LINCOLN EDUCATIONAL SERVICES CORP
For the period ended Jun 30, 2024. Filed Aug 8, 2024.
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A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Aug 8, 2024
LINC$17.66+0.6%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-05-06.
0001140361-24-024558
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-08-08.
0001140361-24-036418
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 95 previous paragraphs and 113 current paragraphs.
50 unchanged; 24 reworded; 34 added; 20 removed; 1 previous and 5 current paragraphs rearranged.
Tables are not compared: 9 previous and 15 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (34)
Current report
Revenue. Revenue increased by $14.3 million, or 16.1% to $102.9 million for the three months ended June 30, 2024, from $88.6 million in the prior year comparable period. The primary reasons for the increase were an 11.7% rise in average student population resulting from entering this quarter with 11.2% more students combined with new student start growth of 12.3%. Further revenue growth was driven by an increase in average revenue per student.
Current report
Educational services and facilities expense. Our educational services and facilities expense increased $5.5 million, or 13.8% to $45.5 million from $40.0 million in the prior year comparable period. Included in the increase over the prior year were approximately $2.6 million of new campus and relocation costs relating to the recently opened East Point, Georgia campus; relocation costs associated with the Nashville, Tennessee and the Levittown, Pennsylvania campuses, both expected to open in the first half of 2025; and costs associated with the new Houston, Texas campus, which is expected to open by the end of 2025. The remaining expense increases were due mostly to costs directly related to an increased student population.
Current report
Educational services and facilities expense, as a percentage of revenue, decreased to 44.3% from 45.2% for the three months ended June 30, 2024 and 2023, respectively.
Current report
Marketing investments increased $1.0 million, helping drive student starts, which were up 12.3% quarter-over-quarter.
Current report
Sales expenses increased $1.0 million primarily driven by increased personnel to continue to support and drive student start growth and program expansions.
Current report
Selling, general and administrative expense, as a percentage of revenue, decreased to 56.2% from 58.5% for the three months ended June 30, 2024 and 2023, respectively.
Current report
Net interest expense / income. Net interest expense was less than $0.1 million for the three months ended June 30, 2024 compared to net interest income of $0.5 million in the prior year comparable period. Interest income for the three months ended June 30, 2024 and 2023 remained essentially flat, with an increase in interest expense in the current year resulting from the addition of two new finance leases.
Current report
Income taxes. The benefit for income taxes was$0.5 million for the three months ended June 30, 2024 compared to a provision for income taxes of $6.8 million in the prior year comparable period. The benefit in the current quarter was driven by a pre-tax loss and a discrete item, compared to a provision in the prior year comparable period resulting from pre-tax income driven by a $30.9 million gain on the sale of the Nashville, Tennessee property.
Current report
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Current report
Consolidated Results of Operations
Current report
Educational services and facilities expense. Our educational services and facilities expense increased $10.5 million, or 13.4% to $88.6 million from $78.1 million in the prior year comparable period. Included in the increase over the prior year were approximately $4.2 million of new campus and relocation costs relating to the recently opened East Point, Georgia campus; relocation costs associated with the Nashville, Tennessee and the Levittown, Pennsylvania campuses, both expected to open in the first half of 2025; and costs associated with the new Houston, Texas campus, which is expected to open by the end of 2025. The remaining expense increases were due mostly to costs directly related to an increased student population.
Current report
Educational services and facilities expense, as a percentage of revenue, decreased to 42.9% from 44.4% for the six months ended June 30, 2024 and 2023, respectively.
Current report
Selling, general and administrative expense. Our selling, general and administrative expense increased $16.2 million, or 15.9% to $118.3 million for the six months ended June 30, 2024, from $102.1 million in the prior year comparable period. Included in the increase over the prior year were approximately $2.5 million of expenses primarily related to the recently opened East Point, Georgia campus. The remaining increase was driven by higher administrative expenses, marketing investments and sales expense, with additional increases in student services resulting from a larger student population.
Current report
Marketing investments increased $1.9 million, helping drive student starts, which were up 13.6% year-over-year.
Current report
Sales expenses increased $1.9 million, primarily driven by increased personnel to continue to support and drive student start growth and program expansions.
Current report
Selling, general and administrative expense, as a percentage of revenue, decreased to 57.4% from 58.0% for the six months ended June 30, 2024 and 2023, respectively.
Current report
Income taxes. The benefit for income taxes was$0.6 million for the six months ended June 30, 2024 compared to a provision for income taxes of $6.2 million in the prior year comparable period. The benefit in the current quarter was driven by a pre-tax loss and a discrete item compared to a provision in the prior year comparable period resulting from pre-tax income, which was driven by a $30.9 million gain on the sale of the Nashville, Tennessee property.
