LINCOLN EDUCATIONAL SERVICES CORP (LINC) FY 2021 MD&A

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion together with the “Forward-Looking Statements” and the consolidated financial statements and the related notes
thereto included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on management’s current expectations, estimates and projections about our business and operations. Our actual results
may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors” and “Forward-Looking Statements” and elsewhere in this
Annual Report on Form 10-K.

GENERAL

Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our” and “us”, as applicable) provide diversified
career-oriented post-secondary education to recent high school graduates and working adults.  The Company, which currently operates 22 schools in 14 states, offers programs in skilled trades (which include HVAC, welding and computerized
numerical control and electrical and electronic systems technology, among other programs), automotive technology, healthcare services (which include nursing, dental assistant and medical administrative assistant, among other programs), hospitality
services (which include culinary, therapeutic massage, cosmetology and aesthetics) and information technology (which includes information technology).  The schools operate under Lincoln Technical Institute, Lincoln College of Technology, Lincoln
Culinary Institute, and Euphoria Institute of Beauty Arts and Sciences and associated brand names.  Most of the campuses serve major metropolitan markets and each typically offers courses in multiple areas of study.  Five of the campuses are
destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas.  All of the campuses are
nationally accredited and are eligible to participate in federal financial aid programs administered by the U.S. Department of Education (the “DOE”) and applicable state education agencies and accrediting commissions which allow students to apply
for and access federal student loans as well as other forms of financial aid.

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

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

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

Our revenues consist primarily of student tuition and fees derived from the programs we offer.  Our revenues are reduced by scholarships granted by us to some of our students.
We recognize revenues from tuition and one-time fees, such as application fees, ratably over the length of a program, including internships or externships that take place prior to graduation. We also earn revenues from our bookstores, dormitories,
cafeterias and contract training services. These non-tuition revenues are recognized upon delivery of goods or as services are performed and represent less than 10% of our revenues.

Our revenues are directly dependent on the average number of students enrolled in our schools and the courses in which they are enrolled. Our average enrollment is impacted by
the number of new students starting, re-entering, graduating and withdrawing from our schools. Our diploma/certificate programs range in duration from 19 to 136 weeks, our associate’s degree programs range in duration from 64 to 98 weeks, and
students attend classes for different amounts of time per week depending on the school and program in which they are enrolled. Because we start new students every month, our total student population changes monthly. The number of students enrolling
or re-entering our programs each month is driven by the demand for our programs, the effectiveness of our marketing and advertising, the availability of financial aid and other sources of funding, the number of recent high school graduates, the job
market and seasonality. Our retention and graduation rates are influenced by the quality and commitment of our teachers and student services personnel, the effectiveness of our programs, the placement rate and success of our graduates and the
availability of financial aid and other sources of funding. Although similar courses have comparable tuition rates, the tuition rates vary among our numerous programs.

The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial
portion of their tuition and other education-related expenses. The largest of these programs are Title IV Programs which represented approximately 75% and 77% of our revenue on a cash basis while the remainder is primarily derived from state
grants and cash payments made by students during 2021 and 2020, respectively.  The Higher Education Act of 1965, as amended (the “HEA”) requires institutions to use the cash basis of accounting when determining its compliance with the 90/10
Rule.  Part I, Item 1. “Business - Regulatory Environment.”

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We extend credit for tuition and fees to many of our students that attend our campuses. Our credit risk is mitigated by the students’ participation in federally funded
financial aid programs unless students withdraw prior to the receipt by us of Title IV Program funds for those students. Under Title IV Programs, the government funds a certain portion of a student’s tuition, with the remainder, referred to as “the
gap,” financed by the students themselves under private party loans and extended financing agreements offered by us. The gap amount has continued to increase over the last several years as we have raised tuition on average for the last several
years by 2-3% per year.

