This Annual Report on Form 10-K and the documents incorporated by reference contain “forward-looking statements,” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources. These forward-looking statements include, without limitation, statements
regarding: proposed new programs; expectations that regulatory developments or other matters will or will not have a material adverse effect on our consolidated financial position, results of operations or liquidity; statements concerning
projections, predictions, expectations, estimates or forecasts as to our business, financial and operating results and future economic performance; and statements of management’s goals and objectives and other similar expressions concerning matters
that are not historical facts. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in
future tense, identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results
will be achieved. Forward-looking statements are based on information available at the time those statements are made and/or management’s good faith belief as of that time with respect to future events, and are subject to risks and uncertainties
that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
Forward-looking statements speak only as of the date the statements are made. Except as required under the federal securities laws and rules and regulations of the United States Securities and Exchange Commission, we
undertake no obligation to update or revise forward-looking statements to reflect actual results, changes in assumptions or changes in other factors affecting forward-looking information. We caution you not to unduly rely on the forward-looking
statements when evaluating the information presented herein.
Our business is organized into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare and Other Professions (“HOPS”), and (c) Transitional, which refers to campuses that have been marked for closing and are
currently being taught out. On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus by the end of 2023. As of December 31, 2022, the Somerville campus is the
only campus classified in the Transitional Segment.
On June 30, 2022, the Company executed a lease for a 55,000 square foot facility to house a second Atlanta, Georgia area campus. The build-out is continuing to advance according to plan and for the year ended December 31, 2022, the Company
incurred approximately $0.4 million in capital expenditures, mostly relating to architectural fees and approximately $0.3 million in rent.
As of December 31, 2022, we had 12,388 students enrolled at 22 campuses. Our average enrollment for the fiscal year ended December 31, 2022 was 12,894 students and our revenues were $348.3 million, which represented an
increase of 3.9% 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.
We strive to strengthen our position as a leading provider of career‑oriented post-secondary education by continuing to pursue the following strategy:
We utilize a variety of marketing and recruiting methods to attract students and increase enrollment. Our marketing and recruiting efforts are targeted at prospective students who are high school graduates entering the
workforce, or who are currently underemployed or unemployed and require additional training to enter or re-enter the workforce.
We believe that each of our employees plays an important role in our enterprise. This is particularly true of our faculty. We are focused on attracting and retaining the highly qualified personnel needed to support our
objectives of providing superior education in the programs that our schools provide. We believe that the diversity and inclusion of our personnel is an essential component for providing a meaningful student experience by drawing upon a variety of
backgrounds and experiences.
Our Board of Directors regularly reviews with management the following areas regarding our human capital management:
Our schools typically are staffed by a school president, a director of career services, a director of education, a director of administrative services, a director of admissions and, of course, a variety of instructors,
all of whom are industry professionals with experience in the areas of study at that particular school.
Our average student to teacher ratio was approximately 16 to 1 during the fiscal year ended December 31, 2022.
We strive to create a culture of diversity and inclusion through our human capital management practices. The achievement of workforce diversity is one important goal in the outreach efforts for recruitment of
professionals. As a result, since January 1, 2018, our diverse workforce percentage has increased from 33.5% to 42.9%. Further, the generational range of our workforce, as of December 31, 2022, was 26% Baby Boomers, 41% Gen Xers and 24%
Millennials. The largest growth in the generational workforce makeup was in the Millennial and Gen Z groups. Our human resources programs work to eliminate discrimination and harassment in all forms and our Human Resources Department has
established a diversity and inclusion policy intended to assist us in meeting our goals of establishing an environment of inclusion and opportunity in hiring, promotions, training and development, working conditions and compensation.
The Company employs a staff to attract and engage talent and applies fully integrated recruiting software to track and manage hiring processes for our campuses and corporate functions. We hire our faculty in accordance
with established criteria, including relevant work experience, educational background and accreditation and state regulatory standards. We require meaningful industry experience of our teaching staff in order to maintain the high quality of
instruction in all of our programs that we expect and to address current and industry-specific issues in our course content. In addition, we provide intensive instructional training and continuing education, including quarterly instructional
development seminars, annual reviews, technical upgrade training, faculty development plans and weekly staff meetings.
The Company acknowledges the relevance of managing productivity and efficiency of its workforce. The Company uses current technology resources for sales and student services tasks, education support, graduate placement
services, and internal talent management. Through the application of these technology tools, productivity data is obtained for key positions and used for process improvement, training, and evaluative purposes.
The Company recognizes the value to both the Company and our students of employee knowledge and skill development throughout their careers and of preparing current employees for succession opportunities. Therefore,
employees receive position-based training, as well as online access to a multitude of programs designed to support their effectiveness and growth potential. The Company identifies high-performing employee participants for acceleration training
programs to develop internal candidates for succession opportunities in key functions.
We believe that we have good relationships with all of our employees. At six of our 22 campuses, the teaching professionals are represented by various unions. These approximately 200 employees are covered by collective bargaining agreements
that expire between 2023 and 2025. Those agreements expiring in the short term are in the process of renegotiation. We believe that we have good relationships with these unions and with the employees covered by
these collective bargaining agreements and do not foresee issues with entering into satisfactory new agreements.
We believe that our management team has the experience necessary to effectively implement our growth strategy and continue to drive positive educational and employment outcomes for our students. For a discussion of the
risks relating to the attraction and retention of management and executive management employees, see Item 1A. “Risk Factors.”
The for-profit, post-secondary education industry is highly competitive and highly fragmented with no one provider controlling significant market share. Direct competition between career-oriented schools like ours and
traditional four-year colleges or universities is limited. Thus, our main competitors are other for-profit, career-oriented schools, not-for-profit public schools and private schools, and public and private two-year junior and community colleges,
most of which are eligible to receive funding under the federal programs of student financial aid authorized by Title IV Programs. Competition is generally based on location, the type of programs offered, the quality of instruction, placement
rates, reputation, recruiting and tuition rates; therefore, our competition is different in each market depending on, among other things, the availability of other options. Public institutions are generally able to charge lower tuition than our
schools, due in part to government subsidies and other financial sources not available to for-profit schools. In addition, some of our other competitors have a more extensive network of schools and campuses, which enables them to recruit students
more efficiently from a wider geographic area. Nevertheless, we believe that we are able to compete effectively in our local markets because of the diversity of our program offerings, quality of instruction, the strength of our brands, our
reputation and our graduates’ success in securing employment after completing their programs of study.
Our competition differs in each market depending on the curriculum that we offer. For example, a school offering automotive technology, healthcare services and skilled trades programs will have a different group of
competitors than a school offering healthcare services and IT technology programs. Also, because schools can add new programs within six to 12 months, competition can emerge relatively quickly. Moreover, with the introduction of online education,
the number of competitors in each market has increased because students can now attend classes from an online institution. On average, each of our schools has at least three direct competitors and at least a dozen indirect competitors.
We use limited amounts of hazardous materials at our training facilities and campuses, and generate small quantities of regulated waste such as used oil, antifreeze, paint and car batteries. As a result, our facilities
and operations are subject to a variety of environmental laws and regulations governing, among other things, the use, storage and disposal of solid and hazardous substances and waste, and the clean-up of contamination at our facilities or off-site
locations to which we send or have sent waste for disposal. We are also required to obtain permits for our air emissions and to meet operational and maintenance requirements at certain of our campuses. In the event we do not maintain compliance
with any of these laws and regulations, or are responsible for a spill or release of hazardous materials, we could incur significant costs for cleanup or damages and fines or penalties. Climate change has not had and is not expected to have a
significant impact on our operations.
The education industry is highly regulated by a wide range of federal and state agencies as well as institutional and program-based accrediting agencies including the DOE. The vast regulatory schemes to which our
industry is subject covers a significant portion of our operations such as our programs, instructional staff, administrative procedures, marketing and recruiting efforts and facilities, among other things. The various regulatory bodies applicable
to our business periodically issue new requirements and revise existing requirements and modify their interpretations of existing requirements. These regulatory requirements also impact our ability to expand our existing campuses, acquire new
campuses and revise and expand upon our existing programs or institute new programs.
We also are subject to oversight by other federal agencies including the Consumer Financial Protection Bureau (“CFPB”), the Securities and Exchange Commission (“SEC”), the Federal Trade Commission (“FTC”), the Internal
Revenue Service and the Departments of Veterans Affairs (“VA”), Defense (“DOD”), Treasury, Labor, and Justice. The following discussion provides a description of the regulatory scheme to which we are subject. We cannot predict how any of the
regulatory requirements to which we are subject will be applied or whether each of our schools will be able to comply with such requirements in the future.
Also, all of our schools are currently offering both online and in-person learning and accrediting agencies and some state bodies require schools to obtain approval and meet certain requirements in order to offer programs
via distance education in states where the school does not have a campus. The DOE also generally requires schools that offer a program through distance education to students in a state in which the school is not physically located to meet the
requirements of the state in order to offer programs by distance education in the state. All of our schools are currently approved to offer both distance and in-person learning.
To operate and offer postsecondary programs (including in-person and online programs, degree and diploma programs and certificate programs), and to be certified to participate in Title IV Programs, each of our schools
must be authorized and maintain authorization from the state in which it is physically located. Further, in order for a school to engage in educational or recruiting activities outside of its state of physical location, that school also may be
required to obtain and maintain authorization from the states in which it is recruiting students and teaching programs. The level of regulatory oversight varies substantially from state to state and is extensive in some states. State laws may
establish standards for instruction, qualifications of faculty, location and nature of facilities and equipment, administrative procedures, marketing, recruiting, student outcomes reporting, disclosure obligations to students, limitations on
mandatory arbitration clauses in enrollment agreements, financial operations, and other operational matters. Some states prescribe standards of financial responsibility and mandate that institutions post surety bonds. We have posted surety bonds on
behalf of our schools and education representatives with multiple states in an aggregate amount of approximately $15.3 million. Currently, each of our schools is authorized by the applicable state education agencies in the states in which the
school is physically located and in which it recruits students.
If any of our schools fail to comply with state licensing requirements, they may be subject to the loss of state licensure or authorization. If any one of our schools lost its authorization from the education agency of
the state in which the school is located, or failed to comply with the DOE’s state authorization requirements, that school would lose its eligibility to participate in Title IV Programs, the Title IV Program eligibility of its related additional
locations could be affected, the impacted schools would be unable to offer its programs, and we could be forced to close the schools. If one of our schools lost its state authorization from a state other than the state in which the school is
located, the school would not be able to recruit students or to operate in that state.
Accreditation is a non-governmental process through which a school submits to ongoing qualitative and quantitative review by an organization of peer institutions. Accrediting agencies primarily examine the academic
quality of the school’s instructional programs, and a grant of accreditation is generally viewed as confirmation that the school’s programs meet generally accepted academic standards. Accrediting agencies also review the administrative and
financial operations of the schools they accredit to ensure that each school has the resources necessary to perform its educational mission.
Accreditation by an accrediting agency recognized by the DOE is required for an institution to be certified to participate in Title IV Programs. In order to be recognized by the DOE, accrediting agencies must adopt
specific standards for their review of educational institutions. As of December 31, 2022, all 22 of our campuses are nationally accredited by the Accrediting Commission of Career Schools and Colleges (the “ACCSC”). On October 28, 2021, the DOE
announced that it had notified ACCSC that a decision on the recognition by the DOE of ACCSC as an accrediting agency was being deferred pending the submission of additional information about ACCSC’s monitoring, evaluation, and actions related to
high-risk institutions. The DOE regulations indicate that ACCSC may appeal an adverse decision to the DOE Secretary and potentially to federal court.
If the DOE withdraws the recognition of an accrediting agency, the HEA indicates that the DOE may continue the eligibility of qualified institutions accredited by the accrediting agency for a period of up to 18 months from the date of the
withdrawal of the DOE’s recognition of the accrediting agency. If provided, this period would provide time for institutions to apply for accreditation from another DOE-recognized accrediting body. The DOE could impose provisional certification and
other conditions and restrictions on such institutions during this time period. If the DOE declines to continue its recognition of ACCSC and if the subsequent period for obtaining accreditation from another DOE-recognized accrediting agency lapses
before we obtain accreditation from another DOE-recognized accrediting agency (or if the DOE does not provide such a period for institutions to obtain other accreditation), our schools could lose Title IV eligibility.
The following is a list of the dates on which each campus was accredited by its accrediting commission and the date by which its accreditation must be renewed.
If one of our schools fails to comply with accrediting commission requirements, the institution and its main and/or branch campuses are subject to the loss of accreditation or may be placed on probation or a special
monitoring or reporting status which, if the noncompliance is not resolved, could result in loss of accreditation or restrictions on the addition of new locations, new programs, or other substantive changes. If any one of our schools loses its
accreditation, students attending that school would no longer be eligible to receive Title IV Program funding.
The DOE recently announced its intention to commence a negotiated rulemaking process in April 2023 on a number of topics including amendments to the regulations on accreditation, including regulations
associated with the standards relating to the DOE’s recognition of accrediting agencies and accreditation procedures as a component of institutional eligibility for participation in the Title IV Program.
Programmatic accreditation is yet another approval necessary in certain circumstances. Specifically, it is the process through which specific programs are reviewed and approved by industry and program-specific
accrediting entities. Although programmatic accreditation is not generally necessary for Title IV Program eligibility, such accreditation may be required to allow students to sit for certain licensure exams or to work in a particular profession or
career or to meet other requirements.
As noted above, the federal government provides a substantial part of the financial support for post-secondary education through Title IV Programs, in the form of grants and loans to students who can use those funds at
any institution that has been certified as eligible by the DOE. Most aid under Title IV Programs is awarded on the basis of financial need, generally defined as the difference between the cost of attending the institution and the expected amount a
student and his or her family can reasonably contribute to that cost. A recipient of Title IV Program funds must maintain a satisfactory grade point average and progress in a timely manner toward completion of his or her program of study and must
meet other applicable eligibility requirements for the receipt of Title IV Program funds. In addition, each school must ensure that Title IV Program funds are properly accounted for and disbursed in the correct amounts to eligible students and
provide reports on recipient data.
Some of our students receive financial aid from federal sources other than Title IV Programs, such as programs administered by the VA. In addition, some states also provide financial aid to our students in the form of
grants, loans or scholarships. The eligibility requirements for state financial aid and these other federal aid programs vary among the funding agencies and by program. States that provide financial aid to our students are facing significant
budgetary constraints and some of them have reduced the level of state financial aid available to our students. Due to state budgetary shortfalls and constraints in certain states in which we operate, we believe that the overall level of state
financial aid for our students is likely to continue to decrease in the near term, but we cannot predict how significant any such reductions will be or how long they will last. Federal budgetary shortfalls and constraints, or decisions by federal
lawmakers to limit or prohibit access by our institutions or their students to federal financial aid, could result in a decrease in the level of federal financial aid for our students.
In fiscal year 2022, we derived approximately 74% of our revenues, on a cash basis, from veterans’ benefits programs, which include the Post-9/11 GI Bill and Veteran Readiness and Employment services. To continue
participation in veterans’ benefits programs, an institution must comply with certain requirements established by the VA, including that the institution must, among other things, report on the enrollment status of eligible students, maintain
student records and make such records available for inspection, follow rules applicable to the individual benefits programs, comply with rules applicable to distance education and hybrid programs, and comply with applicable limits on the percentage
of students having a portion of their tuition or other institutional charges paid by the school or with certain veterans’ benefits.
The VA shares responsibility for VA benefit approval and oversight with designated State Approving Agencies (“SAAs”). SAAs play a critical role in evaluating institutions and their programs to determine if they meet VA
benefit eligibility requirements. Processes and approval criteria, as well as interpretation of applicable requirements, can vary from state to state. Therefore, approval in one state does not necessarily result in approval in all states.
The VA imposes limitations on the percentage of students per program who have a portion of their tuition or other institutional charges paid by the school or with certain veterans’ benefits, unless the program qualifies
for certain exemptions. If the VA determines that a program is out of compliance with these limitations, the VA will continue to provide benefits to current students, but new students will not be eligible to use their veterans’ benefits for an
affected program until we demonstrate compliance. Additionally, the VA requires a campus be in operation for two years before it can apply to participate in VA benefit programs. All of our campuses are eligible to participate in VA education
benefit programs.
During 2012, President Obama signed an Executive Order directing the U.S. Department of Defense (“DOD”), the VA and DOE to establish “Principles of Excellence” (“Principles”), based on certain guidelines set forth in the
Executive Order, to apply to educational institutions receiving federal funding for service members, veterans and family members. As requested, we provided written confirmation of our intent to comply with the Principles to the VA in June 2012. We
are required to comply with the Principles to continue recruitment activities on military installations. Additionally, there is a requirement to execute a memorandum of understanding (“MOU”) with the
DOD as well as with certain individual installations. Each of our institutions has an MOU with the DOD. If our campuses fail to comply with VA, DOD, SAA, and other requirements applicable to financial aid programs for
veterans or active military members, our schools and students could lose access to this funding or could be subject to restrictions or conditions on ability to receive such funding.
Each institution must periodically apply to the DOE for continued certification to participate in Title IV Programs. The institution also must apply for recertification when it undergoes a change in ownership resulting in
a change of control and may come under DOE review when it undergoes a substantive change that requires the submission of an application, such as opening an additional location or raising the highest academic credential it offers. All institutions
are recertified on various dates for various periods of time. The following table sets forth the expiration dates for each of our institutions’ current Title IV Program participation agreements:
The DOE typically provides provisional certification to an institution following a change in ownership resulting in a change of control and also may provisionally certify an institution for other reasons, including, but not limited to,
noncompliance with certain standards of administrative capability and financial responsibility. The DOE provisionally certified all of our institutions based on findings in recent audits of each institution’s Title IV Program compliance that the
DOE alleges identified deficiencies related to DOE regulations regarding an institution’s level of administrative capability. An institution that is provisionally certified receives fewer due process rights than those received by other
institutions in the event the DOE takes certain adverse actions against the institution, is required to obtain prior DOE approvals of new campuses and educational programs, and may be subject to heightened scrutiny by the DOE. Provisional
certification makes it easier for the DOE to revoke or decline to renew our Title IV eligibility if the DOE under the new administration chooses to take such an action against us and other provisionally certified for-profit schools without
undergoing a formal administrative appeal process. The DOE could attempt to use an institution’s provisional certification as a basis for imposing additional conditions or restrictions on the institution, However, provisional certification does
not otherwise limit an institution’s access to Title IV Program funds. The DOE previously initiated a negotiated rulemaking process that was considering, among other issues, establishing rules to authorize additional conditions and restrictions on
provisionally certified institutions. See “Regulatory Environment – Negotiated Rulemaking.” After announcing a delay in this process in June 2022, the DOE announced in January 2023 its intention to publish proposed rules on this subject in April
2023.
As noted above, the DOE is responsible for overseeing compliance with Title IV Program requirements. As a result, each of our schools is subject to detailed oversight and review, and must comply with a complex framework
of laws and regulations. Additionally, the DOE periodically revises its regulations and changes its interpretation of existing laws and regulations.
Significant factors relating to Title IV Programs that could adversely affect us include the following:
Congressional Action. Political and budgetary concerns significantly affect Title IV Programs. Congress periodically revises the HEA and other laws governing
Title IV Programs. It is not known if or when Congress will pass final legislation that comprehensively reauthorizes and amends the HEA or other laws affecting U.S. federal student aid.
In addition, Congress reviews and determines federal appropriations for Title IV Programs on an annual basis. Congress can also make changes in the laws affecting Title IV Programs in the annual appropriations
bills and in other laws it enacts between the HEA reauthorizations such as its recent amendment to the 90/10 rule in the HEA. See “Regulatory Environment – 90/10 Rule.” Because a significant percentage of our revenues are derived from Title IV
Programs, any action by Congress or the DOE that significantly reduces Title IV Program funding, that limits or restricts the ability of our schools, programs, or students to receive funding through
the Title IV Programs, or that imposes new restrictions or constraints upon our business or operations could reduce our student enrollment and our revenues, and could increase our administrative costs
and require us to modify our practices in order for our schools to comply fully with Title IV Program requirements. The potential for changes that may be adverse to us and other for-profit schools like ours may increase as a result of changes
in political leadership. Further, current requirements for student or school participation in Title IV Programs may change or one or more of the present Title IV Programs could be replaced by other programs with materially different
student or school eligibility requirements.
Gainful Employment. In October 2014, the DOE issued final gainful employment regulations requiring each educational program
offered by our institutions to achieve threshold rates in at least one of two debt measure categories related to an annual debt to annual earnings ratio and an annual debt to discretionary income ratio. In
2019, the DOE rescinded the gainful employment regulations. The DOE initiated a negotiated rulemaking process in January 2022 that was considering, among other issues, establishing new gainful employment requirements that would be applicable
to all of our educational programs. After announcing a delay in this process in June 2022, the DOE recently announced its intention to publish proposed rules on this subject in April 2023. The implementation of new gainful employment
regulations could require us to eliminate or modify certain educational programs, could result in the loss of our students’ access to Title IV Program funds for the affected programs, and could have a significant impact on the rate at which
students enroll in our programs and on our business and results of operations.
Borrower Defense to Repayment Regulations. The DOE’s current Borrower Defense to Repayment regulations establish processes for borrowers to receive from the DOE a discharge of the
obligation to repay certain Title IV Program loans based on certain acts or omissions by the institution or a covered party. The current regulations also establish processes for the DOE to seek recovery from the institution of the amount of
discharged loans.
On November 1, 2022, the DOE published final regulations on Borrower Defense to Repayment and other topics with a general effective date of July 1, 2023. The final regulations are extensive and generally make it easier for borrowers to
obtain discharges of student loans and for the DOE to assess liabilities and other sanctions on institutions based on the loan discharges. Among other things, the final regulations establish a new process and standard for evaluating borrower
applications for loan discharges that would apply to all claims submitted or pending as of the anticipated July 1, 2023 effective date of the regulations. The new process and standard differ from the prior regulations that established a
separate process and standard for each of three categories of loans depending on the date the loans were disbursed to students (i.e., prior to July 1, 2017, between July 1, 2017 and June 30, 2020, and on or after July 1, 2020). As a result,
the new process and standard will apply not only to loans disbursed on or after July 1, 2023, but also to older loans as long as the discharge requests are still pending as of July 1, 2023 or are submitted on or after July 1, 2023.
The final DOE regulations continue to permit the imposition of liabilities on institutions for the amount of discharged loans. For loans disbursed prior to July 1, 2023, the DOE indicated that it will not use the same standard for
determining institutional liabilities under the new regulations as it will use for determining whether to discharge the loans. Instead, the DOE indicated that it will seek recoupment from an institution for such loans only if they would have
been discharged under the standards used under current regulations based on the date the loans were disbursed to students. However, the new regulations will make it easier for the DOE to recover from the institution the liabilities that the
DOE elects to impose.
The new regulations also expand the types of conduct that could result in a discharge of student loans including: 1) an expanded list of substantial
misrepresentations; 2) a new section regarding substantial omissions of fact; 3) breaches of contract; 4) a new section regarding aggressive and deceptive recruitment; or 5) state or federal judgments or final DOE actions that could result in
a borrower defense claim. Some of these forms of conduct also could result in other sanctions against the institutions. See Part I, Item 1. “Business – Regulatory Environment – Substantial Misrepresentation.” The new regulations also make
it easier for borrowers to qualify for loan discharges by enabling the DOE to permit group consideration of borrower claims under certain circumstances either on its own initiative or at the request of state requestors or certain third-party
legal assistance organizations (which could enable the DOE to evaluate and rule on a broad group of claims more quickly than evaluating the claims individually), establishing a rebuttable presumption that borrowers in a group claim reasonably
relied on (and were impacted by) acts or omissions giving rise to a borrower defense, establishing a Borrower Defense to Repayment claim based on a separate state law standard if the DOE does not approve claims based on one of the other types
of conduct for borrowers with loans first disbursed prior to July 1, 2017, and providing the DOE with the discretion to reopen its decisions at any time in accordance with regulatory requirements
The new regulations also reinstitute a general prohibition on institutions requiring borrowers to agree to mandatory pre-dispute arbitration agreements and requiring students to waive the ability to participate in a class-action lawsuit with
respect to a borrower defense claim. The new regulations also require institutions to disclose publicly and notify the DOE of judicial and arbitration filings and awards pertaining to borrower defense claims. The new regulations also include
provisions on other topics including public service loan forgiveness, eliminating capitalization on student loans in some cases, total and permanent disability discharges, and closed school loan discharges (see “Closed School Loan Discharges”),
and false certification discharges (e.g., when an institution falsely certifies an ineligible student’s eligibility for loans).
