UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


Form 10-Q
(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from______ to______


Commission File Number 000-51371


LINCOLN EDUCATIONAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)

New Jersey
 
57-1150621
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)

14 Sylvan Way, Suite A
 
07054
Parsippany, NJ
 
(Zip Code)
(Address of principal executive offices)
   

(973) 736-9340
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
Common Stock, no par value per share
LINC
The NASDAQ Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company.  See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 
Large accelerated filer
Accelerated filer 
 
Non-accelerated filer
Smaller reporting company
 
Emerging growth company
 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes    No

As of May 9, 2022, there were 27,260,154 shares of the registrant’s common stock outstanding



LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES

INDEX TO FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2022

PART I.
FINANCIAL INFORMATION
 
Item 1.
1
 
1
 
3
 
4
 
5
 
6
 
8
Item 2.
23
Item 3.
32
Item 4.
32
PART II.
32
Item 1.
32
Item 1A.
Risk Factors
32
Item 2.
32
Item 3. Defaults Upon Senior Securities
33
Item 4. 33
Item 5.
Other Information
33
Item 6.
33
 
34

PART I – FINANCIAL INFORMATION

Item 1.
Financial Statements

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)


 
March 31,
2022
   
December 31,
2021
 
ASSETS
           
CURRENT ASSETS:
           
Cash and cash equivalents
 
$
65,599
   
$
83,307
 
Accounts receivable, less allowance of $27,545 and $26,837 at March 31, 2022 and December 31, 2021, respectively
   
34,866
     
26,159
 
Inventories
   
2,640
     
2,721
 
Prepaid expenses and other current assets
   
5,364
     
4,881
 
Assets held for sale
    4,559       4,559  
Total current assets
   
113,028
     
121,627
 
                 
PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $150,597 and $153,335 at March 31, 2022 and December 31, 2021, respectively
   
23,447
     
23,119
 
                 
OTHER ASSETS:
               
Noncurrent receivables, less allowance of $4,513 and $5,084 at March 31, 2022 and December 31, 2021, respectively
   
16,869
     
20,028
 
Deferred income taxes, net
   
23,644
     
23,708
 
Operating lease right-of-use assets
   
95,377
     
91,487
 
Goodwill
   
14,536
     
14,536
 
Other assets, net
   
787
     
794
 
Total other assets
   
151,213
     
150,553
 
TOTAL ASSETS
 
$
287,688
   
$
295,299
 

See notes to unaudited condensed consolidated financial statements.

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
(Continued)


 
March 31,
2022
   
December 31,
2021
 
LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
           
CURRENT LIABILITIES:
           
Unearned tuition
  $
21,192
    $
25,405
 
Accounts payable
   
13,083
     
12,297
 
Accrued expenses
   
9,291
     
15,669
 
Income taxes payable
   
221
     
1,017
 
Current portion of operating lease liabilities
   
11,228
     
11,479
 
Other short-term liabilities
   
32
     
15
 
Total current liabilities
   
55,047
     
65,882
 
                 
NONCURRENT LIABILITIES:
               
Pension plan liabilities
   
1,509
     
1,607
 
Long-term portion of operating lease liabilities
   
90,547
     
86,410
 
Total liabilities
   
147,103
     
153,899
 
                 
COMMITMENTS AND CONTINGENCIES
   
     
 
                 
SERIES A CONVERTIBLE PREFERRED STOCK
               
Preferred stock, no par value - 10,000,000 shares authorized, Series A convertible preferred shares, 12,700 shares issued and outstanding at March 31, 2022 and December 31, 2021
   
11,982
     
11,982
 
                 
STOCKHOLDERS’ EQUITY:
               
Common stock, no par value - authorized: 100,000,000 shares at March 31, 2022 and December 31, 2021; issued and outstanding: 27,260,154 shares at March 31, 2022 and 27,000,687 shares at December 31, 2021
   
141,377
     
141,377
 
Additional paid-in capital
   
31,686
     
32,439
 
Treasury stock at cost - 5,910,541 shares at March 31, 2022 and December 31, 2021
   
(82,860
)
   
(82,860
)
Retained earnings
   
39,670
     
39,702
 
Accumulated other comprehensive loss
   
(1,270
)
   
(1,240
)
Total stockholders’ equity
   
128,603
     
129,418
 
TOTAL LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS EQUITY
 
$
287,688
   
$
295,299
 

See notes to unaudited condensed consolidated financial statements.

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)


 
Three Months Ended
March 31,
 
   
2022
   
2021
 
             
REVENUE
 
$
82,554
   
$
77,996
 
COSTS AND EXPENSES:
               
Educational services and facilities
   
36,196
     
32,344
 
Selling, general and administrative
   
46,684
     
39,633
 
Total costs & expenses
   
82,880
     
71,977
 
OPERATING (LOSS) INCOME
   
(326
)
   
6,019
 
OTHER:
               
Interest expense
   
(43
)
   
(285
)
(LOSS) INCOME BEFORE INCOME TAXES
   
(369
)
   
5,734
 
(BENEFIT) PROVISION FOR INCOME TAXES
   
(641
)
   
1,245
 
NET INCOME
 
$
272
   
$
4,489
 
PREFERRED STOCK DIVIDENDS
   
304
     
304
 
(LOSS) INCOME AVAILABLE TO COMMON SHAREHOLDERS
 
$
(32
)
 
$
4,185
 
Basic and diluted
               
Net (loss) income per common share
 
$
(0.00
)
 
$
0.13
 
Weighted average number of common shares outstanding:
               
Basic and diluted
   
25,721
     
24,889
 

See notes to unaudited condensed consolidated financial statements.

