled Trades revenue increased by **14.3%**, driven by a **10.5% increase in average student population** and a **3.5% increase in average revenue per student**[172](index=172&type=chunk) - HOPS revenue increased by **9.8%**, driven by a **4.2% increase in average student population** and a **5.3% increase in average revenue per student**[174](index=174&type=chunk) - Corporate expenses increased by **$1.0 million to $7.9 million**, primarily due to incentive and stock-based compensation tied to improved financial performance[173](index=173&type=chunk) [Nine Months Ended September 30, 2021 Compared to the Nine Months Ended September 30, 2020](index=33&type=section&id=Nine%20Months%20Ended%20September%2030,%202021%20Compared%20to%20the%20Nine%20Months%20Ended%20September%2030,%202020) This section compares segment-level financial results for the nine months ended September 30, 2021, and 2020 Segment Performance (Nine Months Ended Sep 30) | Metric | Transportation and Skilled Trades (2021) | Transportation and Skilled Trades (2020) | HOPS (2021) | HOPS (2020) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :---------- | :---------- | | Revenue (in thousands) | $177,586 | $148,799 | $69,934 | $62,504 | | Operating Income (Loss) (in thousands) | $35,423 | $18,848 | $7,743 | $6,388 | | Starts | 8,824 | 8,004 | 3,857 | 3,651 | | Average Population (Excl. LOA) | 8,296 | 7,391 | 4,370 | 3,988 | - Transportation and Skilled Trades revenue increased by **19.3%**, driven by a **12.2% increase in average student population**, **10.2% student start growth**, and a **6.3% increase in average revenue per student**[177](index=177&type=chunk) - HOPS revenue increased by **11.9%**, driven by a **9.6% increase in average student population**, **5.6% student start growth**, and a **2.1% increase in average revenue per student**[179](index=179&type=chunk) - Corporate expenses increased by **$6.3 million to $27.9 million**, driven by normalization of operating expenses, improved business climate, and a **$3.1 million** increase in incentive and stock-based compensation[178](index=178&type=chunk) [Liquidity and Capital Resources](index=35&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the company's cash flows from operating, investing, and financing activities, along with its credit facilities and capital needs [Operating Activities](index=35&type=section&id=Operating%20Activities) This section details the net cash provided by or used in the company's operating activities for the reported periods Net Cash Provided by Operating Activities (in thousands) | Period | 2021 | 2020 | | :-------------------------------- | :------- | :------- | | Nine Months Ended September 30 | $17,750 | $10,222 | - Increase of **$7.5 million** in cash from operating activities for the nine months ended September 30, 2021, primarily driven by net income[183](index=183&type=chunk) - Excluding **$11.5 million** in CARES Act federal funds received in 2020, net cash used in operating activities would have been **$1.2 million** in 2020[183](index=183&type=chunk) [Investing Activities](index=35&type=section&id=Investing%20Activities) This section details the net cash provided by or used in the company's investing activities for the reported periods Net Cash Used in Investing Activities (in thousands) | Period | 2021 | 2020 | | :-------------------------------- | :------- | :------- | | Nine Months Ended September 30 | $(5,252) | $(3,457) | - Primary uses of cash in investing activities include capital expenditures for training technology, classroom furniture, and new program buildouts[184](index=184&type=chunk) - Capital expenditures are expected to approximate **2% of revenues** in 2021, funded by operating cash and credit facility borrowings[185](index=185&type=chunk) [Financing Activities](index=36&type=section&id=Financing%20Activities) This section details the net cash provided by or used in the company's financing activities for the reported periods Net Cash Used in Financing Activities (in thousands) | Period | 2021 | 2020 | | :-------------------------------- | :------- | :------- | | Nine Months Ended September 30 | $(3,374) | $(17,816) | - Decrease of **$14.4 million** in cash used in financing activities for the nine months ended September 30, 2021, primarily due to a **$15.0 million** decrease in net payments on borrowings[187](index=187&type=chunk) [Credit Facility with Sterling National Bank](index=36&type=section&id=Credit%20Facility%20with%20Sterling%20National%20Bank) This section describes the company's senior secured credit agreement, including its terms, outstanding amounts, and compliance with covenants - The Company has a **$60 million** senior secured credit agreement with Sterling National Bank, consisting of a Term Loan, Delayed Draw Term Loan, and Revolving