LINCOLN EDUCATIONAL SERVICES CORP 10-Q

Item 1. Financial Statements LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) (Unaudited) September 30, 2021 December 31, 2020 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 47,150 $ 38,026 Accounts receivable, less allowance of $ 26,303 and $ 25,174 at September 30 , 2021 and December 31, 2020 , respectively 29,985 30,021 Inventories 3,155 2,394 Prepaid income taxes 238 - Prepaid expenses and other current assets 2,973 3,723 Assets held for sale 27,452 - Total current assets 110,953 74,164 PROPERTY, EQUIPMENT AND FACILITIES - At cost, net of accumulated depreciation and amortization of $ 152,217 and $ 176,300 at September 30 , 2021 and December 31, 2020 , respectively 23,251 48,388 OTHER ASSETS: Noncurrent receivables, less allowance of $ 4,789 and $ 3,465 at September 30 , 2021 and December 31, 2020 , respectively 18,805 16,463 Deferred income taxes, net 32,082 35,718 Operating lease right-of-use assets 53,033 55,187 Goodwill 14,536 14,536 Other assets, net 796 734 Total other assets 119,252 122,638 TOTAL ASSETS $ 253,456 $ 245,190 See notes to unaudited condensed consolidated financial statements. 1 Index LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share amounts) (Unaudited) (Continued) September 30, 2021 December 31, 2020 LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES: Current portion of credit agreement $ 2,000 $ 2,000 Unearned tuition 24,691 23,453 Accounts payable 16,036 15,676 Accrued expenses 15,778 16,692 Income taxes payable - 491 Current portion of operating lease liabilities 10,314 8,504 Other short-term liabilities 56 26 Total current liabilities 68,875 66,842 NONCURRENT LIABILITIES: Long-term credit agreement 13,848 15,212 Pension plan liabilities 4,850 4,252 Long-term portion of operating lease liabilities 49,135 52,702 Other long-term liabilities 2,803 3,133 Total liabilities 139,511 142,141 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 September 30 , 2021 and December 31, 2020 11,982 11,982 STOCKHOLDERS’ EQUITY: Common stock, no par value - authorized: 100,000,000 shares at September 30 , 2021 and December 31, 2020 ; issued and outstanding: 26,978,432 shares at September 30 , 2021 and 26,476,329 shares at December 31, 2020 141,377 141,377 Additional paid-in capital 31,643 30,512 Treasury stock at cost - 5,910,541 shares at September 30 , 2021 and December 31, 2020 ( 82,860 ) ( 82,860 ) Retained earnings 16,045 6,203 Accumulated other comprehensive loss ( 4,242 ) ( 4,165 ) Total stockholders’ equity 101,963 91,067 TOTAL LIABILITIES, SERIES A CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY $ 253,456 $ 245,190 See notes to unaudited condensed consolidated financial statements. 2 Index LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 REVENUE $ 89,059 $ 78,792 $ 247,520 $ 211,303 COSTS AND EXPENSES: Educational services and facilities 38,105 34,251 104,143 90,733 Selling, general and administrative 45,209 40,700 128,159 117,011 Loss (gain) on disposition of assets - 1 1 ( 96 ) Total costs & expenses 83,314 74,952 232,303 207,648 OPERATING INCOME 5,745 3,840 15,217 3,655 OTHER: Interest expense ( 292 ) ( 278 ) ( 874 ) ( 960 ) INCOME BEFORE INCOME TAXES 5,453 3,562 14,343 2,695 PROVISION FOR INCOME TAXES 1,614 50 3,589 150 NET INCOME $ 3,839 $ 3,512 $ 10,754 $ 2,545 PREFERRED STOCK DIVIDENDS 304 1,074 912 1,074 INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 3,535 $ 2,438 $ 9,842 $ 1,471 Basic and diluted Net income per common share $ 0.11 $ 0.08 $ 0.30 $ 0.05 Weighted average number of common shares outstanding: Basic and diluted 25,135 24,822 25,043 24,721 See notes to unaudited condensed consolidated financial statements. 3 Index LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (In thousands) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net income $ 3,839 $ 3,512 $ 10,754 $ 2,545 Other comprehensive income (loss) Derivative qualifying as a cash flow hedge, net of taxes ( nil ) 65 57 326 ( 786 ) Employee pension plan adjustments, net of taxes ( nil ) ( 134 ) 140 ( 403 ) 420 Comprehensive income $ 3,770 $ 3,709 $ 10,677 $ 2,179 See notes to unaudited condensed consolidated financial statements. 4 Index 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, 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 Net income - - - - 2,426 - 2,426 - - Preferred stock dividend - - - - ( 304 ) - ( 304 ) - - Employee pension plan adjustments - - - - - ( 134 ) ( 134 ) - - Derivative qualifying as cash flow hedge - - - - - 49 49 - - Stock-based compensation expense Restricted stock 76,195 - 844 - - - 844 - - Net share settlement for equity-based compensation - - - - - - - - - BALANCE - June 30, 2021 26,972,165 $ 141,377 $ 30,887 $ ( 82,860 ) $ 12,510 $ ( 4,173 ) $ 97,741 12,700 $ 11,982 Net income - - - - 3,839 - 3,839 - - Preferred stock dividends - - - - ( 304 ) - ( 304 ) - - Employee pension plan adjustments - - - - - ( 134 ) ( 134 ) - - Derivative qualifying as cash flow hedge - - - - - 65 65 - - Stock-based compensation expense Restricted stock 6,267 - 756 - - - 756 - - Net share settlement for equity-based compensation - - - - - - - - - BALANCE - September 30, 2021 26,978,432 $ 141,377 $ 31,643 $ ( 82,860 ) $ 16,045 $ ( 4,242 ) $ 101,963 12,700 $ 11,982 Stockholders’ Equity Common Stock Additional Paid-in Treasury Accumulated Accumulated Other Comprehensive Series A Convertible Preferred Stock Shares Amount Capital Stock Deficit Loss Total Shares Amount BALANCE - January 1, 2020 25,231,710 $ 141,377 $ 30,145 $ ( 82,860 ) $ ( 42,058 ) $ ( 3,456 ) $ 43,148 12,700 $ 11,982 Net loss - - - - ( 1,750 ) - ( 1,750 ) - - Employee pension plan adjustments - - - - - 140 140 - - Derivative qualifying as cash flow hedge - - - - - ( 748 ) ( 748 ) - - Stock-based compensation expense Restricted stock 1,191,262 - 291 - - - 291 - - Net share settlement for equity-based compensation ( 58,451 ) - ( 172 ) - - - ( 172 ) - - BALANCE - March 31, 2020 26,364,521 141,377 30,264 ( 82,860 ) ( 43,808 ) ( 4,064 ) 40,909 12,700 11,982 Net income - - - - 783 - 783 - - Employee pension plan adjustments - - - - - 140 140 - - Derivative qualifying as cash flow hedge - - - - - ( 95 ) ( 95 ) - - Stock-based compensation expense Restricted stock 111,376 - 325 - - - 325 - - Net share settlement for equity-based compensation - - - - - - - - - BALANCE - June 30, 2020 26,475,897 $ 141,377 $ 30,589 $ ( 82,860 ) $ ( 43,025 ) $ ( 4,019 ) $ 42,062 12,700 $ 11,982 Net income - - - - 3,512 - 3,512 - - Preferred stock dividends - - ( 1,074 ) - - - ( 1,074 ) - - Employee pension plan adjustments - - - - - 140 140 - - Derivative qualifying as cash flow hedge - - - - - 57 57 - - Stock-based compensation expense Restricted stock 17,096 - 670 - - - 670 - - Net share settlement for equity-based compensation ( 16,664 ) - ( 72 ) - - - ( 72 ) - - BALANCE - September 30, 2020 26,476,329 $ 141,377 $ 30,113 $ ( 82,860 ) $ ( 39,513 ) $ ( 3,822 ) $ 45,295 12,700 $ 11,982 See notes to unaudited condensed consolidated financial statements. 