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)


 
Three Months Ended
March 31,
 
   
2022
   
2021
 
Net income
 
$
272
   
$
4,489
 
Other comprehensive income (loss)
               
Derivative qualifying as a cash flow hedge, net of taxes (nil)
   
-
     
211
 
Employee pension plan adjustments, net of taxes (nil)
   
(30
)
   
(134
)
Comprehensive income
 
$
242
   
$
4,566
 

See notes to unaudited condensed consolidated financial statements.

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)


 
Stockholders’ Equity
       
   
Common Stock
   
Additional
Paid-in
   
Treasury
   
Retained
   
Accumulated
Other
Comprehensive
         
Series A
Convertible
Preferred Stock
 
   
Shares
   
Amount
   
Capital
   
Stock
   
Earnings
   
Loss
   
Total
   
Shares
   
Amount
 
BALANCE - January 1, 2022
   
27,000,687
   
$
141,377
   
$
32,439
   
$
(82,860
)
 
$
39,702
   
$
(1,240
)
 
$
129,418
     
12,700
   
$
11,982
 
Net income
   
-
     
-
     
-
     
-
     
272
     
-
     
272
     
-
     
-
 
Preferred stock dividend
   
-
     
-
     
-
     
-
     
(304
)
   
-
     
(304
)
   
-
     
-
 
Employee pension plan adjustments
   
-
     
-
     
-
     
-
     
-
     
(30
)
   
(30
)
   
-
     
-
 
Derivative qualifying as cash flow hedge
   
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
     
-
 
Stock-based compensation expense
                                                                       
Restricted stock
   
528,121
     
-
     
1,239
     
-
     
-
     
-
     
1,239
     
-
     
-
 
Net share settlement for equity-based compensation
   
(268,654
)
   
-
     
(1,992
)
   
-
     
-
     
-
     
(1,992
)
   
-
     
-
 
BALANCE -March 31, 2022
   
27,260,154
   
$
141,377
   
$
31,686
   
$
(82,860
)
 
$
39,670
   
$
(1,270
)
 
$
128,603
     
12,700
   
$
11,982
 


 
Stockholders’ Equity
       
   
 
Common Stock
   
Additional
Paid-in
   
Treasury
   
Retained
   
Accumulated
Other
Comprehensive
         
Series A
Convertible
Preferred Stock
 
   
Shares
   
Amount
   
Capital
   
Stock
   
Earnings
   
Loss
   
Total
   
Shares
   
Amount
 
BALANCE - January 1, 2021
   
26,476,329
   
$
141,377
   
$
30,512
   
$
(82,860
)
 
$
6,203
   
$
(4,165
)
 
$
91,067
     
12,700
   
$
11,982
 
Net income
   
-
     
-
     
-
     
-
     
4,489
     
-
     
4,489
     
-
     
-
 
Preferred stock dividend     -       -       -       -       (304 )     -       (304 )                
Employee pension plan adjustments
   
-
     
-
     
-
     
-
     
-
     
(134
)
   
(134
)
   
-
     
-
 
Derivative qualifying as cash flow hedge
   
-
     
-
     
-
     
-
     
-
     
211
     
211
     
-
     
-
 
Stock-based compensation expense
                                                                       
Restricted stock
   
574,614
     
-
     
493
     
-
     
-
     
-
     
493
     
-
     
-
 
Net share settlement for equity-based compensation
   
(154,973
)
   
-
     
(962
)
   
-
     
-
     
-
     
(962
)
   
-
     
-
 
BALANCE - March 31, 2021
   
26,895,970
   
$
141,377
   
$
30,043
   
$
(82,860
)
 
$
10,388
   
$
(4,088
)
 
$
94,860
     
12,700
   
$
11,982
 

See notes to unaudited condensed consolidated financial statements.

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)


 
Three Months Ended
March 31,
 
   
2022
   
2021
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net income
 
$
272
   
$
4,489
 
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation and amortization
   
1,528
     
1,901
 
Amortization of deferred finance charges
   
-
     
45
 
Deferred income taxes
   
64
     
1,245
 
Fixed asset donations
   
(119
)
   
(29
)
Provision for doubtful accounts
   
7,831
     
4,181
 
Stock-based compensation expense
   
1,239
     
493
 
(Increase) decrease in assets:
               
Accounts receivable
   
(13,379
)
   
(5,371
)
Inventories
   
81
     
(272
)
Prepaid income taxes and income taxes payable
   
(796
)
   
(55
)
Prepaid expenses and current assets
   
(542
)
   
(7,059
)
Other assets, net
   
(31
)
   
429
 
Increase (decrease) in liabilities:
               
Accounts payable
   
186
     
782
 
Accrued expenses
   
(6,378
)
   
(5,979
)
Unearned tuition
   
(4,213
)
   
(3,213
)
Other liabilities
   
(110
)
   
114
 
Total adjustments
   
(14,639
)
   
(12,788
)
Net cash used in operating activities
   
(14,367
)
   
(8,299
)
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Capital expenditures
   
(1,054
)
   
(1,219
)
Proceeds from sale of property and equipment
   
9
     
-
 
Net cash used in investing activities
   
(1,045
)
   
(1,219
)
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Payments on borrowings
   
-
     
(500
)
Dividend payment for preferred stock
   
(304
)
   
(304
)
Net share settlement for equity-based compensation
   
(1,992
)
   
(962
)
Net cash used in financing activities
   
(2,296
)
   
(1,766
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
   
(17,708
)
   
(11,284
)
CASH AND CASH EQUIVALENTS —Beginning of period
   
83,307
     
38,026
 
CASH AND CASH EQUIVALENTS—End of period
 
$
65,599
   
$
26,742
 

See notes to unaudited condensed consolidated financial statements.