Loan[188](index=188&type=chunk)[189](index=189&type=chunk) - An amendment in November 2020 extended the Delayed Draw Availability Period to May 31, 2022, and increased the permitted cash dividends on Series A Preferred Stock[189](index=189&type=chunk) - As of September 30, 2021, **$16.3 million** was outstanding under the Credit Facility, and the Company was in compliance with all debt covenants[198](index=198&type=chunk)[200](index=200&type=chunk) - A Consent Agreement in September 2021 facilitated real estate transactions, requiring full repayment of the Term Loan and swap obligations upon closing, which occurred for Denver and Grand Prairie campuses in October 2021[199](index=199&type=chunk) [Contractual Obligations](index=37&type=section&id=Contractual%20Obligations) This section outlines the company's significant contractual obligations, including loan principal commitments to active students - As of September 30, 2021, the Company had outstanding loan principal commitments to active students of **$30.3 million**, which are institutional loans not advanced as cash[203](index=203&type=chunk) [Regulatory Updates](index=38&type=section&id=Regulatory%20Updates) This section provides updates on various regulatory matters, including audits, enforcement actions, and changes to federal student aid rules [DOE and OIG Audit Findings](index=38&type=section&id=DOE%20and%20OIG%20Audit%20Findings) This section details audit findings from the Department of Education and Office of Inspector General regarding compliance and HEERF funds - The New Britain institution received a final audit determination letter from the DOE for the 2020 fiscal year with 8 findings of alleged noncompliance, totaling approximately **$16,000** in questioned funds, which were repaid[205](index=205&type=chunk) - Other institutions had noncompliance findings in their 2020 Title IV compliance audits, requiring file reviews and responses to the DOE[206](index=206&type=chunk) - The OIG issued a final audit report for the Indianapolis institution on September 24, 2021, with 3 findings of alleged non-compliance regarding HEERF funds and cash management practices[207](index=207&type=chunk) [FTC and FSA Office of Enforcement](index=38&type=section&id=FTC%20and%20FSA%20Office%20of%20Enforcement) This section discusses new enforcement initiatives from the FTC and DOE's Office of Enforcement targeting for-profit colleges - The FTC announced a plan on October 6, 2021, to target false claims by for-profit colleges, putting **70 institutions**, including all of the Company's, on notice for potential 'significant financial penalties'[208](index=208&type=chunk) - The DOE established an Office of Enforcement within the Federal Student Aid office on October 8, 2021, increasing the likelihood of enforcement actions against for-profit schools[210](index=210&type=chunk) [The ARPA and the "90/10 Rule"](index=39&type=section&id=The%20ARPA%20and%20the%20%2290/10%20Rule%22) This section explains the impact of the American Rescue Plan Act and changes to the 90/10 rule on the company's federal funding - The American Rescue Plan Act of 2021 (ARPA) allocated approximately **$8 million** in relief funds to the Company, to be used entirely for student financial aid grants, with distribution expected in Q4 2021[211](index=211&type=chunk) - ARPA amends the 90/10 rule, treating other 'Federal funds' (e.g., veterans' benefits) as Title IV funds for calculation purposes, effective for institutional fiscal years beginning on or after January 1, 2023[213](index=213&type=chunk)[214](index=214&type=chunk) - In 2020, approximately **77%** of the Company's revenues were derived from Title IV Programs, with veterans' benefits contributing about **8%**[213](index=213&type=chunk) [Borrower Defense to Repayment Regulations](index=39&type=section&id=Borrower%20Defense%20to%20Repayment%20Regulations) This section addresses borrower defense applications received by the company and potential liabilities from discharged student loans - The Company received borrower defense applications from the DOE in May and July 2021 (**175 and 140 claims**, respectively) concerning allegations from 2007-2013[219](index=219&type=chunk) - Management cannot predict the outcome of the DOE's review, but potential liabilities from discharged loans could materially affect business and operations[220](index=220&type=chunk) [Negotiated Rulemaking](index=40&type=section&id=Negotiated%20Rulemaking) This section discusses the Department of Education's negotiated rulemaking process and its potential impact on regulations affecting for-profit schools - The DOE announced its intention to establish a negotiated rulemaking committee to prepare proposed regulations on various topics, including the 90/10 rule, starting no earlier than January 