Lincoln Educational Services(LINC) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Lincoln Educational Services Corporation as of June 30, 2021, and for the three and six-month periods then ended Condensed Consolidated Balance Sheets As of June 30, 2021, total assets were $244.6 million, a slight decrease from $245.2 million at December 31, 2020, with total liabilities decreasing and stockholders' equity increasing Condensed Consolidated Balance Sheet Data (in thousands) | Account | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $72,500 | $74,164 | | Total Assets | $244,646 | $245,190 | | Total Current Liabilities | $62,474 | $66,842 | | Total Liabilities | $134,923 | $142,141 | | Total Stockholders' Equity | $97,741 | $91,067 | Condensed Consolidated Statements of Operations The company reported significant year-over-year growth in revenue and profitability, turning a net loss into a net income for the six months ended June 30, 2021 Statement of Operations Highlights (in thousands, except per share amounts) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $80,464 | $62,470 | $158,461 | $132,511 | | Operating Income (Loss) | $3,452 | $1,160 | $9,472 | ($185) | | Net Income (Loss) | $2,426 | $783 | $6,915 | ($967) | | Net Income (Loss) per Common Share (Diluted) | $0.06 | $0.02 | $0.19 | ($0.06) | Condensed Consolidated Statements of Cash Flows Net cash provided by operating activities decreased for the six months ended June 30, 2021, primarily due to the absence of CARES Act funds received in the prior year Cash Flow Summary (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $1,067 | $6,468 | | Net cash used in investing activities | ($3,516) | ($2,975) | | Net cash used in financing activities | ($2,570) | ($16,169) | | Net Decrease in Cash | ($5,019) | ($12,676) | | Cash at End of Period | $33,007 | $25,968 | Notes to Unaudited Condensed Consolidated Financial Statements The notes detail the company's accounting policies, financial data, and the impact of COVID-19 and government relief programs - The company operates 22 schools in 14 states, organized into two reportable segments: Transportation and Skilled Trades, and Healthcare and Other Professions (HOPS)[29][30] - As of June 30, 2021, the company had $33.0 million in cash and cash equivalents and could borrow an additional $21.0 million under its Credit Facility[31] - The company received $27.4 million in HEERF funds under the CARES Act, all of which had been distributed or utilized by June 30, 2021. An additional $15.4 million was allocated under the CRRSAA, none of which had been drawn down as of the reporting date[120][125] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial results, highlighting strong recovery and growth driven by increased student starts and population, along with regulatory updates Results of Operations Revenue and operating income significantly increased in Q2 and H1 2021 due to higher student population and a return to in-person instruction, with bad debt expense favorably impacted by HEERF funds Revenue and Operating Income Growth (YoY) | Period | Revenue Growth | Operating Income (Loss) 2021 | Operating Income (Loss) 2020 | | :--- | :--- | :--- | :--- | | Q2 2021 | +28.8% | $3.5M | $1.2M | | H1 2021 | +19.6% | $9.5M | ($0.2M) | - Student starts for Q2 2021 increased 8.0% YoY. Excluding students who delayed their start in 2020 due to the pandemic, the underlying increase was 19.1%[141][142] - A net benefit of approximately $3.0 million was recorded to bad debt expense in H1 2021 due to the application of HEERF funds to relieve certain student account balances[158] Segment Results Both Transportation and Skilled Trades and Healthcare and Other Professions segments demonstrated strong revenue and operating income growth in Q2 2021, driven by increased student starts and average population Segment Performance - Q2 2021 vs Q2 2020 | Segment | Revenue Growth | Operating Income Growth | Student Start Growth | | :--- | :--- | :--- | :--- | | Transportation & Skilled Trades | 32.7% | 131.1% | 9.0% | | Healthcare & Other Professions (HOPS) | 20.2% | 8.5% | 5.9% | Liquidity and Capital Resources As of June 30, 2021, the company maintained a net cash balance and access to a credit facility, primarily funding operations through tuition and Title IV programs - The company's net cash balance was $16.7 million as of June 30, 2021, compared to $20.8 million at year-end 2020[180] - The company had $16.8 million outstanding under its credit facility as of June 30, 2021[198] - The company has outstanding institutional loan commitments to active students of $28.1 million, which are not reported on the financials as no cash is advanced[202] Regulatory Updates The company faces significant regulatory developments, including ongoing borrower defense application reviews by the DOE, changes to the 90/10 Rule, and planned negotiated rulemaking that could impact for-profit schools - The DOE is reviewing a number of borrower defense applications concerning Lincoln, with the company receiving 315 claims to review as of July 2021[203] - The ARPA amends the 90/10 Rule, effective for fiscal years starting on or after January 1, 2023, to count federal funds like veterans' benefits in the 90% revenue limit from federal sources[210][211] - The DOE has announced its intention to establish negotiated rulemaking committees on a wide range of topics that could adversely impact for-profit schools[215] Item 4. Controls and Procedures The company's management concluded that disclosure controls and procedures were adequate and effective as of June 30, 2021, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures are adequate and effective as of the end of the quarterly period[220] - No changes were made during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[221] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is subject to ordinary course lawsuits, including a largely dismissed class action related to COVID-19 and ongoing DOE review of borrower defense applications that could have a material adverse effect - A class action lawsuit filed against the company for breach of contract and other claims related to the COVID-19 transition to online classes was largely dismissed by the court on July 9, 2021[224] - The DOE is reviewing a number of borrower defense applications concerning Lincoln. The company received 175 claims in May 2021 and another 140 in July 2021 for review and response[226] - Management cannot predict the outcome of the DOE's review, but an adverse finding imposing liabilities could have a material negative impact on the company's business and financial results[227] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate documents and CEO/CFO certifications - Lists exhibits filed with the report, including CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[229]