LINCOLN EDUCATIONAL SERVICES CORP (LINC)

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 postsecondary education to recent high school graduates and working adults.  The Company, which currently operates 21 campuses in 12 states, has entered
into leases for two new campuses: one in Houston, Texas, with programs expected to begin in the second half of 2025, and one in Hicksville, New York, with programs expected to begin by the end of 2026.  Lincoln Educational Services
Corporation offers programs in skilled trades (which include Heating Ventilation and Air Conditioning (“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 assistant, among other programs) and hospitality services and information technology (which include culinary and aesthetics and information
technology programs).  The schools operate under the brands Lincoln Technical Institute, Lincoln College of Technology and Nashville Auto Diesel College.

Most of the Company’s campuses serve major metropolitan markets and each typically offers courses in multiple areas of study.  Five of the campuses are destination schools, which attract students from across the United States and, in some
cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas.  All of the campuses are nationally accredited and are eligible to participate in federal financial aid programs
administered by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid. The
Company was incorporated in New Jersey in 2003 as the successor-in-interest to various acquired schools including Lincoln Technical Institute, Inc. which opened its first campus in Newark, New Jersey in 1946.

The Company manages its business, evaluates performance and allocates resources based on two reportable business segments, Campus Operations and Transitional:

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

Transitional – The Transitional segment refers to campuses that
are marked for closure and are currently being taught-out, in addition to campuses that are held-for-sale or sold.  As of December 31, 2024, the net assets for the Summerlin, Las Vegas campus were classified as held for sale, with operating
results classified within the Transitional segment.  The sale of the campus was consummated effective  January 1, 2025.  In addition, the Company closed the Somerville, Massachusetts campus in the prior year. It was fully taught-out as of
December 31, 2023.  This campus is classified in the Transitional segment in the prior year’s statement of operations.

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

We believe that we provide our students with the highest quality career-oriented training available for our areas of study in our markets thereby serving students, local employers and their communities. The

skills gap continues to expand as talent retires faster than new employees are hired and as the need for education and training increases in all careers with the accelerating pace of technological change.

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

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

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

The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other
education-related expenses. The largest of these programs are Title IV Programs which represented approximately 82%, 81%, and 74% of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments
made by students during fiscal years 2024, 2023, and 2022, respectively.  The HEA requires institutions to use the cash basis of accounting when determining its compliance with the 90/10 Rule.  See Part I, Item 1. “Business -
Regulatory Environment.”

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 third party private party loans and once these financial options have been fully exhausted, the Company may offer extended payment plans. 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 extension of credit 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:

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:

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Real Estate Transactions

Asset Purchase Agreement – Summerlin, Las Vegas

On November 11, 2024, the Company entered into an agreement with DVMD LLS (IntelliTec College) for the sale of the Summerlin, Las Vegas (“Euphoria”) campus.  As a result of the intended sale, the Company
recorded the carrying amount of the net assets totaling $1.2 million as held for sale on the Consolidated Balance Sheets.  The net assets related to the Summerlin, Las Vegas campus consisted of $2.1 million in assets and $0.9 million in
liabilities.  The sale of the campus was consummated effective  January 1, 2025.

Purchase and Sale-leaseback Transaction – Philadelphia, Pennsylvania Area Campus

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

Property Sale Agreement - Nashville, Tennessee Campus

On September 24, 2021, Nashville Acquisition, L.L.C., a subsidiary of the Company, entered into a Contract for the Purchase of Real Estate (the “Nashville Contract”) to sell the nearly
16-acre property located at 524 Gallatin Avenue, Nashville, Tennessee 37206, at which the Company operates its Nashville campus, to SLC Development, LLC, a subsidiary of Southern Land Company (“SLC”).

On June 8, 2023, the Company closed on the sale of its Nashville, Tennessee property to East Nashville Owner, LLC, an affiliate of SLC, for approximately $33.8 million pursuant to the Nashville Contract. The
net proceeds from the Nashville sale, net of closing costs, are available for working capital, acquisitions, other strategic initiatives, and general corporate purposes.  In connection with the sale, the parties entered into a lease agreement
allowing Lincoln to continue to occupy the campus and operate it on a rent-free basis for a period of 15 months plus options to extend the lease for up to three consecutive 30-day terms at $150,000 per extension term.  The carrying value of
the campus is approximately $4.5 million and the estimated fair value of the rent for the 15-month rent-free period was approximately $2.3 million at the consummation of the lease.  As of December 31, 2024, the total rent free period has been
fully expensed.

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 Accounting Standards Codification (“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.

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Allowance for Credit Losses.  On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  As a result of the adoption, the Company has revised the way in which it calculates reserves on outstanding student
accounts receivable balances.  Details considered by management in the estimate include the following:

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

Management makes a series of assumptions to determine what is believed to be the appropriate level of allowance for credit losses. Management determines a reasonable and supportable forecast based on the
expectation of future conditions over a supportable forecast period as described above, as well as qualitative adjustments based on current and future conditions that may not be fully captured in the historical modeling factors described
above. All of these estimates are susceptible to significant change.

We monitor our collections and write-off experience to assess whether or not adjustments to our allowance percentage estimates are necessary. Changes in trends in any of the factors that we believe impact the
collection of our student receivables, as noted above, or modifications to our collection practices, and other related policies may impact our estimate of our allowance for credit losses and our results from operations.

Because a substantial portion of our revenue 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 institutions to participate in Title IV Programs, would likely have a material impact on the realizability of our receivables.

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

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

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.

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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.

For the year ended December 31, 2024, there were no impairments related to goodwill.

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

During the year ended December 31, 2022, there were no impairments related to goodwill.

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 (“ROU”) 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.

For the year ended December 31, 2024, there were no impairments related to long-lived assets.

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

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 carrying value of the assets.

Income taxes.  The Company accounts for income taxes in accordance with ASC Topic 740, Income

Taxes (“ASC 740”). This statement requires an asset and a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance
sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.

In accordance with ASC 740, the Company assesses 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, the Company considers, 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 the Company’s 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 the Company’s valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.

