LINCOLN EDUCATIONAL SERVICES CORP

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 21 campuses, in 13 states has added two additional campuses, one located in East Point, Georgia and the other in Houston, Texas. As of December 31, 2023, these campuses were not operational however, the East Point, Georgia campus is expected to hold its first class in March of 2024 and the Houston, Texas campus is expected to become operational in the first quarter of 2026. Lincoln Educational Services Corporation offers programs in skilled trades (which include HVAC, welding and 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) and hospitality services and information technology (which include culinary, therapeutic massage, cosmetology and aesthetics and information technology programs). The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names. Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of the campuses are nationally accredited and are eligible to participate in federal financial aid programs administered by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid. The Company was incorporated in New Jersey in 2003 as the successor-in-interest to various acquired schools including Lincoln Technical Institute, Inc. which opened its first campus in Newark, New Jersey in 1946.

Current wording

Most of the Company’s 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 administered by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid. The Company was incorporated in New Jersey in 2003 as the successor-in-interest to various acquired schools including Lincoln Technical Institute, Inc. which opened its first campus in Newark, New Jersey in 1946.

Previous wording

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

Current wording

Campus Operations - The Campus Operations segment includes campuses that are continuing in operation and contribute to the Company’s core operations and performance. All of the campuses continuing in operation are classified in this segment. The majority of the campuses offer programs across various areas of study.

Previous wording

As of December 31, 2023, we had 13,270 students enrolled at 21 campuses. Our average enrollment for the fiscal year ended December 31, 2023 was 12,941 students and our revenues were $378.1 million, which represented an increase of 8.6% over the prior fiscal year. For more information relating to our revenues, profits and financial condition, please refer to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Current wording

As of December 31, 2024, we had 15,138 students enrolled at 21 campuses. Our average enrollment for the fiscal year ended December 31, 2024 was 14,426 students and our revenues were $440.1 million, which represented an increase of 16.4% over the prior fiscal year. For more information relating to our revenues, profits and financial condition, please refer to our Consolidated Financial Statements included in this Annual Report on Form 10-K.

Previous wording

We believe that we provide our students with the highest quality career-oriented training available for our areas of study in our markets thereby serving students, local employers and their communities. The skills gap continues to expand as talent retires faster than new employees are hired and as the need for education and training increases in all careers with the accelerating pace of technological change. We offer programs in areas of study that we believe are typically underserved by traditional providers of post-secondary education and for which we believe there exists significant demand among students and employers. Furthermore, we believe our convenient class scheduling, career-focused curricula and emphasis on job placement offer our students valuable advantages that have been previously unaddressed by the traditional academic sector. By combining virtual training with traditional classroom-based training led by experienced instructors, we believe we offer our students a unique opportunity to develop practical job skills in many of the key areas of expected job demand. We believe these job skills enable our students to compete effectively for employment opportunities and to pursue salary and career advancement.

Current wording

We offer programs in areas of study that we believe are typically underserved by traditional providers of postsecondary education and for which we believe there exists significant demand among students and employers. Furthermore, we believe our convenient class scheduling, career-focused curricula and emphasis on job placement offer our students valuable advantages that have been previously unaddressed by the traditional academic sector. By combining virtual training with traditional classroom-based training led by experienced instructors, we believe we offer our students a unique opportunity to develop practical job skills in many of the key areas of expected job demand. We believe these job skills enable our students to compete effectively for employment opportunities and to pursue salary and career advancement.

Previous wording

In the last two years, we have further implemented our plan of improving the student experience by, among other things, further improving our campuses. In October 2023, the Company entered into a lease for approximately 100,000 square feet of space to serve as the Company’s new campus in Houston, Texas. The lease term commenced on January 2, 2024, with an initial lease term of 21 years and 6 months and three five-year renewal options. Also, in October 2023, the Company entered into a lease for approximately 120,000 square feet of space to serve as the Company’s new Nashville, Tennessee campus. The lease term commenced on November 1, 2023, with an initial lease term of 15 years and two five-year renewal options. In September 2023, the Company closed on the purchase of a 90,000 square foot property located at 311 Veterans Highway, Levittown, Pennsylvania for approximately $10.2 million and, subsequently on January 30, 2024 closed on a sale-leaseback transaction of this property. As of December 31, 2023, this property is classified as held-for-sale on the Consolidated Balance Sheets. In June, 2022, the Company executed a lease for approximately 55,000 square feet of space to serve as the Company’s new campus in East Point, Georgia. The lease term commenced in August 2022, with an initial lease term of 12 years and two five-year renewal options. For the year ended December 31, 2023, the Company incurred approximately $0.8 million in rent expenses. See Part II. Item 8. “Financial Statements and Supplemental Data - Notes to Consolidated Financial Statements – Note 6 Leases and Note 8 Real Estate Transactions.”