2022[223](index=223&type=chunk) - Negotiated rulemaking sessions began on October 4, 2021, covering topics like borrower defense, closed school discharges, and financial responsibility standards[225](index=225&type=chunk) - New regulations could adversely impact for-profit schools, potentially requiring additional costs, affecting Title IV eligibility, or imposing restrictions[226](index=226&type=chunk) [Closed School Loan Discharges](index=41&type=section&id=Closed%20School%20Loan%20Discharges) This section details payments made for closed school loan discharges and potential changes to related regulations - The Company has paid approximately **$345,000** to the DOE since September 3, 2020, for closed school loan discharges related to former campuses[228](index=228&type=chunk) - The DOE is conducting negotiated rulemaking on closed school loan discharges, which could make it easier for borrowers to obtain discharges and for the DOE to recover liabilities from institutions[227](index=227&type=chunk) [Financial Responsibility Standards](index=41&type=section&id=Financial%20Responsibility%20Standards) This section outlines the company's compliance with financial responsibility standards and its return to advance pay status - The DOE returned the Company's three institutions to advance pay on August 19, 2021, after they met requirements to be removed from Heightened Cash Monitoring 1 (HCM1) payment method[229](index=229&type=chunk) - Previously, the institutions were operating under Zone Alternative requirements and HCM1 based on a composite score of **1.5 for fiscal year 2018**[229](index=229&type=chunk) [Accreditation](index=41&type=section&id=Accreditation) This section discusses the accreditation status of the company's institutions and the ongoing review of its accrediting agency - All of the Company's institutions are accredited by ACCSC, a DOE-recognized accrediting agency[230](index=230&type=chunk) - The DOE deferred a decision on ACCSC's continued recognition, pending submission of additional information by January 10, 2022, regarding monitoring of high-risk institutions[231](index=231&type=chunk) - If DOE withdraws ACCSC's recognition, institutions may have up to **18 months** to obtain accreditation from another recognized body to maintain Title IV eligibility[233](index=233&type=chunk) [Seasonality](index=42&type=section&id=Seasonality) This section describes the seasonal fluctuations in the company's revenue, student populations, and operating results - Revenue and operating results fluctuate seasonally, with lower student populations in Q1 and Q2, larger class starts in Q3, and higher student attrition in the first half of the year[235](index=235&type=chunk) - Second-half growth is largely dependent on a successful high school recruiting season, with recruiting occurring several months ahead of start dates[235](index=235&type=chunk) [Item 4. Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were adequate and effective as of September 30, 2021. No material changes to internal control over financial reporting occurred during the quarter, despite some employees working remotely due to the COVID-19 pandemic - Disclosure controls and procedures were deemed adequate and effective as of September 30, 2021[236](index=236&type=chunk) - No material changes to internal control over financial reporting occurred during the quarter ended September 30, 2021[237](index=237&type=chunk)[238](index=238&type=chunk) PART II. OTHER INFORMATION This section provides additional information on legal proceedings, changes in the board of directors, and required exhibits [Item 1. Legal Proceedings](index=42&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various legal proceedings, including a class action lawsuit related to the transition to online classes due to COVID-19. While management does not believe these will have a material adverse effect on the Company's financial condition, a class action lawsuit filed in December 2020 was dismissed in its entirety on November 3, 2021 - A class action lawsuit filed in December 2020, alleging breach of contract and unjust enrichment related to COVID-19 online class transitions, was dismissed in its entirety on November 3, 2021[241](index=241&type=chunk) - Management does not believe any currently pending legal proceedings will have a material adverse effect on the Company's business, financial condition, results of operations, or cash flows[239](index=239&type=chunk) [Item 5. Other Information](index=43&type=section&id=Item%205.