5 Index LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Nine Months Ended September 30, 2021 2020 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 10,754 $ 2,545 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 5,620 5,546 Amortization of deferred finance charges 136 136 Deferred income taxes 3,636 - Loss (gain) on disposition of assets 1 ( 96 ) Fixed asset donations ( 2,050 ) ( 334 ) Provision for doubtful accounts 19,816 21,692 Stock-based compensation expense 2,093 1,286 (Increase) decrease in assets: Accounts receivable ( 22,122 ) ( 35,946 ) Inventories ( 761 ) ( 1,258 ) Prepaid income taxes and income taxes payable ( 729 ) 272 Prepaid expenses and current assets 725 1,296 Other assets, net 274 ( 77 ) Increase (decrease) in liabilities: Accounts payable ( 186 ) 1,656 Accrued expenses ( 914 ) 4,663 CARES Act student funds liability - 1,073 CARES Act institutional funds liability - 10,387 Unearned tuition 1,238 ( 4,057 ) Other liabilities 219 1,438 Total adjustments 6,996 7,677 Net cash provided by operating activities 17,750 10,222 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 5,252 ) ( 3,554 ) Proceeds from insurance - 97 Net cash used in investing activities ( 5,252 ) ( 3,457 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on borrowings ( 1,500 ) ( 27,501 ) Proceeds from borrowings - 11,000 Dividend payment for preferred stock ( 912 ) ( 1,074 ) Credit of deferred finance fees - 3 Net share settlement for equity-based compensation ( 962 ) ( 244 ) Net cash used in financing activities ( 3,374 ) ( 17,816 ) NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH 9,124 ( 11,051 ) CASH, CASH EQUIVALENTS AND RESTRICTED CASH—Beginning of period 38,026 38,644 CASH, CASH EQUIVALENTS AND RESTRICTED CASH—End of period $ 47,150 $ 27,593 See notes to unaudited condensed consolidated financial statements. 6 Index LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) (Continued) Nine Months Ended September 30, 2021 2020 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for: Interest $ 795 $ 845 Income taxes $ 681 $ 121 SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES: Liabilities accrued for or noncash purchases of fixed assets $ 2,684 $ 1,847 See notes to unaudited condensed consolidated financial statements. 7 Index LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020 (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 September 30, 2021, the Company had cash and cash equivalents of $ 47.2 million and a net cash balance of $ 31.3 million calculated as cash and cash equivalents, less both the short-term and long-term portions of the Company’s Credit Facility (defined below) and can borrow an additional $ 21.0 million under its Credit Facility. As of December 31, 2020, the Company had a net cash balance of $ 20.8 million. 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, 2020 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, 2020 ( “ 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 nine months ended September 30, 2021 are not necessarily indicative of the results that may be expected for the full fiscal year ending December 31, 2021. 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. 8 Index New Accounting Pronouncements – In March 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 is implementing a transition plan to identify and modify its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company is continuing to assess ASU 2020-04 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments. In October 2020, the FASB issued ASU 2020-10, “ Codification Improvements ”, which makes minor technical corrections and clarifications to the ASU. The amendments in Sections B and C of the ASU are effective for annual periods beginning after December 15, 2020, for public business entities. This update did not have an impact on the Company’s condensed consolidated financial statements. 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 December 2019, the FASB issued ASU 2019-12, “ Simplifying the Accounting for Income Taxes ”, which simplifies the accounting for income taxes by removing certain exceptions to the general principles of ASC 740, “Income Taxes”. ASU 2019-12 also clarifies and amends GAAP for other areas of Topic 740. This ASU is effective for fiscal years beginning after December 15, 2020 and early adoption is permitted. Depending on the amendment, adoption may be applied on a retrospective, modified retrospective or prospective basis. The Company adopted ASU 2019-12 on January 1, 2021, which did not have a material impact on the Company’s 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 Accounting Standards Codification (“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, “F inancial 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 ”. 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. 9 Index During the three and nine months ended September 30, 2021 and 2020, the Company did no t 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 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 (loss). 