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We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.  During the fiscal years ended December 31, 2024, 2023, and 2022, 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 Three Years Ended December 31, 2024

The following table sets forth selected consolidated statements of operations data as a percentage of revenues for each of the periods indicated:

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Consolidated Results of Operations

Revenue.  Revenue increased $62.0 million, or 16.4% to $440.1 million for the fiscal year ended December 31, 2024 from $378.1 million in the prior year.
Revenue growth was driven by several factors including an 11.5% increase in average student population, driven in part by beginning the year with 7.1%, or 882 more students than in the prior year and student start growth up 15.2% over the
prior year.  Included in the increase over the prior year was $9.6 million of revenue generated from the recently opened East Point, Georgia campus.

Educational services and facilities expense.  Our educational services and facilities expense increased $19.5 million, or 12.0% to $181.8 million for the
fiscal year ended December 31, 2024 from $162.3 million in the prior year.   The increase over the prior year includes approximately $4.3 million in preopening costs for the new Houston, Texas campus, which is expected to begin classes in the
second half of 2025, costs related to the relocation of each of the Nashville, Tennessee and Levittown, Pennsylvania campuses, which are expected to open in the first half of 2025 and the second half of 2025, respectively, and investments to
implement and expand new programs at existing campuses.  Additional costs of $4.8 million are included in the current year as a result of the new East Point, Georgia campus that opened during the first quarter of 2024.

Instructional expenses and books and tools expense increased $8.8 million, primarily resulting from costs associated with an increased student population.

Facilities and Depreciation expense increased approximately $4.0 million, primarily driven by additional assets placed in service resulting from increased investments in capital expenditures in the current year.

Partially offsetting these costs was a $2.4 million decrease in expense related to campuses included in the Transitional segment.

Educational services and facilities expense, as a percentage of revenue, decreased to 41.3% from 42.9% for the fiscal years ended December 31, 2024 and 2023, respectively.  The decrease from the prior year was most
notable in the instructional expenses, which demonstrates an increase in operational efficiencies year-over-year.

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Selling, general and administrative expense.  Our selling, general and administrative expense increased $34.7 million, or 16.6% to $243.8 million for the
fiscal year ended December 31, 2024, from $209.1 million in the prior year. The increase over the prior year includes approximately $0.6 million in preopening costs for the new Houston, Texas campus, which is expected to begin classes in the
second half of 2025, costs related to the relocation of each of the Nashville, Tennessee and Levittown, Pennsylvania campuses, which are expected to open in the first half of 2025 and the second half of 2025, respectively, and investments to
implement and expand new programs at existing campuses.  Additional costs of $5.4 million are included in the current year as a result of the new East Point, Georgia campus that opened during the first quarter of 2024.

Administrative costs increased $20.5 million, driven primarily by additional salaries expense due to increased personnel combined with merit
increases and an increase in the provision for credit losses largely driven by revenue growth.  Partially offsetting these costs were decreases in stock compensation expense, as a result of expense recorded related to the number of awards
expected to vest at December 31, 2023.

Marketing investments increased $2.7 million, while the cost per start over the prior year remained relatively flat demonstrating continued effectiveness per marketing dollars spent.  Additional investments in
marketing year-over-year have helped contribute to the 15.2% start growth.

Sales and student services increased $7.1 million, primarily driven by increased personnel to continue to help drive student start growth and program expansions.

Partially offsetting these costs was a $1.7 million decrease in expense related to campuses included in the Transitional segment.

Selling, general and administrative expense, as a percentage of revenue, increased slightly to 55.4% from 55.3% for the fiscal years ended December 31, 2024 and 2023, respectively.

Loss on sale of assets. Loss on sale of assets was $2.1 million compared to a gain on sale of assets of $30.9 million for the fiscal years ended December
31, 2024 and 2023, respectively.  The current year loss was primarily driven by the sale of the Summerlin, Las Vegas campus, while the gain in the prior year resulted from the sale of the Company’s Nashville, Tennessee property during the
second quarter of 2023.  Net proceeds from the sale were approximately $33.3 million.

Gain on insurance proceeds.  Gain on insurance proceeds for the year ended December 31, 2024 was $2.8 million relating to hail damage at one of our
campuses.

Impairment of goodwill and long-lived assets. Impairment of goodwill and long-lived assets was zero and $4.2
million for the fiscal years ended December 31, 2024 and 2023, respectively.  The impairment in the prior year was driven by the sale the Nashville, Tennessee property on June 8, 2023.  The result of the sale created a change in the
trajectory of the fair value of the Nashville, Tennessee operations, and as such, the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to goodwill and an additional $0.4 million impairment relating to long-lived
assets.

Net interest expense / income.  Net interest expense was $0.5 million compared to net interest income of $2.3 million for the fiscal years ended December
31, 2024 and 2023, respectively.  Interest expense in the current year was primarily driven by the addition of two additional finance leases.

Income taxes.  Our income tax provision for the year ended December 31, 2024 was $4.8 million, or 32.8% of pre-tax income compared to $9.6 million, or 27.1% of pre-tax net income
in the prior year.  The increase in the effective tax rate was mainly due to lower pre-tax income, reduced discrete tax item benefit and tax return reconciliation from estimate to actuals.

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Consolidated Results of Operations

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

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

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

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

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

Educational services and facilities expense, as a percentage of revenue, increased to 42.9% from 42.7% for the fiscal years ended December 31, 2023 and 2022, respectively.

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

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

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

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

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

Gain on sale of assets. Gain on sale of assets was $30.9 million, for the fiscal year ended December 31, 2023 resulting from the sale of the Company’s
Nashville, Tennessee property during the second quarter of 2023.  Net proceeds from the sale were approximately $33.3 million.

Gain on sale of assets was $0.2 million for the fiscal year ended December 31, 2022, resulting from the sale of the Suffield, Connecticut campus during the second quarter of 2022.  Net proceeds from the sale were
approximately $2.4 million.