The additional financing that we are providing to students may expose us to greater credit risk and can impact our liquidity. However, we believe that these risks are
somewhat mitigated by the following:

The operating expenses associated with an existing school do not increase or decrease proportionally as the number of students enrolled at the school increases or decreases.
We categorize our operating expenses as:

Property Sale Agreements

Property Sale Agreement - Nashville, Tennessee Campus

On September 24, 2021, Nashville Acquisition, LLC, a subsidiary of the Company (“Nashville Acquisition”), entered into a Contract for the Purchase of Real
Estate (the “Nashville Contract”) to sell the property located at 524 Gallatin Road, Nashville, Tennessee, at which the Company operates its Nashville campus, to SLC Development, LLC, a subsidiary of Southern Land Company (“SLC”), for an aggregate
sale price of $34.5 million, subject to customary adjustments at closing. The Company intends to relocate its Nashville campus to a more efficient and technologically advanced facility in the Nashville metropolitan area but has not yet determined a
location. The closing of the sale transaction is expected to occur in the first half of 2022 subject to various closing conditions which must be satisfied or waived including the satisfactory completion by the buyer of its due diligence review.
During the due diligence period, SLC has the right to terminate the Nashville Contract for any reason at its discretion; therefore, there can be no assurance that the sale will be consummated on a timely basis or at all.  Upon closing, Nashville
Acquisition would be permitted to occupy the property and continue to operate the Nashville campus on a rent-free basis for a lease-back period of 12 months, and, thereafter, will have the option to extend the lease-back period for one 90-day term
and three additional 30-day terms pursuant to a lease agreement currently being negotiated by the parties.g  The Nashville property is included in assets held for sale in the consolidated balance sheet as of December 31, 2021.

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Sale-Leaseback Transaction - Denver, Colorado and Grand Prairie, Texas Campuses

On September 24, 2021, Lincoln Technical Institute, Inc. and LTI Holdings, LLC, each a wholly-owned subsidiary of the Company (collectively, “Lincoln”), entered
into an Agreement for Purchase and Sale of Property for the sale of the properties located at 11194 E. 45th Avenue, Denver, Colorado 80239 and 2915 Alouette Drive, Grand Prairie, Texas 75052, at which the Company operates its Denver and Grand
Prairie campuses, respectively, to LNT Denver (Multi) LLC, a subsidiary of LCN Capital Partners (“LNT”), for an aggregate sale price of $46.5 million, subject to customary adjustments at closing. Closing of the sale occurred on October 29, 2021.
Concurrently with consummation of the sale, the parties entered into a triple-net lease agreement for each of the properties pursuant to which the properties are being leased back to Lincoln Technical Institute, Inc. for a twenty-year term at an
initial annual base rent, payable quarterly in advance, of approximately $2.6 million for the first year with annual 2.00% increases thereafter and includes four subsequent five-year renewal options in which the base rent is reset at the
commencement of each renewal term at then current fair market rent for the first year of each renewal term with annual 2.00% increases thereafter in each such renewal term. The lease, in each case, provides Lincoln with a right of first offer
should LNT wish to sell the property. The Company has provided a guaranty of the financial and other obligations of Lincoln Technical Institute, Inc. under each lease.  The Company evaluated factors in Accounting Standards Codification
(“ASC”) Topic 606, Revenue Recognition, to conclude that the transaction qualified as a sale. This included analyzing the right of first offer clause to determine whether it represents a repurchase
agreement that would preclude the transaction from being accounted for as a successful sale. The Company recognized a gain on sale of assets of $22.5 million. Additionally, the Company evaluated factors in ASC Topic 842, Leases, and concluded that the newly created leases met the definition an operating lease. The Company recorded Right of Use (“ROU”) Asset and lease liabilities of $40.1 million.  The sale lease-back
transaction provided the Company with net proceeds of approximately $45.4 million with the proceeds partially used for the repayment of the Company’s outstanding term loan of $16.2 million and swap termination fee of $0.5 million.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our discussions of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America, or GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the period. On an ongoing basis, we evaluate our estimates and
assumptions, including those related to revenue recognition, bad debts, goodwill and income taxes. Actual results could differ from those estimates. The critical accounting policies discussed herein are not intended to be a comprehensive list of
all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP and does not result in significant management judgment in the application of such principles. We believe that the
following accounting policies are most critical to us in that they represent the primary areas where financial information is subject to the application of management’s estimates, assumptions and judgment in the preparation of our consolidated
financial statements.

Revenue recognition.