We are in the process of evaluating the impact of these new and complex regulations on our business and the changes from the proposed regulations, but the final regulations impose new
requirements and processes that will make it easier for borrowers to obtain discharges of their loans and for the DOE to recover liabilities from institutions and impose other sanctions. See Part I, Item 1. “Business – Regulatory Environment –
Negotiated Rulemaking.”
In April 2021, the Company received communication from the DOE indicating that the DOE was in receipt of a number of borrower defense applications containing allegations concerning our schools and requiring that the DOE undertake a
fact-finding process pursuant to DOE regulations. Among other things, the communication outlines a process by which the DOE would provide to us the applications and allow us the opportunity to submit responses to them. Further, the communication
outlines certain information requests, relating to the period between 2007 and 2013, in connection with the DOE’s preliminary review of the borrower defense applications. Based upon publicly available information, it appears that the DOE has
undertaken similar reviews of other educational institutions which have also been the subject of various borrower defense applications. We have received the borrower application claims and have completed the process of thoroughly reviewing and
responding to each borrower application as well as providing information in response to the DOE’s requests.
We are not able to predict the outcome of the DOE’s review at this time. If the DOE disagrees with our legal and factual grounds for contesting the applications, the DOE may impose liabilities on the Company based on the discharge of the loans
at issue in the pending applications, which could have a material adverse effect on our business and results of operations. If the proposed Borrower Defense to Repayment regulations take effect on July 1, 2023, and if any or all of the Borrower
Defense to Repayment applications remain pending, the DOE could attempt to apply the new regulations to the pending applications which could increase the likelihood of the DOE granting the application because the proposed regulations are more
favorable to borrowers.
In August 2022, the Company received communication from the DOE regarding a single borrower defense application submitted on behalf of a group of students who were enrolled in a single educational program at two of our schools in Massachusetts
between 2010 and 2013. The communication, which did not state who submitted the application or when it was submitted, asked us to submit a response within 60 calendar days. We timely responded to the DOE’s letter, notwithstanding the absence of
a response to our request for additional information about the student claims. We are waiting for the DOE’s reply to our response and to our request for information about the student claims. Given the early stage of this matter, management is
not able to predict the outcome of the DOE’s review at this time. If the DOE disagrees with our legal and factual grounds for contesting the application, the DOE may impose liabilities on the Company based on the discharge of the loans at issue
in the pending application, which could have a material adverse effect on our business and results of operations.
On June 22, 2022, the DOE and the plaintiffs in a lawsuit before a federal court in California submitted a proposed settlement agreement to the court. The plaintiffs contend, among other things, that the DOE failed to
timely decide and resolve Borrower Defense to Repayment applications submitted to the DOE. If approved, the settlement would result in full discharge and refund payments to covered student borrowers who have asserted a Borrower Defense to
Repayment to the DOE and whose borrower defense claims have not yet been granted or denied on the merits.
The lawsuit, Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.), is a class action filed on June 25, 2019 against the DOE in the U.S. District Court for
the Northern District of California submitted by a group of students, none of whom attended any of our institutions. We were not a party to the lawsuit when it was filed. The plaintiffs requested that the court compel the DOE to start
approving or denying the pending applications. The court granted class certification and defined the class of plaintiffs generally to include all people who borrowed a Title IV Direct loan or FFEL loan, who have asserted a Borrower Defense to
Repayment claim to the DOE, and whose borrower defense claim has not been granted or denied on the merits. We have not received notice or confirmation directly from the DOE of the number of student borrowers who have submitted Borrower Defense
to Repayment claims related to our institutions.
The proposed settlement agreement includes a long list of institutions, including Lincoln Technical Institute and Lincoln College of Technology. Under the proposed settlement, the DOE would agree to discharge loans and
refund all prior loan payments to each class member with loan debt associated with an institution on the list (which includes our institutions), including borrowers whose applications the DOE previously denied after October 30, 2019. The DOE and
the plaintiffs stated in a court filing that this provision is intended to provide for automatic relief for students at the listed schools which the DOE estimates to total 200,000 class members. We anticipate that the DOE believes that the class
includes the borrowers with claims to which we have submitted responses to the DOE although it is possible that the class also includes borrowers with claims for which we have not received notice from the DOE or an opportunity to respond. The
parties also stated that the DOE has determined that attendance at one of the institutions on the list justifies presumptive relief based on strong indicia regarding substantial misconduct by the institutions, whether credibly alleged or in some
instances proven, and the high rate of class members with applications related to the listed schools. The proposed settlement agreement provides a separate process for reviewing claims associated with schools that are not on the list. It is
unclear whether the DOE would seek to impose liabilities on us or other schools or take other actions or impose other sanctions on us or other schools based on relief provided to students under the proposed settlement agreement (particularly if
the DOE provides relief without evaluating or accounting for legal and factual information provided to the DOE by us and other schools or without providing us and other schools with notice and an opportunity to respond to some of the claims).
In July 2022, the Company and certain other school companies submitted motions to intervene in the lawsuit in order to protect our interests in the finalization and implementation of any settlement agreement that the
court might approve. We noted in the motion that the proposed settlement agreement introduced, for the first time, the prospect that the DOE would “automatically” and fully discharge loans and refund payments to student borrowers without
adjudication of the merits of the students’ borrower-defense applications in accordance with the DOE’s borrower-defense regulations and without ensuring that we and other institutions can defend against allegations asserted in individual
borrower-defense applications. In addition, we also asserted that it would be unlawful and inappropriate if the DOE sought recoupment against us based on loans that were forgiven under the proposed settlement agreement without providing us with
an opportunity to address the claims or accounting for our responses to the claims already submitted which we believe is required by the regulations. We also asserted that the lawsuit and the potential loan discharges could result in
reputational harm to us and our institutions and could result in other actions against us by other federal and state agencies or by current and former students.
The court granted preliminary approval of the proposed settlement agreement on August 4, 2022, and also granted our motion for permissive intervention for the purpose of objecting to and opposing the class action
settlement. On September 22, 2022, the DOE and the plaintiffs filed a joint motion for final approval of the settlement. In that joint motion, the DOE and the plaintiffs reported that approximately 179,000 new borrower defense applications had
been submitted to the DOE as of September 20, 2022. We and the three other intervenor schools filed briefs opposing final approval.
In an Order dated November 16, 2022, District Court Judge William Alsup granted final approval of the settlement agreement. Subsequently, we, and two other school companies that intervened, filed notices of appeal and
asked the district court to stay the settlement from taking effect until the appeals were decided and the district court did temporarily stay any loan discharges and refunds under the settlement pending the decision. Plaintiffs and the DOE
thereafter filed oppositions to our stay request and, after a hearing, the district court denied our stay request, but extended the temporary stay of loan discharges and refunds associated with the three school companies for seven days to allow
us to file a motion for a stay with the U.S. Court of Appeals for the Ninth Circuit. On February 27, 2023, we and the two other school companies that appealed filed a joint motion for a stay with the Ninth Circuit which we expect the plaintiffs
and the DOE will oppose. We expect that the Ninth Circuit will decide our stay motion in the coming weeks.
Regardless of the outcome of our stay request, we intend to ask the Ninth Circuit to overturn the district court’s judgment approving the final
settlement. If the settlement agreement is upheld on appeal, or if the courts deny our stay requests, the DOE is expected to automatically approve all of the pending borrower defense applications concerning us that were submitted to the DOE on
or before June 22, 2022 and to provide such automatic approval without evaluating or accounting for any of the legal or factual grounds that we provided for contesting the applications that were provided to us. The DOE may or may not attempt to
seek recoupment from applicable schools relating to approval of borrower defense applications. If the DOE approves borrower defense applications concerning us and attempts to recoup from us the loan amounts in the approved applications, we
would consider our options for challenging the legal and factual bases for such actions. The settlement also requires the DOE to review borrower defense applications submitted after June 22, 2022 and before November 16, 2022 within 36 months
of the final settlement date. If the DOE grants some or all of these applications, the DOE also could attempt to recoup from us the loan amounts relating to these applications as well. We cannot predict whether the settlement will be upheld on
appeal, what actions the DOE might take if the settlement is upheld on appeal (including the ultimate timing or amount of borrower defense applications the DOE may grant in the future and the timing or amount of any possible liabilities that
the DOE may seek to recover from the Company, if any), or what the outcome of our challenges to such actions will be, but such actions could have a material adverse effect on our business and results of operations.
The "90/10 Rule." Under the HEA, a proprietary institution that derives more than 90% of its total revenue from Title IV Programs (its
“90/10 Rule percentage”) for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until the end of at least two fiscal years. An institution with revenues exceeding
90% for a single fiscal year will be placed on provisional certification and may be subject to other enforcement measures, including a potential requirement to submit a letter of credit. See Part I, Item 1. “Business - Regulatory Environment – Financial Responsibility Standards.” If an institution violated the 90/10 Rule and became ineligible to participate in Title IV Programs but continued to disburse Title IV Program funds, the DOE would
require the institution to repay all Title IV Program funds received by the institution after the effective date of the loss of eligibility. A loss of eligibility to participate in Title IV Programs for any of our institutions would have a
significant impact on the rate at which our students enroll in our programs and on our business and results of operations.
We have calculated that for the fiscal year ended December 31, 2022 our institutions’ 90/10 Rule percentages ranged from 72% to 79%. For fiscal year
2022, none of our existing institutions derived more than 90% of its revenues from Title IV Programs. Our calculations are subject to review by the DOE.
In March 2021, the American Rescue Plan Act of 2021 (“ARPA”) was signed into law. Among other provisions, the ARPA includes a provision that amends the 90/10 Rule by treating other “federal funds that are disbursed or delivered to or on
behalf of a student to be used to attend such institution” in the same way as Title IV Program funds are currently treated in the 90/10 Rule calculation. This means that our institutions will be required to limit the combined amount of Title IV
Program funds and applicable “federal funds” revenue in a fiscal year to no more than 90% in a fiscal year as calculated under the rule. Consequently, the ARPA change to the 90/10 Rule is expected to increase the 90/10 Rule calculations at our
institutions. The ARPA does not identify the specific federal funding programs that will be covered by this provision, but it is expected to include funding from federal student aid programs such as the veterans’ benefits programs, which include
the Post-9/11 GI Bill and Veterans Readiness and Employment services, from which we derived approximately 74% of our revenues on a cash basis in fiscal year 2022.
The ARPA states that the amendments to the 90/10 Rule apply to institutional fiscal years beginning on or after January 1, 2023 and are subject to the HEA’s negotiated rulemaking process. Accordingly, the ARPA change to the 90/10 Rule is not
expected to apply to our 90/10 Rule calculations until 2024 relating to our fiscal year ended 2023. Beginning in January 2022, the DOE convened negotiated rulemaking committee meetings on a variety of topics including the 90/10 Rule. The
committee reached consensus on proposed 90/10 Rule regulations during meetings in March 2022. On July 28, 2022, the DOE published proposed regulations regarding the 90/10 Rule among other topics. The DOE published final regulations on October
28, 2022 with a general effective date of July 1, 2023.
The new 90/10 Rule regulations contain several new and amended provisions on a variety of topics including, among other things, confirming that the rules apply to fiscal years ending on or after January 1, 2023; noting that the DOE plans to
identify the types of federal funds to be included in the 90/10 Rule in a notice in the Federal Register (which the DOE subsequently confirmed in a published notice on December 21, 2022 includes a wide range of Federal student aid programs
including VA and DOD programs); requiring institutions to disburse funds that students are eligible to receive for a fiscal year before the end of the fiscal year rather than delaying disbursements until a subsequent fiscal year; updating
requirements for counting revenues generated from certain educational activities associated with institutional programs, from certain non-Title IV eligible educational programs, and from institutional aid programs such as institutional loans,
scholarships, and income share agreements; updating technical rules for the 90/10 Rule calculation; including rules for sanctions for noncompliance with the 90/10 Rule and for required notifications to students and the DOE by the institution of
noncompliance with the 90/10 Rule. The new regulations under the 90/10 Rule could have a material adverse effect on us and other schools like ours.
We are in the process of evaluating the impact of the new 90/10 Rule regulations on our business. We anticipate making changes to our operations in order to address
the provisions in the 90/10 Rule and in order to maintain the 90/10 Rule percentages at our institutions below the 90% threshold as calculated under DOE regulations. However, we do not have significant control over the amount of Title IV
Program funds that our students may receive and borrow. Our institutions’ 90/10 Rule percentages can be increased by increases in Title IV Programs aid availability (including, for example, increases in Pell Grant funds) and can be decreased by
decreases in the availability of state grant program funding and other sources of student aid that do not count as Title IV Programs funds in the 90/10 Rule calculation. Our institutions’ 90/10 Rule percentages also will increase when the ARPA
amendments to the 90/10 Rule take effect to the extent that students eligible to receive military and veteran education assistance enroll and use their financial assistance at our institutions. We cannot be certain that the changes we make in
the future will succeed in maintaining our institutions’ 90/10 Rule percentages below the required levels or that the changes will not materially impact our business operations, revenues, and operating costs. It also is possible that Congress
or the DOE could amend the 90/10 Rule in the future to lower the 90% threshold, change the calculation methodology, or make other changes to the 90/10 Rule that
could make it more difficult for our institutions to comply with the 90/10 Rule.
As noted above, if any of our institutions lose eligibility to participate in Title IV Programs, that loss would also adversely affect our students’ access to various government-sponsored student financial aid programs, and would have a
significant impact on the rate at which our students enroll in our programs and on our business and results of operations.
Student Loan Defaults. The HEA limits participation in Title IV Programs by institutions whose former students defaulted on the repayment of federally
guaranteed or funded student loans above a prescribed rate (the “cohort default rate”). The DOE calculates these rates based on the number of students who have defaulted, not the dollar amount of such defaults. The cohort default rate is
calculated on a federal fiscal year basis and measures the percentage of students who enter repayment of a loan during the federal fiscal year and default on the loan on or before the end of the federal fiscal year or the subsequent two federal
fiscal years.
Under the HEA, an institution whose Federal Family Education Loan, or FFEL, and Federal Direct Loan, or FDL, cohort default rate is 30% or greater for three consecutive federal fiscal years loses eligibility to
participate in the FFEL, FDL, and Pell programs for the remainder of the federal fiscal year in which the DOE determines that such institution has lost its eligibility and for the two subsequent federal fiscal years. An institution whose FFEL
and FDL cohort default rate for any single federal fiscal year exceeds 40% loses its eligibility to participate in the FFEL and FDL programs for the remainder of the federal fiscal year in which the DOE determines that such institution has lost
its eligibility and for the two subsequent federal fiscal years. If an institution’s three-year cohort default rate equals or exceeds 30% in two of the three most recent federal fiscal years for which the DOE has issued cohort default
rates, the institution may be placed on provisional certification status and could be required to submit a letter of credit to the DOE. See Part I, Item 1. “Business - Regulatory Environment – Financial
Responsibility Standards.”
In September 2022, the DOE released the final cohort default rates for the 2019 federal fiscal year. These are the most recent final rates published by the DOE. The rates for our existing institutions for the 2019 federal fiscal year range
from 1.9% to 2.9 %. None of our institutions had a cohort default rate equal to or greater than 30% for the 2019 federal fiscal year.
In February 2023, the DOE released draft three-year cohort default rates for the 2020 federal fiscal year. The draft cohort default rates are subject to change
pending receipt of the final cohort default rates, which the DOE is expected to publish in September 2023. The draft rates for our institutions for the 2020 federal fiscal year
were 0%.
Financial Responsibility Standards.
All institutions participating in Title IV Programs must satisfy specific standards of financial responsibility. The DOE evaluates institutions for compliance with these standards each year, based on the institution's
annual audited financial statements, as well as following a change in ownership resulting in a change of control of the institution.
The most significant financial responsibility measurement is the institution's composite score, which is calculated by the DOE based on three ratios:
| |
•
|
the equity ratio, which measures the institution's capital resources, ability to borrow and financial viability;
|
|
• |
the primary reserve ratio, which measures the institution's ability to support current operations from expendable resources; and
|
|
• |
the net income ratio, which measures the institution's ability to operate at a profit.
|
The DOE assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0, with negative 1.0 reflecting financial weakness and positive 3.0 reflecting financial strength. The
DOE then assigns a weighting percentage to each ratio and adds the weighted scores for the three ratios together to produce a composite score for the institution. The composite score must be at least 1.5 for the institution to be deemed
financially responsible without the need for further oversight.
If an institution's composite score is below 1.5, but is at least 1.0, it is in a category denominated by the DOE as "the zone." Under the DOE regulations, institutions that are in the zone typically may
be permitted by the DOE to continue to participate in the Title IV Programs by choosing one of two alternatives: 1) the “Zone Alternative” under which an institution is required to make disbursements to students under the Heightened Cash
Monitoring 1 (“HCM1”) payment method, or a different payment method other than the advance payment method, and to notify the DOE within 10 days after the occurrence of certain oversight and financial events or 2) submit a letter of credit to the
DOE equal to 50 percent of the Title IV Program funds received by the institution during its most recent fiscal year. The DOE permits an institution to participate under the “Zone Alternative” for a period of up to three consecutive fiscal
years. Under the HCM1 payment method, the institution is required to make Title IV Program disbursements to eligible students and parents before it requests or receives funds for the amount of those disbursements from the DOE. As long as the
student accounts are credited before the funding requests are initiated, an institution is permitted to draw down funds through the DOE’s electronic system for grants management and payments for the amount of disbursements made to eligible
students. Unlike the Heightened Cash Monitoring 2 (“HCM2”) and the reimbursement payment methods, the HCM1 payment method typically does not require schools to submit documentation to the DOE and wait for DOE approval before drawing down Title
IV Program funds. Effective July 1, 2016, a school under HCM1, HCM2 or reimbursement payment methods must also pay any credit balances due to a student before drawing down funds for the amount of those disbursements from the DOE, even if the
student or parent provides written authorization for the school to hold the credit balance.
If an institution's composite score is below 1.0, the institution is considered by the DOE to lack financial responsibility. If the DOE determines that an institution does not satisfy the DOE's financial responsibility
standards, depending on its composite score and other factors, that institution may establish its eligibility to participate in the Title IV Programs on an alternative basis by, among other things:
|
• |
posting a letter of credit in an amount equal to at least 50% of the total Title IV Program funds received by the institution during the institution's most recently completed fiscal year; or
|
|
• |
posting a letter of credit in an amount equal to at least 10% of the Title IV Program funds received by the institution during its most recently completed fiscal year accepting provisional certification;
complying with additional DOE monitoring requirements and agreeing to receive Title IV Program funds under an arrangement other than the DOE's standard advance funding arrangement.
|
For the 2022, 2021, and 2020 fiscal years, we calculated our composite score to be 2.9, 3.0, and 2.7, respectively. These scores are subject to determination by the DOE based on its review of our consolidated audited financial statements for
the 2022, 2021, and 2020 fiscal years, but we believe it is likely that the DOE will determine that our institutions comply with the composite score requirement.
On September 23, 2019, the DOE published final regulations with a general effective date of July 1, 2020, that, among other things, modified the list of triggering events that could result in the DOE
determining that an institution lacks financial responsibility and must submit to the DOE a letter of credit or other form of acceptable financial protection and accept other conditions on the institution’s Title IV Program eligibility. The
regulations create lists of mandatory triggering events and discretionary triggering events. An institution is not able to meet its financial or administrative obligations if a mandatory triggering event occurs. The mandatory triggering
events include:
|
• |
the institution’s recalculated composite score is less than 1.0 as determined by the DOE as a result of an institutional liability from a settlement, final judgment, or final determination in an
administrative or judicial action or proceeding brought by a federal or state entity;
|
|
• |
the institution’s recalculated composite score goes from less than 1.5 to less than 1.0 as determined by the DOE as a result of a withdrawal of owner’s equity from the institution;
|
|
• |
the SEC takes certain actions against the institution or the institution fails to comply with certain filing requirements; or
|
|
• |
the occurrence of two or more discretionary triggering events (as described below) within a certain time period.
|
The DOE also may determine that an institution lacks financial responsibility if one of the following discretionary triggering events occurs and the event is likely to have a material adverse effect on the financial
condition of the institution:
|
• |
a show cause or similar order from the institution’s accrediting agency that could result in the withdrawal, revocation or suspension of institutional accreditation;
|
|
• |
a notice from the institution’s state licensing agency of an intent to withdraw or terminate the institution’s state licensure if the institution does not take steps to comply with state requirements;
|
|
• |
a default, delinquency, or other event occurs as a result of an institutional violation of a security or loan agreement that enables the creditor to require an increase in collateral, a change in
contractual obligations, an increase in interest rates or payment, or other sanctions, penalties or fees;
|
|
• |
a failure to comply with the 90/10 Rule during the institution’s most recently completed fiscal year;
|
|
• |
high annual drop-out rates from the institution as determined by the DOE; or
|
|
• |
official cohort default rates of at least 30 percent for the two most recent years unless a pending appeal could sufficiently reduce one of the rates.
|
The regulations require the institution to notify the DOE of the occurrence of a mandatory or discretionary triggering event and to provide certain information to the DOE to demonstrate why the event does not establish
the institution’s lack of financial responsibility or require the submission of a letter of credit or imposition of other requirements.
The expanded financial responsibility regulations could result in the DOE recalculating and reducing our composite score to account for DOE estimates of potential losses under one or more of the extensive list of
triggering circumstances and also could result in the imposition of conditions and requirements, including a requirement to provide a letter of credit or other form of financial protection.
As noted above, the DOE previously initiated a negotiated rulemaking process in January 2022 that was considering new regulations on a variety of topics including financial responsibility. After announcing a
delay in the process in June 2022, the DOE announced in January 2023 its intent to publish proposed rules on this subject in April 2023. The regulations typically would take effect on July 1, 2024 if the DOE publishes the final regulations by
November 1, 2023. The DOE is considering proposals that, among other things, would expand the list and scope of triggering events and other circumstances that could result in the DOE determining that the institution lacks financial
responsibility and must submit to the DOE a letter of credit or other form of acceptable financial protection and accept other conditions on the institution’s Title IV Program eligibility. The implementation of new financial responsibility
regulations could increase the likelihood of the DOE requiring the posting of a letter of credit and imposing other conditions upon our schools.
Return of Title IV Program Funds. An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program funds that have
been disbursed to students who withdraw from their educational programs before completing them, and must return those unearned funds to the DOE or the applicable lending institution in a timely manner, which is generally within 45 days from the
date the institution determines that the student has withdrawn.
If an institution is cited in an audit or program review for returning Title IV Program funds late for 5% or more of the students in the audit or program review sample, or if the regulatory auditor identifies a material
weakness in the institution’s report on internal controls relating to the return of unearned Title IV Program funds, the institution may be required to post a letter of credit in favor of the DOE in an amount equal to 25% of the total amount of
Title IV Program funds that should have been returned for students who withdrew in the institution's prior fiscal year.