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
(Continued)


 
Three Months Ended
March 31,
 
   
2022
   
2021
 
             
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
           
Cash paid for:
           
Interest
 
$
104
   
$
331
 
Income taxes
 
$
91
   
$
-
 
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
               
Liabilities accrued for or noncash additions of fixed assets
 
$
813
   
$
1,329
 

See notes to unaudited condensed consolidated financial statements.

LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
(In thousands, except share and per share amounts and unless otherwise stated)
(Unaudited)

1.
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Business Activities— 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 automotive technology, skilled trades (which include HVAC, welding and computerized numerical control and electronic systems technology, among other programs), healthcare services (which include nursing, dental assistant and medical administrative assistant, among other programs), hospitality services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology.  The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln Culinary Institute, 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 or regionally accredited and are eligible to participate in federal financial aid programs by the U.S. Department of Education (the “DOE” or the “Department”) 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’s business is organized into two reportable business segments: (a) Transportation and Skilled Trades, and (b) Healthcare and Other Professions (“HOPS”).

Liquidity—As of March 31, 2022, the Company had cash and cash equivalents of $65.6 million compared to $83.3 million at December 31, 2021.  The decrease in cash position from year end was the result of several factors including the seasonality of our business and a decrease in accrued expenses driven by the payment of incentive compensation.

Basis of Presentation – The accompanying unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial statements.  Certain information and footnote disclosures normally included in annual financial statements have been omitted or condensed pursuant to such regulations.  These financial statements, which should be read in conjunction with the December 31, 2021 audited consolidated financial statements and notes thereto and related disclosures of the Company included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (Form 10-K), reflect all adjustments, consisting of normal recurring adjustments necessary to present fairly the consolidated financial position, results of operations and cash flows for such periods.  The results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2022.

The unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries.  All significant intercompany accounts and transactions have been eliminated.

Use of Estimates in the Preparation of Financial Statements – 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, the Company evaluates the estimates and assumptions, including those used to determine the incremental borrowing rate to calculate lease liabilities and right-of-use (“ROU”) assets, lease term to calculate lease cost, revenue recognition, bad debts, impairments, useful lives of fixed assets, income taxes, benefit plans and certain accruals.  Actual results could differ from those estimates.

New Accounting PronouncementsIn October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2021-08, “Business Combinations (Topic 805), Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”. This amendment introduces the requirement for an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with the requirements of FASB Accounting Standards Codification (“ASC”) “Topic 606, Revenue from Contracts with Customers”, rather than at fair value.  The Company is currently assessing the impact that this ASU will have on its condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” These amendments provide temporary optional guidance to ease the potential burden in accounting for reference rate reform. The ASU provides optional expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued. It is intended to help stakeholders during the global market-wide reference rate transition period. In January 2021, the FASB issued ASU 2021-01, “Reference Rate Reform (Topic 848): Scope” which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company has evaluated the ASU and has determined that there is no impact on its condensed consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. This ASU simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU removes separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature and hence most of the instruments will be accounted for as a single model (either debt or equity). The ASU also states that entities must apply the if-converted method to all convertible instruments for calculation of diluted EPS and the treasury stock method is no longer available. An entity can use either a full or modified retrospective approach to adopt the ASU’s guidance. ASU No. 2020-06 is effective for the Company as a smaller reporting company for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. For convertible instruments that include a down-round feature, entities may early adopt the amendments that apply to the down-round features if they have not yet adopted the amendments in ASU 2017-11. The Company is currently assessing the impact that this ASU will have on its condensed consolidated financial statements and related disclosures.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” and subsequently issued additional guidance that modified ASU 2016-13. The ASU and the subsequent modifications are identified as ASC Topic 326. The standard requires an entity to change its accounting approach in determining impairment of certain financial instruments, including trade receivables, from an “incurred loss” to a “current expected credit loss” model. Further, the FASB issued ASU No. 2019-04, ASU No. 2019-05 and ASU 2019-11 to provide additional guidance on the credit losses standard. In November 2019, FASB issued ASU No. 2019-10, “Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)”.  This ASU defers the effective date of ASU 2016-13 for public companies that are considered smaller reporting companies as defined by the SEC to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.  Additionally, in February and March 2020, the FASB issued ASU 2020-02, “Financial Instruments—Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842)” ASU 2020-02 adds a SEC paragraph pursuant to the issuance of SEC Staff Accounting Bulletin No. 119 on loan losses to FASB Codification Topic 326 and also updates the SEC section of the Codification for the change in the effective date of Topic 842. Early adoption is permitted. We are currently assessing the impact that these ASUs will have on our condensed consolidated financial statements and related disclosures.