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 INCOME PER COMMON SHARE The Company presents basic and diluted income per common share using the two-class method which requires all outstanding Series A Preferred Stock and unvested restricted common stock that include rights to non-forfeitable dividends (and, therefore, participate in undistributed income with common shareholders) to be included in computing income per common share. Under the two-class method, net income is reduced by the amount of dividends declared in the period for each class of common stock and participating security. The remaining undistributed 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 common 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 common stock are not included in the computation of basic income per common share in periods in which we have a net loss, as the Series A Preferred Stock and unvested restricted common stock are not contractually obligated to share in our net losses. However, the cumulative dividends on 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 income per common share has been computed by dividing net 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 and nine months ended September 30, 2021 and 2020 as a result of the anti-dilutive impact of the potentially dilutive securities. The Company uses the more dilutive method of calculating the diluted income per share by applying the more dilutive of either (a) the treasury stock method, if-converted method, or (b) the two-class method in its diluted income per common share calculation. Potentially dilutive shares are determined by applying the treasury stock method to the assumed exercise of outstanding stock options and the assumed vesting of restricted stock. Potentially dilutive shares issuable upon conversion of the Series A Preferred Stock are calculated using the if-converted method. 10 Index The following is a reconciliation of the numerator and denominator of the diluted net income per share computations for the periods presented below: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except share data) 2021 2020 2021 2020 Numerator: Net income $ 3,839 $ 3,512 $ 10,754 $ 2,545 Less: preferred stock dividend ( 304 ) ( 1,074 ) ( 912 ) ( 1,074 ) Less: allocation to preferred stockholders ( 582 ) ( 433 ) ( 1,629 ) ( 259 ) Less: allocation to restricted stockholders ( 232 ) ( 120 ) ( 635 ) ( 65 ) Net income allocated to common stockholders $ 2,721 $ 1,885 $ 7,579 $ 1,147 Basic income per share: Denominator: Weighted average common shares outstanding 25,135,381 24,821,665 25,043,357 24,720,817 Basic income per share $ 0.11 $ 0.08 $ 0.30 $ 0.05 Diluted income per share: Denominator: Weighted average number of: Common shares outstanding 25,135,381 24,821,665 25,043,357 24,720,817 Dilutive potential common shares outstanding: Series A Preferred Stock - - - - Unvested restricted stock - - - - Dilutive shares outstanding 25,135,381 24,821,665 25,043,357 24,720,817 Diluted income per share $ 0.11 $ 0.08 $ 0.30 $ 0.05 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 September 30, Nine Months Ended September 30, (in thousands, except share data) 2021 2020 2021 2020 Series A Preferred Stock 5,381,356 - 5,381,356 - Unvested restricted stock 815,383 767,056 823,662 566,370 6,196,739 767,056 6,205,018 566,370 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 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. Unearned tuition in the amount of $ 24.7 million and $ 23.5 million is recorded in the current liabilities section of the accompanying condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively. The change in this contract liability balance during the nine-month period ended September 30, 2021 is the result of payments received in advance of satisfying performance obligations, offset by revenue recognized during that period. Revenue recognized for the nine-month period ended September 30, 2021 that was included in the contract liability balance at the beginning of the year was $ 22.6 million. 11 Index The following table depicts the timing of revenue recognition: Three months ended September 30, 2021 Nine months ended September 30, 2021 Transportation and Skilled Trades Segment Healthcare and Other Professions Segment Consolidated Transportation and Skilled Trades Segment Healthcare and Other Professions Segment Consolidated Timing of Revenue Recognition Services transferred at a point in time $ 6,203 $ 1,618 $ 7,821 $ 14,788 $ 4,234 $ 19,022 Services transferred over time 58,747 22,491 81,238 162,798 65,700 228,498 Total revenues $ 64,950 $ 24,109 $ 89,059 $ 177,586 $ 69,934 $ 247,520 Three months ended September 30, 2020 Nine months ended September 30, 2020 Transportation and Skilled Trades Segment Healthcare and Other Professions Segment Consolidated Transportation and Skilled Trades Segment Healthcare and Other Professions Segment Consolidated Timing of Revenue Recognition Services transferred at a point in time $ 5,520 $ 1,466 $ 6,986 $ 10,056 $ 3,479 $ 13,535 Services transferred over time 51,308 20,498 71,806 138,743 59,025 197,768 Total revenues $ 56,828 $ 21,964 $ 78,792 $ 148,799 $ 62,504 $ 211,303 4. LEASES The Company determines if an arrangement is a lease at inception. The Company considers any contract where there is an identified asset and the Company has the right to control the use of such asset as a lease. An operating lease 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 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 adoption 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 11 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 lease-back transaction relating to the Company’s Denver and Grand Prairie campuses which closed on October 29, 2021. O pera ti ng lease costs for the three months ended September 30, 2021 and 2020 were $ 3.8 million and $ 3.9 million, respectively. Operating costs for the nine months ended September 30, 2021 and 2020 was $ 11.4 million and $ 11.4 million, respectively. Our variable lease costs for the three and nine months ended September 30, 2021 were less than $ 0.1 million. The net change in the ROU asset and lease liability are included in other assets in the condensed consolidated cash flows for the nine months ended September 30, 2021 and 2020. 12 Index Supplemental cash flow information and non-cash activity related to our operating leases are as follows: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Operating cash flow information: Cash paid for amounts included in the measurement of operating lease liabilities $ 3,972 $ 3,894 $ 11,009 $ 11,537 Non-cash activity: Lease liabilities arising from obtaining right-of-use assets $ 1,220 $ 6,311 $ 4,421 $ 15,092 Weighted-average remaining lease term and discount rate for our operating leases is as follows: As of September 30, 2021 2020 Weighted-average remaining lease term 5.49 years 6.29 years Weighted-average discount rate 10.77 % 11.38 % Maturities of lease liabilities by fiscal year for our operating leases as of September 30, 2021 are as follows: Year ending December 31, 2021 (excluding the nine months ended September 30, 2021) $ 3,938 2022 15,926 2023 14,981 2024 13,413 2025 11,399 2026 3,241 Thereafter 15,441 Total lease payments 78,339 Less: imputed interest ( 18,890 ) Present value of lease liabilities $ 59,449 5. GOODWILL AND LONG-LIVED ASSETS The Company reviews long-lived assets for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. There were no long-lived asset impairments during the nine months ended September 30 , 2021 and 2020 . The Company reviews goodwill for impairment when indicators of impairment exist. Annually, or more frequently if necessary, the Company evaluates goodwill for impairment, with any resulting impairment reflected as an operating expense. The Company has concluded that, as of September 30 , 2021, there were no indicators of potential impairment and, accordingly, the Company did not test goodwill for impairment. 