Impairment of goodwill and long-lived assets.  Impairment of goodwill and long-lived assets was $4.2 million for
the fiscal year ended December 31, 2023 driven by the sale the Nashville, Tennessee property on June 8, 2023.  The result of the sale created a change in the trajectory of the fair value of the Nashville, Tennessee operations, and as such,
the Company recorded a pre-tax non-cash impairment charge of $3.8 million relating to goodwill and an additional $0.4 million impairment relating to long-lived assets.

For the fiscal year ended December 31, 2022, as a result of the Company’s annual test of goodwill and long-lived assets, it was 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.  Approximately $0.6 million of the Company’s ROU asset was impaired in addition to $0.4
million of long-lived assets.

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Index

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

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

Segment Results of Operations

The Company manages its business, evaluates performance and allocates resources based on two reportable business segments, Campus Operations and Transitional:

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

Transitional – The Transitional segment refers to campuses that
are marked for closure and are currently being taught-out, in addition to campuses that are held-for-sale or sold.  As of December 31, 2024, the net assets for the Summerlin, Las Vegas campus were classified as held for sale, with operating
results classified within the Transitional segment.  The sale of the campus was effectuated on January 1, 2025.  In addition, the Company closed the Somerville, Massachusetts campus in the prior year. It was fully taught-out as of December
31, 2023.  This campus is classified in the Transitional segment in the prior year’s statement of operations.

We evaluate performance based on operating results.  Adjustments to reconcile segment results to consolidated results are included in the caption “Corporate,” which primarily includes unallocated corporate activity.

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The following table presents results for the activity for our reportable operating segments for the fiscal years ended December 31, 2024 and 2023:

Year Ended December 31, 2024 Compared to Year Ended December 31, 2023

Campus Operations

Operating income was $63.6 million and $48.0 million for the fiscal years ended December 31, 2024 and 2023, respectively.  The change year-over-year was mainly driven by the following factors:

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Index

Transitional

As of December 31, 2024, the assets of  the Company’s Summerlin, Las Vegas campus were classified as held for sale on the balance sheet and has classified statement of operating results within the Transitional segment.  Previously, in
November, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus. It was fully taught-out as of December 31, 2023 and was classified in the Transitional segment in the prior year’s statement of operations.

The primary reason for the decrease in both revenue and operating expenses year-over-year was due to one campus, the Summerlin, Las Vegas campus, being classified in the Transitional segment in the current year and
two campuses, the Summerlin, Las Vegas campus and the Somerville, Massachusetts campus, being included in the Transitional segment in the fiscal year ended December 31, 2023.

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company.  Corporate and other expenses were $46.3 million and $12.3 million for the years ended December 31, 2024 and 2023, respectively.
Included in the current year is a $1.5 million loss on sale of assets mostly related to the sale of our Summerlin, Las Vegas campus and a $2.8 million gain related to insurance proceeds received as a result of hail damage at one of our
campuses.  The prior year balance includes a $30.9 million gain on sale of assets resulting from the sale of the Nashville, Tennessee property.  The increase in expense from the prior year is primarily related to additional salaries and
benefits expense, partially offset by reduced stock compensation expense.

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Index

The following table presents results for the activity for our reportable operating segments for the fiscal years ended December 31, 2023 and 2022:

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Campus Operations

Operating income was $48.0 million and $47.8 million for the fiscal years ended December 31, 2023 and 2022, respectively.  The change year-over-year was mainly driven by the following factors:

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Index

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 campus has been fully taught-out, and total costs to close the campus were approximately $2.0 million.  Additionally, statement of operations
information for the Summerlin, Las Vegas campus for the years ended December 31, 2023 and 2022, respectively, has been included in the Transitional segment revenue and operating expense information for comparability.

For the year ended December 31, 2023, the Transitional segment included normal full year operations for the Summerlin, Las Vegas campus and a teach-out at the Somerville, Massachusetts campus, which was winding down
operations and no longer accepting new students.  During the year ended December 31, 2022, the Transitional segment included normal full year operations for both the Summerlin, Las Vegas and Somerville, Massachusetts campuses.

Corporate and Other

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

LIQUIDITY AND CAPITAL RESOURCES

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

As of December 31, 2024, the Company had $59.3 million in cash and cash equivalents, compared to $80.3 million in cash and cash equivalents and restricted cash as of December 31, 2023.  The change in cash position
from the end of the year was driven in part by the payment of incentive compensation during the first quarter and investments in capital expenditures relating to our recently opened East Point, Georgia campus, the new Houston Texas campus,
the relocation of each of the Nashville, Tennessee and Levittown, Pennsylvania campuses, and new programs and program expansions.  Further, the prior year cash position benefited from $33.3 million in proceeds resulting from the sale of our
Nashville, Tennessee property.

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Index

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

On May 24, 2022, the Company announced that its Board of Directors had authorized a share repurchase program of up to $30.0 million of the Company’s outstanding Common Stock.  The share repurchase program was
authorized for 12 months.  On February 27, 2023, the Board of Directors extended the share repurchase program for an additional 12 months and authorized the repurchase of an additional $10.0 million of the Company’s Common Stock, for an
aggregate of up to $30.6 million in additional repurchases.

On May 7, 2024, the Company announced that its Board of Directors had authorized an extension of its share repurchase program for an additional 12 months through May 24, 2025.  During the year ended December 31,
2024, the Company did not repurchase any additional shares.  As of December 31, 2024, the Company had approximately $29.7 million remaining for additional repurchases under the program.

On December 24, 2024, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission (“SEC”) registering securities for potential future use. Under the Registration  Statement, we
may sell the securities described in the prospectus from time to time in one or more offerings up to a total dollar amount of $150 million.

Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a
substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV Programs, which represented approximately 82% of our cash receipts relating to revenues in 2024. Pursuant
to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally provided by lenders in two
disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from
the start of the student's academic year. Certain types of grants and other funding are not subject to a 31-day delay.  In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned tuition or
prorated Title IV Program financial aid is refunded according to federal, state and accrediting agency standards.