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.

During the three months ended March 31, 2022 and 2021, the Company did not recognize any interest and penalties expense associated with uncertain tax positions.

Derivative Instruments—The Company records the fair value of derivative instruments as either assets or liabilities on the condensed consolidated balance sheet. The accounting for gains and losses resulting from changes in fair value is dependent on the use of the derivative and whether it is designated and qualifies for hedge accounting.

All qualifying hedging activities are documented at the inception of the hedge and must meet the definition of highly effective in offsetting changes to future cash. The Company utilizes the change in variable cash flows method to evaluate hedge effectiveness quarterly. We record the fair value of the qualifying hedges in other long-term liabilities (for derivative liabilities) and other assets (for derivative assets). All unrealized gains and losses on derivatives that are designated and qualify for hedge accounting are reported in other comprehensive income (loss) and recognized when the underlying hedged transaction affects earnings. Changes in the fair value of these derivatives are recognized in other comprehensive income.  The Company classifies the cash flows from a cash flow hedge within the same category as the cash flows from the items being hedged.

2.
NET (LOSS) INCOME PER COMMON SHARE

The Company presents basic and diluted (loss) income per common share using the two-class method which requires all outstanding Series A Preferred Stock and unvested restricted stock that contain rights to non-forfeitable dividends and therefore participate in undistributed income with common shareholders to be included in computing (loss) income per common share. Under the two-class method, net (loss) income is reduced by the amount of dividends declared in the period for each class of common stock and participating security. The remaining undistributed (loss) income is then allocated to common stock and participating securities, based on their respective rights to receive dividends. Series A Preferred Stock and unvested restricted stock contain non-forfeitable rights to dividends on an if-converted basis and on the same basis as common shares, respectively, and are considered participating securities. The Series A Preferred Stock and unvested restricted stock are not included in the computation of basic (loss) income per common share in periods in which we have a net loss, as the Series A Preferred Stock and unvested restricted stock are not contractually obligated to share in our net losses. However, the cumulative dividends on Series A Preferred Stock for the period decreases the income or increases the net loss allocated to common shareholders unless the dividend is paid in the period. Basic (loss) income per common share has been computed by dividing net (loss) income allocated to common shareholders by the weighted-average number of common shares outstanding. The basic and diluted net income amounts are the same for the three months ended March 31, 2022 and 2021 as a result of the anti-dilutive impact of the potentially dilutive securities.

10

The following is a reconciliation of the numerator and denominator of the diluted net (loss) income per share computations for the periods presented below:


 
Three Months Ended
March 31,
 
(in thousands, except share data)
 
2022
   
2021
 
Numerator:
           
Net income
 
$
272
   
$
4,489
 
Less: preferred stock dividend
   
(304
)
   
(304
)
Less: allocation to preferred stockholders
   
(5
)
   
(699
)
Less: allocation to restricted stockholders
   
(2
)
   
(252
)
Net (loss) income allocated to common stockholders
 
$
(39
)
 
$
3,234
 
                 
Basic (loss) income per share:
               
Denominator:
               
Weighted average common shares outstanding
   
25,720,960
     
24,888,615
 
Basic (loss) income per share
 
$
(0.00
)  
$
0.13
 
                 
Diluted (loss) income per share:
               
Denominator:
               
Weighted average number of:
               
Common shares outstanding
   
25,720,960
     
24,888,615
 
Dilutive potential common shares outstanding:
               
Series A Preferred Stock
   
-
     
-
 
Unvested restricted stock
   
-
     
-
 
Dilutive shares outstanding
   
25,720,960
     
24,888,615
 
Diluted (loss) income per share
 
$
(0.00
)  
$
0.13
 

The following table summarizes the potential weighted average shares of common stock that were excluded from the determination of our diluted shares outstanding as they were anti-dilutive:


 
Three Months Ended
March 31,
 
(in thousands, except share data)
 
2022
   
2021
 
Series A Preferred Stock
   
5,381,356
     
5,381,356
 
Unvested restricted stock
   
439,208
     
697,458
 
     
5,820,564
     
6,078,814
 

3.
REVENUE RECOGNITION

Substantially all of our revenues are considered to be revenues from our contracts with students.  The related accounts receivable balances are recorded in our condensed consolidated 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 ASU No. 2014-09,Revenue from Contracts with Customers (Topic 606)”. We have assessed the costs incurred to obtain a contract with a student and determined them to be immaterial.

11

Unearned tuition in the amount of $21.2 million and $25.4 million is recorded in the current liabilities section of the accompanying condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively. The change in this contract liability balance during the three-month period ended March 31, 2022 is the result of payments received in advance of satisfying performance obligations, offset by revenue recognized during that period. Revenue recognized for the three-month period ended March 31, 2022 that was included in the contract liability balance at the beginning of the year was $21.8 million.
The following table depicts the timing of revenue recognition:


       
Three months ended March 31, 2022
 
       

 
Transportation
and Skilled
Trades Segment
   
Healthcare
and Other
Professions
Segment
   
Consolidated
 
Timing of Revenue Recognition
                         
Services transferred at a point in time
         
$
3,410
   
$
1,379
   
$
4,789
 
Services transferred over time
           
55,374
     
22,391
     
77,765
 
Total revenues
         
$
58,784
   
$
23,770
   
$
82,554
 


       
Three months ended March 31, 2021
 
       