On January 11, 2018, the DOE sent letters to our then existing Columbia, Maryland and Iselin, New Jersey institutions requiring each institution to submit a letter of credit to the DOE based on findings of late returns of Title IV Program
funds in the annual Title IV Program compliance audits submitted to the DOE for the fiscal year ended December 31, 2016. Accordingly, we submitted letters of credit in the amounts of $0.5 million and $0.1 million to the DOE by the February 23,
2018, deadline and we continue to comply with the letter of credit requirement. By letter dated February 16, 2021, the DOE notified us that our Columbia and Iselin institutions failed to comply with the refund requirements based on their 2017,
2018, and 2019 audits. Consequently, the DOE has required us to maintain with the DOE a letter of credit in the amount of $600,020. The expiration date of this letter of credit has been extended until January 31, 2024.
More recently, as noted above, the DOE announced its intention to commence a negotiated rulemaking process in April 2023 on a number of topics including plans to amend the regulations on the requirements for institutions to return unearned
Title IV funds to students who withdraw from their educational programs before completing them.
Negotiated Rulemaking. The DOE periodically issues new regulations and guidance that can have an adverse effect on our institutions. The negotiated rulemaking process typically begins with the DOE convening a
negotiated rulemaking committee with various representatives of the higher education community to help develop and attempt to reach consensus on proposed regulations on the various topics. The DOE follows up by publishing proposed regulations
in the Federal Register for notice and comment by the public. The DOE typically concludes the process by finalizing and publishing final regulations in the Federal Register. The DOE initiated two additional negotiated rulemaking processes in
2021 and 2022, respectively. The first of the two negotiated rulemaking sessions led to final regulations published on November 1, 2022 regarding Borrower Defense to Repayment (including, among other things, potential expanded limitations on
recruitment tactics and conduct that are deemed to be aggressive or deceptive), the return of prohibitions on pre-dispute arbitration agreements and class action waivers, closed school loan discharges (including the reinstatement of automatic
closed school loan discharges), total and permanent disability discharges, public student loan forgiveness, income driven repayment, interest capitalization, false certification discharges, and prison exchange programs. See “Business –
Regulatory Environment - Borrower Defense to Repayment Regulations.”
The DOE also published final regulations on October 28, 2022 on topics including amendments to the 90/10 Rule, amendments to the rules regarding changes in ownership and control, and amendments to the regulations for Federal Pell Grants for
prison education programs. The regulations have a general effective date of July 1, 2023, with the new 90/10 Rule amendments designated to apply to fiscal years beginning on or after January 1, 2023. See “Business – Regulatory Environment –
90/10 Rule” and “Business- Regulatory Environment – Change of Control.”
The DOE initiated rulemaking on several other topics in January 2022 and, after delaying the process in June 2022, announced its intention in January 2023 to reinitiate the rulemaking process with the planned publication of proposed
regulations in April 2023 on topics including, for example, gainful employment, financial responsibility, administrative capability, certification procedures, ability to benefit, and improving income driven repayment of loans. See “Business –
Regulatory Environment – Gainful Employment.”
As previously noted above, the DOE also announced in January 2023 its intention to initiate a new negotiated rulemaking process in April 2023 on several topics including, for example, amending regulations on state authorization as a
component of institutional eligibility, amending regulations on accreditation including standards for the DOE’s recognition of accrediting agencies and accreditation procedures as a component of institutional eligibility for Title IV Programs,
amending regulations on the requirements for institutions to return unearned Title IV Program funds for students who withdraw without completing their educational programs, amending the cash management regulations to ensure that students have
and maintain timely access to student aid disbursed by their institutions, amending regulations on third-party servicers, and amending the definition of distance education. See “Business – Regulatory Environment – State Authorization.” If
the DOE publishes final regulations by November 1, 2023, the regulations typically would have a general effective date of July 1, 2024. If they are published after November 1, 2023, the regulations typically would have a general effective date
of July 1, 2025 or a later date. We cannot predict the ultimate timing, content, and impact of the proposed and final regulations on all of these topics. Some of the new and proposed regulations are expected to impose a broad range of
additional requirements on institutions and especially on for-profit institutions like our schools. In turn, the new and proposed regulations are likely to increase the possibility that our schools could be subject to additional reporting
requirements, to potential liabilities and sanctions such as letter of credit amounts, and to potential loss of Title IV eligibility if our efforts to modify our operations to comply with the new regulations are unsuccessful.
Substantial Misrepresentation. The DOE’s regulations prohibit an institution that participates in Title IV Programs from engaging in substantial misrepresentation of the nature of
its educational programs, financial charges, graduate employability or its relationship with the DOE. A “misrepresentation” includes any false, erroneous, or misleading statement (whether made in writing, visually, orally, or through other means)
that is made by an eligible institution, by one of its representatives, or by a third party that provides to the institution educational programs, marketing, advertising, recruiting, or admissions services and that is made to a student,
prospective student, any member of the public, an accrediting or state agency, or to DOE. The DOE defines a “substantial misrepresentation” to include any misrepresentation on which the person to whom it was made could reasonably be expected to
rely, or has reasonably relied, to that person’s detriment. The definition of “substantial misrepresentation” is broad and, therefore, it is possible that a statement made by the institution or one of its service providers or representatives
could be construed by the DOE to constitute a substantial misrepresentation. If the DOE determines that one of our institutions has engaged in substantial misrepresentation, the DOE may impose sanctions or other conditions upon the institution
including, but not limited to, initiating an action to fine the institution or limit, suspend, or terminate its eligibility to participate in the Title IV Programs and may seek to discharge students’ loans and impose liabilities upon the
institution. The DOE published final regulations on November 1, 2022 on a variety of topics including, amended and expanded regulations on substantial misrepresentations. Specifically, the new
regulations expand the types of conduct that could result in a discharge of student loans including: 1) an expanded list of substantial misrepresentations; 2) a new section regarding substantial omissions of fact; 3) breaches of contract; 4) a
new section regarding aggressive and deceptive recruitment; or 5) state or federal judgments or final DOE actions that could result in a borrower defense claim. Some of these forms of conduct also could result in further scrutiny of marketing
and recruiting practices by institutions like our schools and could increase the chances of the DOE finding practices to be noncompliant and imposing sanctions based on the alleged noncompliance up to and including fines and potential loss of
Title IV eligibility. See Part I, Item 1. “Business - Regulatory Environment – Borrower Defense to Repayment Regulations.”
In March 2022, the DOE published guidance about the enforcement of the requirements regarding substantial misrepresentations. The DOE indicated that it is monitoring
complaints and Borrower Defense to Repayment applications from veterans, service members, and their family members who report that personnel and representatives of postsecondary schools suggested during the enrollment process that their
military education benefits would cover all of the costs of their program but were told subsequently they would have to take out student loans to finish the program. The DOE stated that it would ensure that institutions engaging in
misrepresentations are held accountable if they cause a student to incur extra costs unwittingly or without a full understanding of the implications of borrowing. The DOE also indicated that such students could be entitled to discharge of
their student loans and that it would share information and complaints about military-connected students with the DOD and VA for potential agency action.
School Acquisitions/Change of Control. When a company acquires a school that is eligible to participate in Title IV Programs, that
school undergoes a change of ownership resulting in a “change of control” as defined by the DOE. Upon such a change of control, a school's eligibility to participate in Title IV Programs is generally suspended until it has applied for
recertification by the DOE as an eligible school under its new ownership, which requires that the school also re-establish its state authorization and accreditation. See Part I, Item 1. “Business – Regulatory Environment – School
Acquisitions.” Thus, any plans to expand our business through acquisition of additional schools and have them certified by the DOE to participate in Title IV Programs must take into account the approval requirements of the DOE and the relevant
state education agencies and accrediting commissions. The DOE has recently published final regulations with a general effective date of July 1, 2023 concerning change of control. We are in the process of evaluating the impact of these
new regulations on our business, but the regulations, among other things, expand the requirements applicable to school acquisitions in ways that could make it more difficult to acquire additional schools. See
Part I, Item 1. “Business – Regulatory Environment – Negotiated Rulemaking.”
In addition to school acquisitions, other types of transactions can also cause a change of control. The DOE, most state education agencies and our accrediting commissions have standards pertaining to the change of control of schools, but these
standards are not uniform. DOE regulations describe some transactions that constitute a change of control, including the transfer of a controlling interest in the voting stock of an institution or the institution's parent corporation. For a
publicly traded corporation, DOE regulations provide that a change of control occurs in one of two ways: (a) if a person acquires ownership and control of the corporation so that the corporation is required to file a Current Report on Form 8-K
with the Securities and Exchange Commission disclosing the change of control or (b) if the corporation has a shareholder that owns at least 25% of the total outstanding voting stock of the corporation and is the largest shareholder of the
corporation, and that shareholder ceases to own at least 25% of such stock or ceases to be the largest shareholder. These standards are subject to interpretation by the DOE. A significant purchase or
disposition of our Common Stock could be determined by the DOE to be a change of control under this standard.
Most of the states and our accrediting commissions include the sale of a controlling interest of Common Stock in the definition of a change of control although some agencies could determine that the sale or disposition
of a smaller interest would result in a change of control. A change of control under the definition of one of these agencies would require the affected school to reaffirm its state authorization or accreditation. Some agencies would require
approval prior to a sale or disposition that would result in a change of control in order to maintain authorization or accreditation. The requirements to obtain such reaffirmation from the states and our accrediting commissions vary widely.
Most of the states and our accrediting commissions include the sale of a controlling
interest of Common Stock in the definition of a change of control although some agencies could determine that the sale or
disposition of a smaller interest would result in a change of control. A change of control under the definition of one of these agencies would require the affected school to reaffirm its state authorization or accreditation. Some agencies
would require approval prior to a sale or disposition that would result in a change of control in order to maintain authorization or accreditation. The requirements to obtain such reaffirmation from the states and our accrediting commissions
vary widely.
A change of control could occur as a result of future transactions in which the Company or our schools are involved. Some corporate reorganizations and some changes
in the board of directors of the Company are examples of such transactions. Moreover, the potential adverse effects of a change of control could influence future decisions by us and our shareholders regarding the sale, purchase, transfer,
issuance or redemption of our stock. In addition, the adverse regulatory effect of a change of control also could discourage bids for shares of our Common Stock and could have an adverse effect on the market price of our shares. As noted
above, the DOE published final regulations on October 28, 2022 relating to change of control with a general effective date of July 1, 2023. See Part I, Item 1. “Business – Regulatory Environment – Negotiated Rulemaking.”
Opening Additional Schools and Adding Educational Programs. For-profit educational institutions must be authorized by their state education agencies and be
fully operational for two years before applying to the DOE to participate in Title IV Programs. However, an institution that is certified to participate in Title IV Programs may establish an additional location and apply to participate in Title
IV
Programs at that location without reference to the two-year requirement, if such additional location satisfies all other applicable DOE eligibility requirements. Our strategic plans for future expansion are based, in
part, on our ability to open new schools as additional locations of our existing institutions and take into account the DOE’s approval requirements.
A student may use Title IV Program funds only to pay the costs associated with enrollment in an eligible educational program offered by an institution participating in Title IV Programs. Generally, unless otherwise
required by the DOE or by DOE regulations, an institution that is eligible to participate in Title IV Programs may add a new educational program without DOE approval. However, institutions that are provisionally certified may be required to
obtain approval of new educational programs. Our Indianapolis, New Britain, and Columbia institutions are provisionally certified and required to obtain prior DOE approval of new locations and of new educational programs. If an institution
erroneously determines that an educational program is eligible for purposes of Title IV Programs, the institution would likely be liable for repayment of Title IV Program funds provided to students in that educational program. Our expansion plans
are based, in part, on our ability to add new educational programs at our existing schools.
Some of the state education agencies and our accrediting commission also have requirements that may affect our schools' ability to open a new campus, establish an additional location of an existing institution or begin
offering a new educational program. The DOE has initiated a negotiated rulemaking process that may result in new rules that, among other things, may further restrict the ability of some schools – such as schools that are provisionally certified
– to add new locations or educational programs, which could impact our ability to make such changes if we are provisionally certified or subject to other criteria in the regulations that ultimately are adopted. The rulemaking process is
ongoing. See Part I, Item 1. “Business – Regulatory Environment – Negotiated Rulemaking.”
Closed School Loan Discharges. The DOE may grant closed school loan discharges of federal student loans based upon applications by qualified students. The DOE also may initiate discharges on its own for students who have not reenrolled in another Title IV Program eligible school within three years after the closure and who attended campuses that closed on or
after November 1, 2013, as did some of our former campuses. If the DOE discharges some or all of these loans, the DOE may seek to recover the cost of the loan discharges from us. As noted above, the DOE published final regulations on November 1,
2022 with a general effective date of July 1, 2023 on a variety of topics, including closed school loan discharges (and, among other things, the reintroduction of automatic closed school loan discharges), which will make it easier for borrowers
to obtain discharges of their loans and for the DOE to recover liabilities from institutions.
We cannot predict any additional closed school loan discharges that the DOE may approve or the liabilities that the DOE may seek from us for campuses that have closed in the past or any possible school closures in the future.
Administrative Capability. The DOE assesses the administrative capability of each institution that participates in Title IV Programs under a series of
separate standards. Failure to satisfy any of the standards may lead the DOE to find the institution ineligible to participate in Title IV Programs or to place the institution on provisional certification as a condition of its participation.
These criteria require, among other things, that the institution:
|
• |
comply with all applicable federal student financial aid requirements;
|
|
• |
have capable and sufficient personnel to administer the federal student Title IV Programs;
|
|
• |
administer Title IV Programs with adequate checks and balances in its system of internal controls over financial reporting;
|
|
• |
divide the function of authorizing and disbursing or delivering Title IV Program funds so that no office has the responsibility for both functions;
|
|
• |
establish and maintain records required under the Title IV Program regulations;
|
|
• |
develop and apply an adequate system to identify and resolve discrepancies in information from sources regarding a student’s application for financial aid under the Title IV Program;
|
|
• |
have acceptable methods of defining and measuring the satisfactory academic progress of its students;
|
|
• |
refer to the Office of the Inspector General any credible information indicating that any applicant, student, employee, third party servicer or other agent of the school has been engaged in any fraud or
other illegal conduct involving Title IV Programs;
|
|
• |
not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is cause for debarment or suspension;
|
|
• |
provide adequate financial aid counseling to its students;
|
|
• |
submit in a timely manner all reports and financial statements required by the Title IV Program regulations; and
|
|
• |
not otherwise appear to lack administrative capability.
|
The DOE has placed three of our institutions on provisional certification based on findings in recent audits of the institutions’ Title IV compliance that the DOE alleges identified deficiencies in
regulations related to DOE regulations regarding an institution’s level of administrative capability. See Part I. Item 1. “Business - Regulatory Environment – Regulation of Federal Student Financial Aid Programs.” Failure by us to satisfy any of these or other administrative capability criteria could cause our institutions to be subject to sanctions or other actions by the DOE or to lose eligibility to participate in Title IV Programs, which would
have a significant impact on our business and results of operations.
The DOE previously initiated a negotiated rulemaking process in January 2022 that was considering, among other issues, the expansion of the scope of the administrative capability regulations to include other
requirements (such as, for example, providing adequate career services and refraining from misrepresentations and certain types of recruiting practices). After announcing a delay in this process in June 2022, the DOE announced in January 2023
its intention to publish proposed rules in April 2023 amending regulations on institution and program eligibility, including the administrative capability regulations.
Restrictions on Payment of Commissions, Bonuses and Other Incentive Payments. An institution participating in Title IV Programs may
not provide any commission, bonus or other incentive payment based directly or indirectly on success in securing enrollments or financial aid to any person or entity engaged in any student recruiting or admission activities or in making
decisions regarding the awarding of Title IV Program funds. The DOE’s regulations established 12 “safe harbors” identifying types of compensation that may be paid without violating the incentive compensation rule. On October 29, 2010,
the DOE adopted final rules that took effect on July 1, 2011 and amended the incentive compensation rule by, among other things, eliminating the 12 safe harbors (thereby reducing the scope of permissible compensatory payments under the rule) and
expanding the scope of compensatory payments and employees subject to the rule. We cannot predict how the DOE will interpret and enforce the revised incentive compensation rule and the limited published guidance that the DOE has provided, nor
how it will apply the rule and guidance to our past, present, and future compensation practices. The implementation of the final regulations required us to change our compensation practices and has had and will
continue to have a significant impact on the productivity of our employees, on the retention of our employees and on our business and results of operations.
Compliance with Regulatory Standards and Effect of Regulatory Violations. Our schools are subject to audits, program reviews, site visits, and other reviews by
various federal and state regulatory agencies, including, but not limited to, the DOE, the DOE’s Office of Inspector General (“OIG”), state education agencies and other state regulators, the VA and other federal agencies (such as, for example,
the FTC or the CFPB), and by our accrediting commissions. In addition, each of our institutions must retain an independent certified public accountant to conduct an annual compliance audit of the institution’s administration of Title IV Program
funds. The institution must submit the resulting annual compliance audit report to the DOE for review. The annual compliance audit reports for our institutions contain findings on topics that were the subject of findings in prior audits although
the amount of questioned funds in the reports are immaterial and have been repaid. The reoccurrence of findings in our compliance audit reports could result in the DOE initiating an adverse action against one or more of our institutions.
Significant violations of Title IV Program requirements by any of our institutions could become the basis for the DOE to impose liabilities on us or initiate an adverse action to limit, suspend, terminate, revoke, or decline to renew the
participation of the affected institution in Title IV Programs or to seek civil or criminal penalties. Generally, a termination of Title IV Program eligibility extends for 18 months before the institution may apply for reinstatement of its
participation. Some of the findings in the annual Title IV Program compliance audits for some of our institutions resulted in the DOE placing those institutions on provisional certification. See Part I. Item 1. “Business - Regulatory Environment
– Regulation of Federal Student Financial Aid Programs.”
If one of our schools fails to comply with accrediting or state licensing requirements, such school and its main and/or branch campuses could be subject to the loss of state licensure or accreditation, which in turn could result in a loss of
eligibility to participate in Title IV Programs. If the DOE or another agency determined that one of our institutions improperly disbursed Title IV Program funds or violated a provision of the HEA or DOE regulations, the institution could be
required to repay such funds and related costs to the DOE and lenders, and could be assessed an administrative fine. The DOE could also place the institution on provisional certification status and/or transfer the institution to the reimbursement
or cash monitoring system of receiving Title IV Program funds, under which an institution must disburse its own funds to students and document the students' eligibility for Title IV Program funds before receiving such funds from the DOE. See
Part I, Item 1. “Business - Regulatory Environment – Financial Responsibility Standards.”
Consumer Protection Laws and Scrutiny of the For-Profit Postsecondary Education Sector. As a post-secondary
educational institution, we are subject to a broad range of consumer protection and other laws, such as recruiting, marketing, the protection of personal information, student financing and payment servicing, enforced by federal agencies such as
the FTC and CFPB and various state agencies and state attorneys general. We devote significant effort to complying with state and federal consumer protection laws. In recent years, Congress, the DOE, state legislatures and regulatory agencies,
accrediting agencies, the CFPB, the FTC, state attorneys general and the media have scrutinized the for-profit postsecondary education sector. Congressional hearings and other inquiries have occurred regarding various aspects of the education
industry, including issues surrounding student debt as well as publicly reported student outcomes that may be used as part of an institution’s recruiting and admissions practices, and reports have been issued that are highly critical of
for-profit colleges and universities.
On October 6, 2021, the FTC issued an announcement regarding its intentions to target false claims by for-profit colleges on topics such as promises about graduates’ job and earnings prospects and other outcomes, to impose “significant
financial penalties” on violators, and to monitor the market carefully with federal and state partners. The FTC indicated in the announcement that it had put 70 for-profit higher education institutions on notice that the agency would be “cracking
down” on any such false promises. All of our institutions were among the 70 institutions who received this notice. Although the FTC stated that a school’s presence on the list of 70 institutions does not reflect any assessment as to whether they
have engaged in deceptive or unfair conduct, the FTC’s announcement and its issuance of notices to schools could lead to further scrutiny, investigations, and potential attempted enforcement actions by the FTC and other regulators against
for-profit schools, including our schools.
On October 8, 2021, the DOE announced the establishment of an Office of Enforcement within the Federal Student Aid Office that oversees institutions participating in
Title IV programs. The office will be comprised of four existing divisions, including the Administrative Actions and Appeals Services Group (which, among other things, initiates adverse actions against institutions), the Borrower Defense Group
(which analyzes Borrower Defense to Repayment claims), the Investigations Group (which evaluates and investigates potential institutional noncompliance and collaborates with other federal and state regulators), and the Resolution and Referral
Management Group (which tracks and resolves referrals, allegations and complaints about institutions and other parties that participate in the Title IV programs). The establishment of the Office of Enforcement could result in an increase in
enforcement actions and other activities against for-profit schools and school companies, including us.
In addition to Title IV Programs and other government-administered programs, all of our schools offer extended financing programs to their students. This extension of credit helps fill the gap between what the student
receives from all financial aid sources and what the student may need to cover the full cost of his or her education. Students or their parents can apply to a number of different lenders for this funding at current market interest rates. In such
regard, we are required to comply with applicable federal and state laws related to certain consumer and educational loans and credit extensions, which may be subject to the supervisory authority of the CFPB.
Coronavirus Aid, Relief, and Economic Security (“CARES”). On March 27, 2020, the CARES Act was signed into law, which includes a $2 trillion federal
economic relief package providing financial assistance and other relief to individuals and businesses impacted by the spread of COVID-19. The CARES Act includes provisions for financial assistance and other regulatory relief benefitting
students and their postsecondary institutions.
Among other things, the CARES Act includes $14 billion of HEERF funds for the DOE to distribute directly to institutions of higher education. Institutions are required to use at least half of the HEERF funds for
emergency grants to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.). Institutions are permitted to use the remainder of the funds for additional emergency grants to students or to cover
institutional costs associated with significant changes to the delivery of instruction due to the COVID-19 emergency, provided that those costs do not include payments to contractors for the provision of pre-enrollment recruitment activities,
endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship. The law requires institutions receiving funds to continue to the greatest extent practicable to pay their employees
and contractors during the period of any disruptions or closures related to the COVID-19 emergency.
The DOE has allocated funds to each institution of higher education based on a formula contained in the CARES Act. The formula is heavily weighted toward institutions with large numbers of Pell Grant recipients.
The DOE allocated $27.4 million to our schools distributed in two equal installments and required them to be utilized by April 30, 2021 and May 14, 2021, respectively. The Company has distributed the full $13.7 million of its first
installment as emergency grants to students and has utilized the full $13.7 million of its second installment. If the funds are not spent or accounted for in accordance with applicable requirements, we could be required to return funds or be
subject to other sanctions. See Part I. Item 1. “Business - Regulatory Environment – Compliance with Regulatory Standards and Effect of Regulatory Violations.”
Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“CRRSAA”) and ARPA. On December 27, 2020, the Consolidated Appropriations Act,
2021 was signed into law. This annual appropriations bill contained the CRRSAA. which provided an additional $81.9 billion to the Education Stabilization Fund including $22.7 billion for the HEERF, which were originally created by the CARES
Act in March 2020. The higher education provisions of the CRRSAA are intended in part to provide additional financial assistance benefitting students and their postsecondary institutions in the wake of the spread of COVID-19 across the country
and its impact on higher educational institutions. In March 2021, the $1.9 trillion American Rescue Plan Act of 2021 (“ARPA”) was signed into law. Among other things, the ARPA
provides $40 billion in relief funds that will go directly to colleges and universities with $395.8 million going to for-profit institutions. The DOE has allocated a total of $24.4 million to our schools from the funds made available under
CRRSAA and ARPA. As of December 31, 2022, the Company has drawn down and distributed to our students $14.8 million of these allocated funds. The remainder of the funds are on hold by the DOE and we are not
expecting to receive any of those funds. Failure to comply with requirements for the usage and reporting of these funds could result in requirements to repay some or all of the allocated funds and in other sanctions.
Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are
available free of charge on our website at www.lincolntech.edu under the “Investor Relations - Financial Information - SEC Filings” captions, as soon as reasonably practicable after we
electronically file such materials with, or furnish them to, the SEC. Reports of our executive officers, directors and any other persons required to file securities ownership reports under Section 16(a) of the Exchange Act are also available
through our website. Information contained on our website is not a part of this Annual Report on Form 10-K and is not incorporated herein by reference.
The risk factors described below and other information included elsewhere in this Annual Report on Form 10-K are among the numerous risks faced by our Company and should be carefully considered before deciding to invest
in, sell or retain shares of our Common Stock. These are factors that, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results and the risks and uncertainties described below are
not the only ones we face. Investors should understand that it is not possible to predict or identify all such risks and, as such, should not consider the following to be a complete discussion of all potential risks and uncertainties that may
affect the Company. Investors should consider carefully the risks and uncertainties described below in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.
RISKS RELATED TO OUR INDUSTRY
Our failure to comply with the extensive regulatory requirements for participation in Title IV Programs and school operations could result in financial penalties, restrictions on our operations and
loss of external financial aid funding, which could affect our revenues and impose significant operating restrictions upon us.
Our industry is highly regulated by federal and state governmental agencies and by accrediting commissions. The various regulatory agencies applicable to our business periodically revise their requirements and modify
their interpretations of existing requirements and restrictions. We cannot predict with certainty how any of these regulatory requirements will be applied or whether each of our schools will be able to comply with such revised requirements in the
future. Given the complex nature of the regulations and the fact that they are subject to interpretation, it is reasonable to conclude that in the conduct of our business, we may inadvertently violate such regulations. In particular, the HEA and
DOE regulations specify extensive criteria and numerous standards that an institution must satisfy to establish to participate in the Title IV Programs. For a description of these federal, state, and accrediting agency criteria, see Part I, Item
1. “Business - Regulatory Environment.”
If we are found to have not satisfied the HEA or the DOE's requirements for Title IV Programs funding, one or more of our institutions, including its additional locations, could be limited in its access to, or
lose, Title IV Program funding, which could adversely affect our revenue, as we received approximately 74% of our revenue (calculated based on cash receipts) from Title IV Programs during the fiscal year ended December 31, 2022, and have a
significant impact on our business and results of operations. If any of our schools fail to comply with applicable HEA or regulatory requirements, our regulators could take a variety of adverse actions against us, and our schools could be
subject to, among other things, a) the loss of, or placement of material restrictions or conditions on (i) state licensure or accreditation, (ii) eligibility to participate in and receive funds under the Title IV Programs or other federal or
state financial assistance programs, or (iii) capacity to grant degrees, diplomas and certificates or b) the imposition of liabilities or monetary penalties, any of which could have a material adverse effect on academic or operational
initiatives, revenues or financial condition, and impose significant operating restrictions upon us. See Part I, Item 1. “Business – Regulatory Environment – Compliance with Regulatory Standards and Effect of Regulatory Violations.”
If we fail to demonstrate “administrative capability” to the DOE, our business could suffer.
DOE regulations specify extensive criteria an institution must satisfy to establish that it has the requisite “administrative capability” to participate in Title IV Programs, and the DOE plans to reinitiate a rulemaking process that may expand
the number and scope of these criteria. For a description of these criteria, see Part I, Item 1. “Business - Regulatory Environment – Administrative Capability.”
If we are found not to have satisfied the DOE’s “administrative capability” requirements, or to have otherwise failed to comply with one or more DOE requirements, one or more of our institutions and its additional locations could be limited in
its access to, or lose, Title IV Program funding. This could adversely affect our revenue, as we received approximately 74% of our revenue (calculated based on cash receipts) from Title IV Programs in 2022, which would have a significant impact
on our business and results of operations. The DOE has placed all of our institutions on provisional certification based on findings in recent audits of the institutions’ Title IV compliance that the
DOE alleges identified deficiencies in regulations related to DOE regulations regarding an institutions’ level of administrative capability. See Part I, Item 1. “Business - Regulatory Environment – Regulation of Federal Student Financial Aid
Programs.”
Congress and the DOE may make changes to the laws and regulations applicable to, or reduce funding for, Title IV Programs, which could reduce our student population, revenues or profit margin.
Congress periodically revises the HEA and other laws governing Title IV Programs and annually determines the funding level for each Title IV Program. We cannot predict what, if any, legislative or other actions will be taken or proposed by
Congress in connection with the reauthorization of the HEA or other such activities of Congress, although Congress recently made a change to the 90/10 Rule that will make it harder for schools like ours that are subject to the rule to comply with
the rule. See Part I, Item 1. “Business - Regulatory Environment – Congressional Action.” Because a significant percentage of our revenues is derived from the Title IV Programs, any action by Congress or the DOE that significantly reduces
funding for Title IV Programs or that limits the ability of our schools, programs, or students to receive funding through such programs or that imposes new restrictions upon our business or operations could reduce our student enrollment and our
revenues, increase our administrative costs, require us to arrange for alternative sources of financial aid for our students, and require us to modify our practices in order to fully comply. In addition, current requirements for Title IV Program
participation may change or the present Title IV Programs could be replaced by other programs with materially different eligibility requirements. The potential for changes that may be adverse to us and other for-profit schools like ours may
increase as a result of changes in political leadership. The DOE is currently engaged in a process to establish new regulations that are expected to increase the number and scope of regulatory requirements applicable to our schools. See Part I,
Item 1. “Business – Regulatory Environment – Negotiated Rulemaking.” If we cannot comply with the provisions of the HEA and the regulations of the DOE, as they may be revised, or if the cost of such compliance is excessive, or if funding is
materially reduced, our revenues or profit margin could be materially adversely affected.
We could be subject to liabilities, letter of credit requirements, and other sanctions under the DOE’s Borrower Defense to Repayment regulations.
The DOE’s current Borrower Defense to Repayment regulations establish processes for borrowers to receive from the DOE a discharge of the obligation to repay certain Title IV Program loans based on certain acts or omissions by the institution
or a covered party. The current regulations also establish processes for the DOE to seek recovery from the institution of the amount of discharged loans. On November 1, 2022, the DOE published final regulations on Borrower Defense to Repayment
and other topics with a general effective date of July 1, 2023. The final regulations regarding Borrower Defense to Repayment and regarding closed school loan discharges are extensive and generally make it easier for borrowers to obtain
discharges of student loans and for the DOE to assess liabilities and other sanctions on institutions based on the loan discharges. The implementation of new Borrower Defense to Repayment regulations by the DOE and the enforcement of the
existing Borrower Defense to Repayment regulations could have a material adverse effect on our business and results of operations. See Part I, Item 1. “Business - Regulatory Environment – Borrower Defense to Repayment Regulations” and
“Business – Regulatory Environment – Closed School Loan Discharges.”
We have appealed a class action settlement approved by the U.S. District Court for the Northern District of California (Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.)) that could result in the automatic granting of
all pending borrower defense applications submitted to the DOE on or before June 22, 2022 concerning our institutions and, potentially, could lead to the DOE seeking recoupment from us of all loan amounts in the granted applications.
On June 22, 2022, the DOE and the plaintiffs in a lawsuit before a federal court in California submitted a proposed settlement agreement to the court. The plaintiffs contend, among other things, that the DOE failed to
timely decide and resolve Borrower Defense to Repayment applications submitted to the DOE. If approved, the settlement would result in full discharge and refund payments to covered student borrowers who have asserted a Borrower Defense to
Repayment to the DOE and whose borrower defense claims have not yet been granted or denied on the merits.
The lawsuit, Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.), is a class action filed on June 25, 2019 against the DOE in the U.S. District Court for
the Northern District of California submitted by a group of students, none of whom attended any of our institutions. We were not a party to the lawsuit when it was filed. The plaintiffs requested that the court compel the DOE to start
approving or denying the pending applications. The court granted class certification and defined the class of plaintiffs generally to include all people who borrowed a Title IV Direct loan or FFEL loan, who have asserted a Borrower Defense to
Repayment claim to the DOE, and whose borrower defense claim has not been granted or denied on the merits. We have not received notice or confirmation directly from the DOE of the number of student borrowers who have submitted Borrower Defense
to Repayment claims related to our institutions.
The proposed settlement agreement includes a long list of institutions, including Lincoln Technical Institute and Lincoln College of Technology. Under the proposed settlement, the DOE would agree to discharge loans and
refund all prior loan payments to each class member with loan debt associated with an institution on the list (which includes our institutions), including borrowers whose applications the DOE previously denied after October 30, 2019. The DOE and
the plaintiffs stated in a court filing that this provision is intended to provide for automatic relief for students at the listed schools which the DOE estimates to total 200,000 class members. We anticipate that the DOE believes that the class
includes the borrowers with claims to which we have submitted responses to the DOE although it is possible that the class also includes borrowers with claims for which we have not received notice from the DOE or an opportunity to respond. The
parties also stated that the DOE has determined that attendance at one of the institutions on the list justifies presumptive relief based on strong indicia regarding substantial misconduct by the institutions, whether credibly alleged or in some
instances proven, and the high rate of class members with applications related to the listed schools. The proposed settlement agreement provides a separate process for reviewing claims associated with schools that are not on the list. It is
unclear whether the DOE would seek to impose liabilities on us or other schools or take other actions or impose other sanctions on us or other schools based on relief provided to students under the proposed settlement agreement (particularly if
the DOE provides relief without evaluating or accounting for legal and factual information provided to the DOE by us and other schools or without providing us and other schools with notice and an opportunity to respond to some of the claims).
In July 2022, the Company and certain other school companies submitted motions to intervene in the lawsuit in order to protect our interests in the finalization and implementation of any settlement agreement that the
court might approve. We noted in the motion that the proposed settlement agreement introduced, for the first time, the prospect that the DOE would “automatically” and fully discharge loans and refund payments to student borrowers without
adjudication of the merits of the students’ borrower-defense applications in accordance with the DOE’s borrower-defense regulations and without ensuring that we and other institutions can defend against allegations asserted in individual
borrower-defense applications. In addition, we also asserted that it would be unlawful and inappropriate if the DOE sought recoupment against us based on loans that were forgiven under the proposed settlement agreement without providing us with
an opportunity to address the claims or accounting for our responses to the claims already submitted which we believe is required by the regulations. We also asserted that the lawsuit and the potential loan discharges could result in
reputational harm to us and our institutions and could result in other actions against us by other federal and state agencies or by current and former students.
The court granted preliminary approval of the proposed settlement agreement on August 4, 2022, and also granted our motion for permissive intervention for the purpose of objecting to and opposing the class action
settlement. On September 22, 2022, the DOE and the plaintiffs filed a joint motion for final approval of the settlement. In that joint motion, the DOE and the plaintiffs reported that approximately 179,000 new borrower defense applications had
been submitted to the DOE as of September 20, 2022. We and the three other intervenor schools filed briefs opposing final approval.
In an Order dated November 16, 2022, District Court Judge William Alsup granted final approval of the settlement agreement. Subsequently, we, and two other school companies that intervened, filed notices of appeal and
asked the district court to stay the settlement from taking effect until the appeals were decided and the district court did temporarily stay any loan discharges and refunds under the settlement pending the decision. Plaintiffs and the DOE
thereafter filed oppositions to our stay request and, after a hearing, the district court denied our stay request, but extended the temporary stay of loan discharges and refunds associated with the three school companies for seven days to allow
us to file a motion for a stay with the U.S. Court of Appeals for the Ninth Circuit. On February 27, 2023, we and the two other school companies that appealed filed a joint motion for a stay with the Ninth Circuit which we expect the plaintiffs
and the DOE will oppose. We expect that the Ninth Circuit will decide our stay motion in the coming weeks.
Regardless of the outcome of our stay request, we intend to ask the Ninth Circuit to overturn the district court’s judgment approving the final
settlement. If the settlement agreement is upheld on appeal, or if the courts deny our stay requests, the DOE is expected to automatically approve all of the pending borrower defense applications concerning us that were submitted to the DOE on
or before June 22, 2022 and to provide such automatic approval without evaluating or accounting for any of the legal or factual grounds that we provided for contesting the applications that were provided to us. The DOE may or may not attempt to
seek recoupment from applicable schools relating to approval of borrower defense applications. If the DOE approves borrower defense applications concerning us and attempts to recoup from us the loan amounts in the approved applications, we
would consider our options for challenging the legal and factual bases for such actions. The settlement also requires the DOE to review borrower defense applications submitted after June 22, 2022 and before November 16, 2022 within 36 months of
the final settlement date. If the DOE grants some or all of these applications, the DOE also could attempt to recoup from us the loan amounts relating to these applications as well. We cannot predict whether the settlement will be upheld on
appeal, what actions the DOE might take if the settlement is upheld on appeal (including the ultimate timing or amount of borrower defense applications the DOE may grant in the future and the timing or amount of any possible liabilities that
the DOE may seek to recover from the Company, if any), or what the outcome of our challenges to such actions will be, but such actions could have a material adverse effect on our business and results of operations.
The DOE has changed its regulations, and may make other changes in the future, in a manner which could require us to incur additional costs in connection with our administration of Title IV Programs, affect our
ability to remain eligible to participate in Title IV Programs, impose restrictions on our participation in Title IV Programs, affect the rate at which students enroll in our programs, or otherwise have a significant impact on our business and
results of operations.
The DOE periodically issues new regulations and guidance that can have an adverse effect on our institutions. We cannot predict the timing and content of any new regulations or guidance that the DOE may seek to impose or whether and to what
extent the DOE may issue new regulations and guidance that could adversely impact for-profit schools including our institutions. The DOE recently published new regulations on a variety of topics on October 28, 2022 and on November 1, 2022 with a
general effective date of July 1, 2023. The DOE is currently engaged in rulemaking processes and intends to initiate additional rulemaking processes in 2023 that are expected to result in new regulations on a broad range of topics that could
adversely impact institutions including our institutions. See Part I, Item 1. “Business – Regulatory Environment – Negotiated Rulemaking.”
If we cannot comply with the provisions of these or other regulations, as they currently exist or may be revised, or if the cost of such compliance is excessive, or if funding is materially reduced, our revenues or profit margin could be
materially adversely affected.
We cannot predict how the DOE would interpret and enforce current or future regulations or how these regulations, or any regulations that may arise out of a negotiated rulemaking process or any other regulations that DOE may promulgate, may
impact our schools’ participation in Title IV Programs; however, current or future regulations could have a material adverse effect on our schools’ business and results of operations, and the broad sweep of the recent rules and the rules that the
DOE is currently developing may, in the future, require our schools to submit a letter of credit based on expanded standards of financial responsibility.
If we or our eligible institutions do not meet the financial responsibility standards prescribed by the DOE, we may be required to post letters of credit or our eligibility to participate in Title IV Programs could
be terminated or limited, which could significantly reduce our student population and revenues.
To participate in Title IV Programs, an eligible institution must satisfy specific measures of financial responsibility prescribed by the DOE or post a letter of credit in favor of the DOE and possibly accept other conditions on its
participation in Title IV Programs. The DOE published new regulations that established expanded standards of financial responsibility, which could result in a requirement that we submit to the DOE a substantial letter of credit or other form of
financial protection in an amount determined by the DOE, and be subject to other conditions and requirements, based on any one of an extensive list of triggering circumstances. See Part I, Item 1. “Business - Regulatory Environment – Financial
Responsibility Standards.” The DOE plans to reinitiate a rulemaking process that is expected to result in new regulations that, among other things, may increase the number and scope of financial responsibility requirements and triggering
circumstances that could lead to a letter of credit requirement or other sanctions. Any obligation to post one or more letters of credit would increase our costs of regulatory compliance. Our inability to obtain a required letter of credit or
limitations on, or termination or revocation of, our participation in Title IV Programs could limit our students’ access to various government-sponsored student financial aid programs, which could significantly reduce our student population and
revenues.
We are subject to fines and other sanctions if we make incentive payments to individuals involved in certain recruiting, admissions or financial aid activities, which could increase our cost of regulatory compliance
and adversely affect our results of operations.
An institution participating in Title IV Programs may not provide any commission, bonus or other incentive payment based directly or indirectly on success in enrolling students or securing financial aid to any person involved in any student
recruiting or admission activities or in making decisions regarding the awarding of Title IV Program funds. See Part I, Item 1. “Business - Regulatory Environment -- Restrictions on Payment of Commissions, Bonuses and Other Incentive Payments.”
We cannot predict how the DOE will interpret and enforce the incentive compensation rule and the limited published guidance that the DOE has provided, nor how it will apply the rule and guidance to our past, present, and future compensation
practices. These regulations have had and may continue to have a significant impact on the rate at which students enroll in our programs and on our business and results of operations. If we are found to have violated this law, we could be fined
or otherwise sanctioned by the DOE or we could face litigation filed under the qui tam provisions of the Federal False Claims Act.
If our schools do not maintain their state licensure and accreditation, they may not participate in Title IV Programs, which could adversely affect our student population and revenues.
An institution must be accredited by an accrediting commission recognized by the DOE and by applicable state educational agencies in order to participate in Title IV Programs. See Part I, Item 1. “Business - Regulatory Environment – State
Authorization” and “Business – Regulatory Environment – Accreditation.” If any of our schools fail to comply with accrediting commission requirements, the institution and its main and/or branch campuses are subject to the loss of accreditation
or may be placed on probation or a special monitoring or reporting status which, if the noncompliance with accrediting commission requirements is not resolved, could result in loss of accreditation. Loss of accreditation by any of our main
campuses would result in the termination of that school’s eligibility and all of its branch campuses to participate in Title IV Programs and could cause us to close the school and its branches, which could have a significant adverse impact on our
business and operations.
On October 28, 2021, the DOE announced that it had notified ACCSC that the DOE’s decision regarding its recognition of ACCSC as an accrediting agency was being deferred pending the submission of additional information about ACCSC’s monitoring,
evaluation, and actions related to high-risk institutions. See Part 1, Item 1. “Business – Regulatory Environment – Accreditation.” If the DOE declines to continue its recognition of ACCSC and if the subsequent period for obtaining accreditation
from another DOE-recognized accrediting agency lapses before we obtain accreditation from another DOE-recognize accrediting agency (or if the DOE does not provide such a period for institutions to obtain other accreditation), our schools could
lose their Title IV eligibility. We cannot predict the timing and outcome of the DOE’s decision on the continuation of its recognition of ACCSC, the timing and outcome of any appeal that ACCSC might pursue in the event of an adverse decision, or
the duration and conditions of any period the DOE may elect to provide to institutions to obtain accreditation from another DOE-recognized accrediting agency. More recently, the DOE announced its intent to commence a negotiated rulemaking
process in April 2023 on a number of topics including amendments to the regulations on accreditation, including regulations associated with the standards relating to the DOE’s recognition of accrediting
agencies and accreditation procedures as a component of institutional eligibility for participation in the Title IV Program. We cannot predict the ultimate timing, content or impact of any regulations that DOE might publish on this topic.
Programmatic accreditation is the process through which specific programs are reviewed and approved by industry- and program-specific accrediting entities. Although programmatic accreditation is not generally necessary for Title IV Program
eligibility, such accreditation may be required to allow students to sit for certain licensure exams or to work in a particular profession or career or to meet other requirements. Failure to obtain or maintain such programmatic accreditation may
lead to a decline in enrollments in such programs.
Our institutions would lose eligibility to participate in Title IV Programs if the percentage of their revenues derived from those programs exceeds 90%, which could reduce our student population and revenues.
A proprietary institution that derives more than 90% of its total revenue from Title IV Programs for two consecutive fiscal years becomes immediately ineligible to participate in Title IV Programs and may not reapply for eligibility until the
end of at least two fiscal years. An institution with revenues exceeding 90% for a single fiscal year will be placed on provisional certification and may be subject to other enforcement measures.
In March 2021, the ARPA amended the 90/10 Rule by treating other “federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such
institution” in the same way as Title IV funds are currently treated in the 90/10 Rule calculation. See Part I, Item 1. “Business – Regulatory Environment – 90/10 Rule.” The ARPA states that the amendments to the 90/10 Rule apply to
institutional fiscal years beginning on or after January 1, 2023 and are subject to the HEA’s negotiated rulemaking process. The DOE published new final 90/10 Rule regulations on October 28, 2022 with a general effective date of July 1, 2023.
The 90/10 Rule regulations could have a materially adverse effect on us and other schools like ours. See Part I, Item 1. “Business – Regulatory Environment – 90/10 Rule” and “Business – Regulatory Environment – Negotiated Rulemaking.” We
cannot be certain that the changes we make to our operations in the future to address the new 90/10 Rule regulations will succeed in maintaining our institutions’ 90/10 Rule percentages below required levels or that the changes will not
materially impact our business operations, revenues, and operating costs. It also is possible that Congress or the DOE could amend the 90/10 Rule in the future to lower the 90% threshold, change the calculation methodology, or make other
changes to the 90/10 Rule that could make it more difficult for our institutions to comply with the 90/10 Rule. If any of our institutions loses eligibility to participate in Title IV Programs, that loss would also adversely affect our
students’ access to various government-sponsored student financial aid programs, and would have a significant impact on the rate at which our students enroll in our programs and on our business and results of operations.
Our institutions would lose eligibility to participate in Title IV Programs if their former students defaulted on repayment of their federal student loans in excess of specified levels, which could reduce our student
population and revenues.
An institution may lose its eligibility to participate in some or all Title IV Programs if the rates at which the institution's current and former students default on their federal student loans exceed specified percentages. See Part I, Item
1. “Business - Regulatory Environment – Student Loan Defaults.” If former students defaulted on repayment of their federal student loans in excess of specified levels, our institutions would lose eligibility to participate in Title IV Programs,
would also adversely affect our students’ access to various government-sponsored student financial aid programs, and would have a significant impact on the rate at which our students enroll in our programs and on our business and results of
operations.
We are subject to sanctions if we fail to correctly calculate and timely return Title IV Program funds for students who withdraw before completing their educational programs, which could increase our cost of
regulatory compliance and decrease our profit margin.
An institution participating in Title IV Programs must correctly calculate the amount of unearned Title IV Program funds that have been credited to students who withdraw from their educational programs before completing them and must return
those unearned funds in a timely manner, generally within 45 days of such student’s withdrawal. If the unearned funds are not properly calculated and timely returned, we may have to post a letter of credit in favor of the DOE or may be otherwise
sanctioned by the DOE, which could increase our cost of regulatory compliance and adversely affect our results of operations. Based upon the findings of an annual Title IV Program compliance audit of our Columbia and Iselin institutions, we are
required to maintain a letter of credit in the amount of $600,020 to the DOE. More recently, the DOE announced its intent to commence a negotiated rulemaking process in April 2023 on a number of topics including plans to amend the regulations on
the requirements for institutions to return unearned Title IV funds to students who withdraw from their educational programs before completing them. We cannot predict the ultimate timing, content or impact
of any regulations that DOE might publish on this topic. See Part I, Item 1. “Business - Regulatory Environment – Return of Title IV Program Funds.”
We are subject to sanctions if we fail to comply with the DOE’s regulations regarding prohibitions against substantial misrepresentations, which could increase our cost of regulatory compliance and decrease our
profit margin.