Current wording

In the last several years, we have further implemented our plan of improving the student experience by adding program offerings, enhancing existing program offerings and expanding geographically with new state of the art campuses. See Part II. Item 8. “Financial Statements and Supplemental Data - Notes to Consolidated Financial Statements – Note 6 Leases and Note 8 Real Estate Transactions.”

Previous wording

Our revenues are directly dependent on the average number of students enrolled in our schools and the courses in which they are enrolled. Our average enrollment is impacted by the number of new students starting, re-entering, graduating and withdrawing from our schools. Our diploma/certificate programs range in duration from 19 to 104 weeks, our associate’s degree programs range in duration from 69 to 92 weeks, and students attend classes for different amounts of time per week depending on the school and program in which they are enrolled. Because we start new students every month, our total student population changes monthly. The number of students enrolling or re-entering our programs each month is driven by the demand for our programs, the effectiveness of our marketing and advertising, the availability of financial aid and other sources of funding, the number of recent high school graduates, the job market and seasonality. Our retention and graduation rates are influenced by the quality and commitment of our teachers and student services personnel, the effectiveness of our programs, the placement rate and success of our graduates and the availability of financial aid and other sources of funding. Although similar courses have comparable tuition rates, the tuition rates vary among our numerous programs.

Current wording

Our revenues are directly dependent on the average number of students enrolled in our schools and the courses in which they are enrolled. Our average enrollment is impacted by the number of new students starting, re-entering, graduating and withdrawing from our schools. Our diploma/certificate programs range in duration from 27 to 104 weeks, our associate’s degree programs range in duration from 69 to 94 weeks, and students attend classes for different amounts of time per week depending on the school and program in which they are enrolled. Because we start new students every month, our total student population changes monthly. The number of students enrolling or re-entering our programs each month is driven by the demand for our programs, the effectiveness of our marketing and advertising, the availability of financial aid and other sources of funding, the number of recent high school graduates, the job market and seasonality. Our retention and graduation rates are influenced by the quality and commitment of our teachers and student services personnel, the effectiveness of our programs, the placement rate and success of our graduates and the availability of financial aid and other sources of funding. Although similar courses have comparable tuition rates, the tuition rates vary among our numerous programs.

Previous wording

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 largest of these programs are Title IV Programs which represented approximately 81% and 74% of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments made by students during fiscal years 2023 and 2022, respectively. The HEA requires institutions to use the cash basis of accounting when determining its compliance with the 90/10 Rule. See Part I, Item 1. “Business - Regulatory Environment.”

Current wording

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 largest of these programs are Title IV Programs which represented approximately 82%, 81%, and 74% of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments made by students during fiscal years 2024, 2023, and 2022, respectively. The HEA requires institutions to use the cash basis of accounting when determining its compliance with the 90/10 Rule. See Part I, Item 1. “Business - Regulatory Environment.”

Previous wording

On September 28, 2023, the Company purchased a 90,000 square foot property located at 311 Veterans Highway, Levittown, Pennsylvania for approximately $10.2 million and on January 30, 2024, the Company has subsequently entered into a sale-leaseback transaction for this property. The Company plans to invest approximately $15.0 million, net of the tenant improvement allowance, in the buildout of new classrooms and training areas. As of December 31, 2023, the new campus is classified as held-for-sale on the Consolidated Balance Sheets. See Part II. Item 8. “Financial Statements and Supplemental Data - Notes to Consolidated Financial Statements – Note 19 Subsequent Events”.

Current wording

On September 28, 2023, the Company purchased a 90,000 square foot property located at 311 Veterans Highway, Levittown, Pennsylvania for approximately $10.2 million and subsequently on January 30, 2024 entered into a sale-leaseback transaction for the same property. As of December 31, 2023, this property was classified as held-for-sale on the Consolidated Balance Sheets. During the year ended December 31, 2024, the Company has invested approximately $11.7 million in capital investments.

Previous wording

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 Lincoln 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 December 31, 2023, approximately $1.3 million remains and is included in prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets.