 
Transportation
and Skilled
Trades Segment
   
Healthcare
and Other
Professions
Segment
   
Consolidated
 
Timing of Revenue Recognition
                         
Services transferred at a point in time
         
$
3,520
   
$
1,333
   
$
4,853
 
Services transferred over time
           
52,150
     
20,993
     
73,143
 
Total revenues
         
$
55,670
   
$
22,326
   
$
77,996
 

4.
LEASES

The Company determines if an arrangement is a lease at inception. The Company considers any contract where there is an identified asset as to which the Company has the right to control its use in determining whether the contract contains a lease.  An operating lease right-of-use (“ROU”) asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are to be recognized at the commencement date based on the present value of lease payments over the lease term. As all of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments. We estimate the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of our credit facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease. The operating lease ROU assets include any lease payments made prior to the rent commencement date and exclude lease incentives. Our leases have remaining lease terms of one year to 20 years. Lease terms may include options to extend the lease term used in determining the lease obligation when it is reasonably certain that the Company will exercise that option.  Lease expense for lease payments are recognized on a straight-line basis over the lease term for operating leases.

See Note 13 which discusses the sale leaseback transaction relating to the Company’s Denver and Grand Prairie campuses which closed on October 29, 2021.

12

Our operating lease cost for the three months ended March 31, 2022 and 2021 was $4.7 million and $3.7 million, respectively.  Our variable lease cost for the three months ended March 31, 2022 and 2021 was less than $0.1 million.  The net change in ROU asset and operating lease liability is included in other assets in the condensed consolidated cash flows for the three months ended March 31, 2022 and 2021.

Supplemental cash flow information and non-cash activity related to our operating leases are as follows:


 
Three Months Ended
March 31,
 
   
2022
   
2021
 
Operating cash flow information:
           
Cash paid for amounts included in the measurement of operating lease liabilities
 
$
4,654
   
$
3,208
 
Non-cash activity:
               
Lease liabilities arising from obtaining right-of-use assets
 
$
6,644
   
$
50
 

As of March 31, 2022, there were no new leases and 1 lease modification that resulted in noncash re-measurement of the related ROU asset and operating lease liability of $6.6 million relating to one of our campuses.

Weighted-average remaining lease term and discount rate for our operating leases is as follows:


 
As of
March 31,
 
   
2022
   
2021
 
Weighted-average remaining lease term
 
11.43 years
   
5.96 years
 
Weighted-average discount rate
   
7.42
%
   
11.27
%

Maturities of lease liabilities by fiscal year for our operating leases as of March 31, 2022 are as follows:

Year ending December 31,
     
2022 (excluding the three months ended March 31, 2022)
 
$
13,764
 
2023
   
18,199
 
2024
   
15,855
 
2025
   
13,901
 
2026
   
11,448
 
2027
   
8,535
 
Thereafter
   
61,215
 
Total lease payments
   
142,917
 
Less: imputed interest
   
(41,142
)
Present value of lease liabilities
 
$
101,775
 

5.
GOODWILL AND 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. 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. During the three months ended March 31, 2022 and 2021 there were no long-lived asset impairments.

13

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 3rd party engagement, as compared to the current carrying value of the assets.  The carrying value for the Suffield, Connecticut property of 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 reduced.

The carrying amount of goodwill at March 31, 2022 and 2021 is as follows:


 
Gross
Goodwill
Balance
   
Accumulated
Impairment
Losses
   
Net
Goodwill
Balance
 
Balance as of January 1, 2022
 
$
117,176
   
$
(102,640
)
 
$
14,536
 
Adjustments
   
-
     
-
     
-
 
Balance as of March 31, 2022
 
$
117,176
   
$
(102,640
)
 
$
14,536
 


 
Gross
Goodwill
Balance
   
Accumulated
Impairment
Losses
   
Net
Goodwill
Balance
 
Balance as of January 1, 2021
 
$
117,176
   
$
(102,640
)
 
$
14,536
 
Adjustments
   
-
     
-
     
-
 
Balance as of March 31, 2021
 
$
117,176
   
$
(102,640
)
 
$
14,536
 

As of each of March 31, 2022 and 2021, the goodwill balance of $14.5 million is related to the Transportation and Skilled Trades segment.

6.
LONG-TERM DEBT

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 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 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 is 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 is no swap agreement. Revolving Loans bear 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 is to be repaid within 30 days of such borrowing, the Revolving Loan will accrue interest at the Lender’s prime rate plus 0.50% with a floor of 4.0%.  Line of Credit Loans will bear interest at a floating interest rate based on the Lender’s prime rate of interest.  Letters of credit issued under the Revolving Loan reduce, on a dollar-for-dollar basis, the availability of borrowings under the Revolving Loan. Letters of credit are 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 are secured by cash collateral. The Lender receives 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.

14

In addition to the foregoing, the Credit Agreement contains customary representations, warranties and affirmative and negative covenants (including financial covenants that (i) restrict capital expenditures, (ii) restrict leverage, (iii) require maintaining minimum tangible net worth, (iv) require maintaining a minimum fixed charge coverage ratio and (v) require the maintenance of a minimum of $5 million in quarterly average aggregate balances on deposit with the Lender, which, if not maintained, will 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 twenty-four 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 twenty-four-month period to increase the amount of permitted cash dividends that the Company can pay on its Series A Preferred Stock.