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 for the years ended December 31, 2024 and 2023 was $29.3 million and $25.5 million, respectively.  The increase from prior year was primarily driven by higher net income
after adjusting for non-operational income items.

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

Investing Activities

Net cash used in investing activities was $47.0 million for the fiscal year ended December 31, 2024, compared to net cash provided by investing activities of $7.3 million for the fiscal year ended December 31,
2023.  The primary reason for the decrease in net cash was due to increased investments in capital expenditures in the current year, partially offset by a proceeds from the sale of the Levittown, Pennsylvania property.  The December 31, 2023
cash position benefited from several factors including the sale of the Nashville, Tennessee property and proceeds received from short-term investments.  Partially offsetting these cash inflows was the purchase of additional short-term
investments.

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Index

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

We currently lease all of our campuses.

Capital expenditures were 13.1% of revenues in 2024 and are expected to be approximately 16.0% of revenues in 2025.  The increase in planned capital expenditures over the prior year will be driven by several factors
that include but are not limited to the buildout of the Nashville, Tennessee, Levittown, Pennsylvania,  Houston, Texas and Hicksville, New York campuses.  In addition, we plan to invest $2.5 million into expanding programs at the Melrose,
Illinois and Allentown, Pennsylvania campuses and we plan to invest an additional $20.0 million for educational equipment, real estate improvements, and information technology across various campuses.  We expect to fund future capital
expenditures with cash generated from operating activities and cash on hand.

Financing Activities

Net cash used in financing activities for the fiscal years ended December 31, 2024 and 2023 was $3.3 million and $2.9 million, respectively. The increase in cash used of $0.4 million was driven by several factors
including the payment of $0.4 million of deferred financing fees paid for implementing the new credit facility with Fifth Third Bank National Association, a $1.3 million increase in cash outflow relating to the tax impact for vested stock
grants, and a $0.3 million cash outflow relating to lease payments made under the Company’s two additional finance leases.  Partially offsetting these cash outflows was a $0.8 million inflow for a tenant allowance relating to one of the
Company’s finance leases in the current year.  The fiscal year ended December 31, 2023 also included a $0.9 million cash outflow relating to the Company’s share repurchase plan.

Net cash used in financing activities for the fiscal years ended December 31, 2023 and 2022 was $2.9 million and $12.5 million, respectively. The decrease in cash used of $9.6 million was
primarily driven by a $8.5 million reduction in repurchases made under the Company’s share repurchase program in the current year, in addition to $1.1 million of dividend payments made in the prior year.

Credit Facility

On February 16, 2024, the Company entered into a secured credit agreement (the “Fifth Third Credit Agreement”) with Fifth Third Bank, National Association (the “Bank”), pursuant to which the
Company, as borrower, has obtained a revolving credit facility in the aggregate principal amount of $40.0 million including a $10.0 million letter of credit sublimit and a $20.0 million accordion feature (the “Facility”), the proceeds of
which are to be used for working capital, general corporate and certain other permitted purposes. The Facility is guaranteed by the Company’s wholly-owned subsidiaries and is secured by a first priority lien in favor of the Bank on
substantially all of the personal property owned by the Company and its subsidiaries. The term of the Facility is 36 months, maturing on February 16, 2027.

Each advance under the Facility will bear interest on the outstanding principal amount thereof from the date when made at an interest rate determined at the election of the Company at either
the Tranche Rate (which is the forward-looking Secured Overnight Financing Rate (SOFR) for one or three months), or the Base Rate (which is a variable per annum rate, as of any date of determination, equal to the Bank’s Prime Rate), plus an
Applicable Margin.  The Applicable Margin is determined pursuant to a Pricing Grid, which for loans subject to the Tranche Rate varies from 1.75% to 2.50% and for loans subject to the Base Rate varies from 0.75% to 1.50%. The Applicable
Margin may change quarterly based on the Total Leverage Ratio at such time.  The Total Leverage Ratio is determined with respect to the Company and its subsidiaries on a consolidated basis for an applicable quarterly period by dividing the
aggregate principal amount of various forms of borrowed indebtedness as of the last day of a determination period by EBITDA (earnings before interest expense, taxes, depreciation and amortization) for such period.  Interest is paid in
arrears, either quarterly or monthly depending on the Company’s interest rate election, with the principal due at maturity.

Under the terms of the Fifth Third Credit Agreement, the Company will pay to the Bank an unused facility fee on the average daily unused balance of the Facility at a rate per annum equal to
0.50%, which fee is payable in arrears on dates when interest is due and payable.  As of December 31, 2024, the Company has paid approximately $200,000 in unused facility fees.  The Company will also pay to the Bank a letter of credit fee
equal to the Applicable Margin for loans subject to the Tranche Rate multiplied by the maximum amount available to be drawn under such letter of credit.

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Index

The Fifth Third Credit Agreement contains customary representations, warranties and affirmative and negative covenants, as well as events of
default customary for facilities of this type.  In connection with the Fifth Third Credit Agreement, the Company paid fees of approximately $456,000 consisting of bank fees, closing fees, legal costs and other customary fees and
reimbursements.

On July 18, 2024, Company entered into a first amendment (the “Amendment”) of the Fifth Third Credit Agreement with the Bank. Among other things,
the Amendment effects certain modifications to (i) clarify certain representations and affirmative covenants of the Company, (ii) clarify certain conditions to each advance, (iii) clarify and/or replace certain events of default and (iv)
delete or revise certain definitions in order to harmonize them with the other modifications made.  The Amendment also contains customary releases, representations and warranties and reaffirmations consistent with the original terms of the
Fifth Third Credit Agreement. Except as set forth above, the Amendment does not materially alter the Fifth Third Credit Agreement.

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, 2024, we have no debt outstanding.  We lease offices,
educational facilities, and various items of equipment for varying periods through the year 2045 under basic annual rentals.

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

We had no off-balance sheet arrangements as of December 31, 2023, 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, 2024, we posted surety bonds in the aggregate amount of approximately $17.0 million.  These off-balance sheet arrangements do not adversely impact our liquidity or capital
resources.