Current wording

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 Lincoln 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 December 31, 2024, the total rent free period has been fully expensed.

Previous wording

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

Current wording

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

Previous wording

Our bad debt expense as a percentage of revenues for the fiscal years ended December 31, 2023 and 2022 was 11.0% and 10.0%, respectively. A 1% increase in our bad debt expense as a percentage of revenues for the fiscal years ended December 31, 2023 and 2022 would have resulted in an increase in bad debt expense of $3.8 million and $3.5 million, respectively.

Current wording

Our bad debt expense as a percentage of revenues for the fiscal years ended December 31, 2024, 2023, and 2022 was 12.9%, 11.0%, and 10.0%, respectively. A 1% increase in our bad debt expense as a percentage of revenues for the fiscal years ended December 31, 2024, 2023, and 2022 would have resulted in an increase in bad debt expense of $4.4 million, $3.8 million, and $3.5 million, respectively.

Previous wording

As of December 31, 2023, goodwill was approximately $10.7 million, or 3.1%, of our total assets.

Current wording

As of December 31, 2024, goodwill was approximately $10.7 million, or 2.5%, of our total assets.

Previous wording

On June 8, 2023, the Company consummated the sale of its Nashville, Tennessee property (see Part II. Item 8. “Financial Statements and Supplemental Data” - Notes to Consolidated Financial Statements – Note 8 Real Estate Transactions”). The result of the sale created a change in the trajectory of the fair value of the Nashville, Tennessee operations and as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to goodwill. For the year ended December 31, 2022, there were no impairments related to goodwill.

Current wording

On June 8, 2023, the Company consummated the sale of its Nashville, Tennessee property (see Part II. Item 8. “Financial Statements and Supplemental Data” - Notes to Consolidated Financial Statements – Note 8 Real Estate Transactions”). The result of the sale created a change in the trajectory of the fair value of the Nashville, Tennessee operations and as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to goodwill.

Previous wording

As a result of the Nashville sale discussed above, the Company also recorded a pre-tax non-cash impairment charge of $0.4 million relating to long-lived assets.

Current wording

During the year ended December 31, 2023, as a result of the Nashville sale discussed above, the Company also recorded a pre-tax non-cash impairment charge of $0.4 million relating to long-lived assets.

Previous wording

Results of Operations for the Two Years Ended December 31, 2023 and December 31, 2022

Current wording

Results of Operations for the Three Years Ended December 31, 2024

Previous wording

Revenue. Revenue increased $29.8 million, or 8.6% to $378.1 million for the fiscal year ended December 31, 2023 from $348.3 million in the prior year comparable period. Excluding the Transitional segment revenue of $1.5 million and $6.8 million for the fiscal year ended December 31, 2023 and 2022, respectively, our revenue would have increased $35.2 million, or 10.3%. The remaining increase in revenue was driven by several factors including student start growth of 11.4% and an increase in average revenue per student of 8.0%, driven in part by the continuing rollout of the Company’s hybrid teaching model in combination with tuition increases. The Company’s hybrid teaching model increases program efficiency and delivers accelerated revenue recognition in certain evening programs.

Current wording

Revenue. Revenue increased $29.8 million, or 8.6% to $378.1 million for the fiscal year ended December 31, 2023 from $348.3 million during the fiscal year ended December 31, 2022. Excluding the Transitional segment revenue of $10.8 million and $17.4 million for the fiscal year ended December 31, 2023, and 2022, respectively, our revenue would have increased $36.3 million, or 11.0%. The remaining increase in revenue was driven by several factors including student start growth of 13.3% and an increase in average revenue per student of 7.8%, driven in part by the continuing rollout of the Company’s hybrid teaching model in combination with tuition increases. The Company’s hybrid teaching model increases program efficiency and delivers accelerated revenue recognition in certain evening programs.

Previous wording

Educational services and facilities expense. Our educational services and facilities expense increased $13.5 million, or 9.1% to $162.3 million for the fiscal year ended December 31, 2023 from $148.7 million in the prior year comparable period. Excluding the Transitional segment educational services and facilities expense of $1.9 million and $3.2 million for the fiscal year ended December 31, 2023 and 2022, respectively, our educational services and facilities expense would have increased $14.9 million, or 10.2%. Increased costs were primarily concentrated in instructional expense, facilities expense and books and tools expense.