As further discussed below, the Credit Facility was secured by a first priority lien in favor of the Lender on substantially all of the personal property owned by the Company, as well as a pledge of the stock and other equity in the Company’s subsidiaries and mortgages on parcels of real property owned by the Company in Colorado, Tennessee and Texas, at which three of the Company’s schools are located, as well as a former school property owned by the Company located in Connecticut.

On September 23, 2021, in connection with entering into the agreements relating to the sale leaseback transaction for the Company’s Denver, Grand Prairie and Nashville campuses (collectively, the “Property Transactions”), the Company and certain of its subsidiaries entered into a Consent and Waiver Letter Agreement (the “Consent Agreement”) to the Company’s Credit Agreement with its lender. The Consent Agreement provides the Lender’s consent to the Property Transactions and waives certain covenants in the Credit Agreement, subject to certain specified conditions. In addition, in connection with the consummation of the Property Transactions, the Lender released its mortgages and other liens on the subject-properties upon the Company’s payment in full of the outstanding principal and accrued interest on the Term Loan and any swap obligations arising from any swap transaction. Upon the consummation of the Property Transaction on October 29, 2021 the Company paid the Lender approximately $16.7 million in repayment of the Term Loan and the swap termination fee and no further borrowings may be made under the Term Loan or the Delayed Draw Term Loan.

As of March 31, 2022, and December 31, 2021, the Company had zero debt outstanding under the Credit Facility for both periods and was in compliance with all debt covenants.  As of March 31, 2022, and December 31, 2021, letters of credit in the aggregate outstanding principal amount of $4.0 million and $4.0 million, respectively, were outstanding under the Credit Facility.

7.
STOCKHOLDERS’ EQUITY

Common Stock

Holders of our common stock are entitled to receive dividends when and as declared by our Board of Directors and have the right to one vote per share on all matters requiring shareholder approval. The Company has not declared or paid any cash dividends on our common stock since the Company’s Board of Directors discontinued our quarterly cash dividend program in February 2015. The Company has no current intentions to resume the payment of cash dividends to holders of common stock in the foreseeable future.

Preferred Stock

On November 14, 2019, the Company raised gross proceeds of $12.7 million from the sale of 12,700 shares of its newly designated Series A Convertible Preferred Stock, no par value per share (the “Series A Preferred Stock”). The Series A Preferred Stock was designated by the Company’s Board of Directors pursuant to a certificate of amendment to the Company’s amended and restated certificate of incorporation (the “Charter Amendment”). The liquidation preference associated with the Series A Preferred Stock was $1,000 per share at December 31, 2021. Upon issuance each share of Series A Preferred Stock was convertible at $2.36 per share of common stock (as may be adjusted pursuant to the Charter Amendment, the “Conversion Price”) into 423,729 shares of common stock (the number of shares into which the Series A Preferred Stock is convertible at any time, the “Conversion Shares”). The Company incurred issuance costs of $0.7 million as part of this transaction.

15

The description below provides a summary of certain material terms of the Series A Preferred Stock:

Stock Securities Purchase Agreement.

The Series A Preferred Stock was sold by the Company pursuant to a Securities Purchase Agreement dated as of November 14, 2019 (the “SPA”) among the Company, Juniper Targeted Opportunity Fund, L.P. and Juniper Targeted Opportunities, L.P. (together, the “Juniper Purchasers”) and Talanta Investment, Inc. (“Talanta,” together with the Juniper Purchasers, the “Investors”). Among other things, the SPA includes covenants relating to the appointment of a director to the Company’s Board of Directors to be selected solely by the holders of the Series A Preferred Stock.

Dividends. Dividends on the Series A Preferred Stock (“Series A Dividends”), at the initial annual rate of 9.6% is to be paid, in arrears, from the date of issuance quarterly on each December 31, March 31, June 30 and September 30 with September 30, 2020 being the first dividend payment date.  The Company, at its option, may pay dividends either (a) in cash or (b) by increasing the number of Conversion Shares by the dollar amount of the dividend divided by the Conversion Price.  The dividend rate is subject to increase (a) 2.4% per annum on the fifth anniversary of the issuance of the Series A Preferred Stock and (b) by 2% per annum but in no event above 14% per annum should the Company fail to perform certain obligations under the Charter Amendment.  The Series A Preferred Stock is not currently redeemable and may not become redeemable in the future. As a result, the Company is not required to re-measure the Series A Preferred Stock and does not accrete changes in the redemption value. For the three months ended March 31, 2022, and the year ended December 31, 2021, we paid $0.3 million and $1.2 million, respectively, in cash dividends on the outstanding shares of Series A Preferred Stock rather than increasing the number of Conversion Shares. Dividends are included in the condensed consolidated balance sheets within additional paid-in-capital when the Company maintains an accumulated deficit.

