LINCOLN EDUCATIONAL SERVICES CORP
For the period ended Sep 30, 2024. Filed Nov 12, 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.
Sep 30, 2024 · Filed Nov 12, 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 2024-06-30; filed 2024-08-08.
0001140361-24-036418
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001140361-24-046113
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 113 previous paragraphs and 114 current paragraphs.
62 unchanged; 28 reworded; 24 added; 23 removed; 0 previous and 0 current paragraphs rearranged.
Tables are not compared: 15 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 (24)
Current report
Revenue. Revenue increased $14.8 million, or 14.8% to $114.4 million for the three months ended September 30, 2024 from $99.6 million in the prior year comparable period. Revenue growth was primarily due to a 10.6% increase in average student population, driven by four consecutive quarters of double digit start growth, which was up 21.1% for the three months ended September 30, 2024. Included in the increase was $3.4 million of revenue generated from the recently opened East Point, Georgia campus.
Current report
Educational services and facilities expense, as a percentage of revenue, decreased to 42.0% from 43.3% for the three months ended September 30, 2024 and 2023, respectively.
Current report
Selling, general and administrative expense. Our selling, general and administrative expense increased $8.8 million, or 16.3% to $63.3 million for the three months ended September 30, 2024, from $54.5 million in the prior year comparable period. Included in the increase over the prior year are approximately $3.0 million of one-time items including new campus costs and campus relocation costs. The remaining expense increases were driven by several factors including higher administrative costs, increased marketing investments and additional sales and student services expense. Partially offsetting these costs was a reduction of $0.4 million resulting from the Transitional segment.
Current report
Administrative costs increased $3.9 million driven by several factors including additional salary expense due to an increase in personnel combined with merit increases, increased stock-based compensation expense due to the acceleration of expense for certain employees, an increase in legal costs and a higher provision for credit losses driven in part by revenue growth.
Current report
Marketing investments increased $0.7 million, while the costs to obtain potential students declined, demonstrating increased efficiencies per dollar spent. Additional marketing initiatives have contributed to the 21.1% student start growth over the prior quarter and will continue to yield returns through the end of the year.
Current report
Selling, general and administrative expense, as a percentage of revenue, increased to 55.4% from 54.7% for the three months ended September 30, 2024 and 2023, respectively.
Current report
Gain on insurance proceeds. During the three months ended September 30, 2024, the Company received gross insurance proceeds in the amount of $2.8 million relating to hail damage at one of our campuses.
Current report
Net interest expense / income. Net interest expense was $0.2 million for the three months ended September 30, 2024 compared to net interest income of $0.9 million in the prior year comparable period. Interest income in the current period was lower than prior year by approximately $0.4 million due to higher investment amounts in combination with more favorable interest rates in the prior year. Interest expense increased by roughly $0.6 million in the current year resulting from two additional finance leases.
Current report
Income taxes. The provision for income taxes was $1.7 million and $0.8 million for the three months ended September 30, 2024 and 2023, respectively. The increase in tax provision was primarily driven by an increase in pre-tax income.
Current report
Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023
Current report
Educational services and facilities expense. Our educational services and facilities expense increased $15.4 million, or 12.7% to $136.6 million for the nine months ended September 30, 2024 from $121.2 million in the prior year comparable period. This increase over the prior quarter includes $7.2 million in costs associated with new programs at existing campuses in addition to expenses related to new campuses including the recently opened East Point, Georgia campus and the new Houston, Texas campus, which is expected to open in the second half of 2025. Also included in this increase are costs related to the relocations of the Nashville, Tennessee and Levittown, Pennsylvania campuses, which are expected to open in the first half of 2025 and the second half of 2025, respectfully. The remaining expense increase was driven by several factors including additional depreciation expense, resulting from increased investments in capital expenditures, an increase in books and tools expense driven by a 16.6% increase in student starts and increased instructional costs driven by a larger student population, which as a percentage of revenue have declined over the prior year comparable period reflecting increased operational efficiencies. Partially offsetting these costs was a reduction of $1.6 million resulting from the Transitional segment.
Current report
Educational services and facilities expense, as a percentage of revenue, decreased to 42.6% from 44.0% for the nine months ended September 30, 2024 and 2023, respectively.