Current report
Campus Operations
Current report
Operating income increased 53.8%, or $7.7 million to $22.0 million for the six months ended June 30, 2024 from $14.3 million in the prior year comparable period. The change year-over-year was mainly driven by the following factors:
Current report
Transitional
Current report
Corporate and Other
Current report
This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses were $23.2 million and $22.1 million for the six months ended June 30, 2024 and 2023, respectively, after excluding a $0.3 million loss on sale of assets in the current year and a $30.9 million gain on sale of assets in the prior year resulting from the sale of the Nashville, Tennessee property. The increase from the prior year was primarily driven by additional salaries and benefits expense due in part to population growth, partially offset by a reduction in stock-based compensation expense driven by a cumulative catch-up of expense in the prior year in addition to reduced legal costs in the current year.
Current report
On May 7, 2024, the Company announced that its Board of Directors had authorized an extension of its share repurchase program for an additional twelve months through May 24, 2025. During the three and six months ended June 30, 2024, the Company did not repurchase any additional shares. The Company has approximately $29.7 million remaining for repurchase under the program.
Current report
On July 18, 2024, the Company entered into a first amendment of the Fifth Third Credit Agreement (“the Amendment”). Among other things, the Amendment contains certain modifications to (i) clarify certain representations and affirmative covenants of the Company, (ii) clarify certain conditions to each advance, (iii) clarify and/or replace certain events of default and (iv) delete or revise certain definitions in order to harmonize them with the other modifications made. The Amendment also contains customary releases, representations and warranties and reaffirmations consistent with the original terms of the Credit Agreement.
Current report
Index
Current report
State Authorization. Some of our educational programs prepare students for occupations that require professional licensure in order to work in the specified occupation. These programs are subject to the requirements of state occupational agencies that require our schools that offer these programs to obtain agency approval of the programs and to comply with the applicable requirements of these applicable agencies. See 10-K at Part I, Item 1. “Business - Regulatory Environment – State Authorization.” The practical nursing program taught at three of our campuses in New Jersey is such a program and is accredited by the New Jersey Board of Nursing (“NJBON”).
Current report
Among the various requirements applicable to the practical nursing program is the requirement that at least 75% of the program’s graduates pass the state licensure examination on their first attempt. Subsequent to the end of the quarter, on July 12, 2024, the NJBON voted to place our Paramus, New Jersey campus (the “Paramus campus”) practical nursing program on probation because, for three consecutive calendar years, less than 75 percent of the program’s graduates passed the state licensure examination on their first attempt. The program is taught at the Company’s other campuses in Iselin and Moorestown, New Jersey as well where the licensure pass rate requirement has been successfully achieved by the graduates of the programs at these campuses.
Current report
As a result of the probation status of the Paramus campus program, the Paramus campus is required to submit to the NJBON an 18-month action plan demonstrating its plan for improving the licensure pass rate to at least 75 percent in the next calendar year (or within an extension period if granted by the NJBON) within ninety days of receipt of written communication regarding the probation status (which has not yet been received). Furthermore, during this probationary period, the NJBON will not allow the Paramus campus to enroll any new students or accept any transfer students in its practical nursing program. If the program does not achieve the required licensure pass rate within one calendar year (or within an extension period if granted by the NJBON), the NJBON rules indicate that the program would not be eligible for restoration to accredited status and, therefore, would lose accreditation permanently.
Current report
While the loss of the ability to enroll new students or accept transfer students during the probation period, or the ultimate loss of accreditation for the practical nursing program at the Paramus campus should that occur, would not be expected to be material to the Company, it could have a negative reputational impact and have an adverse financial impact on the Paramus campus if we are unable to enroll more students in other existing programs at the Paramus campus and/or add other programs at this campus. Additionally, we would expect that the loss in practical nursing students at this location would be offset, at least in part, by increased enrollments at our Iselin and Moorestown, New Jersey campuses where this program is also taught and where the licensure pass rate requirement has been successfully achieved.
Current report
Negotiated Rulemaking. The DOE has initiated and engaged in rulemaking on several topics. See 10-K at Part I, Item 1. “Business -Regulatory Environment – Negotiated Rulemaking.” The DOE commenced a new negotiated rulemaking process with meetings held in January through March 2024 on several topics including state authorization, accreditation, return of unearned Title IV Program funds for students who withdraw from school without completing their educational programs, cash management, and distance education. See 10-K at Part I, Item 1. “Business – Regulatory Environment – State Authorization,” “Regulatory Environment – Accreditation,” and “Regulatory Environment – Return of Title IV Program Funds.”