Holders of Series A Preferred Stock Right to Convert into Common Stock. Each share of Series A Preferred Stock, at any time, is convertible into a number of shares of common stock equal to (i) the sum of (A) $1,000 (subject to adjustment as provided in the Charter Amendment) plus (B) the dollar amount of any declared Series A Dividends not paid in cash divided by (ii) the Conversion Price ($2.36 per share subject to anti-dilution adjustments) as of the applicable Conversion Date (as defined in the Charter Amendment). At all times, however, the number of Conversion Shares that can be issued to any holder of Series A Preferred Stock may not result in such holder and its affiliates owning more than 19.99% of the total number of shares of common stock outstanding after giving effect to the conversion (the “Hard Cap”), unless prior shareholder approval is obtained or no longer required by the rules of the principal stock exchange on which the Company’s common stock trades.

Mandatory Conversion. If, at any time following November 14, 2022, the volume weighted average price of the Company’s common stock equals or exceeds 2.25 times the Conversion Price (currently $5.31 per share) for a period of 20 consecutive trading days and during this period the average trading volume exceeds 20,000 shares of common stock, the Company may, at its option and subject to the Hard Cap, require that any or all of the then outstanding shares of Series A Preferred Stock be automatically converted into Conversion Shares.

Redemption. Beginning November 14, 2024, the Company may redeem all or any of the Series A Preferred Stock for a cash price equal to the greater of (“Liquidation Preference”) (i) the sum of $1,000 (subject to adjustment as provided in the Charter Amendment) plus the dollar amount of any declared Series A Dividends not paid in cash and (ii) the value of the Conversion Shares were such Series A Preferred Stock converted (as determined in the Charter Amendment) without regard to the Hard Cap.

Change of Control.  In the event of certain changes of control, some of which are not in the Company’s control, as defined in the Charter Amendment as a “Fundamental Change” or a “Liquidation” (as defined in the Charter Amendment), the holders of Series A Preferred Stock shall be entitled to receive the Liquidation Preference, unless such Fundamental Change is a stock merger in which certain value and volume requirements are met, in which case the Series A Preferred Stock will be converted into common stock in connection with such stock merger.  The Company has classified the Series A Preferred Stock as mezzanine equity on the condensed consolidated balance sheet based upon the terms of a change of control which could be outside the Company’s control.

16

Voting. Holders of shares of Series A Preferred Stock are entitled to vote with the holders of shares of common stock and not as a separate class, at any annual or special meeting of shareholders of the Company, on an as-converted basis, in all cases subject to the Hard Cap.  In addition, a majority of the voting power of the Series A Preferred Stock must approve certain significant actions of the Company, including (i) declaring a dividend or otherwise redeeming or repurchasing any shares of common stock and other junior securities, if any, subject to certain exceptions, (ii) incurring indebtedness, except for certain permitted indebtedness and (iii) creating a subsidiary other than a wholly-owned subsidiary.

Additional Provisions.  The Series A Preferred Stock is perpetual and, therefore, does not have a maturity date.  The conversion price of the Series A Preferred Stock is subject to anti-dilution protections if the Company affects a stock split, stock dividend, subdivision, reclassification or combination of its common stock and certain other economically dilutive events.

Registration Rights Agreement. The Company also is a party to a Registration Rights Agreement (“RRA”) with the holders of the Series A Preferred Stock. The RRA provides for unlimited demand registration rights, of which there can be two underwritten offerings each for at least $5 million in gross proceeds, and piggyback registration rights, with respect to the Conversion Shares. In addition, the RRA obligated the Company to register “for the shelf” the resale of the Conversion Shares through the filing of a registration statement to such effect (the “Resale Shelf Registration Statement”) and have such Resale Shelf Registration Statement declared effective by the Securities and Exchange Commission (the “SEC”). The SEC declared the Resale Shelf Registration Statement effective on October 16, 2020.

Restricted Stock

The Company currently has three stock incentive plans: a Long-Term Incentive Plan (the “LTIP”), a Non-Employee Directors Restricted Stock Plan (the “Non-Employee Directors Plan”) and the Lincoln Educational Services Corporation 2020 Incentive Compensation Plan (the “2020 Plan”).

2020 Plan

On March 26, 2020, the Board adopted the 2020 Plan to provide an incentive to certain directors, officers, employees and consultants of the Company to align their interests in the Company’s success with those of its shareholders through the grant of equity-based awards. On June 16, 2020, the shareholders of the Company approved the 2020 Plan. The 2020 Plan is administered by the Compensation Committee of the Board, or such other qualified committee appointed by the Board, who will, among other duties, have full power and authority to take all actions and to make all determinations required or provided for under the 2020 Plan. Pursuant to the 2020 Plan, the Company may grant options, share appreciation rights, restricted shares, restricted share units, incentive stock options and nonqualified stock options. The Plan has a duration of 10 years.

Subject to adjustment as described in the 2020 Plan, the aggregate number of common shares available for issuance under the 2020 Plan was 2,000,000 shares.

LTIP

Under the LTIP, certain employees have received awards of restricted shares of common stock based on service and performance. The number of shares granted to each employee is based on the amount of the award and the fair market value of a share of common stock on the date of grant. The 2020 Plan makes it clear that there will be no new grants under the LTIP effective as of the date of shareholder approval, June 16, 2020. The 2020 Plan also states that the shares available under the 2020 Plan will be two million shares plus the number of shares remaining available under the LTIP. As no shares remain available under the LTIP there can be no additional grants under the LTIP. Grants under the LTIP remain in effect according to their terms. Therefore, those grants are subject to the particular award agreement relating thereto and to the LTIP to the extent that the prior plan provides rules relating to those grants. The LTIP remains in effect only to that extent.