Substantially all of our revenues are considered to be revenues from contracts with students.  The related accounts receivable balances are recorded in our balance sheets as
student accounts receivable.  We do not have significant revenue recognized from performance obligations that were satisfied in prior periods, and we do not have any transaction price allocated to unsatisfied performance obligations other than in
our unearned tuition.  We record revenue for students who withdraw from our schools only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur.  Unearned tuition represents
contract liabilities primarily related to our tuition revenue. We have elected not to provide disclosure about transaction prices allocated to unsatisfied performance obligations if original contract durations are less than one-year, or if we have
the right to consideration from a student in an amount that corresponds directly with the value provided to the student for performance obligations completed to date in accordance with ASC Topic 606, Revenue from
Contract with Customers. We have assessed the costs incurred to obtain a contract with a student and determined them to be immaterial.

Allowance for uncollectible accounts.    Based upon experience and judgment, we establish an allowance for
uncollectible accounts with respect to tuition receivables. We use an internal group of collectors in our collection efforts. In establishing our allowance for uncollectible accounts, we consider, among other things, current and expected economic
conditions, a student’s status (in-school or out-of-school), whether or not a student is currently making payments, and overall collection history. Changes in trends in any of these areas may impact the allowance for uncollectible accounts. The
receivables balances of withdrawn students with delinquent obligations are reserved for based on our collection history. Although we believe that our reserves are adequate, if the financial condition of our students deteriorates, resulting in an
impairment of their ability to make payments, additional allowances may be necessary, which will result in increased selling, general and administrative expenses in the period such determination is made.

Our bad debt expense as a percentage of revenues for the years ended December 31, 2021 and 2020 was 8.0% and 9.2%, respectively.  A 1% increase in our bad debt expense as a
percentage of revenues for the years ended December 31, 2021 and 2020 would have resulted in an increase in bad debt expense of $3.4 million and $2.9 million, respectively.

We do not believe that there is any direct correlation between tuition increases, the credit we extend to students and our financing commitments.  The extended financing plans
we offer to our students are made on a student-by-student basis and are predominantly a function of the specific student’s financial condition.   We only extend credit to the extent there is a financing gap between the tuition and fees charged for
the program and the amount of grants, loans and parental loans each student receives.  Each student’s funding requirements are unique.  Factors that determine the amount of aid available to a student include whether they are dependent or
independent students, Pell grants awarded, Federal Direct loans awarded, Plus loans awarded to parents and the student’s personal resources and family contributions. As a result, it is extremely difficult to predict the number of students that will
need us to extend credit to them.

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Because a substantial portion of our revenues are derived from Title IV Programs, any legislative or regulatory action that significantly reduces the funding available under
Title IV Programs or the ability of our students or schools to participate in Title IV Programs could have a material effect on the realizability of our receivables.

Goodwill.   Goodwill represents the excess of the cost of an acquired
business (reporting unit) over the estimated carrying value, assets net of liabilities.  Lincoln tests goodwill for impairment annually, in the fourth quarter of each year, unless
there are events or changes in circumstances that indicate an impairment may have occurred. Impairment may result from deterioration in performance, adverse market conditions, adverse changes in laws or regulations, the restriction of activities associated with the acquired business, and/or a variety of
other circumstances. If we determine that impairment has occurred, we record a write-down of the carrying value and charge the impairment as an operating expense in the period the determination is made.

As of December 31, 2021, goodwill was approximately $14.5 million, or 4.9%, of our total assets.  The goodwill is allocated among nine reporting units within the
Transportation and Skilled Trades Segment.

When Lincoln performs our annual goodwill impairment assessment we first assess a number of qualitative factors to determine whether it is more likely
than not that the fair value of a reporting unit is less than its carrying value. If we conclude based on our qualitative review that it is more likely than not that the fair value of the reporting unit is less than the carrying value, we proceed
with a quantitative impairment test.

Our qualitative assessment is subjective, it includes a review of macroeconomic and industry factors, review of the
financial performance of applicable reporting units, and assessment of adverse events that may negatively impact a reporting
units carrying value. Adverse events would include, but are not limited to, difficulty in accessing capital, a greater competitive
environment, decline in market-dependent multiples or metrics, regulatory or political developments, change in key personnel, strategy, or customers, or litigation.

When we perform our quantitative impairment test we believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include,
but are not limited to, future tuition revenues, operating costs, working capital changes, capital expenditures and a discount rate. The assumptions used in determining our expected future cash flows consider various factors such as historical
operating trends particularly in student enrollment and pricing and long-term operating strategies and initiatives.