13 Index The carrying amount of goodwill at September 30 , 2021 and 2020 is as follows: 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 September 30 , 2021 $ 117,176 $ ( 102,640 ) $ 14,536 Gross Goodwill Balance Accumulated Impairment Losses Net Goodwill Balance Balance as of January 1, 2020 $ 117,176 $ ( 102,640 ) $ 14,536 Adjustments - - - Balance as of September 30 , 2020 $ 117,176 $ ( 102,640 ) $ 14,536 As of September 30 , 2021 and 2020, the goodwill balance is related to the Transportation and Skilled Trades segment. 6. LONG-TERM DEBT Long-term debt consists of the following: September 30, 2021 December 31, 2020 Credit agreement $ 16,333 $ 17,833 Deferred Financing Fees ( 485 ) ( 621 ) 15,848 17,212 Less current maturities ( 2,000 ) ( 2,000 ) $ 13,848 $ 15,212 Credit Facility with Sterling National Bank On November 14, 2019, the Company entered into a new 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”). The Credit Facility is 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”). The Credit Agreement gives the Company the right to permanently terminate, in its entirety, the Revolving Loan or the Line of Credit Loan or permanently reduce the amount available for borrowing under the Revolving Loan or the Line of Credit Loan. In April 2020, the Company terminated the Line of Credit Loan. On November 10, 2020, the Company entered into an amendment to its Credit Agreement to extend the Delayed Draw Availability Period by one year to May 31, 2022 and to increase the amount of permitted cash dividends that the Company can pay on its Series A Preferred Stock during the first twenty-four months of the Credit Agreement from $ 1.7 million to $ 2.3 million . The Credit Facility is 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. 14 Index At the closing of the Credit Facility, the Lender advanced the Term Loan to the Company, the net proceeds of which were $ 19.7 million after deduction of the Lender’s origination fee in the amount of $ 0.3 million and other Lender fees and reimbursements to the Lender that are customary for facilities of this type. The Company used the net proceeds of the Term Loan, together with cash on hand, to repay the existing credit facility and transaction expenses. Pursuant to the terms of the Credit Agreement, letters of credit issued under the Revolving Loan reduce dollar for dollar the availability of borrowings under the Revolving Loan. Accrued interest on each loan under the Credit Facility is payable monthly in arrears. The Term Loan and the Delayed Draw Term Loan bear interest at a floating interest rate based on the then one month London Interbank Offered Rate (“LIBOR”) plus 3.50 %. 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, which matures on the same date as the Term Loan. At the end of the borrowing availability period for the Delayed Draw Term Loan, the Company is required to enter into a swap transaction with the Lender for 100 % of the principal balance of the Delayed Draw Term Loan, which will mature on the same date as the Delayed Draw Term Loan, pursuant to a swap agreement between the Company and the Lender or the Lender’s affiliate. The Term Loan and Delayed Draw Term Loan are 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 %. Revolving Loans are subject to a LIBOR interest rate floor of 0.00 %. 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. Letters of credit totaling $ 4 million that were outstanding under the existing credit facility are treated as letters of credit under the Revolving Loan. Under the terms of the Credit Agreement, the Company may prepay the Term Loan and/or the Delayed Draw Term Loan in full or in part without penalty except for any amount required to compensate the Lender for any swap breakage or other costs incurred in connection with such prepayment. The Lender receives an unused facility fee of 0.50 % per annum payable quarterly in arrears on the unused portions of the Revolving Loan. 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. As of September 30, 2021, the Company was in compliance with all debt covenants. 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. O n September 23, 2021, the Company and certain of its subsidiaries entered into a Consent and Waiver Letter Agreement (the “Consent Agreement”) to the Company’s existing Credit Agreement. The Consent Agreement consents to certain real estate transactions with respect to the Nashville, Denver and Grand Prairie campuses (collectively, the “Property Transactions”) and waives certain covenants in the Credit Agreement, subject to certain conditions specified therein. In addition, in connection with the consummation of the Property Transactions, the Lender has agreed to release its mortgages and other liens on the subject-properties. In connection therewith, at the closing of the Property Transactions, the Company is required to pay in full the outstanding principal and accrued interest of the Term Loan and any swap obligations arising from any swap transaction entered into in connection with the Term Loan. No further borrowings may be made under the Term Loan or the Delayed Draw Term Loan. One of the Property Transactions, the sale lease-back of the Denver and Grand Prairie campuses, was consummated on October 29, 2021. In connection with the closing, the Company paid its Lender approximately $ 16.5 million in repayment of the term loan and the swap termination fee. As of September 30 , 2021 and December 31, 2020, the Company had $ 16.3 million and $ 17.8 million , respectively, outstanding under the Credit Facility offset by $ 0.5 million and $ 0.6 million of deferred finance fees, respectively. As of September 30 , 2021 and December 31, 2020, letters of credit in the aggregate outstanding principal amount of $ 4.0 million were outstanding under the Credit Facility. 