Current report
Selling, general and administrative expense. Our selling, general and administrative expense increased $25.1 million, or 16.0% to $181.7 million for the nine months ended September 30, 2024, from $156.6 million in the prior year comparable period. Included in the increase over the prior year are approximately $2.4 million of one-time items including new campus costs and campus relocation costs. The remaining expense increases were driven by several factors including higher administrative costs, increased marketing investments and additional sales and student services expense. Partially offsetting these costs was a reduction of $1.3 million resulting from the Transitional segment.
Current report
Administrative costs increased $16.1 million driven by several factors including additional salary expense due to an increase in personnel combined with merit increases and a higher provision for credit losses driven in part by revenue growth. Partially offsetting the costs increases were reduced stock-based compensation expense and legal fees.
Current report
Marketing investments increased $2.6 million, while the costs to obtain potential students declined, demonstrating increased efficiencies per dollar spent. Additional marketing initiatives have contributed to the 16.6% student start growth over the prior quarter and will continue to yield returns through the end of the year.
Current report
Selling, general and administrative expense, as a percentage of revenue, decreased slightly to 56.7% from 56.8% for the nine months ended September 30, 2024 and 2023, respectively.
Current report
Gain on insurance proceeds. During the nine months ended September 30, 2024, the Company received gross insurance proceeds in the amount of $2.8 million relating to hail damage at one of our campuses.
Current report
Impairment of goodwill and long-lived assets. Impairment of goodwill and long-lived assets of $4.2 million in the prior year was the result of the sale of the Nashville, Tennessee property. The result of the sale created a change in the trajectory of the fair value of the Nashville, Tennessee operations and as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million related to goodwill and an additional $0.4 million impairment related to long-lived assets. During the nine months ended September 30, 2024, there were no impairments of goodwill or long-lived assets.
Current report
Income taxes. The provision for income taxes was $1.1 million and $7.0 million for the nine months ended September 30, 2024 and 2023, respectively. The decrease in provision was primarily driven by a gain in the prior year due to the sale of the Nashville, Tennessee property during the second quarter of 2023, which drove an increase in the Company’s pre-tax income.
Current report
This category includes unallocated expense incurred on behalf of the entire Company. Corporate and other expense was $9.0 million and $9.1 million for the three months ended September 30, 2024 and 2023, respectively. Included in the current year is a gain of $2.8 million related to insurance proceeds received as a result of hail damage at one of our campuses. Partially offsetting the gain are additional expenses relating to salaries and benefits expense, increased stock-based incentives and legal costs.
Current report
The DOE also published two sets of proposed regulations on April 17, 2024, and October 31, 2024, that would, among other things, specify the DOE’s discretionary authority to waive the requirement for borrowers to repay some or all their Title IV federal student loans. The reasons for such waivers would include, for example, different scenarios involving schools or programs that close or lose Title IV eligibility or different types of borrower hardship including, among many other examples, attendance at certain types and levels of institutions (which the DOE has indicated could include for-profit institutions like our schools). The DOE has not published final regulations in connection with either of the aforementioned sets of proposed regulations and is in the process of receiving public comments through December 2, 2024, to the proposed regulations that were published on October 31, 2024. We cannot predict the timing and scope of any final regulations the DOE might issue, but new regulations on these topics could have a significant impact on our business and results of operations.
Current report
Planned Sale of Las Vegas, Nevada Campus
Current report
Subsequent to the end of the third quarter, the board of directors approved a plan to sell the assets related to its Las Vegas, Nevada campus operated under Euphoria Institute of Beauty Arts & Sciences (“Euphoria”). The Company is in discussions with a prospective purchaser and expects to enter into a signed agreement prior to year-end. While the proposed transaction will not be material, it is expected that, for regulatory purposes, the transaction will be a school closure by Lincoln. There are currently approximately 300 students enrolled in programs at Euphoria and it is further expected that enrolled students would be permitted to transfer to the purchaser-operated school post-closing and continue their programs such that the sale should not have a significant impact on the student experience. In the fourth quarter, net assets of Euphoria will be classified on the balance sheet as assets held for sale and the related statement of operations information will be classified in the Transitional segment.