If Lincoln determines that quantitative tests are necessary, these tests are performed using projected future operating
results and cash flows on a weighted scale, 50% based on Discounted Cash Flows (Income Approach) and 50% on based EBITDA multipliers (Market Approach).  Management
judgment is necessary in forecasting future cash flows and operating results, critical assumptions include growth rates, changes in operating costs, capital expenditures,
and changes in weighted average costs of capital.  Additionally, Lincoln obtains independent market metrics for the industry and our peers to assist in the development of these key assumptions.  This process is consistent with our internal forecasts and operating plans.

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

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

In accordance with ASC 740, we assess our deferred tax asset to determine whether all or any portion of the asset is more likely than not unrealizable.  A valuation allowance is required to
be established or maintained when, based on currently available information, it is more likely than not that all or a portion of a deferred tax asset will not be realized. In accordance with ASC 740, our assessment considers whether there has been
sufficient income in recent years and whether sufficient income is expected in future years in order to utilize the deferred tax asset. In evaluating the realizability of deferred income tax assets we considered, among other things, historical
levels of income, expected future income, the expected timing of the reversals of existing temporary reporting differences, and the expected impact of tax planning strategies that may be implemented to prevent the potential loss of future income
tax benefits. Significant judgment is required in determining the future tax consequences of events that have been recognized in our consolidated financial statements and/or tax returns.  Differences between anticipated and actual outcomes of these
future tax consequences could have a material impact on our consolidated financial position or results of operations.  Changes in, among other things, income tax legislation, statutory income tax rates, or future income levels could materially
impact our valuation of income tax assets and liabilities and could cause our income tax provision to vary significantly among financial reporting periods.

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

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Results of Operations for the Two Years Ended December 31, 2021

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

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

Consolidated Results of Operations

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

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

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

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

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

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

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

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

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

In accordance with this guidance, we combined applicable HEERF funding with Company’s funds to provide financial relief to students who dropped from school due to COVID-19
related circumstances with unpaid accounts receivable balances during the period from March 15, 2020 to March 31, 2021.  The relief resulted in a net benefit to bad debt expense of approximately $3.0 million. Without this adjustment bad debt
expense for 2021, as a percentage of total revenue, would have been comparable with prior year.

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

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

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

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

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

Segment Results of Operations

We operate our business in two reportable operating segments: (a) the Transportation and Skilled Trades segment; and (b) the Healthcare and Other Professions (“HOPS”)
segment.  Our reportable operating segments have been determined based on a method by which we now evaluate performance and allocate resources.  Each reportable operating segment represents a group of post-secondary education providers that offer
a variety of degree and non-degree academic programs.  These segments are organized by key market segments to enhance operational alignment within each segment to more effectively execute our strategic plan.  Each of the Company’s schools is a
reporting unit and an operating segment.  Our operating segments are described below.

Transportation and Skilled Trades – The Transportation and Skilled Trades segment offers academic programs mainly
in the career-oriented disciplines of transportation and skilled trades (e.g. automotive, diesel, HVAC, welding and manufacturing).

Healthcare and Other Professions – The Healthcare and Other Professions segment offers academic programs in the
career-oriented disciplines of health sciences, hospitality and business and information technology (e.g. dental assistant, medical assistant, practical nursing, culinary arts and cosmetology).

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

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

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

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

Transportation and Skilled Trades

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

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

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Healthcare and Other Professions

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

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

Corporate and Other

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

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LIQUIDITY AND CAPITAL RESOURCES

Our primary capital requirements are for maintenance and expansion of our facilities and the development of new programs. Our principal sources of liquidity have been cash
provided by operating activities and borrowings under our credit facility.  The following chart summarizes the principal elements of our cash flow for each of the two fiscal years in the period ended December 31, 2021:

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

Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored
student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV Programs, which represented approximately 75% of our cash receipts
relating to revenues in 2021. Pursuant to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally
provided by lenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the
sixteenth week from the start of the student’s academic year. Certain types of grants and other funding are not subject to a 31-day delay.  In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned
tuition or prorated Title IV Program financial aid is refunded according to federal, state and accrediting agency standards.

As a result of the significant amount of Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the
level of Title IV Program funds that our students are eligible to receive for tuition payment to us or any restriction on our eligibility to receive Title IV Program funds would have a significant impact on our operations and our financial
condition.  For more information, see Part I, Item 1A. “Risk Factors - Risks Related to Our Industry”.

