# LINCOLN EDUCATIONAL SERVICES CORP (LINC) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from LINCOLN EDUCATIONAL SERVICES CORP's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1286613/000114036125006937/ef20039011_10k.htm
Accession: 0001140361-25-006937
Filing date: 2025-03-04
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/LINC/
All MD&A years: /company/LINC/mda/
Previous year: /company/LINC/mda/fy2023/ (FY 2023)
Next year: /company/LINC/mda/fy2025/ (FY 2025)

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:

[[GREPCENT_TABLE]]
[["","\u2022","our internal extension of credit is provided to students only after all other funding resources have been exhausted; thus, by the time this funding is available, students have completed approximately two-thirds of their curriculum and are more likely to graduate and, as a consequence, more likely to pay outstanding tuition amounts;"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","funding for students who interrupt their education is typically covered by Title IV Program funds as long as they have been properly packaged for financial aid."]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","\u2022","Educational services and facilities. Major components of educational services and facilities expenses include faculty compensation and benefits, expenses of books and tools, facility rent, maintenance, utilities, depreciation and amortization of property and equipment used in the provision of education services and other costs directly associated with teaching our programs excluding student services which is included in selling, general and administrative expenses."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Selling, general and administrative. Selling, general and administrative expenses include compensation and benefits of employees who are not directly associated with the provision of educational services (such as executive management and school management, finance and central accounting, legal, human resources and business development), marketing and student enrollment expenses (including compensation and benefits of personnel employed in sales and marketing and student admissions), costs to develop curriculum, costs of professional services, bad debt expense, rent for our corporate headquarters, depreciation and amortization of property and equipment that is not used in the provision of educational services and other costs that are incidental to our operations. Selling, general and administrative expenses also includes the cost of all student services including financial aid and career services. All marketing and student enrollment expenses are recognized in the period incurred."]]
[[/GREPCENT_TABLE]]

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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.

44

Index

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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Index

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:

[[GREPCENT_TABLE]]
[["","","Year Ended Dec 31,"],["","","2024","","","2023","","","2022"],["Revenue","","","100.0","%","","","100.0","%","","","100.0","%"],["Costs and expenses:"],["Educational services and facilities","","","41.3","%","","","42.9","%","","","42.7","%"],["Selling, general and administrative","","","55.4","%","","","55.3","%","","","52.4","%"],["Loss (gain) on sale of assets","","","0.5","%","","","-8.2","%","","","-0.1","%"],["Gain on insurance proceeds","","","-0.6","%","","","0.0","%","","","0.0","%"],["Impairment of goodwill and long-lived assets","","","0.0","%","","","1.1","%","","","0.3","%"],["Total costs and expenses","","","96.6","%","","","91.2","%","","","95.3","%"],["Operating income","","","3.4","%","","","8.8","%","","","4.7","%"],["Interest expense, net","","","-0.1","%","","","0.6","%","","","0.0","%"],["Income from operations before income taxes","","","3.3","%","","","9.4","%","","","4.7","%"],["Provision for income taxes","","","1.1","%","","","2.6","%","","","1.1","%"],["Net income","","","2.2","%","","","6.8","%","","","3.6","%"]]
[[/GREPCENT_TABLE]]

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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Index

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.

47

Index

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.

48

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.

49

Index

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2024","","","2023","","","% Change"],["Revenue:"],["Campus Operations","","$","432,966","","","$","367,233","","","","17.9","%"],["Transitional","","","7,098","","","","10,837","","","","-34.5","%"],["Total","","$","440,064","","","$","378,070","","","","16.4","%"],["Operating Income (Loss):"],["Campus Operations","","$","63,558","","","$","48,031","","","","32.3","%"],["Transitional","","","(2,039",")","","","(2,366",")","","","13.8","%"],["Corporate","","","(46,342",")","","","(12,307",")","","","-276.5","%"],["Total","","$","15,177","","","$","33,358","","","","-54.5","%"],["Starts:"],["Campus Operations","","","18,153","","","","15,526","","","","16.9","%"],["Transitional","","","507","","","","673","","","","-24.7","%"],["Total","","","18,660","","","","16,199","","","","15.2","%"],["Average Population:"],["Campus Operations","","","14,100","","","","12,436","","","","13.4","%"],["Transitional","","","326","","","","505","","","","-35.4","%"],["Total","","","14,426","","","","12,941","","","","11.5","%"],["End of Period Population:"],["Campus Operations","","","14,838","","","","12,900","","","","15.0","%"],["Transitional","","","300","","","","370","","","","-18.9","%"],["Total","","","15,138","","","","13,270","","","","14.1","%"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","\u2022","Revenue increased $65.7 million, or 17.9% to $432.9 million for the fiscal year ended December 31, 2024 from $367.2 million in the prior year. Revenue growth was driven by several factors including an 13.4% increase in average student population, driven in part by beginning the year with 10.2% or approximately 1,100 more students than in the prior year and student start growth up 16.9% 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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Educational services and facilities expense increased $21.9 million, or 14.1% to $177.4 million for the fiscal year ended December 31, 2024 from $155.5 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. Remaining cost increases were driven by increased instructional expenses, additional books and tools expense and an increase in depreciation expense, all of which are discussed above in the Consolidated Results of Operations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Selling, general and administrative expense increased $32.0 million, or 20.0% to $191.4 million for the fiscal year ended December 31, 2024, from $159.4 million in the prior year. The increase over the prior year includes approximately $0.4 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. Remaining cost increases were primarily driven by increased administrative costs, marketing investments and sales, and student services, all of which are discussed above in the Consolidated Results of Operations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Impairment of goodwill and long-lived assets was zero and $4.2 million for the fiscal years ended December 31, 2024 and 2023, respectively, as discussed above in the Consolidated Results of Operations."]]
[[/GREPCENT_TABLE]]

50

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.