15 Index Scheduled maturities of long-term debt at September 30 , 2021 are as follows: Year ending December 31, 2021 (excluding the nine months ended September 30, 2021) $ 500 2022 2,000 2023 2,000 2024 11,833 $ 16,333 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 no t 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, 2020. 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. The description below provides a summary of certain material terms of the Series A Preferred 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, “Juniper Purchasers”) and Talanta Investment, Inc. (“Talanta,” together with 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. As of September 30, 2021 and December 31, 2020, we paid $ 0.9 million and $ 1.4 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 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. 16 Index 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 on each such trading day at least 20,000 shares of common stock was traded, 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 Consolidated Balance Sheet based upon the terms of a change of control which could be outside the Company’s control. Voting. Holders of shares of Series A Preferred Stock will be 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 issues restricted stock awards under the Lincoln Educational Services Corporation 2020 Long-Term Incentive Plan (the “2020 Plan”). As more fully described below, the Company continues to maintain the Lincoln Educational Services Corporation 2005 Long Term Incentive Plan, as amended and amended and restated (the “Prior Plan”) only with respect to awards made thereunder, but, as no shares remain available under the Prior Plan, the Company no longer makes grants under such 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 2020 Plan has a duration of 10 years. Subject to adjustment as described in the 2020 Plan, the aggregate number of shares of common stock available for issuance under the 2020 Plan is 2,000,000 shares. 17 Index On August 5, 2021, 6,267 restricted shares of common stock were issued to a non-employee director which vest on May 6, 2022. On May 6, 2021, 76,195 restricted shares of common stock were issued to non-employee directors which vest on the first anniversary of the grant date. On June 16, 2020, 111,376 restricted shares of common stock were issued to non-employee directors which are fully vested on June 16, 2021. On August 7, 2020, two non-employee directors were appointed to the Company’s Board of Directors and 17,096 restricted shares of common stock were granted to each of those individuals. These shares vested on June 16, 2021. Also on August 7, 2020, a non-employee director retired from his position on the Company’s Board of Directors and 12,762 restricted shares of common stock held by him which were unvested were accelerated to vest effective August 7, 2020. On February 25, 2021, performance-based restricted shares were granted to certain employees of the Company. The shares vest ratably on the first , second and third anniversary dates of the grant based upon the attainment of a financial target during each of the fiscal years ending December 31, 2021, 2022 and 2023, respectively, except in extraordinary circumstances. 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 and nine months ended September 30 , 2021, the Company recorded expense of $ 0.3 million and $ 0.7 million, respectively, as the expectation of attainment of the target is probable. On February 20, 2020, performance-based restricted shares were granted to certain employees of the Company. The shares vest 20 % , 30 % and 50 % on the first, second and third anniversary dates of the grant, respectively, based upon the attainment of a financial target during each fiscal years ending December 31, 2020, 2021 and 2022, respectively, except in extraordinary circumstances. 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 September 30, 2021 and 2020, the Company recorded expense of $ 0.2 million and $ 0.2 million, respectively, as the expectation of attainment of the target is probable. For the nine months ended September 30, 2021 and 2020, the Company recorded expense of $ 0.6 million and $ 0.4 million, respectively, as the expectation of attainment of the target is probable. Prior Plan Under the Prior Plan, certain employees received awards of restricted shares of common stock based on service and performance. The number of shares granted to each employee was 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 provides that there will be no new grants under the Prior Plan effective as of the date of shareholder approval, June 16, 2020, of the 2020 Plan. 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 Prior Plan. As no shares remain available under the Prior Plan, there can be no additional grants thereunder. Outstanding grants under the Prior Plan remain in effect according to their terms. Therefore, those grants are subject to the particular award agreement relating thereto and to the Prior Plan to the extent that the plan addresses those grants. The Prior Plan remains in effect only to that extent. On February 28, 2019, restricted shares were granted to certain employees of the Company under the Prior Plan , which shares ratably vest over three years . There is no restriction on the right to vote or the right to receive dividends with respect to any of such restricted shares. For each of the three months ended September 30 , 2021 and 2020 , the Company recorded expense of $ 0.1 million in connection with that grant. For the nine months ended September 30, 2021 and 2020, the Company recorded expense of $ 0.4 million and $ 0.4 million, respectively, in connection with that grant. For the three months ended September 30, 2021 and 2020, respectively, the Company completed a net share settlement for zero and 16,664 shares and for the nine month ended September 30, 2021 and 2020, respectively, the Company completed a net share settlement for 154,973 and 75,115 shares on behalf of certain employees who participate in the Prior Plan upon the vesting of the restricted shares pursuant to the terms of the Prior Plan . 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 will pay those taxes on behalf of the employees in exchange for the employees’ returning an equivalent value of restricted shares to the Company. Those transactions resulted in a decrease of zero and $ 0.1 million for each of the three months ended September 30, 2021 and 2020 and a decrease of $ 1.0 million and $ 0.2 million for the nine months ended September 30, 2021 and 2020, 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. 