The DOE’s regulations prohibit an institution that participates in the Title IV Programs from engaging in substantial misrepresentation of the nature of its educational programs, financial charges, graduate employability or its relationship
with the DOE. The DOE published final regulations on November 1, 2022 that, among other things, expanded the categories of conduct deemed to be a misrepresentation or substantial omission of fact and that also
established new prohibitions on certain types of recruiting tactics and conduct that the DOE deems to be aggressive or deceptive. See Part I, Item 1. “Business - Regulatory Environment – Substantial Misrepresentation” and “Business –
Regulatory Environment – Negotiated Rulemaking.” If the DOE determines that one of our institutions has engaged in substantial misrepresentation or other prohibited conduct, the DOE may impose sanctions or other conditions upon the institution
including, but not limited to, initiating an action to fine the institution or limit, suspend, or terminate its eligibility to participate in Title IV Programs and may seek to discharge students’ loans and impose liabilities upon the institution.
The new regulations also could result in further scrutiny of marketing and recruiting practices by institutions like our schools and could increase the chances of the DOE finding practices to be noncompliant and imposing sanctions based on the
alleged noncompliance.
All of our institutions are provisionally certified by the DOE, which may make them more vulnerable to unfavorable DOE action and place additional regulatory burdens on its operations.
All of our institutions are provisionally certified by the DOE. See Part I, Item 1. “Business - Regulatory Environment – Regulation of Federal Student Financial Aid Programs.” The DOE typically places an institution on provisional
certification following a change in ownership resulting in a change of control, and may provisionally certify an institution for other reasons including, but not limited to, failure to comply with certain standards of administrative capability or
financial responsibility. During the time when an institution is provisionally certified, it may be subject to adverse action with fewer due process rights than those afforded to other institutions. In addition, an institution that is
provisionally certified must apply for and receive approval from the DOE for certain substantive changes including, but not limited to, the establishment of an additional location, an increase in the level of academic offerings or the addition of
new programs. The DOE intends to reinitiate the rulemaking process that is considering, among other issues, establishing rules to authorize additional conditions and restrictions on provisionally certified institutions and expanding existing
regulations regarding administrative capability and financial responsibility. See Part I, Item 1. “Business – Regulatory Environment – Negotiated Rulemaking.” Any adverse action by the DOE or increased regulatory burdens as a result of the
provisional status of one of our institutions could have a material adverse effect on enrollments and our revenues, financial condition, cash flows and results of operations.
Regulatory agencies or third parties may conduct compliance reviews, bring claims or initiate litigation against us. If the results of these reviews or claims are unfavorable to us, our results of operations and
financial condition could be adversely affected.
Because we operate in a highly regulated industry, we are subject to compliance reviews and claims of noncompliance and lawsuits by government agencies and third parties. We may be subject to further reviews related to, among other things,
issues of noncompliance identified in recent audits and reviews related to our institutions’ compliance with Title IV Program requirements or related to liabilities for the discharge of loans to certain students who attended campuses of our
institutions that are now closed. See Part I, Item 1. “Business - Regulatory Environment – Compliance with Regulatory Standards and Effect of Regulatory Violations.” If the results of these reviews or proceedings are unfavorable to us, or if we
are unable to defend successfully against third-party lawsuits or claims, we may be required to pay money damages or be subject to fines, limitations on the operations of our business, loss of federal and state funding, injunctions or other
penalties. Even if we adequately address issues raised by an agency review or successfully defend a third-party lawsuit or claim, we may have to divert significant financial and management resources from our ongoing business operations to address
issues raised by those reviews or defend those lawsuits or claims. Certain of our institutions are subject to ongoing reviews and proceedings. See Part I, Item 1. “Business – Regulatory Environment – Accreditation,” “Regulatory Environment –
Other Financial Assistance Programs,” “Regulatory Environment – Borrower Defense to Repayment,” “Regulatory Environment - Compliance with Regulatory Standards and Effect of Regulatory Violations,” and “Regulatory Environment - Scrutiny of the For-Profit Postsecondary Education Sector.”
Our business could be adversely impacted by additional legislation, regulations, or investigations regarding private student lending because students attending our schools rely on private student loans to pay tuition
and other institutional charges.
The CFPB has exercised supervisory authority over private education loan providers. The CFPB has initiated investigations into the lending practices of institutions
in the for-profit education sector. Any new legislation, regulations, or investigations regarding private student lending could limit the availability of private student loans to our students, which could have a significant impact on our
business and operations.
Changes in the executive branch of our federal government as a result of the outcome of elections or other events could result in further legislation, appropriations, regulations and enforcement actions that could
materially or adversely affect our business.
Our industry is subject to an intensive ongoing federal and state regulatory environment that affects our industry. The composition of federal and state executive offices, executive agencies and legislatures that are subject to change based on
the results of elections, appointments and other events, may adversely impact our industry through constant changes in that regulatory environment resulting from the disparate views towards the for-profit education industry. See Part I, Item 1.
“Business – Regulatory Environment – Scrutiny of the For-Profit Postsecondary Education Sector.” Any laws that are adopted that limit our or our students’ participation in Title IV Programs or in programs to provide funds for active duty service
members and veterans or the amount of student financial aid for which our students are eligible, or any decreases in enrollment related to the congressional activity concerning this sector, could have a material adverse effect on our academic or
operational initiatives, cash flows, results of operations, or financial condition.
Adverse publicity arising from scrutiny of us or other for-profit postsecondary schools may negatively affect us or our schools.
In recent years, Congress, the DOE, state legislatures, accrediting agencies, the CFPB,
the FTC, state attorneys general and the media have scrutinized the for-profit postsecondary education sector. See Part I, Item 1. “Business – Regulatory Environment – Scrutiny of the For-Profit Postsecondary Education Sector.” Adverse
publicity regarding any past, pending, or future investigations, claims, settlements, and/or actions against us or other for-profit postsecondary schools could negatively affect our reputation, student enrollment levels, revenue, profit, and/or
the market price of our Common Stock. Unresolved investigations, claims, and actions, or adverse resolutions or settlements thereof, could also result in additional inquiries, administrative actions or lawsuits, increased scrutiny, the loss or
withholding of accreditation, state licensure, or eligibility to participate in the Title IV Programs or other financial assistance programs, and/or the imposition of other sanctions by federal, state, or accrediting agencies which,
individually or in the aggregate, could have a material adverse effect on our business, financial condition, results of operations, and cash flows and result in the imposition of significant restrictions on us and our ability to operate.
Public health pandemics, epidemics or outbreaks, including the COVID-19 pandemic, could have a material adverse effect on our business and operations.
Public health pandemics, epidemics or outbreaks such as the COVID-19 pandemic and the resulting containment measures to be taken in response to such events have caused and may in the future cause economic and financial disruptions globally.
The extent to which any rapidly spreading contagious illness may impact our business and operations will depend on a variety of factors beyond our control, including the actions of governments, businesses and other enterprises in response
thereto, the effectiveness of those actions, and vaccine availability, distribution and adoption, all of which cannot be predicted with any level of certainty. We believe that the spread of such illnesses could adversely impact our business and
operations, including as a result of workforce limitations and travel restrictions and related government actions. If a significant percentage of our workforce is unable to work, including because of illness or travel or government restrictions
in connection with pandemics or disease outbreaks, our operations and enrollment may be negatively impacted. Finally, state and federal regulators, including the DOE, are augmenting existing regulatory processes, waiving others, and overseeing
various emergency relief and aid programs. It is highly uncertain how long such regulatory accommodations will continue, or how long and in what amount emergency relief and aid funds will continue to be available. We also cannot predict the types
of conditions that may be attached to participation in emergency relief and aid programs, and whether and to what extent compliance with such conditions will be monitored and enforced. If further outbreaks occur and students elect to take a
leave of absence, withdraw, or do not make up the required in person labs on a timely basis, our future revenues could be impacted.
RISKS RELATED TO OUR BUSINESS
Our success depends in part on our ability to update and expand the content of existing programs and develop new programs in a cost-effective manner and on a timely basis.
Prospective employers of our graduates increasingly demand that their entry-level employees possess appropriate technological skills. These skills are becoming more sophisticated in line with technological advancements
in the automotive, diesel, information technology, and skilled trades. Accordingly, educational programs at our schools must keep pace with those technological advancements. The expansion of our existing programs and the development of new
programs may not be accepted by our students, prospective employers or the technical education market. Even if we are able to develop acceptable new programs, we may not be able to introduce these new programs as quickly as our students require
or as competitors or employers demand. If we are unable to adequately respond to changes in market requirements due to financial or regulatory constraints, unusually rapid technological changes or other factors, our ability to attract and retain
students could be impaired, our placement rates could suffer and our revenues could be adversely affected.
In addition, if we are unable to adequately anticipate the requirements of the employers we serve, we may offer programs that do not teach skills useful to prospective employers, which could affect our placement rates
and our ability to attract and retain students, causing our revenues to be adversely affected.
Competition could decrease our market share and cause us to lower our tuition rates.
The post-secondary education market is highly competitive. We compete for students and faculty with traditional public and private two-year and four-year colleges and universities and other proprietary schools, many of
which have greater financial resources than we do. Some traditional public and private colleges and universities, as well as other private career-oriented schools, offer programs that may be perceived by students to be similar to ours. Most
public institutions are able to charge lower tuition than our schools, due in part to government subsidies and other financial resources not available to for-profit schools. Some of our competitors also have substantially greater financial and
other resources than we have which may, among other things, allow our competitors to secure strategic relationships with some or all of our existing strategic partners or develop other high profile strategic relationships, or devote more
resources to expanding their programs and their school network, or provide greater financing alternatives to their students, all of which could affect the success of our marketing programs. In addition, some of our competitors have a larger
network of schools and campuses than we do, enabling them to recruit students more effectively from a wider geographic area. This strong competition could adversely affect our business.
We may be required to reduce tuition or increase spending in response to competition in order to retain or attract students or pursue new market opportunities. As a result, our market share, revenues and operating
margin may be decreased. We cannot be sure that we will be able to compete successfully against current or future competitors or that the competitive pressures we face will not adversely affect our revenues and profitability.
Our financial performance depends in part on our ability to continue to develop awareness and acceptance of our programs among high school graduates and working adults looking to return to school.
The awareness of our programs among high school graduates and working adults looking to return to school is critical to the continued acceptance and growth of our programs. Our inability to continue to develop awareness
of our programs could reduce our enrollments and impair our ability to increase our revenues or maintain profitability. The following are some of the factors that could prevent us from successfully marketing our programs:
|
• |
student dissatisfaction with our programs and services;
|
|
• |
diminished access to high school student populations;
|
|
• |
our failure to maintain or expand our brand or other factors related to our marketing or advertising practices; and
|
|
• |
our inability to maintain relationships with employers in the automotive, diesel, skilled trades and IT services industries.
|
An increase in interest rates could adversely affect our ability to attract and retain students.
Our students and their families have benefitted from historic lows on student loan interest rates in recent years. Much of the financing our students receive is tied to floating interest rates. Recently, however,
student loan interest rates have been edging higher, making borrowing for education more expensive. Increases in interest rates result in a corresponding increase in the cost to our existing and prospective students of financing their education,
which could result in a reduction in the number of students attending our schools and could adversely affect our results of operations and revenues. Higher interest rates could also contribute to higher default rates with respect to our students'
repayment of their educational loans. Higher default rates may in turn adversely impact our eligibility for Title IV Program participation or the willingness of private lenders to make private loan programs available to students who attend our
schools, which could result in a reduction in our student population.
A substantial decrease in student financing options, or a significant increase in financing costs for our students, could have a significant impact on our student population, revenues and financial results.
The consumer credit markets in the United States have recently suffered from increases in default rates and foreclosures on mortgages. Adverse market conditions for consumer and federally guaranteed student loans could result in providers of
alternative loans reducing the attractiveness and/or decreasing the availability of alternative loans to post-secondary students, including students with low credit scores who would not otherwise be eligible for credit-based alternative loans.
Prospective students may find that these increased financing costs make borrowing prohibitively expensive and abandon or delay enrollment in post-secondary education programs. Private lenders could also require that we pay them new or increased
fees in order to provide alternative loans to prospective students. If any of these scenarios were to occur, our students’ ability to finance their education could be adversely affected and our student population could decrease, which could have
a significant impact on our financial condition, results of operations and cash flows.
In addition, any actions by the U.S. Congress or by states that significantly reduce funding for Title IV Programs or other student financial assistance programs, or the ability of our students to participate in these programs, or establish
different or more stringent requirements for our schools to participate in those programs, could have a significant impact on our student population, results of operations and cash flows.
We cannot predict our future capital needs, and if we are unable to secure additional financing when needed, our operations and revenues would be adversely affected.
We may need to raise additional capital in the future to fund acquisitions, working capital requirements, expand our markets and program offerings or respond to competitive pressures or perceived opportunities. We
cannot be sure that additional financing will be available to us on favorable terms, or at all. If adequate funds are unavailable when required or on acceptable terms, we may be forced to forego attractive acquisition opportunities, cease
operations. Even if we are able to continue our operations, our ability to increase student enrollment and revenues would be adversely affected.
We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business.
Our success has depended, and will continue to depend, largely on the skills, efforts and motivation of our executive officers who generally have significant experience within the post-secondary education industry. Our
success also depends in large part upon our ability to attract and retain highly qualified faculty, school directors, administrators and corporate management. Due to the nature of our business, we face significant competition in the attraction
and retention of personnel who possess the skill sets that we seek. In addition, key personnel may leave us and subsequently compete against us. Furthermore, we do not currently carry "key man" life insurance on any of our employees. The loss of
the services of any of our key personnel, or our failure to attract and retain other qualified and experienced personnel on acceptable terms, could have an adverse effect on our ability to operate our business efficiently and to execute our
growth strategy.
Strikes by our employees may disrupt our ability to hold classes as well as our ability to attract and retain students, which could materially adversely affect our operations. In addition, we
contribute to multiemployer benefit plans that could result in liabilities to us if these plans are terminated or we withdraw from them.
As of December 31, 2022, the teaching professionals at six of our campuses are represented by unions and covered by collective bargaining agreements that expire between 2023 and 2025. Although we believe that we have
good relationships with these unions and with our employees, any strikes or work stoppages by our employees could adversely impact our relationships with our students, hinder our ability to conduct business and increase costs.
We also contribute to multiemployer pension plans for some employees covered by collective bargaining agreements. These plans are not administered by us, and contributions are determined in accordance with provisions
of negotiated labor contracts. The Employee Retirement Income Security Act of 1974, as amended by the Multiemployer Pension Plan Amendments Act of 1980, imposes certain liabilities upon employers who are contributors to a multiemployer plan in
the event of the employer’s withdrawal from, or upon termination of, such plan. We do not routinely review information on the net assets and actuarial present value of the multiemployer pension plans’ unfunded vested benefits allocable to us, if
any, and we are not presently aware of any material amounts for which we may be contingently liable if we were to withdraw from any of these plans. In addition, if any of these multiemployer plans enters “critical status” under the Pension
Protection Act of 2006, we could be required to make significant additional contributions to those plans.
System disruptions to our technology infrastructure could impact our ability to generate revenue and could damage the reputation of our institutions.
The performance and reliability of our technology infrastructure is critical to our reputation and to our ability to attract and retain students. We license the software and related hosting and maintenance
services for our online platform and our student information system from third-party software providers. Any system error or failure, or a sudden and significant increase in bandwidth usage, could result in the unavailability of systems to us
or our students or result in delays and/or errors in processing student financial aid and related disbursements. Any such system disruptions could impact our ability to generate revenue and affect our ability to access information about our
students and could also damage the reputation of our institutions. Any of the cyberattacks, breaches or other disruptions or damage described above could interrupt our operations, result in theft of our and our students’ data or result
in legal claims and proceedings, liability and penalties under privacy laws and increased cost for security and remediation, each of which could adversely affect our business and financial results. We may be
required to expend significant resources to protect against system errors, failures or disruptions or to repair problems caused by any actual errors, disruptions or failures.
We are subject to privacy and information security laws and regulations due to our collection and use of personal information, and any violations of those laws or regulations, or any breach, theft or loss of that
information, could adversely affect our reputation and operations.
Our efforts to attract and enroll students result in us collecting, using and storing substantial amounts of personal information regarding applicants, our students, their families and alumni, including social security numbers and financial
data. We also maintain personal information about our employees in the ordinary course of our activities. Our services, the services of many of our health plan and benefit plan vendors, and other information can be accessed globally through the
Internet. We rely extensively on our network of interconnected applications and databases for day to day operations as well as financial reporting and the processing of financial transactions. Our computer networks and those of our vendors that
manage confidential information for us or provide services to our student may be vulnerable to computer hackers, organized cyberattacks and physical or electronic breaches or unauthorized access, acts of vandalism, ransomware, software viruses
and other similar types of malicious activities. Regular patching of our computer systems and frequent updates to our virus detection and prevention software with the latest virus and malware signatures may not catch newly introduced malware and
viruses or “zero-day” viruses, prior to their infecting our systems and potentially disrupting our data integrity, taking sensitive information or affecting financial transactions. While we utilize security and business controls to limit access
to and use of personal information, any breach of student or employee privacy or errors in storing, using or transmitting personal information could violate privacy laws and regulations resulting in fines or other penalties. A wide range of
high-profile data breaches in recent years has led to renewed interest in federal data and cybersecurity legislation that could increase our costs and/or require changes in our operating procedures or systems. A breach, theft or loss of personal
information held by us or our vendors, or a violation of the laws and regulations governing privacy could have a material adverse effect on our reputation or result in lawsuits, additional regulation, remediation and compliance costs or
investments in additional security systems to protect our computer networks, the costs of which may be substantial. We cannot assure you that a breach, loss, or theft of personal information will not occur.
Changes in U.S. tax laws or adverse outcomes from examination of our tax returns could have an adverse effect upon our financial results.
We are subject to income tax requirements in various jurisdictions in the United States. Legislation or other changes in the tax laws of the jurisdictions where we do business could increase our liability and adversely affect our after-tax
profitability. In addition, we are subject to examination of our income tax returns by the Internal Revenue Service and the taxing authorities of various states. We regularly assess the likelihood of adverse outcomes resulting from tax
examinations to determine the adequacy of our provision for income taxes and we have accrued tax and related interest for potential adjustments to tax liabilities for prior years. However, there can be no assurance that the outcomes from these
tax examinations will not have a material effect, either positive or negative, on our business, financial conditions and results of operation.
The occurrence of natural or man-made catastrophes, including those caused by climate change and other climate-related causes, could materially and adversely affect our business, financial condition,
results of operations and prospects.
Substantially all of our campuses are located at leased premises in various areas some of which can experience hurricanes, severe storms, floods, coastal storms, tornadoes, power outages and other severe weather events.
If these events were to occur and cause damage to our campus facilities, or limit the ability of our students or faculty to participate in or contribute to our academic programs or our ability to comply with federal and state educational
requirements, our business may be adversely affected. Disruptions of this kind may also result in increases in student attrition, voluntary or mandatory closure of some or all of our facilities, or our inability to procure essential supplies or
travel during the pendency of mandated travel restrictions. We may not be able to effectively shift our operations due to disruptions arising from the occurrence of such events, and our business and results of operations could be affected
adversely as a result. Moreover, damage to or total destruction of our campus facilities from various weather events may not be covered in whole or in part by any insurance we may have.
Our success depends, in part, on the effectiveness of our marketing and advertising programs in recruiting new students.
Maintaining our revenues and margins and further increasing them requires us to continue to develop our admissions programs and attract new students in a cost-effective manner. The scope and focus of our marketing and
advertising efforts and the strategies used are determined by, among other factors, the specific geographic markets, regulatory compliance requirements and the nature of each institution and its students. If we are unable to advertise and market
our institutions and programs successfully, our ability to attract and enroll new students could be materially adversely affected and, consequently, our financial performance could suffer. We use marketing tools such as the Internet, radio,
television and print media advertising to promote our institutions and programs. Our representatives also make presentations at high schools and career fairs. Additionally, we rely on the general reputation of our institutions and referrals from
current students, alumni and employers as a source of new enrollment. As part of our marketing and advertising, we also subscribe to lead-generating databases in certain markets, the cost of which may increase. Among the factors that could
prevent us from marketing and advertising our institutions and programs successfully are the failure of our marketing tools and strategies to appeal to prospective students, regulatory constraints on marketing, current student and/or employer
dissatisfaction with our program offerings or results and diminished access to high school campuses and military bases. In order to maintain our growth, we will need to attract a larger percentage of students in existing markets and increase our
addressable market by adding locations in new markets and rolling out new academic programs. Any failure to accomplish this may have a material adverse effect on our future growth.
RISKS RELATED TO OUR CAPITAL STRUCTURE
Anti-takeover provisions in our Amended and Restated Certificate of Incorporation, our Bylaws and New Jersey law could discourage a change of control that our shareholders may favor, which could negatively affect our
stock price.
Provisions in our Amended and Restated Certificate of Incorporation and our Bylaws and applicable provisions of the New Jersey Business Corporation Act may make it more difficult and expensive for a third party to acquire control of the
Company even if a change of control would be beneficial to the interests of our shareholders. These provisions could discourage potential takeover attempts and could adversely affect the market price of our Common Stock. For example, applicable
provisions of the New Jersey Business Corporation Act may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested shareholder for a period of five years after the person
becomes an interested shareholder. Furthermore, our Amended and Restated Certificate of Incorporation and Bylaws:
|
• |
authorize the issuance of blank check Preferred Stock that could be issued by our board of directors to thwart a takeover attempt;
|
|
• |
prohibit cumulative voting in the election of directors, which would otherwise allow holders of less than a majority of stock to elect some directors;
|
|
• |
require super-majority voting to effect amendments to certain provisions of our amended and restated certificate of incorporation;
|
|
• |
limit who may call special meetings of both the board of directors and shareholders;
|
|
• |
prohibit shareholder action by non-unanimous written consent and otherwise require all shareholder actions to be taken at a meeting of the shareholders;
|
|
• |
establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be acted upon by shareholders at shareholders’ meetings; and
|
|
• |
require that vacancies on the board of directors, including newly created directorships, be filled only by a majority vote of directors then in office.
|
We can issue shares of Preferred Stock without general shareholder approval, which could adversely affect the rights of common shareholders.
Our Amended and Restated Certificate of Incorporation permits us to establish the rights, privileges, preferences and restrictions, including voting rights, of future series of our Preferred Stock and to issue such stock without approval from
our shareholders. The rights of holders of our Common Stock may suffer as a result of the rights granted to holders of Preferred Stock that may be issued in the future. In addition, we could issue Preferred Stock to prevent a change in control of
our Company, depriving common shareholders of an opportunity to sell their stock at a price in excess of the prevailing market price.
The trading price of our Common Stock may continue to fluctuate substantially in the future.
Our stock price may fluctuate significantly as a result of a number of factors, some of which are not in our control. These factors include:
|
• |
general economic conditions;
|
|
• |
general conditions in the for-profit, post-secondary education industry;
|
|
• |
negative media coverage of the for-profit, post-secondary education industry;
|
|
• |
failure of certain of our schools or programs to maintain compliance under the gainful employment regulation, 90/10 Rule or with financial responsibility standards;
|
|
• |
the impact of DOE rulemaking and other changes in the highly regulated environment in which we operate;
|
|
• |
the initiation, pendency or outcome of litigation, accreditation reviews and regulatory reviews, inquiries and investigations;
|
|
• |
quarterly variations in our operating results;
|
|
• |
our ability to meet or exceed, or changes in, expectations of investors and analysts, or the extent of analyst coverage of us; and decisions by any significant investors to reduce their investment in our Common Stock.
|
In addition, the trading volume of our Common Stock is relatively low. This may cause our stock price to react more to these factors and various other factors and may impact an investor’s ability to sell our Common Stock at the desired time at
a price considered satisfactory. Any of these factors may adversely affect the trading price of our Common Stock, regardless of our actual operating performance, and could prevent an investor from selling shares of our Common Stock at or above
the price at which the investor purchased them.
| ITEM 1B. |
UNRESOLVED STAFF COMMENTS
|
None.