[[GREPCENT_TABLE]]
[["","\u2022","Revenue decreased $3.7 million, or 34.5% to $7.1 million for the fiscal year ended December 31, 2024, from $10.8 million in the prior year."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Total operating expenses decreased $4.1 million, or 30.8% to $9.1 million for the fiscal year ended December 31, 2024, from $13.2 million in the prior year."]]
[[/GREPCENT_TABLE]]

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.

51

Index

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

[[GREPCENT_TABLE]]
[["","","Year Ended December 31,"],["","","2023","","","2022","","","% Change"],["Revenue:"],["Campus Operations","","$","367,233","","","$","330,896","","","","11.0","%"],["Transitional","","","10,837","","","","17,391","","","","-37.7","%"],["Total","","$","378,070","","","$","348,287","","","","8.6","%"],["Operating Income (Loss):"],["Campus Operations","","$","48,031","","","$","47,799","","","","0.5","%"],["Transitional","","","(2,366",")","","","1,295","","","","282.7","%"],["Corporate","","","(12,307",")","","","(32,816",")","","","62.5","%"],["Total","","$","33,358","","","$","16,278","","","","104.9","%"],["Starts:"],["Campus Operations","","","15,526","","","","13,709","","","","13.3","%"],["Transitional","","","673","","","","1,211","","","","-44.4","%"],["Total","","","16,199","","","","14,920","","","","8.6","%"],["Average Population:"],["Campus Operations","","","12,436","","","","12,079","","","","3.0","%"],["Transitional","","","505","","","","815","","","","-38.0","%"],["Total","","","12,941","","","","12,894","","","","0.4","%"],["End of Period Population:"],["Campus Operations","","","12,900","","","","11,703","","","","10.2","%"],["Transitional","","","370","","","","685","","","","-46.0","%"],["Total","","","13,270","","","","12,388","","","","7.1","%"]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","\u2022","Revenue increased $36.3 million, or 11.0% to $367.2 million for the fiscal year ended December 31, 2023 from $330.9 million for the fiscal year ended December 31, 2022. The 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\u2019s hybrid teaching model in combination with tuition increases. The Company\u2019s hybrid teaching model increases program efficiency and delivers accelerated revenue recognition in certain evening programs."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Educational services and facilities expense increased $14.9 million, or 10.6% to $155.5 million for the fiscal year ended December 31, 2023 from $140.7 million during the fiscal year ended December 31, 2022. Increased costs were primarily concentrated in instructional, facilities expense, and books and tools expense."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","o","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."]]
[[/GREPCENT_TABLE]]

52

Index

[[GREPCENT_TABLE]]
[["","o","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\u2019s 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."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","o","Books and tools expense increased $3.2 million, driven by a 14.6% increase in student starts year-over-year."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Selling, general and administrative expense increased $18.0 million, or 12.8% to $159.4 million for the fiscal year ended December 31, 2023, from $141.4 million during the fiscal year ended December 31, 2022. The increase was primarily driven by an increase in administrative costs, marketing investments, and student services, all of which are discussed above in the Consolidated Results of Operations."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Impairment of goodwill and long-lived assets was $4.2 million and $1.0 million for the fiscal years ended December 31, 2023 and 2022, respectively, as discussed above in the Consolidated Results of Operations."]]
[[/GREPCENT_TABLE]]

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.

[[GREPCENT_TABLE]]
[["","\u2022","Revenue decreased $6.5 million, or 37.7% to $10.8 million for the fiscal year ended December 31, 2023, from $17.4 million during the fiscal year ended December 31, 2022."]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["","\u2022","Total operating expenses decreased $2.9 million, or 18.0% to $13.2 million for the fiscal year ended December 31, 2023, from $16.1 million during the fiscal year ended December 31, 2022."]]
[[/GREPCENT_TABLE]]

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:

[[GREPCENT_TABLE]]
[["","","Cash Flow Summary Year Ended December 31,"],["","","2024","","","2023","","","2022"],["","","(In thousands)"],["Net cash provided by operating activities","","$","29,306","","","$","25,558","","","$","882"],["Net cash (used in) provided by investing activities","","$","(46,971",")","","$","7,369","","","$","(21,354",")"],["Net cash used in financing activities","","$","(3,331",")","","$","(2,945",")","","$","(12,548",")"]]
[[/GREPCENT_TABLE]]

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.

53

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.

54

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.