Current report
The DOE has confirmed that the proposed transaction will not be treated as a change in ownership and, instead, it will be treated as the closure of Euphoria and the establishment of a new location by the purchaser at the site of Euphoria. Although the parties intend to work toward enabling our current students at the Las Vegas, Nevada campus to complete their programs with the purchaser, certain current and former students could qualify for closed school loan discharges if they do not continue and complete their programs and, in turn, the DOE could impose liabilities and other sanctions on us based on any such closed school loan discharges. Also, we will be required to comply with other DOE, state, and accreditor requirements associated with the transaction, the transfer of the site, and the teaching of current students. Based on current discussions, the transaction is currently expected to close in January, 2025, subject to receipt of required regulatory approvals and satisfaction of other closing conditions.
Removed paragraphs (23)
Previous 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.
Previous 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.
Previous report
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 report
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 report
Marketing investments increased $1.0 million, helping drive student starts, which were up 12.3% quarter-over-quarter.
Previous 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.
Previous 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.
Previous report
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Previous 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.
Previous 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.
Previous 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.
Previous report
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.
Previous report
Marketing investments increased $1.9 million, helping drive student starts, which were up 13.6% year-over-year.
Previous 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.
Previous report
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 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.
Previous report
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 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”).
Previous 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.
Previous 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.
Previous 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.
Previous 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
Previous 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.
Reworded paragraphs (28)
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 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.
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 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 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.
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 September 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. The campus was fully taught out as of December 31, 2023.
Previous wording
Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our”, and “us”, as applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company, which currently operates 22 campuses in 13 states, offers programs in skilled trades (which include HVAC, welding, computerized numerical control and electrical and electronic systems technology, among other programs), automotive technology, healthcare services (which include nursing, dental assistant, and medical administrative assistant, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology, and aesthetics), and information technology. The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, Euphoria Institute of Beauty Arts and Sciences, and associated brand names. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of the campuses are nationally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (“DOE”) and applicable state education agencies and accrediting commissions, which allow students to apply for and access federal student loans as well as other forms of financial aid.
Current wording
Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our”, and “us”, as applicable) provide diversified career-oriented post-secondary education to recent high school graduates and working adults. The Company, which currently operates 22 campuses in 13 states, offers programs in skilled trades (which include HVAC, welding, computerized numerical control and electrical and electronic systems technology, among other programs), automotive technology, healthcare services (which include nursing, dental assistant, and medical administrative assistant, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology, and aesthetics), and information technology. The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, Euphoria Institute of Beauty Arts & Sciences, and associated brand names. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of the campuses are nationally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (“DOE”) and applicable state education agencies and accrediting commissions, which allow students to apply for and access federal student loans as well as other forms of financial aid.
Previous wording
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. As a result of the adoption, the Company has revised the way in which it calculates reserves on outstanding student accounts receivable balances. Details considered by management in the estimate include the following:
Current wording
On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,” –commonly known as “CECL” (“CECL”). As a result of the adoption, the Company has revised the way in which it calculates reserves on outstanding student accounts receivable balances. Details considered by management in the estimate include the following:
Previous wording
Results of Continuing Operations for the Three and Six Months Ended June 30, 2024
Current wording
Results of Continuing Operations for the Three and Nine Months Ended September 30, 2024
Previous wording
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 wording
Educational services and facilities expense. Our educational services and facilities expense increased $4.9 million, or 11.4% to $48.0 million for the three months ended September 30, 2024 from $43.1 million in the prior year comparable period. This increase over the prior quarter includes $2.3 million in costs associated with new programs in addition to expenses related to new campuses including the recently opened East Point, Georgia campus and the new Houston, Texas campus, which is expected to open in the second half of 2025. Also included in this increase are costs related to the relocation of the Nashville, Tennessee and Levittown, Pennsylvania campuses, which are expected to open in the first half of 2025 and the second half of 2025, respectively. The remaining expense increase was driven by several factors including additional depreciation expense, resulting from increased investments in capital expenditures, an increase in books and tools expense driven by a 21.1% increase in student starts and increased instructional costs driven by a larger student population, which as a percentage of revenue have declined over the prior year comparable period reflecting increased operational efficiencies. Partially offsetting these costs was a reduction of $0.5 million resulting from the Transitional segment.
