Finance and Operating Leases

6 Months Ended

Dec. 31, 2021

Finance and Operating Leases

Finance and Operating Leases

5.   Finance and Operating Leases

Finance Leases

The Company is a lessee under finance leases for student computers and peripherals under agreements with Banc of America Leasing & Capital, LLC (“BALC”). As of December 31, 2021  and June 30, 2021, the finance lease liability was $80.7 million and $68.9 million, respectively, with lease interest rates ranging from 1.52% to 2.58%. As of December 31, 2021 and June 30, 2021, the balance of the associated right-of-use assets was $56.9 million and $49.0 million, respectively. The right-of-use asset is recorded within property and equipment, net on the condensed consolidated balance sheets. Lease amortization expense associated with the Company’s finance leases is recorded within instructional costs and services on the condensed consolidated statements of operations.

The Company entered into an agreement with BALC in April 2020 for $25.0 million (increased to $41.0 million in July 2020) to provide financing for its leases through March 2021 at varying rates. The Company entered into additional agreements during fiscal year 2021 to provide financing of $54.0 million for its student computers and peripherals leases through October 2022 at varying rates. Individual leases with BALC include 36 month payment terms, fixed rates ranging from 1.52% to 2.58%, and a $1 purchase option at the end of each lease term. The Company has pledged the assets financed to secure the outstanding leases.

The following is a summary, as of December 31, 2021 and June 30, 2021, respectively, of the present value of the net minimum lease payments under the Company’s finance leases:

	December 31, 2021		June 30, 2021
	(in thousands)
2022	$	18,857	$	28,715
2023		37,266		28,105
2024		23,461		14,303
2025		3,439		—
Total minimum payments		83,023		71,123
Less: imputed interest		(2,331)		(2,219)
Finance lease liability		80,692		68,904
Less: current portion of finance lease liability		(36,080)		(27,336)
Long-term finance lease liability	$	44,612	$	41,568

Operating Leases

The Company is a lessee under operating leases for various facilities to support the Company’s operations. As of  December 31, 2021 and June 30, 2021, the operating lease liability was $94.3 million and $98.1 million, respectively. As of December 31, 2021 and June 30, 2021, the balance of the associated right-of-use assets was $91.4 million and $94.7 million, respectively. Lease expense associated with the Company’s operating leases is recorded within both instructional costs and services and selling, general, and administrative expenses on the condensed consolidated statements of operations.

Individual operating leases range in terms of 1 to 11 years and expire on various dates through fiscal year 2034 and the minimum lease payments are discounted using the Company’s incremental borrowing rate.

The following is a summary as of December 31, 2021 and June 30, 2021, respectively, of the present value of the minimum lease payments under the Company’s operating leases:

	December 31, 2021		June 30, 2021
	(in thousands)
2022	$	9,237	$	23,030
2023		16,432		16,204
2024		15,752		15,032
2025		15,258		14,222
2026		12,300		11,247
Thereafter		35,267		27,432
Total minimum payments		104,246		107,167
Less: imputed interest		(9,993)		(9,060)
Operating lease liability		94,253		98,107
Less: current portion of operating lease liability		(15,233)		(20,649)
Long-term operating lease liability	$	79,020	$	77,458

The Company is subleasing two of its facilities through May 2022, one through July 2023 and one through November 2024. Sublease income is recorded as an offset to the related lease expense within both instructional costs and services and selling, general, and administrative expenses on the condensed consolidated statements of operations. The following is a summary as of December 31, 2021 and June 30, 2021, respectively, of the expected sublease income:

	December 31, 2021		June 30, 2021
	(in thousands)
2022	$	877	$	1,496
2023		1,117		797
2024		387		66
2025		133		—
Total sublease income	$	2,514	$	2,359

The following is a summary of the Company’s lease cost, weighted-average remaining lease term, weighted-average discount rate and certain other cash flows as it relates to its operating leases for the three and six months ended December 31, 2021 and 2020:

	Three Months Ended December 31,				Six Months Ended December 31,
	2021		2020		2021			2020
	(in thousands)
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	9,368	$	8,341	$	16,988		$	13,178
Interest on lease liabilities		445		155		862			273
Instructional costs and services:
Operating lease cost		3,931		3,935		7,866			7,881
Short-term lease cost		16		94		35			157
Sublease income		(247)		(251)		(579)			(503)
Selling, general, and administrative expenses:
Operating lease cost		1,777		1,644		3,443			3,231
Short-term lease cost		4		221		9			443
Sublease income		(182)		(196)		(311)			(424)
Total lease cost	$	15,112	$	13,943	$	28,313		$	24,236
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(5,341)	$	(5,199)	$	(10,662)		$	(10,364)
Financing cash flows from finance leases		(7,724)		(5,786)		(14,744)			(11,455)
Right-of-use assets obtained in exchange for new finance lease liabilities		6,898		30,111		20,881			46,865
Right-of-use assets obtained in exchange for new operating lease liabilities		—		377		6,805			589
Weighted-average remaining lease term - finance leases						2.27	yrs.		2.84	yrs.
Weighted-average remaining lease term - operating leases						6.73	yrs.		6.81	yrs.
Weighted-average discount rate - finance leases						2.40	%		2.49	%
Weighted-average discount rate - operating leases						2.76	%		2.76	%