As of December 31, 2024 and 2023, we had outstanding extensions of credit commitments to our active students of $44.6 million and $33.6 million, respectively.  These are institutional extensions of credit and no
cash is advanced to students.  The full extension of credit amount is not guaranteed unless the student completes the program. The institutional extensions of credit 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.

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 21 campuses, in 13 states has added two additional campuses, one located in East Point, Georgia and the other in Houston, Texas.  As of December 31, 2023, these campuses were
not operational however, the East Point, Georgia campus is expected to hold its first class in March of 2024 and the Houston, Texas campus is expected to become operational in the first quarter of 2026.  Lincoln Educational Services Corporation offers

programs in skilled trades (which include HVAC, welding and computerized numerical control and electrical and electronic systems technology, among other programs), automotive technology, healthcare services (which include nursing, dental assistant
and medical administrative assistant, among other programs) and hospitality services and information technology (which include culinary, therapeutic massage, cosmetology and aesthetics and information technology programs).  The schools operate
under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names.  Most of the campuses serve major metropolitan markets and each typically
offers courses in multiple areas of study.  Five of the campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local
communities and surrounding areas.  All of the campuses are nationally accredited and are eligible to participate in federal financial aid programs administered by the U.S. Department of Education (the “DOE”) and applicable state education agencies
and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid. The Company was incorporated in New Jersey in 2003 as the successor-in-interest to various acquired schools
including Lincoln Technical Institute, Inc. which opened its first campus in Newark, New Jersey in 1946.

As of January 1, 2023, the Company’s business has been organized into two reportable business segments: (a) Campus Operations; and (b) Transitional.  Based on trends in student demand and program expansion, there have been more cross-offerings
of programs among the various campuses. Given this change, the Company has revised the way it manages the business, evaluates performance and allocates resources, resulting in an updated segment structure.  The Campus Operations segment includes
campuses that are in operation and contribute to the Company’s core operations and performance.  The Transitional segment refers to campuses that are marked for closure and are currently being taught-out. In
November, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus which has now been fully taught-out.  As of December 31, 2023, the only campus classified in the Transitional segment is the Somerville,
Massachusetts campus.

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

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

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Index

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

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

The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related
expenses. The largest of these programs are Title IV Programs which represented approximately 81% and 74% of our revenue on a cash basis while the remainder is primarily derived from state grants and cash payments made by students during fiscal
years 2023 and 2022, respectively.  The HEA requires institutions to use the cash basis of accounting when determining its compliance with the 90/10 Rule.  See Part I, Item 1. “Business - Regulatory Environment.”

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 third
party private party loans and once these financial options have been fully exhausted, the Company may offer extended payment plans. 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 extension of credit 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:

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:

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Real Estate Transactions

Purchase and Sale-leaseback Transaction – Philadelphia, Pennsylvania Area Campus

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

Property Sale Agreement - Nashville, Tennessee Campus

On September 24, 2021, Nashville Acquisition, L.L.C., a subsidiary of the Company, entered into a Contract for the Purchase of Real Estate (the “Nashville Contract”) to sell the nearly 16-acre
property located at 524 Gallatin Avenue, Nashville, Tennessee 37206, at which the Company operates its Nashville campus, to SLC Development, LLC, a subsidiary of Southern Land Company (“SLC”).

On June 8, 2023, the Company closed on the sale of its Nashville, Tennessee property to East Nashville Owner, LLC, an affiliate of SLC, for approximately $33.8 million pursuant to the Nashville Contract. The net proceeds
from the Nashville sale, net of closing costs, are available for working capital, acquisitions, other strategic initiatives, and general corporate purposes.  In connection with the sale, the parties entered into a lease agreement allowing Lincoln
to continue to occupy the campus and operate it on a rent-free basis for a period of 15 months plus options to extend the lease for up to three consecutive 30-day terms at $150,000 per extension term.  The carrying value of the campus is
approximately $4.5 million and the estimated fair value of the rent for the 15-month rent-free period was approximately $2.3 million at the consummation of the lease.  As of December 31, 2023, approximately $1.3 million remains and is included in
prepaid expenses and other current assets on the Company’s Consolidated Balance Sheets.

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 Accounting Standards
Codification (“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 Credit Losses.  On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial

Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.  As a result of the adoption, the Company has revised the way in which it calculates reserves on outstanding student accounts receivable
balances.  Details considered by management in the estimate include the following:

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

Management makes a series of assumptions to determine what is believed to be the appropriate level of allowance for credit losses. Management determines a reasonable and supportable forecast based on the expectation of
future conditions over a supportable forecast period as described above, as well as qualitative adjustments based on current and future conditions that may not be fully captured in the historical modeling factors described above. All of these
estimates are susceptible to significant change.

We monitor our collections and write-off experience to assess whether or not adjustments to our allowance percentage estimates are necessary. Changes in trends in any of the factors that we believe impact the collection
of our student receivables, as noted above, or modifications to our collection practices, and other related policies may impact our estimate of our allowance for credit losses and our results from operations.

Because a substantial portion of our revenue 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 institutions to participate in Title IV Programs, would likely have a material impact on the realizability of our receivables.

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

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

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.

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

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 (“ROU”) 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.

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

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 carrying value of the assets.

Income taxes.  The Company accounts for income taxes in accordance with ASC Topic 740, Income
Taxes (“ASC 740”). This statement requires an asset and a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities existing at each balance sheet
date using enacted tax rates for years in which taxes are expected to be paid or recovered.

In accordance with ASC 740, the Company assesses 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, the Company considers, 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 the Company’s 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 the Company’s valuation
of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.  During the fiscal years ended December 31, 2023 and 2022, we did not record any interest and penalties expense associated with uncertain tax
positions, as we do not have any uncertain tax positions.

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

The following table sets forth selected consolidated statements of operations data as a percentage of revenues for each of the periods indicated:

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Consolidated Results of Operations

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

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

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

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

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

Educational services and facilities expense, as a percentage of revenue, increased to 42.9% from 42.7% for the fiscal years ended December 31, 2023 and 2022, respectively.