As of December 31, 2022, we leased all of our facilities, except for our campus in Nashville, Tennessee. We continue to reevaluate our facilities to maximize our facility utilization and efficiency and to allow us to
introduce new programs and attract more students. As of December 31, 2022, all of our existing leases expire between 2023 and 2041.
The following table provides information relating to our facilities as of December 31, 2022, including our corporate office:
|
Location
|
|
Brand
|
|
Approximate Square Footage
|
|
Las Vegas, Nevada
|
|
Euphoria Institute
|
|
23,000
|
|
Columbia, Maryland
|
|
Lincoln College of Technology
|
|
111,000
|
|
Denver, Colorado
|
|
Lincoln College of Technology
|
|
213,000
|
|
Grand Prairie, Texas
|
|
Lincoln College of Technology
|
|
157,000
|
|
Indianapolis, Indiana
|
|
Lincoln College of Technology
|
|
126,000
|
|
Marietta, Georgia
|
|
Lincoln College of Technology
|
|
30,000
|
|
Melrose Park, Illinois
|
|
Lincoln College of Technology
|
|
88,000
|
|
Allentown, Pennsylvania
|
|
Lincoln Technical Institute
|
|
25,000
|
|
Atlant, Georgia*
|
|
Lincoln Technical Institute
|
|
56,000
|
|
East Windsor, Connecticut
|
|
Lincoln Technical Institute
|
|
289,000
|
|
Iselin, New Jersey
|
|
Lincoln Technical Institute
|
|
32,000
|
|
Lincoln, Rhode Island
|
|
Lincoln Technical Institute
|
|
39,000
|
|
Mahwah, New Jersey
|
|
Lincoln Technical Institute
|
|
79,000
|
|
Moorestown, New Jersey
|
|
Lincoln Technical Institute
|
|
35,000
|
|
New Britain, Connecticut
|
|
Lincoln Technical Institute
|
|
36,000
|
|
Paramus, New Jersey
|
|
Lincoln Technical Institute
|
|
30,000
|
|
Philadelphia, Pennsylvania
|
|
Lincoln Technical Institute
|
|
30,000
|
|
Queens, New York
|
|
Lincoln Technical Institute
|
|
48,000
|
|
Shelton, Connecticut
|
|
Lincoln Technical Institute and Lincoln Culinary Institute
|
|
57,000
|
|
Somerville, Massachusetts**
|
|
Lincoln Technical Institute
|
|
33,000
|
|
South Plainfield, New Jersey
|
|
Lincoln Technical Institute
|
|
60,000
|
|
Union, New Jersey
|
|
Lincoln Technical Institute
|
|
56,000
|
|
Nashville, Tennessee***
|
|
Lincoln College of Technology
|
|
350,000
|
|
Parsippany, New Jersey
|
|
Corporate Office
|
|
17,0
|
We believe that our facilities are suitable for their present intended purposes.
| * |
On June 30, 2022, the Company executed a lease for a 55,000 square foot facility to house a second Atlanta area campus. The build-out is progressing according to plan. For the year ended December 31,
2022, the Company incurred approximately $0.4 million in capital expenditures, mostly relating to architectural fees and approximately $0.3 million in rent.
|
| ** |
On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus by the end of 2023. Total costs to close the campus including the teach-out of the remaining
students, are expected to be approximately $2.0 million.
|
| *** |
The Nashville, Tennessee campus is currently subject to a property sale agreement. See Part II. Item 8. “Financial Statements and Supplemental Data - Notes to Consolidated Financial Statements – Note 7
Property Sale Agreements.”
|
| ITEM 3. |
LEGAL PROCEEDINGS
|
In April 2021, the Company received communication from the DOE indicating that the DOE was in receipt of a number of borrower defense applications containing allegations concerning our schools and requiring that the DOE
undertake a fact-finding process pursuant to DOE regulations. Among other things, the communication outlines a process by which the DOE would provide to us the applications and provide us with the opportunity to submit responses to them. Further,
the communication outlined certain information requests, relating to the period between 2007 and 2013, in connection with the DOE’s preliminary review of the borrower defense applications. Based upon publicly available information, it appears
that the DOE has undertaken similar reviews of other educational institutions which have also been the subject of various borrower defense applications. We have received the borrower application claims and have completed the process of thoroughly
reviewing and responding to each borrower application as well as providing information in response to the DOE’s requests.
We are not able to predict the outcome of the DOE’s review at this time. If the DOE disagrees with our legal and factual grounds for contesting the
applications, the DOE may impose liabilities on the Company based on the discharge of the loans at issue in the pending applications, which could have a material adverse effect on our business and results of operations. If the proposed Borrower
Defense to Repayment regulations take effect on July 1, 2023, and if any or all of the Borrower Defense to Repayment applications remain pending, the DOE could attempt to apply the new regulations to the pending applications which could
increase the likelihood of the DOE granting the application because the proposed regulations are more favorable to borrowers.
In August 2022, the Company received a communication from the DOE regarding a single borrower defense application submitted on behalf of a group of students who were enrolled in a single educational program at two of
our schools in Massachusetts between 2010 and 2013. We have responded to the DOE’s letter, notwithstanding the absence of a response to our request for additional information about the student claims. We are waiting for the DOE’s reply to our
response and to our request for information concerning the student claims. We are not able to predict the outcome of the DOE’s review at this time. If the DOE disagrees with our legal and factual grounds for contesting the application, the DOE
may impose liabilities on the Company based on the discharge of the loans at issue in the pending application which could have a material adverse effect on our business and results of operations.
On June 22, 2022, the DOE and the plaintiffs in a lawsuit before a federal court in California submitted a proposed settlement agreement to the court. The plaintiffs contend, among other things, that the DOE failed to
timely decide and resolve Borrower Defense to Repayment applications submitted to the DOE. If approved, the settlement would result in full discharge and refund payments to covered student borrowers who have asserted a Borrower Defense to
Repayment to the DOE and whose borrower defense claims have not yet been granted or denied on the merits.
The lawsuit, Sweet v. Cardona, No. 3:19-cv-3674 (N.D. Cal.), is a class action filed on June 25, 2019 against the DOE in the U.S. District Court for
the Northern District of California submitted by a group of students, none of whom attended any of our institutions. We were not a party to the lawsuit when it was filed. The plaintiffs requested that the court compel the DOE to start
approving or denying the pending applications. The court granted class certification and defined the class of plaintiffs generally to include all people who borrowed a Title IV Direct loan or FFEL loan, who have asserted a Borrower Defense to
Repayment claim to the DOE, and whose borrower defense claim has not been granted or denied on the merits. We have not received notice or confirmation directly from the DOE of the number of student borrowers who have submitted Borrower Defense
to Repayment claims related to our institutions.
The proposed settlement agreement includes a long list of institutions, including Lincoln Technical Institute and Lincoln College of Technology. Under the proposed settlement, the DOE would agree to discharge loans and
refund all prior loan payments to each class member with loan debt associated with an institution on the list (which includes our institutions), including borrowers whose applications the DOE previously denied after October 30, 2019. The DOE and
the plaintiffs stated in a court filing that this provision is intended to provide for automatic relief for students at the listed schools which the DOE estimates to total 200,000 class members. We anticipate that the DOE believes that the class
includes the borrowers with claims to which we have submitted responses to the DOE although it is possible that the class also includes borrowers with claims for which we have not received notice from the DOE or an opportunity to respond. The
parties also stated that the DOE has determined that attendance at one of the institutions on the list justifies presumptive relief based on strong indicia regarding substantial misconduct by the institutions, whether credibly alleged or in some
instances proven, and the high rate of class members with applications related to the listed schools. The proposed settlement agreement provides a separate process for reviewing claims associated with schools that are not on the list. It is
unclear whether the DOE would seek to impose liabilities on us or other schools or take other actions or impose other sanctions on us or other schools based on relief provided to students under the proposed settlement agreement (particularly if
the DOE provides relief without evaluating or accounting for legal and factual information provided to the DOE by us and other schools or without providing us and other schools with notice and an opportunity to respond to some of the claims).
In July 2022, the Company and certain other school companies submitted motions to intervene in the lawsuit in order to protect our interests in the finalization and implementation of any settlement agreement that the
court might approve. We noted in the motion that the proposed settlement agreement introduced, for the first time, the prospect that the DOE would “automatically” and fully discharge loans and refund payments to student borrowers without
adjudication of the merits of the students’ borrower-defense applications in accordance with the DOE’s borrower-defense regulations and without ensuring that we and other institutions can defend against allegations asserted in individual
borrower-defense applications. In addition, we also asserted that it would be unlawful and inappropriate if the DOE sought recoupment against us based on loans that were forgiven under the proposed settlement agreement without providing us with
an opportunity to address the claims or accounting for our responses to the claims already submitted which we believe is required by the regulations. We also asserted that the lawsuit and the potential loan discharges could result in
reputational harm to us and our institutions and could result in other actions against us by other federal and state agencies or by current and former students.
The court granted preliminary approval of the proposed settlement agreement on August 4, 2022, and also granted our motion for permissive intervention for the purpose of objecting to and opposing the class action
settlement. On September 22, 2022, the DOE and the plaintiffs filed a joint motion for final approval of the settlement. In that joint motion, the DOE and the plaintiffs reported that approximately 179,000 new borrower defense applications had
been submitted to the DOE as of September 20, 2022. We and the three other intervenor schools filed briefs opposing final approval.
In an Order dated November 16, 2022, District Court Judge William Alsup granted final approval of the settlement agreement. Subsequently, we, and two other school companies that intervened, filed notices of appeal and
asked the district court to stay the settlement from taking effect until the appeals were decided and the district court did temporarily stay any loan discharges and refunds under the settlement pending the decision. Plaintiffs and the DOE
thereafter filed oppositions to our stay request and, after a hearing, the district court denied our stay request, but extended the temporary stay of loan discharges and refunds associated with the three school companies for seven days to allow
us to file a motion for a stay with the U.S. Court of Appeals for the Ninth Circuit. On February 27, 2023, we and the two other school companies that appealed filed a joint motion for a stay with the Ninth Circuit which we expect the plaintiffs
and the DOE will oppose. We expect that the Ninth Circuit will decide our stay motion in the coming weeks.
Regardless of the outcome of our stay request, we intend to ask the Ninth Circuit to overturn the district court’s judgment approving the final
settlement. If the settlement agreement is upheld on appeal, or if the courts deny our stay requests, the DOE is expected to automatically approve all of the pending borrower defense applications concerning us that were submitted to the DOE on or
before June 22, 2022 and to provide such automatic approval without evaluating or accounting for any of the legal or factual grounds that we provided for contesting the applications that were provided to us. The DOE may or may not attempt to seek
recoupment from applicable schools relating to approval of borrower defense applications. If the DOE approves borrower defense applications concerning us and attempts to recoup from us the loan amounts in the approved applications, we would
consider our options for challenging the legal and factual bases for such actions. The settlement also requires the DOE to review borrower defense applications submitted after June 22, 2022 and before November 16, 2022 within 36 months of the
final settlement date. If the DOE grants some or all of these applications, the DOE also could attempt to recoup from us the loan amounts relating to these applications as well. We cannot predict whether the settlement will be upheld on appeal,
what actions the DOE might take if the settlement is upheld on appeal (including the ultimate timing or amount of borrower defense applications the DOE may grant in the future and the timing or amount of any possible liabilities that the DOE may
seek to recover from the Company, if any), or what the outcome of our challenges to such actions will be, but such actions could have a material adverse effect on our business and results of operations.
On June 7, 2022, the Massachusetts Attorney General’s Office (“AGO”) issued a civil investigative demand (“CID”) indicating its intention to investigate
possible unfair or deceptive methods, acts, or practices in violation of state law relating to allegations against our Massachusetts school to such effect in connection with that school’s policies regarding fee refunds and associated disclosures
to students and prospective students. The CID has requested that we provide to the AGO certain documentation generally from the period from January 1, 2020 to the present. We have provided the documents requested and are cooperating with the
investigation.
We are not able to predict the outcome or materiality of the foregoing matters at this time. In addition to these matters, in the ordinary conduct of our business, we are subject to additional periodic lawsuits,
investigations, regulatory proceedings and other claims, including, but not limited to, claims involving students or graduates, routine employment matters and business disputes. We cannot predict the ultimate resolution of these lawsuits,
investigations, regulatory proceedings and other claims asserted against us, but we do not believe that any of these matters will have a material adverse effect on our business, financial condition, results of operations or cash flows.
| ITEM 4. |
MINE SAFETY DISCLOSURES
|
Not applicable.
| ITEM 5. |
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market for our Common Stock
Our Common Stock, no par value per share, is quoted on the Nasdaq Global Select Market under the symbol “LINC”.
On March 3, 2023, the last reported sale price of our Common Stock on the Nasdaq Global Select Market was $6.19 per share. As of March 3, 2023,
based on the information provided by Continental Stock Transfer & Trust Company, there were 36 shareholders of record of our Common Stock.
Dividend Policy
The Company has not declared or paid any cash dividends on its Common Stock since the Company’s Board of Directors discontinued our quarterly cash dividend program in February 2015. The Company has no current intentions to resume the payment
of cash dividends on its Common Stock in the foreseeable future.
During the fiscal year ended December 31, 2022, the Company paid a total of $1.1 million in cash dividends to holders of its Series A Convertible Preferred Stock (the “Series A Preferred Stock”) pursuant to the Securities Purchase Agreement
entered into on November 14, 2019 and the Company’s Amended and Restated Certificate of Incorporation.
On November 30, 2022, the Company exercised in full its right of mandatory conversion of the Company’s Series A Preferred Stock. In connection with the conversion, each share of Series A Preferred Stock has been cancelled and converted into
423.729 shares of the Company’s Common Stock, no par value per share. Shares of the Series A Preferred Stock are no longer outstanding and all rights of the holders to receive future dividends have terminated. As a result of the conversion, the
aggregate 12,700 shares of Series A Preferred Stock were converted into 5,381,356 shares of Common Stock.
Share Repurchases
On May 24, 2022, the Company announced that the Board of Directors had approved a share repurchase program for 12 months authorizing purchases of up to $30.0 million.
Subsequently, 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 million of the Company’s Common Stock, for an aggregate of up to $30.6
million in additional repurchases.
The following table presents the number and average price of shares purchased during the three months ended December 31, 2022. The remaining authorized amount for
share repurchases under the program at December 31, 2022 was approximately $20.6 million.
|
Period
|
|
Total Number of
Shares
Purchased
|
|
|
Average Price
Paid per Share
|
|
|
Total Number of
Shares Purchased
as Part of Publically
Announced Plan
|
|
|
Maximum Dollar
Value of Shares
Remaining to be
Purchased Under
the Plan
|
|
|
October 1, 2022 to October 31, 2022
|
|
|
342,808
|
|
|
$
|
5.29
|
|
|
|
342,808
|
|
|
$
|
21,451,492
|
|
|
November 1, 2022 to November 30, 2022
|
|
|
123,689
|
|
|
|
6.25
|
|
|
|
123,689
|
|
|
|
20,678,160
|
|
|
December 1, 2022 to December 31, 2022
|
|
|
22,514
|
|
|
|
5.48
|
|
|
|
22,514
|
|
|
|
20,554,775
|
|
|
Total
|
|
|
489,011
|
|
|
|
5.55
|
|
|
|
489,011
|
|
|
|
|
|
For more information on the share repurchase program, See Part II. Item 8. “Financial Statements and Supplemental Data - Notes to Consolidated Financial Statements – Note 11 Stockholders Equity.”
Equity Compensation Plan Information
We have various equity compensation plans under which equity securities are authorized for issuance. Information regarding these securities as of December 31, 2022, are as follows:
|
Plan Category
|
|
Number of
Securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
|
|
|
Weighted-
average
exercise
price of
outstanding
options,
warrants and
rights
|
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
|
| |
|
(a)
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
-
|
|
|
$
|
-
|
|
|
|
840,807
|
|
|
Equity compensation plans not approved by security holders
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
-
|
|
|
$
|
-
|
|
|
|
840,807
|
|
| ITEM 7. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
You should read the following discussion together with the “Forward-Looking Statements” and the consolidated financial statements and the related notes thereto included elsewhere in this Annual
Report on Form 10-K. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those
currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors” and “Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K.
GENERAL
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 schools in 14 states, 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), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology (which includes information technology). 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 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.
Our business is organized into three reportable business segments: (a) Transportation and Skilled Trades, (b) Healthcare and Other Professions; and (c) Transitional, which refers to campuses that have been marked for closure and are currently
being taught out. On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus by the end of 2023. As of December 31, 2022, the Somerville campus is the only
campus classified in the Transitional Segment.
On June 30, 2022, the Company executed a lease for a 55,000 square foot facility to house a second Atlanta, Georgia area campus. The build-out is progressing according
to plan. For the year ended December 31, 2022, the Company incurred approximately $0.4 million in capital expenditures, mostly relating to architectural fees and approximately $0.3 million in rent.
As of December 31, 2022, we had 12,388 students enrolled at 22 campuses.
Our revenues consist primarily of student tuition and fees derived from the programs we offer. Our revenues are reduced by scholarships granted by us to some of our students. We recognize revenues from tuition and
one-time fees, such as application fees, ratably over the length of a program, including internships or externships that take place prior to graduation. We also earn revenues from our bookstores, dormitories, cafeterias and contract training
services. These non-tuition revenues are recognized upon delivery of goods or as services are performed and represent less than 10% of our revenues.
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 136 weeks, our associate’s degree programs range in duration from 73 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.
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 74% and 75% 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 2022 and 2021, 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.”
We extend credit for tuition and fees to many of our students that attend our campuses. Our credit risk is mitigated by the students’ participation in federally funded financial aid programs unless students withdraw
prior to the receipt by us of Title IV Program funds for those students. Under Title IV Programs, the government funds a certain portion of a student’s tuition, with the remainder, referred to as “the gap,” financed by the students themselves
under private party loans and extended financing agreements offered by us. The gap amount has continued to increase over the last several years as we have raised tuition on average for the last several years by 2-3% per year.
The additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity. However, we believe that these risks are somewhat mitigated by the following:
|
• |
our internal financing is provided to students only after all other funding resources have been exhausted; thus, by the time this funding is available, students have completed approximately two-thirds of their curriculum and are more
likely to graduate and, as a consequence, more likely to pay outstanding tuition amounts;
|
|
• |
funding for students who interrupt their education is typically covered by Title IV Program funds as long as they have been properly packaged for financial aid; and
|
|
• |
the requirement that students meet creditworthiness criteria to demonstrate a student’s ability to pay.
|
The operating expenses associated with an existing school do not increase or decrease proportionally as the number of students enrolled at the school increases or decreases. We categorize our operating expenses as:
|
• |
Educational services and facilities. Major components of educational services and facilities expenses
include faculty compensation and benefits, expenses of books and tools, facility rent, maintenance, utilities, depreciation and amortization of property and equipment used in the provision of education services and other costs directly
associated with teaching our programs excluding student services which is included in selling, general and administrative expenses.
|
|
• |
Selling, general and administrative. Selling, general and administrative expenses include compensation and benefits of employees who are not directly associated with
the provision of educational services (such as executive management and school management, finance and central accounting, legal, human resources and business development), marketing and student enrollment expenses (including compensation
and benefits of personnel employed in sales and marketing and student admissions), costs to develop curriculum, costs of professional services, bad debt expense, rent for our corporate headquarters, depreciation and amortization of
property and equipment that is not used in the provision of educational services and other costs that are incidental to our operations. Selling, general and administrative expenses also includes the cost of all student services including
financial aid and career services. All marketing and student enrollment expenses are recognized in the period incurred.
|
Property Sale Agreements
Property Sale Agreement - Nashville, Tennessee Campus
On September 24, 2021, Nashville Acquisition, LLC, a subsidiary of the Company (“Nashville Acquisition”), entered into a Contract for the Purchase of Real Estate (the “Nashville Contract”) to sell
the property located at 524 Gallatin Avenue, Nashville, Tennessee 37206, at which the Company operates its Nashville campus, to SLC Development, LLC, a subsidiary of Southern Land Company (“SLC”), for an aggregate sale price of $34.5 million,
subject to customary adjustments at closing. The Company intends to relocate its Nashville campus to a more efficient and technologically advanced facility in the Nashville metropolitan area but has not yet identified a location.
The Company and SLC have agreed to an extension of the due diligence period under the Nashville Contract. Consequently, subject to satisfactory completion of the due diligence, this transaction is expected to close
during the second quarter of 2023. During the extension of the diligence period, non-refundable payments have been and continue to be made to the Company by SLC which are expected to total approximately $1.1 million in the aggregate through
March 1, 2023. The payments will be applied towards the purchase price, assuming that a closing occurs. As of December 31, 2022, the Company had received approximately $0.5 million in non-refundable payments from SLC. The Nashville, Tennessee
property is currently classified as assets held for sale in the consolidated balance sheet for the fiscal years ended December 31, 2022 and 2021, respectively
Sale-Leaseback Transaction - Denver, Colorado and Grand Prairie, Texas Campuses
On September 24, 2021, Lincoln Technical Institute, Inc. and LTI Holdings, LLC, each a wholly-owned subsidiary of the Company (collectively,
“Lincoln”), entered into an Agreement for Purchase and Sale of Property for the sale of the properties located at 11194 E. 45th Avenue, Denver, Colorado 80239 and 2915 Alouette Drive, Grand Prairie, Texas 75052, at which the Company operates
its Denver and Grand Prairie campuses, respectively, to LNT Denver (Multi) LLC, a subsidiary of LCN Capital Partners (“LNT”), for an aggregate sale price of $46.5 million, subject to customary adjustments at closing. Closing of the sale
occurred on October 29, 2021. Concurrently with consummation of the sale, the parties entered into a triple-net lease agreement for each of the properties pursuant to which the properties are being leased back to Lincoln Technical Institute,
Inc., for a 20-year term at an initial annual base rent, payable quarterly in advance, of approximately $2.6 million for the first year with annual 2.00% increases thereafter
and includes four subsequent five-year renewal options in which the base rent is reset at the commencement of each renewal term at then current fair market rent for the first year of each renewal term with annual 2.00% increases thereafter in
each such renewal term. The lease, in each case, provides Lincoln with a right of first offer should LNT wish to sell the property. The Company has provided a guaranty of the financial and other obligations of Lincoln Technical Institute, Inc,
its subsidiary under each lease. The Company evaluated factors in ASC Topic 606, “Revenue from Contracts with Customers”, to conclude that the transaction qualified as a sale. This included analyzing the right of first offer clause to
determine whether it represents a repurchase agreement that would preclude the transaction from being accounted for as a successful sale. At the consummation of the sale, the Company recognized a gain on sale of assets of $22.5 million.
Additionally, the Company evaluated factors in ASC Topic 842, “Leases”, and concluded that the newly created leases met the definition of an operating lease. The Company also recorded ROU Asset and lease liabilities of $40.1 million. The sale
leaseback transaction consummated in 2021, provided the Company with net proceeds of approximately $45.4 million, with the proceeds partially used for the repayment of the Company’s outstanding term loan of $16.2 million and swap termination
fee of $0.5 million.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our discussions of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the
United States of America, or GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue
recognition, bad debts, goodwill and impairment of long-lived assets and income taxes. Actual results could differ from those estimates. The critical accounting policies discussed herein are not intended to be a comprehensive list of all of our
accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not result in significant management judgment in the application of such principles. We believe that the following
accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management's estimates, assumptions and judgment in the preparation of our consolidated financial
statements.