Current report
On July 17, 2024, the DOE announced that it does not plan to publish a notice of proposed rulemaking on state authorization, accreditation, and cash management topics until 2025. The DOE also announced its intention to conduct negotiated rulemaking at a date to be determined to consider regulations related to third-party servicers on topics including, for example, the definition of third-party servicers, audit requirements for servicers, an application process for servicers, and reporting, financial, past performance, and other compliance requirements. The DOE also announced that it plans to issue no sooner than late 2024 revised guidance on how institutions of higher education may compensate their recruiters. See 10-K at Part I, Item 1. “Business - Regulatory Environment – Restrictions on payment of Commissions, Bonuses and Other Incentive Payments.” We cannot predict the timing and scope of any regulations or guidance the DOE might issue on these topics, but new regulations or guidance on these or other topics could have a significant impact on our business and results of operations.
Current report
On July 24, 2024, the DOE published a notice of proposed rulemaking on topics including distance education, return of Title IV funds and other topics. The proposed distance education rules wouldadd a definition of ‘‘distance education course,’’ requiring institutions to report their students’ distance education status, disallow asynchronous distance education in clock-hour programs for Title IV purposes, add a definition of “distance education course,” and expand the definition of additional location to include virtual locations
Current report
for programs offered entirely online or through correspondence. The proposed return of Title IV funds regulations would, among other things, amend rules related to return calculations, the definition of a withdrawal from school, and return calculations for distance education programs. In the notice of proposed rulemaking, the DOE states that it expects the proposed distance and correspondence education reporting requirement to be implemented no earlier than July 1, 2026.
Removed paragraphs (20)
Previous report
Purchase and Sale-leaseback Transaction – Philadelphia, Pennsylvania Area Campus
Previous report
On January 30, 2024 the Company entered into a sale-leaseback transaction for the property located at 311 Veterans Highway, Levittown, Pennsylvania. This property is 90,000 square feet and was previously purchased by the Company on September 28, 2023 for approximately $10.2 million. The sale transaction was for an aggregate sale price of approximately $11.0 million. Simultaneously with the closing of the sale, the Company and the purchaser have entered into a triple-net lease agreement pursuant to which the property is being leased back to the Company for a 20-year term. The lease agreement includes a $2.5 million tenant improvement allowance.
Previous report
The Company plans to invest approximately $15.0 million, net of the tenant improvement allowance, in the buildout of new classrooms and training areas to ensure a best-in-class campus that provides a positive experience for students, faculty, and industry partners. Students training at the new Levittown, Pennsylvania campus will go on to launch new careers in the automotive, welding, HVAC and electrical industries throughout the greater Philadelphia area. As of December 31, 2023, the new campus is classified as held-for-sale on the Condensed Consolidated Balance Sheets.
Previous report
The Company has served the Philadelphia, Pennsylvania area at its current campus located at 9191 Torresdale Avenue for more than 60 years. The new Levittown, Pennsylvania campus is expected to open in the second half of 2025 and is not expected to impact the student experience at the existing campus at 9191 Torresdale Avenue. While the current campus can accommodate 250 students, the new Levittown, Pennsylvania campus will have the capability to handle more than double this capacity. The existing campus will continue to operate until the buildout at the new location is fully complete to ensure a seamless transition. Additionally, the facility will have the extra capacity to accommodate several potential industry partners and future program expansions.
Previous report
Property Sale Agreement – Nashville, Tennessee Campus
Previous report
On September 24, 2021, Nashville Acquisition, L.L.C., a subsidiary of the Company, entered into a Contract for the Purchase of Real Estate (the “Nashville Contract”) to sell the nearly 16-acre property located at 524 Gallatin Avenue, Nashville, Tennessee 37206, at which the Company operates its Nashville campus, to SLC Development, LLC, a subsidiary of Southern Land Company (“SLC”).
Previous report
On June 8, 2023, the Company closed on the sale of its Nashville, Tennessee property to East Nashville Owner, LLC, an affiliate of SLC, for approximately $33.8 million pursuant to the Nashville Contract. The net proceeds from the Nashville sale, net of closing costs, are available for working capital, acquisitions, other strategic initiatives, and general corporate purposes. In connection with the sale, the parties entered into a lease agreement allowing the Company to continue to occupy the campus and operate it on a rent-free basis for a period of 15 months plus options to extend the lease for up to three consecutive 30-day terms at $150,000 per extension term. The carrying value of the campus is approximately $4.5 million and the estimated fair value of the rent for the 15-month rent-free period was approximately $2.3 million at the consummation of the lease. As of March 31, 2024, approximately $0.8 million remains and is included in prepaid expenses and other current assets on the Company’s Condensed Consolidated Balance Sheets.