Previous wording
Sales expenses increased $1.0 million primarily driven by increased personnel to continue to support and drive student start growth and program expansions.
Current wording
Sales and student services expense increased $1.6 million, primarily driven by increased personnel to continue to support and drive student start growth and program expansions.
Previous 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.
Current wording
Revenue. Revenue increased $45.1 million, or 16.4% to $320.6 million for the nine months ended September 30, 2024 from $275.5 million in the prior year comparable period. Revenue growth was primarily due to a 10.6% increase in average student population, driven by starting the year with approximately 9.0% or 1,100 more students combined with four consecutive quarters of double digit start growth, which was up 16.6% for the nine months ended September 30, 2024. Included in the increase was $5.2 million of revenue generated from the recently opened East Point, Georgia campus.
Previous wording
Sales expenses increased $1.9 million, primarily driven by increased personnel to continue to support and drive student start growth and program expansions.
Current wording
Sales expense and student services increased $5.2 million, primarily driven by increased personnel to continue to support and drive student start growth and program expansions.
Previous wording
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 wording
Net interest expense / income. Net interest expense was $0.1 million for the nine months ended September 30, 2024 compared to interest income of $1.8 million in the prior year. Interest income for the nine months ended September 30, 2024 and 2023 remained essentially flat, with an increase in interest expense in the current year resulting from two additional finance leases.
Previous 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.
Current wording
Transitional – The Transitional segment refers to campuses that have been marked for closure and are being taught out. As of September 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. The campus was fully taught out as of December 31, 2023.
Previous 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:
Current wording
Operating income increased $3.0 million, or 25.0% to $14.9 million for the three months ended September 30, 2024 from $11.9 million in the prior year comparable period. The change quarter-over-quarter was mainly driven by the following factors:
Previous wording
The following table presents results for our two reportable segments for the six months ended June 30, 2024 and 2023:
Current wording
The following table presents results for our two reportable segments for the nine months ended September 30, 2024 and 2023:
Previous wording
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 wording
Operating income increased 40.7%, or $10.6 million to $36.8 million for the nine months ended September 30, 2024 from $26.2 million in the prior year comparable period. The change year-over-year was mainly driven by the following factors:
Previous wording
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 wording
This category includes unallocated expense incurred on behalf of the entire Company. Corporate and other expense were $32.6 million and $0.3 million for the nine months ended September 30, 2024 and 2023, respectively. Included in the current year is a gain of $2.8 million related to insurance proceeds received as a result of hail damage at one of our campuses. Prior year includesa $30.9 million gain on sale of assets resulting from the sale of the Nashville, Tennessee property. The increase in expense was primarily driven by additional salaries and benefits expense, 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.
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 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:
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, National Association. The following chart summarizes the principal elements of our cash flow for each of the nine months ended September 30, 2024 and 2023:
Previous 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.
Current wording
As of September 30, 2024, the Company had $54.0 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 related to our recently opened East Point, Georgia campus, the new Houston Texas campus, the relocations of the Nashville, Tennessee and Levittown, Pennsylvania campuses, and new programs and program expansions. Further, 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 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 wording
On May 7, 2024, the Company announced that its Board of Directors had authorized an extension of its share repurchase program for an additional 12 months through May 24, 2025. During the three and nine months ended September 30, 2024, the Company did not repurchase any additional shares. As of September 30, 2024, the Company had approximately $29.7 million remaining for repurchase under the program.
Previous wording
Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV Programs, which represented approximately 81% of our cash receipts relating to revenues in 2023. Pursuant to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student’s academic year. Certain types of grants and other funding are not subject to a 31-day delay. In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned tuition or prorated Title IV Program financial aid is refunded according to federal, state and accrediting agency standards.
Current wording
Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV Programs, which represented approximately 81% of our cash receipts related to revenues in 2023. Pursuant to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student's academic year. Certain types of grants and other funding are not subject to a 31-day delay. In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned tuition or prorated Title IV Program financial aid is refunded according to federal, state and accrediting agency standards.