Revenue recognition. Substantially all of our revenues are considered to be revenues from contracts with students. The related accounts receivable balances
are recorded in our balance sheets as student accounts receivable. We do not have significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied
performance obligations other than in our unearned tuition. We record revenue for students who withdraw from our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not
occur. Unearned tuition represents contract liabilities primarily related to our tuition revenue. We have elected not to provide disclosure about transaction prices allocated to unsatisfied performance obligations if original contract durations
are less than one-year, or if we have the right to consideration from a student in an amount that corresponds directly with the value provided to the student for performance obligations completed to date in accordance with ASC Topic 606, Revenue from Contract with Customers. We have assessed the costs incurred to obtain a contract with a student and determined them to be immaterial.
Allowance for uncollectible accounts. Based upon experience and judgment, we establish an allowance for uncollectible accounts with respect to tuition
receivables. We use an internal group of collectors in our collection efforts. In establishing our allowance for uncollectible accounts, we consider, among other things, current and expected economic conditions, a student's status (in-school or
out-of-school), whether or not a student is currently making payments, and overall collection history. Changes in trends in any of these areas may impact the allowance for uncollectible accounts. The receivables balances of withdrawn students
with delinquent obligations are reserved for based on our collection history. Although we believe that our reserves are adequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make
payments, additional allowances may be necessary, which will result in increased selling, general and administrative expenses in the period such determination is made.
Our bad debt expense as a percentage of revenues for the fiscal years ended December 31, 2022 and 2021 was 10.0% and 8.0%, respectively. A 1% increase in our bad debt expense as a percentage of revenues for the fiscal
years ended December 31, 2022 and 2021 would have resulted in an increase in bad debt expense of $3.5 million and $3.4 million, respectively.
We do not believe that there is any direct correlation between tuition increases, the credit we extend to students and our financing commitments. The extended financing plans we offer to our students are made on a
student-by-student basis and are predominantly a function of the specific student’s financial condition. We only extend credit to the extent there is a financing gap between the tuition and fees charged for the program and the amount of grants,
loans and parental loans each student receives. Each student’s funding requirements are unique. Factors that determine the amount of aid available to a student include whether they are dependent or independent students, Pell Grants awarded,
federal Direct Loans awarded, PLUS loans awarded to parents and the student’s personal resources and family contributions. As a result, it is extremely difficult to predict the number of students that will need us to extend credit to them.
Because a substantial portion of our revenues is derived from Title IV Programs, any legislative or regulatory action that significantly reduces the funding available under Title IV Programs or the ability of our
students or schools to participate in Title IV Programs could have a material effect on the realizability of our receivables.
Goodwill. Goodwill represents the excess of purchase price over the fair value of tangible net assets and identifiable intangible assets of the businesses
acquired. Lincoln tests goodwill for impairment annually, in the fourth quarter of each year, unless there are events or changes in circumstances that indicate an impairment may have occurred. Impairment may result from deterioration in
performance, adverse market conditions, adverse changes in laws or regulations, the restriction of activities associated with the acquired business, and/or a variety of other circumstances. If we determine that impairment has occurred, we record
a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made.
As of December 31, 2022, goodwill was approximately $14.5 million, or 5.0%, of our total assets. The goodwill is allocated among nine reporting units within the Transportation and Skilled Trades Segment.
When we perform our annual goodwill impairment assessment we have the option to perform a qualitative assessment based on a number of factors impacting our reporting units (step 0). When a qualitative assessment is performed, a number of
factors are evaluated to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. Our qualitative assessment is subjective. It includes a review of
macroeconomic and industry factors, review of financial and non-financial performance measures, including projected student starts and assessment of adverse events that may negatively impact a reporting units carrying value. Adverse events
would include, but are not limited to, difficulty in accessing capital, a greater competitive environment, decline in market-dependent multiples or metrics, regulatory or political developments, change in key personnel, strategy, or customers,
or litigation. If we conclude based on our qualitative review that it is more likely than not that the fair value of the reporting unit is less than the carrying value, we proceed with a quantitative impairment test. However, in 2022 it
was deemed more appropriate to perform a quantitative goodwill impairment test as a number of factors changed in an unfavorable direction.
When we perform our quantitative impairment test we believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, future tuition
revenues, operating costs, working capital changes, capital expenditures and a discount rate. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends particularly in student
enrollment and pricing and long-term operating strategies and initiatives.
If we determine that quantitative tests are necessary, we determine the fair value of each reporting unit using an equal weighting of the discounted cash flow model and the market approach, or if required, we will
evaluate other asset value-based approaches. Our judgment is necessary in forecasting future cash flows and operating results, critical assumptions include growth rates, changes in operating costs, capital expenditures, changes in weighted
average costs of capital, and the fair value of an asset based on the price that would be received in a current transaction to sell the asset. Additionally, we obtain independent market metrics for the industry and our peers to assist in the
development of these key assumptions. This process is consistent with our internal forecasts and operating plans.
On December 31, 2022, we conducted our annual test for goodwill impairment and determined we did not have an impairment.
Impairment of Long-Lived Assets. The Company reviews the carrying value of its long-lived assets and identifiable
intangibles for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. For other long-lived assets, including right-of-use lease assets, the Company evaluates assets for
recoverability when there is an indication of potential impairment. Factors the Company considers important, which could trigger an impairment review, include significant changes in the manner of the use of the asset, significant changes in
historical trends in operating performance, significant changes in projected operating performance, and significant negative economic trends. If the undiscounted cash flows from a group of assets being evaluated is less than the carrying value
of that group of assets, the fair value of the asset group is determined and the carrying value of the asset group is written down to fair value.
When we perform the quantitative impairment test for long-lived assets, we examine estimated future cash flows using Level 3 inputs. These cash flows are evaluated by using weighted probability techniques as well as
comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If the Company determines that an asset’s carrying value is impaired, it will record a write-down of the carrying value of
the asset and charge the impairment as an operating expense in the period in which the determination is made.
On December 31, 2022, as a result of impairment testing it was determined that there was a long-lived asset impairment of $1.0 million. The impairment was the result of an assessment of the current market value, as
compared to the current carrying value of the assets.
Further, on December 31, 2021, as a result of impairment testing it was determined that there was an impairment of our property in Suffield, Connecticut of $0.7 million. The impairment was the result of an assessment
of the current market value, obtained via third-party, as compared to the current carrying value of the assets. The carrying value for the Suffield, Connecticut property was approximately $2.9 million. The fair value estimate provided indicated
that the current value of the property was approximately $2.2 million. As such, the aforementioned $0.7 million impairment was recorded and the assets carrying value was reduced. This property was sold during the second quarter of 2022,
generating net proceeds of approximately $2.4 million and resulting in a gain on sale of asset of $0.2 million. There were no other long-lived asset impairments for the fiscal year ended December 31, 2021.
Income taxes. We assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not
unrealizable. A valuation allowance is required to be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. In accordance with ASC
740, our assessment considers whether there has been sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax
assets we considered, among other things, historical levels of income, expected future income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be
implemented to prevent the potential loss of future income tax benefits. Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns.
Differences between anticipated and actual outcomes of these future tax consequences could have a material impact on our consolidated financial position or results of operations. Changes in, among other things, income tax legislation, statutory
income tax rates, or future income levels could materially impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.
On August 16, 2022, the Inflation Reduction Act (the “Inflation Act”) was enacted and signed into law. The Inflation Act is a budget reconciliation package that includes significant changes relating to tax, climate change, energy, and health
care. The tax provisions include, among other items, a corporate alternative minimum tax of 15%, an excise tax of 1% on corporate stock buy-backs, energy-related tax credits, and additional IRS funding. The Company does not expect the tax
provisions of the Inflation Act to have a material impact to our consolidated financial statements
We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense. During the fiscal years ended December 31, 2022 and 2021, we did not record any interest and penalties expense associated with uncertain
tax positions, as we do not have any uncertain tax positions.
Results of Operations for the Two Years Ended December 31, 2022 and December 31, 2021
The following table sets forth selected consolidated statements of operations data as a percentage of revenues for each of the periods indicated:
| |
|
Year Ended Dec 31,
|
|
| |
|
2022
|
|
|
2021
|
|
|
Revenue
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
Educational services and facilities
|
|
|
42.7
|
%
|
|
|
41.4
|
%
|
|
Selling, general and administrative
|
|
|
52.4
|
%
|
|
|
50.4
|
%
|
|
Gain on sale of assets
|
|
|
-0.1
|
%
|
|
|
-6.7
|
%
|
|
Impairment of long-lived assets
|
|
|
0.3
|
%
|
|
|
0.2
|
%
|
|
Total costs and expenses
|
|
|
95.3
|
%
|
|
|
85.3
|
%
|
|
Operating income
|
|
|
4.7
|
%
|
|
|
14.7
|
%
|
|
Interest expense, net
|
|
|
0.0
|
%
|
|
|
-0.6
|
%
|
|
Income from operations before income taxes
|
|
|
4.7
|
%
|
|
|
14.1
|
%
|
|
Provision for income taxes
|
|
|
1.1
|
%
|
|
|
3.7
|
%
|
|
Net income
|
|
|
3.6
|
%
|
|
|
10.4
|
%
|
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Consolidated Results of Operations
Revenue. Revenue increased $13.0 million, or 3.9% to $348.3 million for the fiscal year ended December 31, 2022 from $335.3 million in the prior year.
Excluding Transitional segment revenue, which remained essentially flat at $6.8 million for each year ended December 31, 2022 and 2021, respectively, our revenue would have increased $12.9 million. The increase was primarily driven by two
factors including beginning the year with approximately 700 more students than in the prior year and a 3.6% increase in average revenue per student, more than offsetting average student population, which was flat year-over-year. The increase in
average revenue per student was driven by tuition increases combined with more efficient program delivery through the rollout of the Company’s new hybrid teaching model. The hybrid teaching model delivers higher daily revenue rates in certain
programs as the overall duration of the programs can be shortened.
Educational services and facilities expense. Our educational services and facilities expense increased $9.8 million, or 7.1% to $148.7 million for the fiscal
year ended December 31, 2022 from $138.9 million in the prior year. Excluding Transitional segment educational services and facilities expense of $3.2 million and $3.1 million for each year ended December 31, 2022 and 2021, respectively, our
educational services and facilities expense would have increased $9.7 million. Increased costs were primarily concentrated in instructional expense and facilities expense.
Instructional salaries increased approximately $5.0 million mainly due to higher staffing levels in addition to expenses incurred in connection with the transition to our new hybrid teaching model. Further
contributing to the increase were current market conditions, program expansion and the return to normalized levels of in-person instruction post-COVID-19 restrictions. In addition, consumables prices rose sharply driven by ongoing inflation
and supply chain shortages.
Facility expenses increased as a result of approximately $2.6 million of additional rent expense relating to our Denver and Grand Prairie campuses which are now leased subsequent to the consummation of the sale
leaseback transaction relating to those campuses in the fourth quarter of 2021.
Educational services and facilities expense, as a percentage of revenue, increased to 42.7% from 41.4% for the fiscal years ended December 31, 2022 and 2021, respectively.
Selling, general and administrative expense. Our selling, general and administrative expense increased $13.5 million, or 8.0% to $182.4 million for the year
ended December 31, 2022 from $168.9 million in the prior year. Excluding our Transitional segment, which had selling, general and administrative expense of $4.1 million and $3.6 million for each of the fiscal years ended December 31, 2022 and
2021, respectively, our selling, general and administrative expense would have increased $13.0 million. The change year-over-year was driven by:
Administrative expense increased as a result of $7.8 million of bad debt expense, $1.0 million of additional medical costs due to increased
claims, $1.3 million in severance and stock compensation related to severance, $2.4 million of increased salary and benefits expense, $0.4 million in costs incurred resulting from the new Atlanta, Georgia campus and $0.4 million in one-time costs
incurred in connection with the teach-out of our Somerville, Massachusetts campus. Partially offsetting the cost increases was a $5.8 million decrease in incentive compensation.
Bad debt expense for the year ended December 31, 2021 was lower than historical amounts due to an adjustment made in the first quarter of 2021 to qualifying student accounts receivables as permitted by the HEERF. In
accordance with the applicable guidance, the Company combined HEERF funding with Company funds to provide financial relief to students who dropped out of school due to COVID-19 related circumstances with unpaid accounts receivable balances
during the period from March 15, 2020 to March 31, 2021. The relief resulted in a net benefit to bad debt expense of approximately $3.0 million. Without this adjustment bad debt expense for the fiscal year ended December 31, 2022 as a
percentage of total revenue, would have been comparable to that reported in the prior year comparable period.
Marketing investments increased $1.9 million when compared to the prior year. The increase is a result of a shift in our marketing strategy to include additional expenditures in paid search and paid social media
channels while reducing our spend in pay-per-lead affiliate channels. Paid search and paid social media leads convert to enrollments at significantly higher rates compared to affiliate leads that are anywhere from two to three times more
expensive on a cost-per-lead basis. Marketing investments implemented during the year yielded positive results as measured by increased lead generation and enrollments. However, these prospective students did not always translate into a start
due to several factors including low unemployment and inflation, which is causing students to avoid incurring additional debt. The Company is anticipating that the increased interest in our programs will come to fruition during fiscal year
2023, provided economic conditions become more favorable.
Sales expenses were up $1.6 million, driven by several factors including $0.8 million of additional salary expense and $0.1 million in sales promotions relating to sales aimed at continuing to grow our post-high school
population. Further contributing to the increase was $0.2 million in additional travel expense incurred now that COVID-19 travel restrictions have been lifted.
Student services expenses increased $2.0 million driven by $0.8 million of additional costs relating to the centralization of our financial aid department, $0.7 million of additional transportation costs for our
students resulting from the removal of previously-imposed COVID-19 restrictions and a $0.5 million increase in career services as staffing levels were increased to accommodate a growing number of students graduating and to assist with placements
of graduates.
Selling, general and administrative expense, as a percentage of revenue, increased to 52.4% from 50.4% for the fiscal years ended December 31, 2022 and 2021, respectively.
Gain on sale of assets. Gain on the sale of assets was $0.2 million and $22.5 million for each of the fiscal years ended December 31, 2022 and 2021,
respectively.
During the second quarter of 2022, the Company sold its Suffield, Connecticut campus, for net proceeds of $2.4 million, resulting in a gain of $0.2 million in the current year.
In the fourth quarter of 2021, the Company consummated a sale leaseback transaction of its Denver, Colorado and Grand Prairie, Texas campuses resulting in a $22.5 million gain. See Part II. Item 8. “Financial
Statements and Supplemental Data - Notes to Consolidated Financial Statements - Note 7 Property Sale Agreements.”
Impairment of long-lived assets. As of December 31, 2022, the Company performed its annual test of long-lived assets
and determined that there was sufficient evidence to conclude that a $1.0 million impairment existed. The impairment was the result of an assessment of the current market value, as compared to the current carrying value of the assets. As of
December 31, 2021, there was an impairment of $0.7 million, resulting from a one-time non-cash impairment charge triggered by an adjustment to fair market value for a campus sold during the second quarter of 2022.
Net interest income / expense. Net interest income was $0.2 million for the year ended December 31, 2022 compared to net interest expense of $2.0 million in
the prior year. The increase to net interest income year-over-year was driven by two factors including 1) the Company’s acquisition of short-term investments and 2) the payoff of all outstanding debt during the fourth quarter of prior year in
connection with the sale leaseback transaction involving the Denver, Colorado and Grand Prairie, Texas campuses. See Part II. Item 8. “Financial Statements and Supplemental Data - Notes to Consolidated Financial Statements - Note 7 Property Sale
Agreements.”
Income taxes. Our income tax provision for the year ended December 31, 2022 was $3.8 million, or 23.1% of pre-tax income compared to $12.5
million, or 26.5% of pre-tax income in the prior year. During the year ended, the decrease in effective tax rate was mainly due to a higher tax benefit derived from restricted stock vesting.
Segment Results of Operations
We operate our business in three reportable operating segments: (a) the Transportation and Skilled Trades segment, (b) the Healthcare and Other Professions (“HOPS”) segment and (c) the Transitional
segment. As of December 31, 2022, the only campus classified in Transitional is the Somerville, Massachusetts campus, which has been marked for closure and is expected to be fully taught-out as of December 31, 2023.
Our reportable operating segments have been determined based on a method by which we now evaluate performance and allocate resources. Each reportable operating segment represents a group of post-secondary education
providers that offer a variety of degree and non-degree academic programs. These segments are organized by key market segments to enhance operational alignment within each segment to more effectively execute our strategic plan. Each of the
Company’s schools is a reporting unit and an operating segment. Our operating segments are described below.
Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly in the career-oriented disciplines of
transportation and skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).
Healthcare and Other Professions – The Healthcare and Other Professions segment offers academic programs in the career-oriented disciplines of health
sciences, hospitality and business and information technology (e.g. dental assistant, medical assistant, practical nursing, culinary arts and cosmetology).
Transitional – The Transitional segment refers to campuses that are being taught-out and closed and operations
that are being phased out. The schools in the Transitional segment employ a gradual teach-out process that enables the schools to continue to operate to allow their current students to complete their course of study. These schools are no
longer enrolling new students.
We evaluate segment performance based on operating results. Adjustments to reconcile segment results to consolidated results are included under the caption “Corporate,” which primarily includes unallocated corporate
activity.
The following table presents results for the activity for our reportable operating segments for the fiscal years ended December 31, 2022 and 2021:
| |
|
Year Ended December 31,
|
|
| |
|
2022
|
|
|
2021
|
|
|
% Change
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
Transportation and Skilled Trades
|
|
$
|
249,905
|
|
|
$
|
240,531
|
|
|
|
3.9
|
%
|
|
Healthcare and Other Professions
|
|
|
91,535
|
|
|
|
87,998
|
|
|
|
4.0
|
%
|
|
Transitional
|
|
|
6,847
|
|
|
|
6,807
|
|
|
|
0.6
|
%
|
|
Total
|
|
$
|
348,287
|
|
|
$
|
335,336
|
|
|
|
3.9
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Income (Loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and Skilled Trades
|
|
$
|
42,335
|
|
|
$
|
52,055
|
|
|
|
-18.7
|
%
|
|
Healthcare and Other Professions
|
|
|
7,189
|
|
|
|
11,740
|
|
|
|
-38.8
|
%
|
|
Transitional
|
|
|
(430
|
)
|
|
|
105
|
|
|
|
-509.5
|
%
|
|
Corporate
|
|
|
(32,816
|
)
|
|
|
(14,639
|
)
|
|
|
-124.2
|
%
|
|
Total
|
|
$
|
16,278
|
|
|
$
|
49,261
|
|
|
|
-67.0
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Starts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and Skilled Trades
|
|
|
9,831
|
|
|
|
10,291
|
|
|
|
-4.5
|
%
|
|
Healthcare and Other Professions
|
|
|
4,710
|
|
|
|
4,666
|
|
|
|
0.9
|
%
|
|
Transitional
|
|
|
379
|
|
|
|
445
|
|
|
|
-14.8
|
%
|
|
Total
|
|
|
14,920
|
|
|
|
15,402
|
|
|
|
-3.1
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Population:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and Skilled Trades
|
|
|
8,629
|
|
|
|
8,505
|
|
|
|
1.5
|
%
|
|
Leave of Absence - COVID-19
|
|
|
-
|
|
|
|
(12
|
)
|
|
|
100.0
|
%
|
|
Transportation and Skilled Trades Excluding Leave of Absence - COVID-19
|
|
|
8,629
|
|
|
|
8,493
|
|
|
|
1.6
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare and Other Professions
|
|
|
3,973
|
|
|
|
4,123
|
|
|
|
-3.6
|
%
|
|
Leave of Absence - COVID-19
|
|
|
-
|
|
|
|
(33
|
)
|
|
|
100.0
|
%
|
|
Healthcare and Other Professions Excluding Leave of Absence - COVID-19
|
|
|
3,973
|
|
|
|
4,090
|
|
|
|
-2.9
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Transitional
|
|
|
292
|
|
|
|
316
|
|
|
|
-7.6
|
%
|
|
Leave of Absence - COVID-19
|
|
|
-
|
|
|
|
-
|
|
|
|
0.0
|
%
|
|
Transitional Excluding Leave of Absence - COVID-19
|
|
|
292
|
|
|
|
316
|
|
|
|
-7.6
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
12,894
|
|
|
|
12,944
|
|
|
|
-0.4
|
%
|
|
Total Excluding Leave of Absense - COVID-19
|
|
|
12,894
|
|
|
|
12,899
|
|
|
|
0.0
|
%
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
End of Period Population:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transportation and Skilled Trades
|
|
|
8,237
|
|
|
|
8,648
|
|
|
|
-4.8
|
%
|
|
Healthcare and Other Professions
|
|
|
3,959
|
|
|
|
4,093
|
|
|
|
-3.3
|
%
|
|
Transitional
|
|
|
192
|
|
|
|
318
|
|
|
|
-39.6
|
%
|
|
Total
|
|
|
12,388
|
|
|
|
13,059
|
|
|
|
-5.1
|
%
|
Year Ended December 31, 2022 Compared to Year Ended December 31, 2021
Transportation and Skilled Trades
Operating income was $42.3 million and $52.1 million for the fiscal years ended December 31, 2022 and 2021, respectively. The change year-over-year was mainly driven by the following factors:
|
• |
Revenue increased $9.4 million, or 3.9% to $249.9 million for the fiscal year ended December 31, 2022 from $240.5 million in the prior year. Revenue increased due to a 2.2% increase in average revenue per
student, driven by tuition increases and greater efficiencies realized through the Company’s new hybrid delivery model, as detailed in the consolidated results of operations. Further contributing to the additional revenue is a 1.6%
increase in average population, mainly due to a higher beginning of period population in the current year of approximately 730 students.
|
|
• |
Educational services and facilities expense increased $6.6 million, or 6.9% to $101.3 million for the fiscal year ended December 31, 2022 from $94.7 million in the prior year. Increased costs were
primarily concentrated in instructional expense and facilities expense. Instructional salaries increased mainly due to higher staffing levels in addition to expenses incurred in connection with the transition to our new hybrid teaching
model. Further contributing to the increase were current market conditions, program expansion and the return to normalized levels of in-person instruction following COVID-19 restrictions. In addition, consumable expense has risen as a
result of inflation and supply chain shortages. Facility expense increases were the result of approximately $2.6 million of additional rent expense relating to our Denver and Grand Prairie campuses following the consummation of the sale
leaseback transaction of these campuses in the fourth quarter of 2021. Also contributing to the increase is $0.4 million of additional cleaning services. Partially offsetting the additional facility costs are reductions in depreciation
expense.
|
|
• |
Selling, general and administrative expense increased $12.5 million, or 13.3% to $106.2 million for the fiscal year ended December 31, 2022, from $93.7 million in the prior year. The increase was primarily
driven by additional bad debt expense, marketing investments, sales expense and student services expenses discussed in the consolidated results of operations above.
|
Healthcare and Other Professions
Operating income was $7.2 million and $11.7 million for the fiscal years ended December 31, 2022 and 2021, respectively. The change year-over-year was mainly driven by the following factors:
|
• |
Revenue increased $3.5 million, or 4.0% to $91.5 million for the fiscal year ended December 31, 2022 from $88.0 million in the prior year. Additional revenue was driven by a 6.6% increase in average
revenue per student, which more than offset a 2.9% decline in average student population for the year. The higher revenue per student was driven by tuition increases and greater efficiencies realized through the Company’s new hybrid
delivery model as detailed in the consolidated results of operations.
|
|
• |
Educational services and facilities expense increased $3.1 million, or 7.6% to $44.3 million for the fiscal year ended December 31, 2022 from $41.2 million in the prior year. Increased costs were primarily
concentrated in instructional expense and facilities expense. Instructional salaries increased mainly due to higher staffing levels in addition to expenses incurred in connection with the transition to our new hybrid teaching model.