17

Non-Employee Directors Plan

Pursuant to the Non-Employee Directors Plan, each non-employee director of the Company receives an annual award of restricted shares of common stock on the date of the Company’s annual meeting of shareholders. The number of shares granted to each non-employee director is based on the fair market value of a share of common stock on that date. The restricted shares vest on the first anniversary of the grant date.  There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares.

For the three months ended March 31, 2022 and 2021, the Company completed a net share settlement for 268,654 and 154,973 restricted shares, respectively, on behalf of certain employees that participate in the LTIP upon the vesting of the restricted shares pursuant to the terms of the LTIP.  The net share settlement was in connection with income taxes incurred on restricted shares that vested and were transferred to the employees during 2021 and/or 2020, creating taxable income for the employees. At the employees’ request, the Company has paid these taxes on behalf of the employees in exchange for the employees returning an equivalent value of restricted shares to the Company. These transactions resulted in a decrease of $2.0 million and less than $1.0 million for each of the three months ended March 31, 2022 and 2021, respectively, to equity on the condensed consolidated balance sheets as the cash payment of the taxes effectively was a repurchase of the restricted shares granted in previous years.

The following is a summary of transactions pertaining to restricted stock:


 
Shares
   
Weighted
Average Grant
Date Fair Value
Per Share
 
Nonvested restricted stock outstanding at December 31, 2021
   
1,743,846
   
$
3.89
 
Granted
   
528,121
     
7.29
 
Canceled
   
-
     
-
 
Vested
   
(728,776
)
   
3.91
 
                 
Nonvested restricted stock outstanding at March 31, 2022
   
1,543,191
     
5.19
 

The restricted stock expense for the three months ended March 31, 2022 and 2021 was $1.2 million and $0.5 million, respectively.  The unrecognized restricted stock expense as of March 31, 2022 and December 31, 2021 was $8.0 million and $4.4 million, respectively.  As of March 31, 2022, outstanding restricted shares under the Prior Plan had aggregate intrinsic value of $11.0 million.

Stock Options

The fair value of the stock options used to compute stock-based compensation is the estimated present value at the date of grant using the Black-Scholes option pricing model. The following is a summary of transactions pertaining to stock options:


 
Shares
   
Weighted
Average
Exercise Price
Per Share
   
Weighted
Average
Remaining
Contractual
Term
   
Aggregate
Intrinsic Value
(in thousands)
 
Outstanding at December 31, 2021
   
81,000
   
$
7.79
     
0.17
   
$
-
 
Granted/Vested
   
-
     
-
      -      
-
 
Canceled
   
(81,000
)
   
7.79
      -      
-
 
                                 
Outstanding at March 31, 2022
   
-
     
-
     
-
     
-
 
                                 
Vested as of March 31, 2022
   
-
     
-
     
-
     
-
 
                                 
Exercisable as of March 31, 2022
   
-
     
-
     
-
     
-
 

18

As of March 31, 2022, there was no unrecognized pre-tax compensation expense.

8.
INCOME TAXES
 
The benefit for income taxes for the three months ended March 31, 2022 was $0.6 million, or 173.7% of pretax loss compared to a provision for income taxes for the three months ended March 31, 2021 of $1.2 million, or 21.7% of pretax income.  The benefit for the three months ended March 31, 2022 was due primarily to a pre-tax book loss and a discrete item relating to restricted stock vesting, while the provision in the prior year was due to the release of the valuation allowance as of December 31, 2020.  The effective tax rate for the three months ending March 31, 2022 was 28.2%.
 
9.
COMMITMENTS AND CONTINGENCIES

In the ordinary conduct of its business, the Company is subject to certain lawsuits, investigations and claims, including, but not limited to, claims involving students or graduates and routine employment matters. Although the Company cannot predict with certainty the ultimate resolution of lawsuits, investigations and claims asserted against it, the Company does not believe that any currently pending legal proceedings to which it is a party will have a material adverse effect on the Company’s business, financial condition, and results of operations or cash flows.

In December 2021, we received a letter from the Consumer Financial Protection Bureau (“CFPB”) stating that the CFPB is assessing whether we are subject to CFPB’s supervisory authority based on our activities related to certain extensions of credit to our students and requesting certain information. The letter states that the CFPB has the authority to supervise certain entities in the private education loan market and certain other consumer financial products and services. We have provided the requested information to the CFPB and are waiting for the CFPB to respond.

10.
SEGMENTS

We operate our business in two reportable segments: (a) the Transportation and Skilled Trades segment; and (b) the Healthcare and Other Professions segment. Our reportable segments have been determined based on a method by which we now evaluate performance and allocate resources.  Each reportable 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 on a limited basis 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.

19

Summary financial information by reporting segment is as follows:


 
For the Three Months Ended March 31,
 
   
Revenue
   
Operating (loss) income
 
   
2022
   
% of
Total
   
2021
   
% of
Total
   
2022
   
2021
 
Transportation and Skilled Trades
 
$
58,784
     
71.2
%
 
$
55,670
     
71.4
%
 
$
7,245
   
$
12,324
 
Healthcare and Other Professions
   
23,770
     
28.8
%
   
22,326
     
28.6
%
   
1,307
     
2,949
 
Corporate
   
-
             
-
             
(8,878
)
   
(9,254
)
Total
 
$
82,554
     
100.0