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

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

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

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

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

Gain on sale of assets. Gain on sale of assets was $30.9 million, for the fiscal year ended December 31, 2023 resulting from the sale of the Company’s
Nashville, Tennessee property during the second quarter of 2023.  Net proceeds from the sale were approximately $33.3 million.

Gain on sale of assets was $0.2 million for the fiscal year ended December 31, 2022, resulting from the sale of the Suffield, Connecticut campus during the second quarter of 2022.  Net proceeds from the sale were
approximately $2.4 million.

Impairment of goodwill and long-lived assets.  Impairment of goodwill and long-lived assets was $4.2 million for the
fiscal year ended December 31, 2023 driven by the sale the Nashville, Tennessee property on June 8, 2023.  The result of the sale created a change in the trajectory of the fair value of the Nashville, Tennessee operations, and as such, the Company
recorded a pre-tax non-cash impairment charge of $3.8 million relating to goodwill and an additional $0.4 million impairment relating to long-lived assets.

For the fiscal year ended December 31, 2022, as a result of the Company’s annual test of goodwill and long-lived assets, it was 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.  Approximately $0.6 million of the Company’s ROU asset was impaired in addition to $0.4 million of
long-lived assets.

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

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

Segment Results of Operations

As of January 1, 2023, the Company’s business is now organized into two reportable business segments: (a) Campus Operations; and (b) Transitional.  Based on trends in student demand and our program expansions, there have
been more cross-offerings of programs among the various campuses. Given this change, the Company has revised the way it manages the business, evaluates performance, and allocates resources, resulting in an updated segment structure.  As a result,
the Company has shifted its focus to the two new segments as defined below:

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

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Transitional – The Transitional segment refers to businesses that are marked for closure and are currently being taught-out.  As of December 31, 2023, the only
campus classified in the Transitional segment is the Somerville, Massachusetts campus.  The campus has been fully taught-out and total costs to close the campus were approximately $2.0 million.

We evaluate performance based on operating results.  Adjustments to reconcile segment results to consolidated results are included in the caption “Corporate,” which primarily includes unallocated corporate activity.

The following table presents results for the activity for our reportable operating segments for the fiscal years ended December 31, 2023 and 2022:

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

Campus Operations

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

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Index

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 campus has been fully taught-out, and total costs to close the campus were approximately $2.0 million.

Corporate and Other

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

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, 2023:

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Index

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

On May 24, 2022, the Company announced that its Board of Directors had authorized a share repurchase program of up to $30.0 million of the Company’s outstanding Common Stock.  The share repurchase program was authorized
for 12 months.   On February 27, 2023, the Board of Directors extended the share repurchase program for an additional 12 months and authorized the repurchase of an additional $10.0 million of the Company’s Common Stock, for an aggregate of up to
$30.6 million in additional repurchases.  As of December 31, 2023, the Company has approximately $29.7 million remaining for repurchases.

During the fiscal year ended December 31, 2023, the Company repurchased 165,064 shares at a cost of approximately $0.9 million.  Total repurchases made since the inception of the share repurchase program through December
31, 2023 were 1,737,478 shares at a total cost of approximately $10.3 million.

Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a
substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV Programs, which represented approximately 81% of our cash receipts relating to revenues in 2023. Pursuant to
applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally provided by lenders in two disbursements for
each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the
student's academic year. Certain types of grants and other funding are not subject to a 31-day delay.  In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned tuition or prorated Title IV Program
financial aid is refunded according to federal, state and accrediting agency standards.

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

Investing Activities

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

We currently lease the majority of all our campuses, except for our Levittown, Pennsylvania property.  This property was purchased in September of 2023 for approximately $10.2 million and as of December 31, 2023
has been classified on the Consolidated Balance Sheets as held for sale.  Subsequently, on January 30, 2024, the Company closed on a sale-leaseback for this property.

Capital expenditures were 11.0% of revenues in 2023 and are expected to be approximately 15% of revenues in 2024.  The significant increase in planned capital expenditures over the prior year will be driven by several
factors that include, but are not limited to, the buildout of our new East Point, Georgia area campus, additional space, the planned introduction of three new programs at the Lincoln, Rhode Island campus, and the anticipated introduction of new
programs at five other campuses.  We expect to fund future capital expenditures with cash generated from operating activities and cash on hand.

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Financing Activities

Net cash used in financing activities for the fiscal year ended December 31, 2023 and 2022 was $2.9 million and $12.5 million, respectively. The decrease in cash used of $9.6 million was primarily driven by a $8.5 million
reduction in repurchases made under the Company’s share repurchase program in the current year, in addition to $1.1 million of dividend payments made in the prior year.

Credit Facility

On November 14, 2019, the Company entered into a senior secured credit agreement (the “Sterling Credit Agreement”) with its lender, Sterling National
Bank (the “Lender”), providing for borrowing in the aggregate principal amount of up to $60.0 million (the “Credit Facility”). Initially, the Credit Facility was comprised of four facilities: (1) a $20.0 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 $10.0 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 $15.0 million senior secured committed revolving line of credit providing a sublimit of up to $10.0 million for standby letters of credit maturing on November 13, 2022 (the “Revolving Loan”), with monthly payments of interest only; and (4) a
$15.0 million senior secured non-restoring line of credit maturing on January 31, 2021 (the “Line of Credit Loan”). 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 rights in the Company’s subsidiaries and mortgages on parcels of real property owned by the Company.  The Sterling Credit Agreement was amended on various occasions.

On November 4, 2022, the Company agreed with its Lender to terminate the Sterling 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. As of December 31, 2023, the letters of credit, in the aggregate outstanding principal amount of $4.1 million, remained
outstanding, were cash collateralized, and were classified as restricted cash on the Consolidated Balance Sheets.  As of December 31, 2023, the Company did not have a credit facility and did not have any debt outstanding.