Previous report
For a general discussion of trends in our student enrollment, see “Seasonality and Outlook” below.
Previous report
Educational services and facilities expense. Our educational services and facilities expense increased $4.9 million, or 12.9% to $43.0 million from $38.1 million in the prior year comparable period. Included in the increase over prior year are approximately $2.9 million of one-time expenses primarily relating to new campuses and campus relocation costs, for the new Houston, Texas property in addition to the relocations of our Nashville, Tennessee and Philadelphia, Pennsylvania area properties. Remaining expense increases were due to higher instructional salaries resulting from additional staffing levels driven by student population growth in combination with merit salary increases and additional costs attributed to book and tool expense driven by an increased student population.
Previous report
Educational services and facilities expense, as a percentage of revenue, decreased to 41.6% from 43.6% for the three months ended March 31, 2024 and 2023, respectively.
Previous report
Marketing investments increased $1.6 million, helping drive student starts, up 15.3% quarter-over-quarter. Additional investments during the current quarter included video production for TV and digital channels, the start-up of investment in awareness building and lead generation in connection with the launch of the East Point, Georgia campus, which commenced classes in March of this year, and the continued increase in spending for paid search and paid social media, which generate higher converting leads.
Previous report
Selling, general and administrative expense, as a percentage of revenue, increased to 58.5% from 57.6% for the three months ended March 31, 2024 and 2023, respectively.
Previous report
Loss on sale of asset. Loss on sale of asset was $0.3 million for the three months ended March 31, 2024, driven by the sale of our Levittown, Pennsylvania property during the current quarter.
Previous report
Income taxes. The benefit for income taxes was$0.1 million and $0.6 million for the three months ended March 31, 2024 and 2023, respectfully. The reduction was primarily due to a lower discrete tax benefit in the current year.
Previous report
Borrower Defense to Repayment Regulations. The DOE’s current Borrower Defense to Repayment regulations establish processes for borrowers to receive from the DOE a discharge of the obligation to repay certain Title IV Program loans based on certain acts or omissions by the institution or a covered party. The current regulations also establish processes under which the DOE may seek recovery from the institution of the amount of discharged loans. See 10-K “Regulatory Environment – Borrower Defense to Repayment Regulations.”
Previous report
In April 2021, the Company received communication from the DOE indicating that the DOE was in receipt of a number of borrower defense applications containing allegations concerning our schools and requiring that the DOE undertake a fact-finding process pursuant to DOE regulations. Among other things, the communication outlines a process by which the DOE would provide to us the applications and allow us the opportunity to submit responses to them. Further, the communication outlines certain information requests, relating to the period between 2007 and 2013, in connection with the DOE’s preliminary review of the borrower defense applications. Based upon publicly available information, it appears that the DOE has undertaken similar reviews of other educational institutions which have also been the subject of various borrower defense applications. We have received the borrower defense application claims and have completed the process of thoroughly reviewing and responding to each borrower defense application as well as providing information in response to the DOE’s requests.
Previous report
In August 2022, the Company received communication from the DOE regarding a single borrower defense application submitted on behalf of a group of students who were enrolled in a single educational program at two of our schools in Massachusetts between 2010 and 2013. The communication, which did not state who submitted the application or when it was submitted, asked us to submit a response within 60 calendar days. We timely responded to the DOE’s letter, notwithstanding the absence of a response to our request for additional information about the student claims. We are waiting for the DOE’s reply to our response and to our request for information about the student claims.
Previous report
As previously disclosed, on November 16, 2022, a California federal court in Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.), approved a settlement agreement entered into by the DOE in a class action lawsuit that challenges the manner in which the DOE has dealt with Borrow Defense to Repayment applications over several years. See Part I, Item 3, of our Form 10-K “Legal Proceedings.” The settlement provides automatic debt forgiveness and refunds or a streamlined review process for former students of over 150 schools, including our institutions, who had submitted Borrower Defense to Repayment applications on or before June 22, 2022. Based upon publicly available information, approximately 264,000 Borrower Defense to Repayment applications associated with all schools were eligible for automatic relief or a streamlined review process as of June 22, 2022. The settlement also provides a 36-month deadline for the DOE to decide Borrower Defense to Repayment applications submitted between June 23, 2022 and November 16, 2022, the date of the court’s final approval of the settlement, under the DOE’s 2016 regulatory standards. If the DOE does not decide those applications within 36 months, the applicants will receive automatic debt forgiveness and refunds without considering the merits of the claims. As a result of publicity about the opportunity afforded by the settlement, approximately 206,000 borrowers submitted 250,000 new applications prior to November 16, 2022. The process set out in the settlement agreement does not follow the claim adjudication procedures set out in applicable regulations.