Current wording

Educational services and facilities expense. Our educational services and facilities expense increased $13.5 million, or 9.1% to $162.3 million for the fiscal year ended December 31, 2023 from $148.7 million during the fiscal year ended December 31, 2022. Excluding the Transitional segment educational services and facilities expense of $6.7 million and $8.1 million for the fiscal years ended December 31, 2023 and 2022, respectively, our educational services and facilities expense would have increased $14.9 million, or 10.6%. Increased costs were primarily concentrated in instructional expense, facilities expense and books and tools expense.

Previous wording

Instructional expenses increased $7.0 million, driven primarily by higher instructional salaries resulting from higher staffing levels due to increases in our student population and merit salary increases. In addition, the Company is experiencing higher staffing levels at several campuses that have launched the hybrid teaching model as the Company is providing instruction through both the new and traditional learning models for an interim period of time. Further increases resulted from student testing, primarily relating to our nursing program and increased consumables costs driven by a higher student population and inflation.

Current wording

Instructional expenses increased $7.0 million, driven primarily by higher instructional salaries resulting from higher staffing levels due to increases in our student population and merit salary increases. In addition, the Company is experiencing higher staffing levels at several campuses that have launched the hybrid teaching model as the Company is providing instruction through both the new and traditional learning models for an interim period of time. Further increases resulted from student testing, primarily related to our nursing program, and increased consumables costs driven by a higher student population and inflation.

Previous wording

Facilities expense increased by approximately $4.5 million, driven primarily by a $2.4 million increase in rent expense relating to lease extensions at several campuses, additional space taken at one of our campuses, and non-cash rent expense relating to the new East Point, Georgia campus and the sale-leaseback of our existing Nashville, Tennessee property. In connection with the sale of the Nashville, Tennessee property, the Company 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. At the consummation of the sale, the Company took the fair value of the 15 month rent free period, valued at $2.3 million, and included the balance in prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. During the 15-month rent-free period, the Company will straight-line the expense until the rent-free period has expired. Also contributing to the increased costs were higher utility expense driven by inflation and an increase in repairs and maintenance at several campuses.

Current wording

Facilities expense increased by approximately $4.4 million, driven primarily by a $2.4 million increase in rent expense relating to lease extensions at several campuses, additional space taken at one of our campuses, non-cash rent expense relating to the new East Point, Georgia campus, and the sale-leaseback of our existing Nashville, Tennessee property. In connection with the sale of the Nashville, Tennessee property, the Company 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. At the consummation of the sale, the Company took the fair value of the 15-month rent free period, valued at $2.3 million, and included the balance in prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets. During the 15-month rent-free period, the Company will straight-line the expense until the rent-free period has expired. Also contributing to the increased costs were higher utility expense driven by inflation and an increase in repairs and maintenance at several campuses.

Previous wording

Books and tools expense increased $3.0 million, driven by a 11.4% increase in student starts year-over-year and vendor price increases.

Current wording

Books and tools expense increased $3.2 million, driven by a 14.6% increase in student starts year-over-year and vendor price increases.

Previous wording

Selling, general and administrative expense. Our selling, general and administrative expense increased $26.7 million, or 14.7% to $209.1 million for the fiscal year ended December 31, 2023, from $182.4 million in the prior year comparable period. Excluding the Transitional segment selling, general and administrative expense of $1.5 million and $4.1 million for the fiscal year ended December 31, 2023 and 2022, respectively, our selling general and administrative expense would have increased $29.3 million, or 16.4%. Increased costs were driven by the following:

Current wording

Selling, general and administrative expense. Our selling, general and administrative expense increased $26.7 million, or 14.7% to $209.1 million for the fiscal year ended December 31, 2023, from $182.4 million during the fiscal year ended December 31, 2022. Excluding the Transitional segment selling, general and administrative expense of $6.5 million and $8.0 million for the fiscal years ended December 31, 2023 and 2022, respectively, our selling general and administrative expense would have increased $28.3 million, or 16.2%. Increased costs were driven by the following:

Previous wording

Administrative costs increased $20.8 million, driven by several factors including a) an increase in performance-based incentives driven by improved financial performance above plan, b) increased stock-based compensation due to achieving financial targets, c) additional bad debt expense driven by revenue growth of $35.2 million and a slight deterioration in collection rates and d) higher legal costs. In addition, in December of the current year, the Company provided all employees, who are not part of the Company’s bonus incentive plan with a holiday bonus.