18 Index 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, 2020 1,572,159 $ 2.77 Granted 657,076 5.97 Canceled - - Vested ( 498,936 ) 3.04 Nonvested restricted stock outstanding at September 30 , 2021 1,730,299 3.87 The restricted stock expense for the three months ended September 30 , 2021 and 2020 was $ 0.8 million and $ 0.7 million, respectively. The restricted stock expense for the nine months ended September 30, 2021 and 2020 was $ 2.1 million and $ 1.3 million, respectively. The unrecognized restricted stock expense as of September 30, 2021 and December 31, 2020 was $ 6.7 million and $ 3.2 million, respectively. As of September 30 , 2021 , outstanding restricted shares under the Prior Plan had aggregate intrinsic value of $ 11.6 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, 2020 81,000 $ 7.79 1.17 years $ - Granted/Vested - - - Canceled - - - Outstanding at September 30 , 2021 81,000 7.79 0.42 years - Vested as of September 30 , 2021 81,000 7.79 0.42 years - Exercisable as of September 30 , 2021 81,000 7.79 0.42 years - As of September 30 , 2021 , there was no unrecognized pre-tax compensation expense. 8. INCOME TAXES The provision for income taxes for the three months ended September 30, 2021 and 2020 was $ 1.6 million, or 29.6 % of pretax income, and approximately $ 0.1 million, or 1.4 % of pretax income, respectively. The provision for income taxes for the nine months ended September 30, 2021 and 2020 was $ 3.6 million, or 25.0 % of pretax income, and approximately $ 0.2 million, or 5.6 % of pretax loss, respectively. The increase for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 was due to the reversal of a full valuation allowance at December 31, 2020, resulting in an effective tax rate of 25.0 % for the nine months ended September 30, 2021. 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. 19 Index Information regarding certain specific legal proceedings in which the Company is involved is contained in Part II, Item 1 hereof as well as in Part I, Item 3, and in Note 15 to the Notes to the Consolidated Financial Statements included in the Company’s Form 10-K. Unless otherwise indicated in this report, all proceedings discussed in the earlier report which are not indicated therein as having been concluded, remain outstanding as of September 30, 2021. 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. Summary financial information by reporting segment is as follows: For the Three Months Ended September 30, Revenue Operating Income (Loss) 2021 % of Total 2020 % of Total 2021 2020 Transportation and Skilled Trades $ 64,950 72.9 % $ 56,828 72.1 % $ 11,842 $ 9,138 Healthcare and Other Professions 24,109 27.1 % 21,964 27.9 % 1,833 1,654 Corporate - - ( 7,930 ) ( 6,952 ) Total $ 89,059 100.0 % $ 78,792 100.0 % $ 5,745 $ 3,840 For the Nine Months Ended September 30, Revenue Operating Income (Loss) 2021 % of Total 2020 % of Total 2021 2020 Transportation and Skilled Trades $ 177,586 71.7 % $ 148,799 70.4 % $ 35,423 $ 18,848 Healthcare and Other Professions 69,934 28.3 % 62,504 29.6 % 7,743 6,388 Corporate - - ( 27,949 ) ( 21,581 ) Total $ 247,520 100.0 % $ 211,303 100.0 % $ 15,217 $ 3,655 Total Assets September 30, 2021 December 31, 2020 Transportation and Skilled Trades $ 132,948 $ 133,078 Healthcare and Other Professions 33,516 32,753 Corporate 86,992 79,359 Total $ 253,456 $ 245,190 20 Index 11. FAIR VALUE The carrying amount and estimated fair value of the Company’s financial instrument assets and liabilities, which are not measured at fair value on the Condensed Consolidated Balance Sheet, are listed in the table below: September 30, 2021 Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Financial Assets: Cash and cash equivalents $ 47,150 $ 47,150 $ - $ - $ 47,150 Prepaid expenses and other current assets 2,973 - 2,973 - 2,973 Financial Liabilities: Accrued expenses $ 15,778 $ - $ 15,778 $ - $ 15,778 Other short term liabilities 56 - 56 - 56 Derivative qualifying cash flow hedge 552 - 552 - 552 Credit facility 15,848 - 14,488 - 14,488 December 31, 2020 Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total Financial Assets: Cash and cash equivalents $ 38,026 $ 38,026 $ - $ - $ 38,026 Prepaid expenses and other current assets 3,723 - 3,723 - 3,723 Financial Liabilities: Accrued expenses $ 16,692 $ - $ 16,692 $ - $ 16,692 Other short term liabilities 26 - 26 - 26 Derivative qualifying cash flow hedge 877 - 877 - 877 Credit facility 17,212 - 15,487 - 15,487 As of September 30, 2021 and December 31, 2020, we estimated the fair value of the Credit Facility based on a present value analysis utilizing aggregate market yields obtained from independent pricing sources for similar financial instruments. The carrying amounts reported on the Consolidated Balance Sheets for Cash and cash equivalents approximate fair value because they are highly liquid. The carrying amounts reported on the Consolidated Balance Sheets for Prepaid expenses and other current assets, Accrued expenses and Other short term liabilities approximate fair value due to the short-term nature of these items. Qualifying Hedge Derivative On November 14, 2019, in connection with its Credit Facility, the Company entered into an interest rate swap for the Term Loan with a notional amount of $ 20 million which expires on December 1, 2024. The loan has a 10 -year straight line amortization. A principal amount of $ 0.2 million is paid monthly. This interest rate swap converts the floating interest rate Term Loan to a fixed rate, plus a borrowing spread. The interest rate is variable based on LIBOR plus 3.50 % and the Company’s fixed rate is 5.36 %. The Company designated this interest rate swap as a cash flow hedge. The Company entered into this interest rate swap to hedge exposure resulting from the interest rate risk. The purpose of this hedge is to reduce the variability of the interest rate based on LIBOR. The Company manages these exposures within specified guidelines through the use of derivatives. All of our derivative instruments are utilized for risk management purposes, and the Company does not use derivatives for speculative trading purposes. 