Finance and Operating Leases

3 Months Ended

Sep. 30, 2024

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, 2024 and June 30, 2024, the finance lease liability was $90.1 million and $55.6 million, respectively, with lease interest rates ranging from 2.25% to 6.72%. As of September 30, 2024 and June 30, 2024, the balance of the associated right-of-use assets was $73.7 million and $39.8 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 2.25% to 6.72%, 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 payment terms, but do not include a stated interest rate. The Company uses its incremental borrowing rate as the implied interest rate and the total lease payments to calculate its lease liability.

The following is a summary, as of September 30, 2024 and June 30, 2024, respectively, of the present value of the net minimum lease payments under the Company’s finance leases:

	September 30, 2024		June 30, 2024
	(in thousands)
2025	$	32,299	$	31,655
2026		35,368		19,880
2027		23,179		7,691
2028		5,300		82
Total minimum payments		96,146		59,308
Less: imputed interest		(6,019)		(3,710)
Finance lease liability		90,127		55,598
Less: current portion of finance lease liability		(39,133)		(29,146)
Long-term finance lease liability	$	50,994	$	26,452

Operating Leases

The Company is a lessee under operating leases for various facilities to support the Company’s operations. As of September 30, 2024 and June 30, 2024, the operating lease liability was $55.0 million and $57.9 million, respectively. As of September 30, 2024 and June 30, 2024, the balance of the associated right-of-use assets was $51.6 million and $54.5 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 9 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, 2024 and June 30, 2024, respectively, of the present value of the minimum lease payments under the Company’s operating leases:

	September 30, 2024		June 30, 2024
	(in thousands)
2025	$	10,647	$	14,263
2026		12,441		12,361
2027		8,788		8,705
2028		7,798		7,713
2029		7,613		7,599
Thereafter		12,378		12,381
Total minimum payments		59,665		63,022
Less: imputed interest		(4,703)		(5,082)
Operating lease liability		54,962		57,940
Less: current portion of operating lease liability		(12,636)		(12,748)
Long-term operating lease liability	$	42,326	$	45,192

The Company is subleasing one of its facilities 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, 2024 and June 30, 2024, respectively, of the expected sublease income:

	September 30, 2024		June 30, 2024
	(in thousands)
2025	$	262	$	455
2026		139		139
Total sublease income	$	401	$	594

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 and finance leases for the three months ended September 30, 2024 and 2023:

	Three Months Ended September 30,
	2024			2023
	(in thousands)
Lease cost
Finance lease cost:
Amortization of right-of-use assets	$	7,072		$	8,842
Interest on lease liabilities		778			517
Instructional costs and services:
Operating lease cost		2,340			2,558
Short-term lease cost		13			13
Sublease income		(66)			(132)
Selling, general, and administrative expenses:
Operating lease cost		1,126			2,199
Short-term lease cost		23			56
Sublease income		(123)			(123)
Total lease cost	$	11,163		$	13,930
Other information
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	(3,259)		$	(3,619)
Financing cash flows from finance leases		(8,747)			(11,721)
Right-of-use assets obtained in exchange for new finance lease liabilities		40,839			17,843
Right-of-use assets obtained in exchange for new operating lease liabilities		282			625
Weighted-average remaining lease term - finance leases		1.96	yrs.		1.68	yrs.
Weighted-average remaining lease term - operating leases		5.51	yrs.		5.96	yrs.
Weighted-average discount rate - finance leases		5.81	%		4.67	%
Weighted-average discount rate - operating leases		2.93	%		2.84	%