Current wording

Administrative costs increased $20.3 million, driven by several factors including a) an increase in performance-based incentives driven by improved financial performance above plan, b) increased stock-based compensation due to achieving financial targets, c) additional bad debt expense driven by revenue growth of $36.3 million and a slight deterioration in collection rates and d) higher legal costs. In addition, at December 31, 2023, the Company provided all employees, who are not part of the Company’s bonus incentive plan with a holiday bonus.

Previous wording

Marketing investments increased $4.4 million, helping drive additional student starts, up 11.4% year-over-year. Increased investments were driven in part bycontinued incremental marketing support for the two new programs that were launched in the third quarter, which included Medical Assistant at our Columbia, MD campus and Electrical & Electronic Systems Technology at our Grand Prairie, TX campus. Marketing investment in the fourth quarter also included the start of an awareness building media campaign for the new East Point, GA campus that is projecting to hold its initial program start in the first quarter of 2024. Despite additional investments in marketing for the year, the total cost to obtain a student remained flat demonstrating the effectiveness of the current marketing campaign.

Current wording

Marketing investments increased $4.1 million, helping drive additional student starts, up 11.4% year-over-year. Increased investments were driven in part bycontinued incremental marketing support for the two new programs that were launched in the third quarter of 2023, which included Medical Assistant at our Columbia, MD campus and Electrical & Electronic Systems Technology at our Grand Prairie, TX campus. Marketing investment in the fourth quarter of 2023 also included the start of an awareness building media campaign for the new East Point, GA campus. Despite additional investments in marketing for the year, the total cost to obtain a student remained flat demonstrating the effectiveness of the current marketing campaign.

Previous wording

Student services increased $2.7 million, primarily resulting from costs associated with an increased student population.

Current wording

Student services increased $2.3 million, primarily resulting from costs associated with an increased student population.

Previous wording

Selling, general and administrative expense, as a percentage of revenue, increased to 55.3% from 52.4% for the fiscal year ended December 31, 2023 and 2022, respectively.

Current wording

Selling, general and administrative expense, as a percentage of revenue, increased to 55.3% from 52.4% for the fiscal years ended December 31, 2023 and 2022, respectively.

Previous wording

Net interest income. Net interest income was $2.3 million for the fiscal year ended December 31, 2023 compared to $0.2 million in the prior year comparable period. The increase in net interest income was primarily driven by the Company’s investment of its cash reserves into various short-term investments for the full fiscal year ended December 31, 2023, compared to investing cash reserves in the fourth quarter of the prior year. The current year net interest income is partially offset by approximately $0.2 million of additional interest expense relating to a finance lease obligation for our new Nashville, Tennessee property.

Current wording

Net interest income. Net interest income was $2.3 million for the fiscal year ended December 31, 2023 compared to $0.2 million during the fiscal year ended December 31, 2022. The increase in net interest income was primarily driven by the Company’s investment of its cash reserves into various short-term investments for the full fiscal year ended December 31, 2023, compared to investing cash reserves in the fourth quarter of 2022. The current year net interest income is partially offset by approximately $0.2 million of additional interest expense relating to a finance lease obligation for our new Nashville, Tennessee property.

Previous wording

Income taxes. Our income tax provision for the year ended December 31, 2023 was $9.6 million, or 27.1% of pre-tax income compared to $3.8 million, or 23.1% of pre-tax income in the prior year. During the year ended December 31, 2023, the increase in effective tax rate was mainly due to a lesser tax benefit derived from restricted stock vesting and higher pre-tax income.

Current wording

Income taxes. Our income tax provision for the year ended December 31, 2023 was $9.6 million, or 27.1% of pre-tax income compared to $3.8 million, or 23.1% of pre-tax income for the year ended December 31, 2022. During the year ended December 31, 2023, the increase in effective tax rate was mainly due to a lesser tax benefit derived from restricted stock vesting and higher pre-tax income.

Previous wording

Operating income was $47.6 million and $49.5 million for the fiscal years ended December 31, 2023 and 2022, respectively. The change year-over-year was mainly driven by the following factors:

Current wording

Operating income was $63.6 million and $48.0 million for the fiscal years ended December 31, 2024 and 2023, respectively. The change year-over-year 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 has exercised an option to terminate the lease on December 8, 2023 and the Company has since determined not to pursue relocating the campus in this geographic region. The campus has been fully taught-out, and total costs to close the campus were approximately $2.0 million.