Operating Activities

Net cash provided by operating activities was $27.4 million and $23.5 million for the years ended December 31, 2021 and 2020, respectively.  The increase year over year was
due primarily to increased operating income, up $34.5 million which includes a gain on the sale of assets of $22.5 million over the prior year.

Investing Activities

Net cash provided by investing activities was $37.8 million for the year ended December 31, 2021 compared to net cash used in investing activities of $5.5 million in the prior
year comparable period.  The increase of $43.3 million was primarily driven by proceeds of $45.4 million resulting from the consummation of a sale leaseback transaction during the fourth quarter of the current year.

One of our primary uses of cash in investing activities was capital expenditures associated with investments in training technology, classroom furniture, and new program
buildouts.

We currently lease a majority of our campuses. We own our real property in Nashville, Tennessee, which is subject to a sale-leaseback agreement which is expected to be
consummated in the first half of the year and our former school property located in Suffield, Connecticut.

Capital expenditures were 2% of revenues in 2021 and are expected to approximate 2% of revenues in 2022.  We expect to fund future capital expenditures with cash generated
from operating activities and cash on hand.

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Financing Activities

Net cash used in financing activities was $20.0 million for the year ended December 31, 2021 compared to $18.6 million in the prior year.  The increase of $1.4 million was the
result of the retirement of our term loan using proceeds from the sale leaseback transaction involving the Company’s Denver, Colorado and Grand Prairie, Texas campuses pursuant to agreement with our lending institution.  Cash paid to retire the
loan was $16.3 million with additional payments made during the year of $1.5 million.  In the prior year, net payments on borrowings were $17.0 million.

Net payments on borrowings in the prior year consisted of: (a) total borrowings to date under our secured credit facility of $11.0 million; and (b) $28.0 million in total
repayments made by the Company.

Credit Facility

As reported elsewhere in this Annual Report on Form 10-K, in connection with the sale leaseback transactions involving the Company’s Denver and Grand Prairie campuses, the
Company retired its term loan and, as of December 31, 2021, the Company has no debt outstanding.  The Company had $4.0 million in letters of credit outstanding as of December 31, 2021.  The Company is in negotiations with respect to a new credit
facility.

Long-term debt consists of the following:

We had outstanding financing principal commitments to our active students of $30.0 million and $21.7 million as of December 31, 2021 and 2020, respectively.  These are
extended financing plans and no cash is advanced to students.  The full amount is not guaranteed unless the student completes the program. The extended financing plans are considered commitments because the students are packaged to fund their
education using these funds and they are not reported on our financials.

Climate Change

Climate change has not had and is not expected to have a significant impact on our operations.

Contractual Obligations

Current portion of Long-Term Debt, Long-Term Debt and Lease Commitments.    As of December 31, 2021, we have no
debt outstanding.  We lease offices, educational facilities and various items of equipment for varying periods through the year 2041 at basic annual rentals.

As of December 31, 2021, there were 2 new leases and 9 lease modifications that resulted in noncash re-measurements of the related ROU asset and operating lease liability of
$45.5 million which included the sale leaseback transactions of our campuses in Grand Prairie, Texas and Denver, Colorado.

We had no off-balance sheet arrangements as of December 31, 2021, except for surety bonds.  We are required to post surety bonds on behalf of our campuses and education
representatives with multiple states to maintain authorization to conduct our business. At December 31, 2021, we posted surety bonds in the aggregate amount of approximately $12.8 million.  These off-balance sheet arrangements do not adversely
impact our liquidity or capital resources.

SEASONALITY AND OUTLOOK

Seasonality

Our revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population. Student
population varies as a result of new student enrollments, graduations and student attrition. Historically, our schools have had lower student populations in our first and second quarters and we have experienced larger class starts in the third
quarter and higher student attrition in the first half of the year. Our second half growth is largely dependent on a successful high school recruiting season. We recruit our high school students several months ahead of their scheduled start dates
and, thus, while we have visibility on the number of students who have expressed interest in attending our schools, we cannot predict with certainty the actual number of new student enrollments and the related impact on revenue. Our expenses,
however, typically do not vary significantly over the course of the year with changes in our student population and revenue.

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Index

Effect of Inflation

Inflation has not had a material effect on our operations except for some inflationary pressures on certain instructor salaries.