Finance and Operating Leases

3 Months Ended

Sep. 30, 2022

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”) and CSI Leasing, Inc. (“CSI Leasing”). As of September 30, 2022 and

June 30, 2022, the finance lease liability was $78.0 million and $66.3 million, respectively, with lease interest rates ranging from 1.52% to 4.42%. As of September 30, 2022 and June 30, 2022, the balance of the associated right-of-use assets was $55.5 million and $42.7 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 4.42%, 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 Company entered into an agreement with CSI Leasing in August 2022 to provide financing for its leases. Individual leases under the agreement with CSI Leasing include 36-month payments terms, at varying rates. The Company did not enter into any individual leases under the agreement through September 30, 2022.

The following is a summary, as of September 30, 2022 and June 30, 2022, respectively, of the present value of the net minimum lease payments under the Company’s finance leases:

	September 30, 2022		June 30, 2022
	(in thousands)
2023	$	34,326	$	38,600
2024		32,333		24,816
2025		11,984		4,468
2026		2,047		22
Total minimum payments		80,690		67,906
Less: imputed interest		(2,662)		(1,629)
Finance lease liability		78,028		66,277
Less: current portion of finance lease liability		(43,627)		(37,389)
Long-term finance lease liability	$	34,401	$	28,888

Operating Leases

The Company is a lessee under operating leases for various facilities to support the Company’s operations. As of  September 30, 2022 and June 30, 2022, the operating lease liability was $82.5 million and $88.0 million, respectively. As of September 30, 2022 and June 30, 2022, the balance of the associated right-of-use assets was $79.3 million and $85.5 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 September 30, 2022 and June 30, 2022, respectively, of the present value of the minimum lease payments under the Company’s operating leases:

	September 30, 2022		June 30, 2022
	(in thousands)
2023	$	11,443	$	15,120
2024		16,039		16,638
2025		15,332		16,168
2026		12,025		12,900
2027		8,518		8,797
Thereafter		27,455		27,447
Total minimum payments		90,812		97,070
Less: imputed interest		(8,343)		(9,113)
Operating lease liability		82,469		87,957
Less: current portion of operating lease liability		(13,356)		(12,830)
Long-term operating lease liability	$	69,113	$	75,127

The Company is subleasing one of its facilities through July 2023, one through November 2024 and one through December 2025. 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 September 30, 2022 and June 30, 2022, respectively, of the expected sublease income:

	September 30, 2022		June 30, 2022
	(in thousands)
2023	$	1,047	$	1,396
2024		665		665
2025		412		412
2026		140		140
Total sublease income	$	2,264	$	2,613

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 months ended September 30, 2022 and 2021:

	Three Months Ended September 30,
	2022			2021
	(in thousands)
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	9,934		$	7,620
Interest on lease liabilities		388			417
Instructional costs and services:
Operating lease cost		3,715			3,935
Short-term lease cost		24			18
Sublease income		(282)			(332)
Selling, general, and administrative expenses:
Operating lease cost		586			1,667
Short-term lease cost		94			4
Sublease income		(80)			(129)
Total lease cost	$	14,379		$	13,200
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(2,605)		$	(5,321)
Financing cash flows from finance leases		(9,314)			(7,020)
Right-of-use assets obtained in exchange for new finance lease liabilities		19,907			13,983
Right-of-use assets obtained in exchange for new operating lease liabilities		576			6,805
Weighted-average remaining lease term - finance leases		1.82	yrs.		2.31	yrs.
Weighted-average remaining lease term - operating leases		6.51	yrs.		6.80	yrs.
Weighted-average discount rate - finance leases		3.00	%		2.37	%
Weighted-average discount rate - operating leases		2.77	%		2.79	%