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 has exercised an option to terminate the lease on December 8, 2023 and the Company has since determined not to pursue relocating the campus in this geographic region. The campus has been fully taught-out, and total costs to close the campus were approximately $2.0 million. Additionally, statement of operations information for the Summerlin, Las Vegas campus for the years ended December 31, 2023 and 2022, respectively, has been included in the Transitional segment revenue and operating expense information for comparability.

Previous wording

This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses were $43.2 million and $33.0 million after excluding a $30.9 million gain in the current year, resulting from the sale of our Nashville, Tennessee property and a $0.2 million gain in the prior year driven by the sale of our former campus property in Suffield, Connecticut. Increased costs were driven by several factors including additional performance-based incentives, stock-based compensation, and an increase in legal costs.

Current wording

This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses were $43.2 million and $33.0 million after excluding a $30.9 million gain in 2023, resulting from the sale of our Nashville, Tennessee property and a $0.2 million gain in 2022 driven by the sale of our former campus property in Suffield, Connecticut. Increased costs were driven by several factors including additional performance-based incentives, stock-based compensation, and an increase in legal costs.

Previous wording

Our primary capital requirements are for maintenance and expansion of our facilities and the development of new programs. Our principal sources of liquidity have been cash provided by operating activities, prior to the termination thereof (described below), borrowings under our credit facility. The following chart summarizes the principal elements of our cash flow for each of the two fiscal years in the period ended December 31, 2023:

Current wording

Our primary capital requirements are for maintenance and expansion of our facilities and the development of new programs. Our principal source of liquidity has been cash provided by operating activities. The following chart summarizes the principal elements of our cash flow for each of the three fiscal years in the period ended December 31, 2024:

Previous wording

As of December 31, 2023, the Company had $80.3 million in cash and cash equivalents and restricted cash, compared to $50.3 million in cash and cash equivalents and restricted cash, including $14.7 million in short-term investments as of December 31, 2022. The change in cash position from prior year was primarily driven by several factors including the sale of our Nashville, Tennessee property, which yielded approximately $33.3 million in proceeds, cashflow generated from operations of $25.9 million, and an increase of $2.1 million relating to additional interest income driven by the investment of cash reserves into various short-term investment vehicles during the year ended December 31, 2023. Partially offsetting the increase in cash position were investments of $41.2 million in capital expenditures, which includes the buildout of the new East Point, Georgia campus and the purchase of the new Levittown, Pennsylvania property for approximately $10.2 million on September 28, 2023. Also contributing to the change in cash year-over-year were incentive compensation payments, share repurchases made under the share repurchase program, and one-time costs incurred in connection with the teach-out of our Somerville, Massachusetts campus.

Current wording

As of December 31, 2023, the Company had $80.3 million in cash and cash equivalents and restricted cash, compared to $50.3 million in cash and cash equivalents and restricted cash, including $14.7 million in short-term investments as of December 31, 2022. The change in cash position from the prior year was primarily driven by several factors including the sale of our Nashville, Tennessee property, which yielded approximately $33.3 million in proceeds, cash flow generated from operations of $25.9 million, and an increase of $2.1 million relating to additional interest income driven by the investment of cash reserves into various short-term investment vehicles during the year ended December 31, 2023. Partially offsetting the increase in cash position were investments of $41.2 million in capital expenditures, which includes the buildout of the new East Point, Georgia campus and the purchase of the new Levittown, Pennsylvania property for approximately $10.2 million on September 28, 2023. Also contributing to the change in cash year-over-year were incentive compensation payments, share repurchases made under the share repurchase program, and one-time costs incurred in connection with the teach-out of our Somerville, Massachusetts campus.

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. On February 27, 2023, the Board of Directors extended the share repurchase program for an additional 12 months and authorized the repurchase of an additional $10.0 million of the Company’s Common Stock, for an aggregate of up to $30.6 million in additional repurchases. As of December 31, 2023, the Company has approximately $29.7 million remaining for repurchases.

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

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 82% of our cash receipts relating to revenues in 2024. 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

Net cash provided by operating activities was $25.5 million for the fiscal year ended December 31, 2023 compared to $0.8 million in the prior year comparable period. The $24.7 million increase was driven by several factors including a $12.0 million increase in accrued expenses primarily driven by additional performance-based incentives in the current year as a result of improved financial performance in addition to a $13.6 million change in accounts receivable, also considering the provision for credit losses and unearned tuition. Increases in accounts receivable were primarily driven by a $29.8 million increase in revenue year-over-year.