%20Other%20Information) Celia H. Currin retired from the Board of Directors and her committee positions effective November 4, 2021. Following her resignation, the Board appointed John A. Bartholdson as chair of the Governance Committee and added Felecia Pryor, Michael Plater, and Carlton Rose to various committees - Celia H. Currin retired from the Board of Directors and her committee positions (chair of Nominating and Corporate Governance Committee, member of Audit Committee) effective November 4, 2021[242](index=242&type=chunk) - John A. Bartholdson was appointed chair of the Governance Committee, and Felecia Pryor, Michael Plater, and Carlton Rose were appointed as members to various committees[243](index=243&type=chunk) [Item 6. Exhibits](index=43&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including organizational documents, material contracts such as property sale agreements and credit facility amendments, certifications from the CEO and CFO, and financial statements formatted in iXBRL - Includes Amended and Restated Certificate of Incorporation, Bylaws, and Certificate of Amendment[244](index=244&type=chunk) - Material contracts listed include property sale agreements for Nashville, Denver, and Grand Prairie, and a Consent and Waiver Letter Agreement for the Credit Facility[244](index=244&type=chunk) - Certifications from the Chief Executive Officer and Chief Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act) are filed/furnished[244](index=244&type=chunk) - Financial statements and notes are provided in Inline Extensible Business Reporting Language (iXBRL) format[244](index=244&type=chunk) [SIGNATURES](index=44&type=section&id=SIGNATURES) This section confirms the official signing of the report by the company's Chief Financial Officer and Treasurer - The report was signed by Brian Meyers, Executive Vice President, Chief Financial Officer and Treasurer, on November 8, 2021[249](index=249&type=chunk)

Financial Data and Key Metrics Changes - Revenue for Q3 2021 was $89.1 million, an increase of 13% compared to the prior year [40] - Operating income improved by nearly 50%, reaching $5.7 million, while adjusted EBITDA increased to $8.4 million [45][50] - Cash flow from operations more than doubled to $16.7 million from $6.8 million in the prior year [47] - Unrestricted cash position increased by approximately 200% year-over-year [10] Business Line Data and Key Metrics Changes - Student starts for Q3 2021 declined by only 80 students, a significant improvement from earlier expectations [13] - Average student population increased by 8.3%, driven by a 9-month start growth of 8.8% [40] - Healthcare and other professions saw a decline of 4.8% in starts, attributed to challenges in hiring instructors [56] Market Data and Key Metrics Changes - The company reported a strong demand for skilled graduates, particularly in the transportation sector, which is expected to see stronger growth compared to healthcare [58] - The company is expanding its corporate partnerships, including a new training program with Republic Services [26] Company Strategy and Development Direction - The company plans to open its first new campus in over a decade by the end of 2022 and has identified five additional markets for potential expansion [20] - A focus on enhancing existing programs and curricula to meet the latest industry demands, including a new automotive curriculum [22] - The company aims to leverage its strengthened balance sheet to pursue growth opportunities while maintaining financial flexibility [38] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges such as rising costs from vendors and hiring difficulties, but expressed confidence in overcoming these issues [29][30] - The company expects to achieve 7% to 8% start growth for the full year, with strong demand continuing into Q4 [48] - Inflationary pressures are anticipated to be more permanent, leading to a slight tuition increase to cover rising costs [110] Other Important Information - The company completed a sale leaseback transaction for its Denver and Grand Prairie properties, significantly strengthening its balance sheet [36] - A second transaction for the Nashville facility is expected to close in Q1 2022, with an estimated gain of $29 million [39] Q&A Session Summary Question: Why was healthcare and other professions weaker? - Management noted challenges in hiring and retaining nursing instructors, impacting student enrollment [56] Question: Where do you expect greater starts growth between transportation or healthcare? - Management indicated stronger growth is expected on the transportation side [58] Question: How has retention been in recent quarters? - Retention levels have remained stable, with efforts to improve them ongoing [60] Question: What is the impact of inflationary cost pressures on marketing? - All expense categories are up, including cost per lead and cost per start [64] Question: What are the impediments to stock repurchase? - The board is focused on long-term growth opportunities and capital deployment rather than immediate stock buybacks [86][88]