Previous report
In February 2024, the Company received communication from the DOE indicating that the DOE was in receipt of approximately 3,000 new borrower defense applications containing allegations concerning our schools. The communication indicated that these applications were filed between June 23, 2022, and November 15, 2022 and, therefore, subject to the settlement agreement. The DOE’s receipt of borrower defense applications for this time period is not unique to the Company as other proprietary educational institutions have also received notification of applications in many cases numbering in the thousands.
Previous report
It remains unclear what loan discharge applications the DOE may grant in the future and whether they will assert repayment claims against us regardless of the date the student loan was disbursed and the corresponding discharge standards and processes. As a consequence, we are not able to predict the outcome of the DOE’s review, if any, of these applications at this time. If the DOE disagrees with our legal and factual grounds for contesting the applications or if the DOE fails to adjudicate the claims within 36 months, the DOE could discharge the loans associated with the applications and award refunds. In turn, the DOE could attempt to impose liabilities on the Company based on the discharge of the loans and refunds, which could have a material adverse effect on our business and results of operations. The DOE also could attempt to apply the new regulations to the pending applications, which could increase the likelihood of the DOE granting the application because the proposed regulations are more favorable to borrowers (although the new regulations are subject to a federal injunction). If the DOE attempts to impose liabilities based on the discharge of these loans and refunds, we would consider our options for challenging the legal and factual bases for such actions both in administrative proceedings and in federal court.
Reworded paragraphs (24)
Previous wording
The following discussion may contain forward-looking statements regarding the Company, our business, prospects, and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects, and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” “may,” “will,” “forecast,” “outlook,” “plan,” “project,” or similar words and include, without limitation, statements relating to future enrollment, revenues, revenues per student, earnings growth, operating expenses, capital expenditures, and effect of pandemics such as the COVID-19 pandemic and its ultimate effect on the Company’s business and results. These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. Additional factors that could cause or contribute to differences between our actual results and those anticipated include, but are not limited to, those described in the “Risk Factors” section of our Form 10-K and in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this Form 10-Q and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.
Current wording
The following discussion may contain forward-looking statements regarding the Company, our business, prospects, and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects, and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” “may,” “will,” “forecast,” “outlook,” “plan,” “project,” or similar words and include, without limitation, statements relating to future enrollment, revenues, revenues per student, earnings growth, operating expenses, capital expenditures, and the effect of pandemics such as the COVID-19 pandemic and its ultimate effect on the Company’s business and results. These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. Additional factors that could cause or contribute to differences between our actual results and those anticipated include, but are not limited to, those described in the “Risk Factors” section of our Form 10-K and in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this Form 10-Q and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.
Previous wording
As of January 1, 2023, the Company’s business has been organized into two reportable business segments: (a) Campus Operations; and (b) Transitional. The Campus Operations segment includes campuses that are in operation and contribute to the Company’s core operations and performance. The Transitional segment refers to campuses that are marked for closure and are currently being taught-out. As of March 31, 2024, there were no campuses classified in the Transitional segment. However, in the prior year, the Company’s Somerville, Massachusetts campus was classified in the Transitional segment and was fully taught out as of December 31, 2023.
Current wording
As of January 1, 2023, the Company’s business has been organized into two reportable business segments: (a) Campus Operations; and (b) Transitional. The Campus Operations segment includes campuses that are continuing in operation and contribute to the Company’s core operations and performance. The Transitional segment refers to campuses that have been marked for closure and are being taught out. As of June 30, 2024, no campuses were classified in the Transitional segment. During the prior year, the Company’s Somerville, Massachusetts campus was classified in the Transitional segment. It was fully taught out as of December 31, 2023.
Previous wording
We evaluate performance based on operating results. Adjustments to reconcile segment results to consolidated results are included in the caption “Corporate,” which primarily includes unallocated corporate activity. The interim financial statements and related notes thereto appearing elsewhere in this Form 10-Q and the discussions contained herein should be read in conjunction with the annual financial statements and notes thereto included in our Form 10-K, which includes audited Consolidated Financial Statements for the last two fiscal years ended December 31, 2023.
Current wording
We evaluate performance based on operating results. Adjustments to reconcile segment results with consolidated results are included in the caption “Corporate,” which primarily includes unallocated corporate activity. The interim financial statements and related notes thereto appearing elsewhere in this Form 10-Q and the discussions contained herein should be read in conjunction with the annual financial statements and notes thereto included in our Form 10-K, which includes audited Consolidated Financial Statements for the last two fiscal years ended December 31, 2023.
Previous wording
Inflation has not had a material effect on our operations, except for some inflationary pressures on certain instructional expenses, including consumables, and in instances where potential students have not wanted to incur additional debt or increased travel expense.