Current wording

Net cash provided by operating activities for the years ended December 31, 2023 and 2022 was $25.5 million and $0.8 million, respectively. The $24.7 million increase was driven by several factors including a $12.0 million increase in accrued expenses, primarily driven by additional performance-based incentives in the current year as a result of improved financial performance, in addition to a $13.6 million change in accounts receivable, also considering the provision for credit losses and unearned tuition. Increases in accounts receivable were primarily driven by a $29.8 million increase in revenue year-over-year.

Previous wording

Net cash provided by investing activities was $7.3 million for the fiscal year ended December 31, 2023 compared to net cash used in investing activities of $21.4 million in the prior year comparable period. The increase of $28.7 million was driven by several factors including a $30.9 million increase in proceeds from the sale of property and equipment driven by the sale of our Nashville, Tennessee property during the second quarter of 2023, in addition to an increase in net proceeds from investments of $29.5 million. Partially offsetting the cash inflows was an increase in investments in capital expenditures of $31.7 million, which was primarily driven by the buildout of the new East Point, Georgia campus and the purchase of the new Levittown, Pennsylvania property for approximately $10.2 million, which was consummated on September 28, 2023.

Current wording

Net cash provided by investing activities was $7.3 million for the fiscal year ended December 31, 2023, compared to net cash used in investing activities of $21.4 million for the fiscal year ended December 31, 2022. The increase of $28.7 million was driven by several factors including a $30.9 million increase in proceeds from the sale of property and equipment driven by the sale of our Nashville, Tennessee property during the second quarter of 2023, in addition to an increase in net proceeds from investments of $29.5 million. Partially offsetting the cash inflows was an increase in investments in capital expenditures of $31.7 million, which was primarily driven by the buildout of the new East Point, Georgia campus and the purchase of the new Levittown, Pennsylvania property for approximately $10.2 million, which was consummated on September 28, 2023.

Previous wording

Capital expenditures were 11.0% of revenues in 2023 and are expected to be approximately 15% 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 area campus, additional space, the planned introduction of three new programs at the Lincoln, Rhode Island campus, and the anticipated introduction of new programs at five other campuses. We expect to fund future capital expenditures with cash generated from operating activities and cash on hand.

Current wording

Capital expenditures were 13.1% of revenues in 2024 and are expected to be approximately 16.0% of revenues in 2025. The 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 the Nashville, Tennessee, Levittown, Pennsylvania, Houston, Texas and Hicksville, New York campuses. In addition, we plan to invest $2.5 million into expanding programs at the Melrose, Illinois and Allentown, Pennsylvania campuses and we plan to invest an additional $20.0 million for educational equipment, real estate improvements, and information technology across various 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 fiscal year ended December 31, 2023 and 2022 was $2.9 million and $12.5 million, respectively. The decrease in cash used of $9.6 million was primarily driven by a $8.5 million reduction in repurchases made under the Company’s share repurchase program in the current year, in addition to $1.1 million of dividend payments made in the prior year.

Current wording

Net cash used in financing activities for the fiscal years ended December 31, 2023 and 2022 was $2.9 million and $12.5 million, respectively. The decrease in cash used of $9.6 million was primarily driven by a $8.5 million reduction in repurchases made under the Company’s share repurchase program in the current year, in addition to $1.1 million of dividend payments made in the prior 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. See Part II. Item 8. “Financial Statements and Supplemental Data - Notes to Consolidated Financial Statements – Note 19 Subsequent Events”.

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, 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.

Previous wording

As of December 31, 2023, there were three new leases and five lease modifications that resulted in noncash re-measurements of the related right-of-use asset and operating lease liability of $10.5 million. In addition, during the fourth quarter of 2023, the Company entered into a finance lease and recorded a $16.0 million Right of Use (“ROU”) Asset and liability.

Current wording

As of December 31, 2024, the Company entered into one new operating lease, one new finance lease, and eleven lease modifications. The Company obtained the operating and finance Right of Use (“ROU”) asset in exchange for an operating and finance lease liability of $15.7 million and $12.6 million, respectively. In addition, the eleven lease modifications resulted in a noncash re-measurement of the related ROU asset and operating lease liability of $43.3 million.