On February 16, 2024, the Company entered into a secured credit agreement (the “Fifth Third Credit Agreement”) with Fifth Third Bank, National
Association (the “Bank”), pursuant to which the Company, as borrower, has obtained a revolving credit facility in the aggregate principal amount of $40.0 million including a $10.0 million letter of credit sublimit and a $20.0 million accordion
feature (the “Facility”), the proceeds of which are to be used for working capital, general corporate and certain other permitted purposes. See Part II. Item 8. “Financial Statements and Supplemental Data - Notes to Consolidated Financial
Statements – Note 19 Subsequent Events”.

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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,
2023, we have no debt outstanding.  We lease offices, educational facilities and various items of equipment for varying periods through the year 2045 under basic annual rentals.

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

We had no off-balance sheet arrangements as of December 31, 2023, 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, 2023, we posted surety bonds in the aggregate amount of approximately $16.0 million.  These off-balance sheet arrangements do not adversely impact our liquidity or capital resources.

As of the fiscal year ended December 31, 2023 and 2022, we had outstanding extensions of credit commitments to our active students of $33.6 million and $30.5 million, respectively.  These are institutional extensions of
credit and no cash is advanced to students.  The full extension of credit amount is not guaranteed unless the student completes the program. The institutional extensions of credit 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 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.”

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Index

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:

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:

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

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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.

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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.

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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 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.

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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.

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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.

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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 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:

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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:

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.

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.

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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:

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.

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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.

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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.

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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 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 U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions which allow students to apply
for and access federal student loans as well as other forms of financial aid.

Our business is organized into two reportable business segments: (a) Transportation and Skilled Trades, and (b) Healthcare and Other Professions (“HOPS”).

As of December 31, 2021, we had 13,059 students enrolled at 22 campuses.

Our campuses, a majority of which serve major metropolitan markets, are located throughout the United States. Five of our campuses are destination schools, which attract
students from across the United States and, in some cases, from abroad. Our other campuses primarily attract students from their local communities and surrounding areas. All of our schools are nationally accredited and are eligible to participate
in federal financial aid programs.

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 64 to 98 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 75% and 77% of our revenue on a cash basis while the remainder is primarily derived from state
grants and cash payments made by students during 2021 and 2020, respectively.  The Higher Education Act of 1965, as amended (the “HEA”) requires institutions to use the cash basis of accounting when determining its compliance with the 90/10
Rule.  Part I, Item 1. “Business - Regulatory Environment.”

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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:

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:

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 Road, Nashville, Tennessee, 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 determined a
location. The closing of the sale transaction is expected to occur in the first half of 2022 subject to various closing conditions which must be satisfied or waived including the satisfactory completion by the buyer of its due diligence review.
During the due diligence period, SLC has the right to terminate the Nashville Contract for any reason at its discretion; therefore, there can be no assurance that the sale will be consummated on a timely basis or at all.  Upon closing, Nashville
Acquisition would be permitted to occupy the property and continue to operate the Nashville campus on a rent-free basis for a lease-back period of 12 months, and, thereafter, will have the option to extend the lease-back period for one 90-day term
and three additional 30-day terms pursuant to a lease agreement currently being negotiated by the parties.g  The Nashville property is included in assets held for sale in the consolidated balance sheet as of December 31, 2021.

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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 twenty-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. under each lease.  The Company evaluated factors in Accounting Standards Codification
(“ASC”) Topic 606, Revenue Recognition, 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. 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 an operating lease. The Company recorded Right of Use (“ROU”) Asset and lease liabilities of $40.1 million.  The sale lease-back
transaction 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 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 years ended December 31, 2021 and 2020 was 8.0% and 9.2%, respectively.  A 1% increase in our bad debt expense as a
percentage of revenues for the years ended December 31, 2021 and 2020 would have resulted in an increase in bad debt expense of $3.4 million and $2.9 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.

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Because a substantial portion of our revenues are 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 the cost of an acquired
business (reporting unit) over the estimated carrying value, assets net of liabilities.  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, 2021, goodwill was approximately $14.5 million, or 4.9%, of our total assets.  The goodwill is allocated among nine reporting units within the
Transportation and Skilled Trades Segment.

When Lincoln performs our annual goodwill impairment assessment we first assess a number of qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying value. 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.

Our qualitative assessment is subjective, it includes a review of macroeconomic and industry factors, review of the
financial performance of applicable reporting units, 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.

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 Lincoln determines that quantitative tests are necessary, these tests are performed using projected future operating
results and cash flows on a weighted scale, 50% based on Discounted Cash Flows (Income Approach) and 50% on based EBITDA multipliers (Market Approach).  Management
judgment is necessary in forecasting future cash flows and operating results, critical assumptions include growth rates, changes in operating costs, capital expenditures,
and changes in weighted average costs of capital.  Additionally, Lincoln obtains 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.

Lincoln has completed our 2021 goodwill impairment assessment and determined that it was more likely than not that the fair value of the reporting units exceeded their carrying value.  As
such, we concluded that goodwill was not impaired.

Income taxes.    We account for income taxes in accordance with ASC Topic 740,
“Income Taxes” (“ASC 740”) which requires an asset and a liability approach for measuring deferred taxes based on temporary differences between the financial statement and tax bases of assets and liabilities
existing at each balance sheet date using enacted tax rates for years in which taxes are expected to be paid or recovered.

In accordance with ASC 740, 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.

We recognize accrued interest and penalties related to unrecognized tax benefits in income tax expense.  During the years ended December 31, 2021 and 2020, we did not record any interest and
penalties expense associated with uncertain tax positions.

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Results of Operations for the Two Years Ended 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 December 31, 2021 Compared to Year Ended December 31, 2020

Consolidated Results of Operations

Revenue.  Revenue increased $42.2 million, or 14.4% to $335.3 million for the year ended December 31, 2021 from
$293.1 million in the prior year.  The increase in revenue was the result of a 10% increase in average student population, driven by student start growth of 7.5% in combination with starting the year with approximately 1,000 more students than in
the prior year comparable period.  Further contributing to the increase was the normalization of our revenue stream driven by the return to in-person instruction at all of our campuses as well as a 4.0% increase in average revenue per student.