21 Index The following summarizes the fair value of the outstanding derivative: September 30, 2021 December 31, 2020 Liability (1) Liability (1) Notional Fair Value Notional Fair Value Derivative derived as a hedging instrument: Interest Rate Swap $ 16,333 $ 552 $ 17,833 $ 877 (1) The Company’s derivative liability is measured at fair value using observable market inputs such as interest rates and our own credit risk as well as an evaluation of our counterparty’s credit risk. Based on these inputs the derivative liability is classified within Level 2 of the valuation hierarchy. The liability is included in other long-term liabilities in the condensed consolidated balance sheets. The following summarizes the financial statement classification and amount of interest expense recognized on hedging instruments: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Interest Expense Interest Rate Swap $ 100 $ 100 $ 200 $ 100 The following summarizes the effect of derivative instruments designated as hedging instruments in Other Comprehensive Income (Loss): Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Derivative qualifying as cash flow hedge Interest rate swap income (loss) $ 65 $ 56 $ 326 $ ( 786 ) 12. COVID-19 PANDEMIC AND CARES ACT The Company began seeing the impact of the global COVID-19 pandemic on its business in early March 2020 and some effects of the pandemic have continued. The spread of COVID-19 has had an unprecedented impact on higher educational institutions across the country, including our schools, and has led to the closure of campuses and the transition of academic programs from in-person instruction to online, remote learning and back. The impact for the Company was primarily related to transitioning classes from in-person, hands-on learning to online, remote learning which resulted in, among other things, additional expenses. Further, related to this transition, some students were placed on leave of absence as they could not complete their externships and some students chose not to participate in online learning. As a result, certain programs were extended due to restricted access to externship sites and classroom labs which did not have a material impact on our consolidated financial statements. In accordance with phased re-opening as applied on a state-by-state basis, all of our schools have now re-opened and the majority of the students who were on leave of absence or had deferred their programs returned to school to finish their programs. The Company has considered the impact of COVID-19 on the assumptions and estimates used to prepare its consolidated financial statements and has determined that there were no material adverse impacts on the Company’s results of operations and financial position at September 30, 2021. The Company expects to continue to be impacted by COVID-19 as the situation remains dynamic and evolving and subject to rapid and possibly material change. Additional impacts may arise of which the Company is not currently aware. The nature and extent of such impacts will depend on future developments, which are highly uncertain and cannot be predicted. 22 Index On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law which includes a $2 trillion federal economic relief package providing financial assistance and other relief to individuals and businesses impacted by the spread of COVID-19. The CARES Act includes provisions for financial assistance and other regulatory relief benefitting students and their postsecondary institutions. Among other things, the CARES Act includes a $14 billion higher education emergency relief fund (“HEERF”) for the DOE to distribute directly to institutions of higher education. Institutions are required to use at least half of the HEERF funds for emergency grants to students for expenses related to disruptions in campus operations (e.g., food, housing, etc.). Institutions are permitted to use the remainder of the funds for additional emergency grants to students or to cover institutional costs associated with significant changes to the delivery of instruction due to the COVID-19 emergency, provided that those costs do not include payment to contractors for the provision of pre-enrollment recruitment activities, endowments, or capital outlays associated with facilities related to athletics, sectarian instruction, or religious worship. The law requires institutions receiving funds to continue to the greatest extent practicable to pay its employees and contractors during the period of any disruptions or closures related to the COVID-19 emergency. Other than as disclosed below, the CARES Act had no material impact on the Company’s income tax provision for the year ended December 31, 2020 or the nine months ended September 30, 2021. The Company continues to evaluate the impact of the CARES Act on its financial position, results of operations and cash flows. The DOE has allocated funds to each institution of higher education based on a formula contained in the CARES Act. The formula is heavily weighted toward institutions with large numbers of Pell Grant recipients. The DOE allocated $ 27.4 million to our schools distributed in two equal installments and required them to be utilized by April 30, 2021 and May 14, 2021, respectively. As of September 30, 2021, the Company had distributed the full $ 13.7 million of its first installment as emergency grants to students and has utilized the full $ 13.7 million of its second installment . Proceeds from the second installment for permitted expenses were primarily utilized to either offset original expenses incurred or to reduce student accounts receivable driving a decrease in bad debt expense, both uses resulted in a decrease in our selling, general and administrative expenses . On March 19, 2021, the Department of Education released guidance clarifying previous guidance on permitted institutional uses of funds received from the HEERF. In accordance with this guidance, the Company was able to provide financial relief for students who dropped out of school due to COVID-19 related circumstances with unpaid accounts receivable balances covering the period from March 15, 2020 to March 31, 2021. This relief was provided using the Company’s financial resources combined with HEERF funds resulting in a net benefit to bad debt expense of approximately $ 3.0 million. The Company was also permitted to delay payment of FICA payroll taxes through January 1, 2021 and has done so. The Company will have to repay 50% of the deferred payments by January 3, 2022, and the