Further contributing to the increase were current market conditions, program expansion and the return to normalized levels of in-person instruction following COVID-19 restrictions. Facility expense increases were primarily due to
increased spending for common area maintenance and additional rent expense.
|
|
• |
Selling, general and administrative expense increased $3.9 million, or 11.1% to $39.0 million for the fiscal year ended December 31, 2022 from $35.1 million in the prior year. The increase was primarily
driven by additional bad debt expense, marketing investments, sales expense and student services expenses discussed in the consolidated results of operations above,
|
|
• |
Impairment was $1.0 million and zero for the years ended December 31, 2022 and 2021, respectively as discussed in the consolidated results above.
|
Transitional
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 Company has also developed a plan to deliver instruction for the remaining students prior to the closing. Total costs to close the campus including
the teach-out will be approximately $2.0 million. The closure should be completed by the end of 2023. Revenue and related expenses for the Somerville campus have been classified in the Transitional segment for comparability for the fiscal years
ended December 31, 2022 and 2021.
|
• |
Revenue remained essentially flat at $6.8 million for each of the fiscal years ended December 31, 2022 and 2021, respectively.
|
|
• |
Operating loss was $0.4 million for the fiscal year ended December 31, 2022 compared to operating income of $0.1 million in the prior year.
|
Corporate and Other
This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses were $32.8 million and $14.6 million for each of the fiscal years ended December 31, 2022 and 2021,
respectively. Included in the current year is a gain of $0.2 million resulting from the sale of our Suffield, Connecticut property during the second quarter of 2022. Included in the prior year is a $22.5 million gain realized as a result of
entering into a sale leaseback transaction involving our Grand Prairie, Texas and Denver, Colorado campuses, partially offset by a one-time non-cash impairment charge of $0.7 million. Excluding the gain on sale of assets from both years in
addition to the impairment charge in prior year, corporate and other expenses would have been $33.0 million and $36.4 million for each of the fiscal years ended December 31, 2022 and 2021, respectively. The decrease in expense year-over-year was
primarily driven by a reduction in incentive compensation, partially offset by additional medical costs due to increased claims, severance and stock compensation related to severance and an increase in salaries and benefits.
LIQUIDITY AND CAPITAL RESOURCES
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, 2022:
| |
|
Cash Flow Summary
|
|
| |
|
Year Ended December 31,
|
|
| |
|
2022
|
|
|
2021
|
|
| |
|
(In thousands)
|
|
|
Net cash provided by operating activities
|
|
$
|
882
|
|
|
$
|
27,447
|
|
|
Net cash (used in) provided by investing activities
|
|
$
|
(21,354
|
)
|
|
$
|
37,848
|
|
|
Net cash used in financing activities
|
|
$
|
(12,548
|
)
|
|
$
|
(20,014
|
)
|
As of December 31, 2022, the Company had $50.3 million in cash and cash equivalents and restricted cash, in addition to $14.7 million in short-term
investments, compared to $83.3 million cash and cash equivalents in the prior year. The decrease in cash position from the prior year was the result of several factors, including 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. Partially offsetting the decrease in cash and
cash equivalents was $2.4 million in net proceeds received as a result of the sale of a former campus located in Suffield, Connecticut consummated during the second quarter of 2022. Further, the Company’s cash position in the prior year
benefited from the consummation of a sale leaseback transaction entered into during the fourth quarter of 2021 of the Company’s Denver, Colorado and Grand Prairie, Texas campuses generating net proceeds of approximately $45.4 million.
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 repurchase program was authorized for 12 months. As of December 31, 2022, the Company had repurchased 1,572,414 shares at a cost of approximately $9.4 million. 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 million of the Company’s Common Stock, for an aggregate of up to $30.6 million in additional repurchases.
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 74% of our cash receipts relating to revenues in 2022. 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.
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”.
Operating Activities
Operating cash flow results primarily from cash received from our students, offset by changes in working capital demands. Working capital can vary at any point in time based on several factors including seasonality,
timing of cash receipts and payments and vendor payment terms.
Net cash provided by operating activities was $0.9 million and $27.4 million for each of the fiscal years ended December 31, 2022 and 2021, respectively. The main driver for the decrease was due to a delay of
approximately $8.0 million in Title IV funds resulting from a system upgrade during the fourth quarter. The funds were subsequently received in January 2023.
Investing Activities
Net cash used in investing activities was $21.4 million for the year ended December 31, 2022 compared to net cash provided by investing activities of $37.8 million in the prior year comparable period. The decrease of
$59.2 million was driven by the purchase of short-term investments totaling $14.8 million in the current year in combination with net proceeds of approximately $45.4 million received in the fourth quarter of the prior year resulting from the
consummation of a sale leaseback transaction.
One of our primary uses of cash in investing activities was capital expenditures associated with investments in training technology, classroom furniture, and new program buildouts.
We currently lease a majority of our campuses. We own our campus in Nashville, Tennessee, which currently is subject to a sale leaseback agreement (described elsewhere in this Form 10-K) for the sale of the
property, which is currently expected to be consummated in the second quarter of 2023.
Capital expenditures were 3% of revenues in 2022 and are expected to approximate 11% of revenues in 2023. The significant increase in capital expenditures over the prior year will be driven by the build-out of our new
Atlanta, Georgia area campus. We expect to fund future capital expenditures with cash generated from operating activities and cash on hand.
Financing Activities
Net cash used in financing activities was $12.5 million for the fiscal year ended December 31, 2022 compared to $20.0 million in the prior year. The decrease of $7.5 million was primarily due to $9.4 million in shares
repurchased in the current year in combination with payments on borrowings in the prior year of $17.8 million.
Credit Facility
On November 14, 2019, the Company entered into a senior secured credit agreement (the “Credit Agreement”) with its lender, Sterling National Bank (the “Lender”), providing for borrowing in the aggregate principal amount
of up to $60 million (the “Credit Facility”). Initially, the Credit Facility was comprised of four facilities: (1) a $20 million senior secured term loan maturing on December 1, 2024 (the “Term Loan”), with monthly interest and principal payments
based on a 120-month amortization with the outstanding balance due on the maturity date; (2) a $10 million senior secured delayed draw term loan maturing on December 1, 2024 (the “Delayed Draw Term Loan”), with monthly interest payments for the
first 18 months and thereafter monthly payments of interest and principal based on a 120-month amortization and all balances due on the maturity date; (3) a $15 million senior secured committed revolving line of credit providing a sublimit of up
to $10 million for standby letters of credit maturing on November 13, 2022 (the “Revolving Loan”), with monthly payments of interest only; and (4) a $15 million senior secured non-restoring line of credit maturing on January 31, 2021 (the “Line
of Credit Loan”).
At the closing of the Credit Facility, the Company entered into a swap transaction with the Lender for 100% of the principal balance of the Term Loan maturing on the same date as the Term Loan. Under the terms of the
Credit Facility accrued interest on each loan was payable monthly in arrears with the Term Loan and the Delayed Draw Term Loan bearing interest at a floating interest rate based on the then one-month London Interbank Offered Rate (“LIBOR”) plus
3.50% and subject to a LIBOR interest rate floor of 0.25% if there was no swap agreement. Revolving Loans bore interest at a floating interest rate based on the then LIBOR plus an indicative spread determined by the Company’s leverage as defined
in the Credit Agreement or, if the borrowing of a Revolving Loan was to be repaid within 30 days of such borrowing, the Revolving Loan accrued interest at the Lender’s prime rate plus 0.50% with a floor of 4.0%. Line of Credit Loans bore
interest at a floating interest rate based on the Lender’s prime rate of interest. Letters of credit issued under the Revolving Loan reduced, on a dollar-for-dollar basis, the availability of borrowings under the Revolving Loan. Letters of
credit were charged an annual fee equal to (i) an applicable margin determined by the leverage ratio of the Company less (ii) 0.25%, paid quarterly in arrears, in addition to the Lender’s customary fees for issuance, amendment and other standard
fees. Borrowings under the Line of Credit Loan were secured by cash collateral. The Lender received an unused facility fee of 0.50% per annum payable quarterly in arrears on the unused portions of the Revolving Loan and the Line of Credit Loan.
In addition to the foregoing, the Credit Agreement contained customary representations, warranties, and
affirmative and negative covenants (including financial covenants that (i) restricted capital expenditures, (ii) restricted leverage, (iii) required maintaining minimum tangible net worth, (iv) required maintaining a minimum fixed
charge coverage ratio and (v) required the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with the Lender, which, if not maintained, would result in the assessment of a quarterly fee of
$12,500), as well as events of default customary for facilities of this type. The Credit Agreement also limited the payment of cash
dividends during
the first 24
months of the agreement to $1.7 million but an amendment to the Credit Agreement entered into on November 10, 2020 raised the cash dividend limit to $2.3 million in
such 24
month period to increase the amount of permitted cash dividends that the Company could pay on its Series A Preferred Stock.
As further discussed below, the Credit Facility was secured by a first priority lien in favor of the Lender on substantially all of the personal property owned by the Company, as well as a pledge of the stock and
other equity in the Company’s subsidiaries and mortgages on parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as a former school property owned by the
Company located in Connecticut.
On September 23, 2021, in connection with entering into the agreements relating to the sale leaseback transaction for the Company’s Denver, Grand Prairie and Nashville campuses (collectively, the “Property
Transactions”), the Company and certain of its subsidiaries entered into a Consent and Waiver Letter Agreement (the “Consent Agreement”) to the Company’s Credit Agreement with its Lender. The Consent Agreement provides the Lender’s consent to
the Property Transactions and waives certain covenants in the Credit Agreement, subject to certain specified conditions. In addition, in connection with the consummation of the Property Transactions, the Lender released its mortgages and other
liens on the subject-properties upon the Company’s payment in full of the outstanding principal and accrued interest on the Term Loan and any swap obligations arising from any swap transaction. Upon the consummation of the Property Transaction
on October 29, 2021 the Company paid the Lender approximately $16.7 million in repayment of the Term Loan and the swap termination fee and no further borrowings may be made under the Term Loan or the Delayed Draw Term Loan. Further, during the
second quarter of 2022, the Company sold a property located in Suffield, Connecticut for net proceeds of approximately $2.4 million. Prior to the consummation of the transaction, Lincoln obtained consent from the Lender to enter into the sale
of this property.
Pursuant to certain amendments and modifications to the Credit Agreement and other loan documents, the Term Loan and the Delayed Draw Term Loan were paid off in full and on January 21, 2021, the Line of Credit expired
by the terms, conditions and provisions of the Credit Agreement.
On November 4, 2022, the Company agreed with its Lender to terminate the Credit Agreement and the remaining Revolving Loan. The Lender agreed to allow the Company’s existing letters of credit to remain outstanding
provided that they are cash collateralized and, as of December 31, 2022, the letters of credit in the aggregate outstanding principal amount of $4.0 million remained outstanding, were cash collateralized and classified as restricted cash on the
consolidated balance sheet. As of December 31, 2022, the Company did not have a credit facility and did not have any debt outstanding. The Company expects to negotiate a new credit facility in the second quarter of 2023.
Climate Change
Climate change has not had and is not expected to have a significant impact on our operations.
Contractual Obligations
Current portion of Long-Term Debt, Long-Term Debt and Lease Commitments. As of December 31,
2022, we have no debt outstanding. We lease offices, educational facilities and various items of equipment for varying periods through the year 2041 under basic annual rentals.
As of December 31, 2022, there were four new leases and one lease modification that resulted in noncash re-measurements
of the related right-of-use asset and operating lease liability of $13.8 million. This re-measurement includes the new Atlanta, Georgia area campus, the lease of which commenced in August 2022.
We had no off-balance sheet arrangements as of December 31, 2022, except for existing surety bonds. We are required to post surety bonds on behalf of our campuses and education representatives with multiple states to
maintain authorization to conduct our business. At December 31, 2022, we posted surety bonds in the aggregate amount of approximately $15.3 million. These off-balance sheet arrangements do not adversely impact our liquidity or capital resources.
As of the fiscal year ended December 31, 2022 and 2021, we had outstanding loan principal commitments to our active students of $30.5 million and $30.0 million, respectively. 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 in our consolidated financial statements.
SEASONALITY AND OUTLOOK
Seasonality
Our revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population. Student population varies due to new
student enrollments, graduations and student attrition. Historically, our schools have had lower student populations in our first and second quarters and we have experienced larger class starts in the third quarter and higher student attrition in
the first half of the year. The growth that we generally experience in the second half of the year is largely dependent on a successful high school recruiting season. We recruit high school students several months ahead of their scheduled start
dates and, as a consequence, while we have visibility on the number of students who have expressed interest in attending our schools, we cannot predict with certainty the actual number of new student enrollments in any given year and the related
impact on revenue. Our expenses, however, typically do not vary significantly over the course of the year with changes in our student population and revenue.
Effect of Inflation
Inflation has not had a material effect on our operations except for some inflationary pressures on certain instructional expenses including consumables and in instances where potential students have not wanted to incur
additional debt or increased travel expense.
|
ITEM 7A.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
| ITEM 8. |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
See “Index to Consolidated Financial Statements” on page F-1 of this Annual Report on Form 10-K.
| ITEM 9. |
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
|
None.
| ITEM 9A. |
CONTROLS AND PROCEDURES
|
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer, after evaluating, together with management, the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as
of December 31, 2022 have concluded that our disclosure controls and procedures are effective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commission’s Rules and Forms and that such information is accumulated and communicated to our management, including our
Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Internal Control Over Financial Reporting
During the quarter ended December 31, 2022, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting and Attestation Report of Independent Registered Public Accounting Firm
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. The
Company’s internal control system was designed to provide reasonable assurance to the Company’s management and Board of Directors regarding the reliability of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control—Integrated Framework (2013). Based on its assessment, management believes that, as of December 31, 2022, the Company’s internal control over financial reporting is
effective.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s independent auditors, Deloitte & Touche LLP, an independent registered public accounting firm, audited the Company’s internal control over financial reporting as of December 31, 2022, as stated in
their report included in this Form 10-K that follows.
| ITEM 9B. |
OTHER INFORMATION
|
None.
|
ITEM 9C.
|
DISCLOSURES REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
|
None.
Certain information required by this item will be included in a definitive proxy statement for the Company’s annual meeting of shareholders or an amendment to this Annual Report on Form 10-K, in either case filed with the Securities and
Exchange Commission within 120 days after December 31, 2022, and is incorporated by reference herein.
| ITEM 10. |
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Directors and Executive Officers
Certain information required by this Item 10 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Report on Form 10-K that will be filed with the Securities and
Exchange Commission within 120 days after December 31, 2022.
Code of Ethics
We have adopted a Code of Business Ethics and Conduct applicable to our directors, officers and employees and certain other persons, including our Chief Executive Officer and Chief Financial Officer. A copy of our Code
of Business Ethics and Conduct is available on our website at www.lincolntech.edu. If any amendments to or waivers from the Code of Business Ethics and Conduct are made, we will disclose such amendments
or waivers on our website.
| ITEM 11. |
EXECUTIVE COMPENSATION
|
The information required by this Item 11 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Report on Form 10-K that will be filed with the Securities and Exchange
Commission within 120 days after December 31, 2022.
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|
The information required by this Item 12 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Report on Form 10-K that will be filed with the Securities and Exchange
Commission within 120 days after December 31, 2022.
| ITEM 13. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
|
The information required by this Item 13 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Report on Form 10-K that will be filed with the Securities and Exchange
Commission within 120 days after December 31, 2022.
| ITEM 14. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES
|
The information required by this Item 14 of Part III is incorporated by reference from a definitive proxy statement or an amendment to this Annual Report on Form 10-K that will be filed with the Securities and Exchange
Commission within 120 days after December 31, 2022.
| ITEM 15. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
|
See “Index to Consolidated Financial Statements” on page F-1 of this Annual Report on Form 10-K.
| 2. |
Financial Statement Schedules
|
See “Index to Consolidated Financial Statements” on page F-1 of this Annual Report on Form 10-K.
| 3. |
Exhibits Required by Securities and Exchange Commission Regulation S-K
|
|
Exhibit
Number
|
Description
|
| |
|
|
|
Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 7, 2005.
|
| |
|
|
|
Certificate of Amendment, dated November 14, 2019, to the Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.2 of the Company’s Registration Statement
on Form S-3 filed October 6, 2020).
|
| |
|
|
|
Bylaws of the Company, as amended on March 8, 2019 (incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed April 30, 2020).
|
| |
|
|
|
Specimen Stock Certificate evidencing shares of Common Stock (incorporated by reference to the Company’s Registration Statement on Form S-1/A (Registration No. 333-123644) filed June 21, 2005).
|
| |
|
|
|
Registration Rights Agreement, dated as of November 14, 2019, between the Company and the investors parties thereto (incorporated by reference to the Company’s Quarterly Report on Form 10-Q filed November
14, 2019).
|
| |
|
|
|
Description of Securities of the Company (incorporated by reference to Exhibit 4.3 of the Company’s Annual Report on Form 10-K filed March 9, 2021)
|
| |
|
|
|
Employment Agreement, dated as of December 13, 2022, between the Company and Scott M. Shaw (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed December 16, 2022).
|
| |
|
|
|
Employment Agreement, dated as of December 13, 2022, between the Company and Brian K. Meyers (incorporated by reference to Exhibit 10.2 of the Company’s Current Report on Form 8-K filed December 16, 2022).
|
| |
|
|
|
Employment Agreement dated as of December 13, 2022 between the Company and Stephen M. Buchenot (incorporated by reference to Exhibit 10.3 of the Company’s Current Report on Form 8-K filed December
16, 2022).
|
| |
|
|
|
Employment Agreement dated as of December 13, 2022 between the Company and Chad D Nyce (incorporated by reference to Exhibit 10.4 of the Company’s Current Report on Form 8-K filed December 16, 2022).
|
| |
|
|
|
Lincoln Educational Services Corporation 2020 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.16 of the Company’s Current Report on Form 8-K filed June 5, 2020).
|
| |
|
|
|
Lincoln Educational Services Corporation Severance and Retention Policy (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed November 7, 2022).
|
|
|
Securities Purchase Agreement, dated as of November 14, 2019, between the Company and the investor parties thereto (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q
filed November 14, 2019).
|
| |
|
|
|
Credit Agreement, dated as of November 14, 2019, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank (incorporated by reference to Exhibit 10.3 of the
Company’s Quarterly Report on Form 10-Q filed November 14, 2019).
|
| |
|
|
|
First Amendment to Credit Agreement, dated as of November 10, 2020, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Sterling National Bank (incorporated by reference to
Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q filed November 12, 2020).
|
| |
|
|
|
Second Amendment to Credit Agreement, dated as of May 23, 2022, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Webster Bank, National Bank (incorporated by reference to
Exhibit 10.1 of the Company’s Current Report on Form 8-K filed May 24, 2022).
|
| |
|
|
|
Third Amendment to the Credit Agreement, dated as of August 5, 2022, among the Company, Lincoln Technical Institute, Inc. and its subsidiaries, and Webster Bank, National Bank (incorporated by reference to
Exhibit 10.2 of the Company’s Quarterly Report on Form 10-Q filed August 8, 2022).
|
| |
|
|
|
Consent and Waiver Letter Agreement, dated as of September 23, 2021, by and among the Company and certain of its subsidiaries and Sterling National Bank (incorporated by reference to Exhibit 10.3 of the
Company’s Current Report on Form 8-K filed September 28, 2021).
|
| |
|
|
|
Contract for the Purchase of Real Estate, dated as of September 24, 2021, by and between Nashville Acquisition, LLC and SLC Development, LLC (incorporated by reference to Exhibit 10.1 of the Company’s
Current Report on Form 8-K filed September 28, 2021).
|
| |
|
|
|
Agreement for Purchase and Sale of Property, dated as of September 24, 2021 by and between Lincoln Technical Institute, Inc. and LNT Denver (Multi) LLC (incorporated by reference to Exhibit 10.2 of the
Company’s Current Report on Form 8-K filed September 28, 2021).
|
| |
|
|
|
Form of Indemnification Agreement between the Company and each director of the Company (incorporated by reference to Exhibit 10.4 of the Company’s Quarterly Report on Form 10-Q filed November 14, 2019).
|
| |
|
|
|
Indemnification Agreement between the Company and John A. Bartholdson (incorporated by reference to Exhibit 10.5 of the Company’s Quarterly Report on Form 10-Q filed November 14, 2019).
|
| |
|
|
|
Subsidiaries of the Company.
|
| |
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
| |
|
|
|
Power of Attorney (included on the Signature page of this Annual Report on Form 10-K).
|
| |
|
|
|
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
| |
|
|
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
| |
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
| |
|
|
101*
|
The following financial statements from Lincoln Educational Services Corporation’s Annual Report on Form 10-K for the year ended December 31, 2022, formatted in iXBRL: (i) Consolidated Statements of Operations, (ii) Consolidated
Balance Sheets, (iii) Consolidated Statements of Cash Flows, (iv) Consolidated Statements of Comprehensive (Loss) Income, (v) Consolidated Statement of Changes in Stockholders’ Equity and (vi) the Notes to Consolidated Financial
Statements, tagged as blocks of text and in detail.
|
| |
|
|
104
|
Cover Page Interactive Data File (formatted as Inline iXBRL and contained in Exhibit 101*.
|
| + |
Indicates management contract or compensatory plan or arrangement required to be filed or incorporated by reference as an exhibit to this Form 10-K pursuant to Item 15(b) of Form 10-K.
|
|
ITEM 16.
|
FORM 10-K SUMMARY
|
None.
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| |
LINCOLN EDUCATIONAL SERVICES CORPORATION
|
| |
|
|
| |
By:
|
/s/ Brian Meyers
|
| |
|
Brian Meyers
|
| |
|
Executive Vice President, Chief Financial Officer and Treasurer
(Principal Accounting and Financial Officer)
|
| |
|
|
| |
Date:
|
March 7, 2023
|
KNOW ALL PERSONS BY THESE PRESENTS, that each of the undersigned constitutes and appoints Scott M. Shaw and Brian K. Meyers, and each of them, as attorneys-in-fact and agents, with full power of
substitution and re-substitution, for and in the name, place and stead of the undersigned, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto and all other
documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as the undersigned might or could do in person, hereby ratifying and confirming all that each of said attorney-in-fact or substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
|
| |
|
|
|
|
| |
|
|
|
|
|
|
|
Chief Executive Officer and Director
|
|
March 7, 2023
|
|
Scott M. Shaw
|
|
|
|
|
| |
|
|
|
|
|
|
|
Executive Vice President, Chief Financial Officer and Treasurer (Principal Accounting and Financial Officer) |
|
March 7, 2023 |
| Brian K. Meyers |
|
|
|
|
| |
|
|
|
|
|
|
|
Director
|
|
March 7, 2023 |
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Director
|
|
March 7, 2023 |
|
James J. Burke, Jr.
|
|
|
|
|
| |
|
|
|
|
|
|
|
Director
|
|
March 7, 2023
|
| Kevin M. Carney |
|
|
|
|
| |
|
|
|
|
|
|
|
Director
|
|
March 7, 2023 |
|
Ronald E. Harbour
|
|
|
|
|
| |
|
|
|
|
|
|
|
Director
|
|
March 7, 2023 |
|
J. Barry Morrow
|
|
|
|
|
| |
|
|
|
|
|
|
|
Director
|
|
March 7, 2023 |
| Michael A. Plater |
|
|
|
|
| |
|
|
|
|
|
/s/ Felecia J. Pryor
|
|
Director
|
|
March 7, 2023
|
|
Felecia J. Pryor
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
March 7, 2023 |
|
Carlton Rose
|
|
|
|
|
| |
|
|
|
|
|
|
|
Director
|
|
March 7, 2023
|
|
Sylvia Jean Young
|
|
|
|
|