The prior year financial results reflect the unprecedented impact from the COVID-19 pandemic which started in March of 2020.  As a result, certain financial and operational
comparisons year over year may be distorted as a result of the impact of COVID-19.

Educational services and facilities expense.   Our educational services and facilities expense increased $16.7
million, or 13.7% to $138.9 million for the year ended December 31, 2021 from $122.2 million in the prior year.  Increased costs were mainly concentrated in instructional expense, books and tools expense and facilities expense.  Instructional
expense increases were primarily driven by a larger average student population, up 10%, which also drove increases in books and tools expense.  Also contributing to the increase in instructional expenses were increased instructor salaries driven by
inflationary pressure and widespread instructor shortages in addition to increases in consumable supplies, primarily in our welding programs.  Facility expense increases were driven by additional rent expense due to the elimination of one-time rent
reductions in the prior year resulting from campus closures due to COVID-19 in combination with additional rent expense in the current year as a result of the sale leaseback transaction consummated during the fourth quarter of 2021.

Educational services and facilities expense, as a percentage of revenue, decreased slightly to 41.4% from 41.7% for the year ended December 31, 2021 and 2020, respectively.

Selling, general and administrative expense.  Our selling general and administrative expense increased $12.7
million, or 8.1% to $168.9 million for the year ended December 31, 2021 from $156.2 million in the prior year.  The increase was driven by several factors including increased spend in administrative expense in combination with investments in
marketing and sales expense.  Partially offsetting the increase was a slight reduction in bad debt expense.

Administrative expense increases were primarily driven by salaries and benefits expense resulting from the normalization of business operations in the current year.

Marketing investments increased from additional expenditures primarily in paid social media channels utilizing video and display advertising to reach a younger audience
demographic, while sales expense increases were the result of additional salaries and benefits driven by an expanded sales force due in part by the return to in-person instruction and the normalization of operations in the current year.

Despite both the additional investments in marketing and increases in sales expense, the cost per start is down year-over-year demonstrating both the efficiency and
effectiveness of marketing initiatives.

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Bad debt expense for the year ended December 31, 2021 was favorable compared to the prior year by $0.1 million, as a result of an adjustment to qualifying student accounts
receivables following guidance published on March 19, 2021 by the Department of Education.

In accordance with this guidance, we combined applicable HEERF funding with Company’s funds to provide financial relief to students who dropped from 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 2021, as a percentage of total revenue, would have been comparable with prior year.

Selling, general and administrative expense, as a percentage of revenue, decreased to 50.4% for the year ended December 31, 2021, from 53.3% in the prior year.

Impairment of long-lived assets – Impairment of long-lived assets was
$0.7 million, resulting from a one-time non-cash impairment charge triggered by an adjustment to fair market value for a campus that was closed several years ago.

Gain on sale of assets.  Gain on sale of assets for the year ended December 31, 2021 was $22.5 million, driven by
the sale leaseback transaction consummated in the fourth quarter of the current year.

Net interest expense.  Net interest expense for the year ended December 31, 2021 increased $0.7 million, or 58.0%
to $2.0 million from $1.3 million in the prior year comparable period.  Additional expense incurred as a result of the debt payoff which included fees for the termination of our cash flow hedge of $0.5 million and the write-off of previously
capitalized deferred financing fees totaling $0.5 million.  Excluding the additional expenses resulting from the debt payoff, interest expense year-over-year would have decreased by approximately 28.0%, or $0.4 million resulting from a lower loan
balance in the current year.

Income taxes.    Our income tax provision for the year ended December 31, 2021 was $12.5 million
compared to an income tax benefit of $35.1 million in the prior year.  The tax benefit primarily related to a full release of our valuation allowance on deferred tax assets as of December 31, 2020.  Our effective tax rate was 26.5% for the year
ended December 31, 2021.

Segment Results of Operations

We operate our business in two reportable operating segments: (a) the Transportation and Skilled Trades segment; and (b) the Healthcare and Other Professions (“HOPS”)
segment.  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).

The Company also utilizes the Transitional segment solely when and if it closes a school.

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.

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The following table presents results for the activity for our reportable operating segments for the years ended December 31, 2021 and 2020:

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Transportation and Skilled Trades

Student start results increased 9.0% to 10,291 for the year ended December 31, 2021 from 9,442 in the prior year.

Operating income increased $17.6 million, or 51.1% to $52.1 million for the year ended December 31, 2021 from $34.5 million in the prior year.  The increase year over year was
mainly driven by the following factors:

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Healthcare and Other Professions

Student start results increased 4.8% to 5,111 for the year ended December 31, 2021 from 4,879 in the prior year.

Operating income increased 7.0% to $11.8 million for the year ended December 31, 2021 from $11.1 million in the prior year.  The $0.7 million increase was mainly driven by the
following factors:

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company.  Corporate and other expenses were $14.6 million and $30.7 million for the years ended
December 31, 2021 and 2020, respectively.  Included in the current year is a $22.5 million gain realized as a result of entering into a sale leaseback transaction, partially offset by a one-time non-cash impairment charge of $0.7 million.
Excluding the sale leaseback transaction and the impairment charge, corporate and other expenses would have been $36.4 million as of December 31, 2021.  The additional expense over prior year was due to increased benefits expense driven primarily
by an uptick in medical claims in combination with a slight increase in salary expense.

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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 and 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, 2021:

As of December 31, 2021, the Company had a net cash balance of $83.3 million compared to $20.8 million in the prior year comparable period. The net cash balance is calculated
as our cash and cash equivalents less both short and long-term portion of the credit agreement.  Cash at December 31, 2021 benefited from net income and the consummation of a sale leaseback transaction entered into during the fourth quarter
involving the Company’s Denver, Colorado and Grand Prairie, Texas campuses.  The gross sale price for both properties totaled $46.5 million and, upon consummation of the sale, the Company entered into a triple-net lease agreement for each property.

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 75% of our cash receipts
relating to revenues in 2021. 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.