remaining 50% by January 3, 2023. As of September 30, 2021, the Company had deferred payments of $ 4.5 million. On December 27, 2020, the Consolidated Appropriations Act, 2021 was signed into law. This annual appropriations bill contained the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“CRRSAA”). CRRSAA provided an additional $ 81.9 billion to the Education Stabilization Fund including $ 22.7 billion for the HEERF, which were originally created by the CARES Act in March 2020. The higher education provisions of the CRRSAA are intended in part to provide additional financial assistance benefitting students and their postsecondary institutions in the wake of the spread of COVID-19 across the country and its impact on higher educational institutions. Like the CARES Act, the CRRSAA directs the majority of HEERF funds to a general program providing direct grants to institutions. Institutions generally must designate “at least the same amount” of the funds for direct grants to students as was required under the CARES Act. We may only use the new HEERF funds for grants to students. The student grants must prioritize students with exceptional need and may be used for any component of the student’s cost of attendance or for emergency costs that arise due to coronavirus, such as tuition, food, housing, health care (including mental health care), or child care. We may use the remaining HEERF funds to (1) defray expenses associated with coronavirus (including lost revenue, reimbursement for expenses already incurred, technology costs associated with a transition to distance education, faculty and staff trainings, and payroll); (2) carry out student support activities authorized by the Higher Education Act that address needs related to coronavirus; or (3) for additional financial aid grants to students. Upon the passage of the CRRSAA, DOE began allocating the funds to each institution of higher education based on a formula contained in the law. The DOE has allocated a total of $ 15.4 million to our schools and the funds became available in February 2021. The DOE has begun releasing guidance relating to the use of these funds and is expected to provide additional information in the coming weeks. Failure to comply with requirements for the usage and reporting of these funds could result in requirements to repay some or all of the allocated funds and in other sanctions. As of September 30, 2021, the Company has not drawn down any of these allocated funds. 23 Index 13. Property Sale Agreements Property Sale Agreement - Nashville, Tennessee Campus On September 24, 2021, Nashville Acquisition, LLC, a subsidiary of the Company (“Nashville Acquisition”), entered into a Contract for the Purchase of Real Estate (the “Nashville Contract”) to sell the property located at 524 Gallatin Road, Nashville, Tennessee, at which the Company operates its Nashville campus, to SLC Development, LLC, a subsidiary of Southern Land Company (“SLC”), for an aggregate sale price of $ 34.5 million, subject to customary adjustments at closing. The Company intends to relocate its Nashville campus to a more efficient and technologically advanced facility in the Nashville metropolitan area but has not yet determined a location. Under the terms of the Nashville Contract, the closing of the sale, which is subject to various conditions, is scheduled to take place after a 90-day due diligence period (with an optional 30-day extension thereof). During the due diligence period, SLC has the right to terminate the Nashville Contract for any reason at its discretion. Upon closing, Nashville Acquisition is permitted to occupy the property and continue to operate the Nashville campus on a rent-free basis for a lease-back period of 12 months , and, thereafter, has the option to extend the lease-back period for one 90-day term and three additional 30-day terms pursuant to a lease agreement to be negotiated by the parties during the due diligence period. The closing of the sale transaction is expected to occur in the first quarter of 2022 subject to various closing conditions which must be satisfied or waived; therefore, there can be no assurance that the sale will be consummated on a timely basis or at all. The Nashville property is included in assets held for sale in the condensed consolidated balance sheet as of September 30, 2021. Sale-Leaseback Transaction - Denver, Colorado and Grand Prairie, Texas Campuses On September 24, 2021, Lincoln Technical Institute, Inc. and LTI Holdings, LLC, each a wholly-owned subsidiary of the Company (collectively, “Lincoln”), entered into an Agreement for Purchase and Sale of Property (the “Colorado/Texas Sale Agreement”) for the sale of the properties located at 11194 E. 45th Avenue, Denver, Colorado 80239 and 2915 Alouette Drive, Grand Prairie, Texas 75052, at which the Company operates its Denver and Grand Prairie campuses, respectively, to LNT Denver (Multi) LLC, a subsidiary of LCN Capital Partners (“LNT”), for an aggregate sale price of $ 46.5 million, subject to customary adjustments at closing. Simultaneously with the closing of the sale, which occurred on October 29, 2021, the parties entered into a triple-net lease agreement for each of the properties pursuant to which the properties are being leased back to Lincoln Technical Institute, Inc. for a twenty-year term at an initial annual base rent, payable quarterly in advance of approximately $ 2.6 million for the first year with annual 2.00 % increases thereafter and includes four subsequent five-year renewal options in which the base rent is reset at the commencement of each renewal term at then current fair market rent for the first year of each renewal term with annual 2.00 % increases thereafter in each such renewal term. The lease, in each case, provides Lincoln with a right of first offer should LNT wish to sell the property. The Company has provided a guaranty of the financial and other obligations of Lincoln Technical Institute, Inc. under each lease. The Denver and Grand Prairie properties are included in assets held for sale in the condensed consolidated balance sheet as of September 30, 2021. On October 29, 2021 the sale lease-back transaction closed providing the Company with net proceeds of approximately $ 28.5 million after deduction of transaction-related expenses of approximately $ 1.2 million and repayment of the Company’s outstanding term loan and swap termination fee of approximately $ 16.8 million. 24 Index