Current wording
Inflation has not had a material effect on our operations.
Previous wording
Results of Continuing Operations for the Three Months Ended March 31, 2024
Current wording
Results of Continuing Operations for the Three and Six Months Ended June 30, 2024
Previous wording
Selling, general and administrative expense. Our selling, general and administrative expense increased $10.2 million, or 20.3% to $60.5 million for the three months ended March 31, 2024, from $50.3 million in the prior year comparable period. The majority of the increase was due to higher administrative expense and marketing investments, with additional increases in student services resulting from a larger student population.
Current wording
Selling, general and administrative expense. Our selling, general and administrative expense increased $6.1 million, or 11.7% to $57.9 million for the three months ended June 30, 2024, from $51.8 million in the prior year comparable period. Included in the increase over the prior year were approximately $1.2 million of expenses primarily relating to the recently opened East Point, Georgia campus. The remaining increase was driven by higher administrative expenses, marketing investments and sales expense, with additional increases in student services resulting from a larger student population.
Previous wording
Administrative costs increased $7.4 million, due to several factors including an increase in salary expense driven in part by merit increases and population growth, increased medical claims, and additional bad debt expense largely driven by revenue growth.
Current wording
Administrative costs increased $2.3 million due to several factors including an increase in salary expense driven by merit increases and new hires resulting from population growth, in combination with a higher provision for credit losses largely driven by revenue growth.
Previous wording
Revenue. Revenue increased by $16.1 million, or 18.4%, to $103.4 million for the three months ended March 31, 2024, from $87.3 million in the prior year comparable period. Included in the prior year is $0.9 million of revenue related to the teach-out of the Somerville, Massachusetts campus, which was completed in the prior year. Excluding this campus for comparability, revenue would have increased by $17.0 million, or 19.7%. The primary reasons for the increase were an 11.9% rise in average student population due to starting the year with approximately 9.0% or 1,100 more students, coupled with a 15.3% growth in student starts.
Current wording
Revenue. Revenue increased $30.4 million, or 17.3% to $206.3 million for the six months ended June 30, 2024 from $175.9 million in the prior year comparable period. The primary reasons for the increase were an 11.8% rise in average student population due to starting the year with approximately 9.0%, or 1,100 more students, coupled with 13.6% growth in student starts. Further revenue growth was driven by an increase in average revenue per student.
Previous wording
Net interest income. Net interest income was $0.1 million and $0.4 million for the three months ended March 31, 2024 and 2023, respectively. During the current quarter, the Company generated $0.7 million of investment income, compared to $0.5 million in the prior year comparable period through investments of approximately $54.0 million of cash reserves into two money market accounts. Returns in the current quarter were partially offset by increased interest expense resulting from the addition of the Company’s two finance leases.
Current wording
Net interest income. Net interest income was $0.1 million and $1.0 million for the six months ended June 30, 2024 and 2023, respectively. Interest income increased in the current year compared to the prior year, resulting from additional investments and higher interest rates. Partially offsetting these gains was an increase in interest expense in the current year, resulting from the addition of two new finance leases.
Previous wording
As of January 1, 2023, the Company’s business has been organized into two reportable business segments: (a) Campus Operations; and (b) Transitional. These segments are defined below:
Current wording
Since January 1, 2023, the Company’s business has been organized into two reportable business segments: (a) Campus Operations; and (b) Transitional. These segments are defined below:
Previous wording
Transitional – The Transitional segment refers to businesses that are marked for closure and are currently being taught-out. As of March 31, 2024, there were no campuses classified in the Transitional segment. However, in the prior year the Company’s Somerville, Massachusetts campus was classified in the Transitional segment and was fully taught out as of December 31, 2023.
Current wording
Transitional – The Transitional segment refers to campuses that have been marked for closure and are being taught out. As of June 30, 2024, no campuses were classified in the Transitional segment. During the prior year, the Company’s Somerville, Massachusetts campus was classified in the Transitional segment. It was fully taught out as of December 31, 2023.
Previous wording
We evaluate performance based on operating results. Adjustments to reconcile segment results to consolidated results are included in the caption “Corporate,” which primarily includes unallocated corporate activity.
Current wording
We evaluate performance based on operating results. Adjustments to reconcile segment results with consolidated results are included in the caption “Corporate,” which primarily includes unallocated corporate activity.
Previous wording
Operating income increased 21.9%, or $2.2 million to $12.3 million for the three months ended March 31, 2024 from $10.1 million in the prior year comparable period. The change quarter-over-quarter was mainly driven by the following factors:
Current wording
Operating income increased $5.4 million to $9.6 million for the three months ended June 30, 2024 from $4.2 million in the prior year comparable period. The change quarter-over-quarter was mainly driven by the following factors:
Previous wording
On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus. The owner of the Somerville property exercised the option to terminate the lease on December 8, 2023 and the Company determined not to pursue relocating the campus in this geographic region. The campus was fully taught out as of December 2023 and did not generate any expense for the current quarter.