Previous wording
As a result of the significant amount of Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the level of Title IV Program funds that our students are eligible to receive for tuition payment to us or any restriction on our eligibility to receive Title IV Program funds would have a significant impact on our operations and our financial condition. For more information, see Part I, Item 1A. “Risk Factors - Risks Related to Our Industry” of our Form 10-K..
Current wording
As a result of the significant amount of Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the level of Title IV Program funds that our students are eligible to receive for tuition payments to us or any restriction on our eligibility to receive Title IV Program funds would have a significant impact on our operations and our financial condition. For more information, see Part I, Item 1A. “Risk Factors - Risks Related to Our Industry” of our Form 10-K..
Previous 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.
Current wording
Net cash used in operating activities was $1.0 million for the nine months ended September 30, 2024 compared to cash provided by operating activities of $3.6 million in the prior year comparable period. The decrease in cash position was primarily related to a higher accounts receivable balance due to the timing of cash receipts and Title IV disbursements, partially offset by an decrease in prepaid expenses representing a $4.8 million cash inflow and a $2.5 million increase in accounts payable, representing a cash inflow driven by the timing of vendor payments.
Previous 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.
Current wording
Net cash used in investing activities was $22.2 million for the nine months ended September 30, 2024 compared to $5.0 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
Capital expenditures were approximately 11.0% of revenues in 2023 and are expected to approximate 18.0% of revenues in 2024. The significant increase in planned capital expenditures over the prior year will be driven by several factors that include, but are not limited to, the buildout of our new East Point, Georgia campus and the new Nashville, Tennessee campus, additional space, the planned introduction of three new programs at the Lincoln, Rhode Island campus, and the anticipated introduction of new programs at certain other campuses. We expect to fund future capital expenditures with cash generated from operating activities and cash on hand.
Current wording
Capital expenditures were approximately 11.0% of revenues in 2023 and are expected to approximate 18.0% of revenues in 2024. The significant increase in planned capital expenditures over the prior year will be driven by several factors that include, but are not limited to, the buildout of our recently opened East Point, Georgia campus and the new Nashville, Tennessee campus, additional space, the planned introduction of three new programs at the Lincoln, Rhode Island campus, and the anticipated introduction of new programs at certain other campuses. We expect to fund future capital expenditures with cash generated from operating activities and cash on hand.
Previous 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.
Current wording
Net cash used in financing activities for the nine months ended September 30, 2024 and 2023 was $3.1 million and $2.9 million, respectively. The increase in cash used was primarily driven by cash outflows in the current year of $1.2 million related to the tax impact for vested stock grants, $0.5 million paid for implementing the new credit facility with Fifth Third Bank, National Association, and $0.2 million related to lease payments made under the Company’s two additional finance leases. Partially offsetting these cash outflows was a $0.8 million inflow for a tenant allowance related to one of the Company’s finance leases in the current year. The prior year also had $0.9 million in cash outflows related to the Company’s share repurchase plan.
Previous wording
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 wording
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 Fifth Third Credit Agreement
Previous 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.
Current wording
As of September 30, 2024, we had outstanding loan principal commitments to our active students of $38.4 million. These are institutional loans and no cash is advanced to students. The full loan amount is not guaranteed unless the student completes the program. The institutional loans are considered commitments because the students are required to fund their education using these funds and they are not reported on our financial statements.
Previous wording
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 wording
Negotiated Rulemaking. The DOE has initiated and engaged in rulemaking which has included negotiated rulemaking meetings held in late 2023 and early 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, distance education, and student debt relief. See 10-K at Part I, Item 1. “Business – Regulatory Environment – Negotiated Rulemaking,” “Business – Regulatory Environment – State Authorization,” “Business – Regulatory Environment – Accreditation,” and “Business – Regulatory Environment – Return of Title IV Program Funds.”
Previous wording
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 wording
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. On July 24, 2024, the DOE published a notice of proposed rulemaking on topics including distance education and return of Title IV funds; however, the DOE did not publish final regulations by November 1, 2024, for those rules to take effect by July 1, 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 the forementioned topics, but new regulations or guidance on these or other topics could have a significant impact on our business and results of operations.