Current wording
On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus. The owner of the Somerville property exercised an option to terminate the lease on December 8, 2023 and the Company determined not to pursue relocating the campus in this geographic region. The campus was fully taught out as of December 31, 2023 and did not generate any expense for the current quarter.
Previous wording
This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expense were $12.8 million and $11.0 million for each of the three months ended March 31, 2024 and 2023, respectively. Increased costs were due primarily to a loss on the sale of our Levittown, Pennsylvania property, additional salaries and benefits expense, stock-based compensation expense and performance-based incentives driven in part by improved financial performance.
Current wording
This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses were $10.7 million and $11.1 million for the three months ended June 30, 2024 and 2023, respectively, after excluding a $30.9 million gain in the prior year resulting from the sale of the Nashville, Tennessee property. The decrease in expense from the prior year was primarily driven by a reduction in stock-based compensation expense resulting from a cumulative catch-up of expense in the prior year due to meeting financial performance targets, partially offset by additional salaries and benefits expense resulting in part from student population growth.
Previous wording
Our primary capital requirements are for the maintenance and expansion of our facilities and the development of new programs. Our principal sources of liquidity have been cash provided by operating activities and borrowings under our Credit Facility. The following chart summarizes the principal elements of our cash flow for each of the three months ended March 31, 2024 and 2023:
Current wording
Our primary capital requirements are for the maintenance and expansion of our facilities and the development of new programs. Our principal sources of liquidity have been cash provided by operating activities and borrowings under our credit facility with Fifth Third Bank. The following chart summarizes the principal elements of our cash flow for each of the six months ended June 30, 2024 and 2023:
Previous wording
As of March 31, 2024, the Company had $69.8 million in cash and cash equivalents and restricted cash, compared to $80.3 million in cash and cash equivalents and restricted cash as of December 31, 2023. The change in cash position from year-end was driven in part by the payment of incentive compensation during the first quarter, investments in capital expenditures relating to our East Point,
Current wording
As of June 30, 2024, the Company had $67.0 million in cash and cash equivalents, compared to $80.3 million in cash and cash equivalents and restricted cash as of December 31, 2023. The change in cash position from the end of the year was driven in part by the payment of incentive compensation during the first quarter and investments in capital expenditures relating to our East Point, Georgia campus in addition to new programs and program expansions and the seasonality of our business, which yields greater returns in the second half of the year. In addition, the prior year cash position benefited from $33.3 million in proceeds resulting from the sale of our Nashville, Tennessee property.
Previous wording
On May 24, 2022, the Company announced that its Board of Directors had authorized a share repurchase program of up to $30.0 million of the Company’s outstanding Common Stock. The share repurchase program was authorized for 12 months. Subsequently, the Board of Directors extended the share repurchase program for an additional 12 months and authorized the repurchase of an additional $10.0 million of the Company’s Common Stock, for an aggregate of up to $30.6 million in additional repurchases. As of March 31, 2024, the Company has not repurchased any additional shares and has approximately $29.7 million remaining for repurchase.
Current wording
On May 24, 2022, the Company announced that its Board of Directors had authorized a share repurchase program of up to $30.0 million of the Company’s outstanding Common Stock. The share repurchase program was authorized for 12 months. On February 27, 2023, the Board of Directors extended the share repurchase program for an additional 12 months and authorized the repurchase of an additional $10.0 million of the Company’s Common Stock, for an aggregate of up to $30.6 million in additional repurchases.
Previous wording
Net cash used in operating activities was $14.9 million for the three months ended March 31, 2024 compared to $0.2 million in the prior year comparable period. The main reasons for the change in cash position included a $7.9 million reduction in accounts payable during the three months ended March 31, 2024 resulting from the timing of cash disbursements and a $4.9 million reduction in accrued expenses resulting from the payment of incentive-based compensation during the current quarter.
Current wording
Net cash used in operating activities was $6.6 million for the six months ended June 30, 2024 compared to cash provided by operating activities of $10.4 million in the prior year comparable period. The decrease in cash position was primarily due to an $11.8 million decrease in accounts payable and accrued expenses, representing a cash outflow driven by increased vendor payments and payment of incentive-based compensation during the first quarter. The remaining decrease in cash position resulted from higher accounts receivable driven by the timing of cash receipts and Title IV disbursements.
Previous wording
Net cash provided by investing activities was $8.0 million for the three months ended March 31, 2024 compared to net cash used in investing activities of $3.2 million in the prior year comparable period. The increase in cash position was driven by the sale of our Levittown, Pennsylvania property, partially offset by investments in capital expenditures.
Current wording
Net cash used in investing activities was $3.0 million for the six months ended June 30, 2024 compared to net cash provided by investing activities of $12.8 million in the prior year comparable period. The prior year’s cash position benefited from several factors including the sale of the Nashville, Tennessee property and proceeds received from short-term investments. Partially offsetting these cash inflows was the purchase of additional short-term investments.
Previous wording
Net cash used in financing activities for the three months ended March 31, 2024 and 2023 was $3.6 million and $2.3 million, respectively. The decrease in cash used was driven by the tax impact of vested stock grants for the prior year.
Current wording
Net cash used in financing activities for the six months ended June 30, 2024 and 2023 was $3.7 million and $2.9 million, respectively. The increase in cash used was driven primarily by the tax impact of vested stock grants in the current year.
Previous wording
On February 16, 2024, the Company entered into a secured credit agreement (the “Fifth Third Credit Agreement”) with Fifth Third Bank, National Association (the “Bank”), pursuant to which the Company, as borrower, has obtained a revolving credit facility in the aggregate principal amount of $40.0 million including a $10.0 million letter of credit sublimit and a $20.0 million accordion feature (the “Facility”), the proceeds of which are to be used for working capital, general corporate and certain other permitted purposes. The Facility is guaranteed by the Company’s wholly-owned subsidiaries and is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company and its subsidiaries. The term of the Facility is 36 months, maturing on February 16, 2027.
Current wording
On February 16, 2024, the Company entered into a secured credit agreement (the “Fifth Third Credit Agreement”) with Fifth Third Bank, National Association (the “Bank”), pursuant to which the Company, as borrower, obtained a revolving credit facility in the aggregate principal amount of $40.0 million including a $10.0 million letter of credit sublimit and a $20.0 million accordion feature (the “Facility”), the proceeds of which are to be used for working capital, general corporate and certain other permitted purposes. The Facility is guaranteed by the Company’s wholly-owned subsidiaries and is secured by a first priority lien in favor of the Bank on substantially all of the personal property owned by the Company and its subsidiaries. The term of the Facility is 36 months, maturing on February 16, 2027.
Previous wording
The Fifth Third Credit Agreement contains customary representations, warranties and affirmative and negative covenants, as well as events of default customary for facilities of this type. In connection with the Fifth Third Credit Agreement, the Company paid the Bank a closing fee in the amount of $200,000 and other customary fees and reimbursements. As of March 31, 2024, there was no debt outstanding under the Facility.
Current wording
The Fifth Third Credit Agreement contains customary representations, warranties and affirmative and negative covenants, as well as events of default customary for facilities of this type. In connection with the Fifth Third Credit Agreement, the Company paid the Bank a closing fee in the amount of $200,000 and other customary fees and reimbursements.
Previous wording
As of March 31, 2024, we had outstanding loan principal commitments to our active students of $37.1 million. These are institutional loans and no cash is advanced to students. The full loan amount is not guaranteed unless the student completes the program. The institutional loans are considered commitments because the students are required to fund their education using these funds and they are not reported on our financial statements.
Current wording
As of June 30, 2024, we had outstanding loan principal commitments to our active students of $38.0 million. These are institutional loans and no cash is advanced to students. The full loan amount is not guaranteed unless the student completes the program. The institutional loans are considered commitments because the students are required to fund their education using these funds and they are not reported on our financial statements.
Rearranged current paragraphs (5)
Current report — wording carried from elsewhere
Administrative costs increased $8.4 million due to several factors including an increase in salary expense driven by merit increases and new hires resulting from population growth, in combination with a higher provision for credit losses, largely driven by revenue growth.
Current report — wording carried from elsewhere
The change in operating performance was the result of closing the campus and no longer enrolling new students.
Current report — wording carried from elsewhere
The following table presents results for our two reportable segments for the six months ended June 30, 2024 and 2023:
Current report — wording carried from elsewhere
On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus. The owner of the Somerville property exercised the option to terminate the lease on December 8, 2023 and the Company determined not to pursue relocating the campus in this geographic region. The campus was fully taught out as of December 31, 2023 and did not generate any expense for the current year.
Current report — wording carried from elsewhere
As of June 30, 2024, there was no debt outstanding under the Facility.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
Georgia campus in addition to new programs and program expansions and the seasonality of our business, which yields greater returns in the second half of the year. In addition, the prior year cash position benefited from $33.3 million in proceeds resulting from the sale of our Nashville, Tennessee property.