Leases

3 Months Ended

Mar. 31, 2022

The Company’s principal leasing activities include facilities, classified as operating leases, and, as a result of the GSUSA Acquisition, copiers and printers, classified as finance leases.

Leases are classified as operating leases unless they meet any of the criteria below to be classified as a finance lease:

•the lease transfers ownership of the asset at the end of the lease;

•the lease grants an option to purchase the asset which the lessee is expected to exercise;

•the lease term reflects a major part of the asset’s economic life;

•the present value of the lease payments equals or exceeds the fair value of the asset; or

•the asset is specialized with no alternative use to the lessor at the end of the term.

Operating Leases

The Company has operating leases for office space and campus facilities. Some leases include options to terminate or extend for one or more years. These options are included in the lease term when it is reasonably certain that the option will be exercised. The Company leases corporate office space in Maryland under an operating lease that expires in May 2023. The RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 23 campuses located in six states under operating leases that expire through October 2033. The HCN Segment leases administrative office space in suburban Columbus, Ohio, and leases six campuses located in Ohio and one campus in Indianapolis, Indiana, under operating leases that expire through June 2029. GSUSA leases classroom and administrative office space in Washington, D.C. and Honolulu, Hawaii under operating leases that expire through September 2036.

Operating lease assets are right-of-use, or ROU, assets, which represent the right to use the underlying assets for the lease term. Operating lease liabilities represent the obligation to make lease payments arising from the lease. Operating leases are included in the operating lease assets, net, and lease liabilities, current and long-term, on the Consolidated Balance Sheets. These assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. When the lease does not provide an implicit interest rate, the Company uses an incremental borrowing rate based on information available at lease commencement to determine the present value of the lease payments. The ROU assets include all remaining lease payments and exclude lease incentives.

Lease expense for operating leases is recognized on a straight-line basis over the lease term. There are no variable lease payments. Lease expense for the three month periods ended March 31, 2022 and 2021 was $5.0 million and $0.8 million, respectively. These costs are primarily related to long-term operating leases, but also include amounts for short-term leases with terms greater than 30 days that are not material. Cash paid for amounts included in the present value of operating lease liabilities during the three month periods ended March 31, 2022 and 2021 was $4.8 million and $0.7 million, respectively, and is included in operating cash flows.

Finance Leases

In connection with the GSUSA Acquisition, the Company acquired leases for copiers and printers that are classified as finance leases and expire on December 31, 2024. The Company pledged the assets financed to secure the outstanding leases. As of March 31, 2022, the total finance lease liability was $0.3 million with an average interest rate of 3.75%. The ROU asset is recorded within Property and equipment, net on the Consolidated Balance Sheets. Lease amortization expense associated with the Company’s finance leases was approximately $0.03 million for the three months ended March 31, 2022 and is recorded within Depreciation and amortization expense on the Consolidated Statements of Income.

The following tables present information about the amount and timing of cash flows arising from the Company’s finance and operating leases as of March 31, 2022 (dollars in thousands):


Maturity of Lease Liabilities (Unaudited)	Operating Leases		Finance Leases
2022 (remaining)	$	14,148	$	85
2023	16,072		114
2024	14,436		113
2025	13,284		—
2026	12,830		—
2027	12,586		—
2028 and beyond	55,551		—
Total future minimum lease payments	$	138,907	$	312
Less: imputed interest	(27,928)		(16)
Present value of operating lease liabilities	$	110,979	$	296
Less: lease liabilities, current	(14,312)		(104)
Lease liabilities, long-term	$	96,667	$	192


Balance Sheet Classification (Unaudited)
Current
Operating lease liabilities, current	$	14,312
Finance lease liabilities, current	104
Long-term
Operating lease liabilities, long-term	96,667
Finance lease liabilities, long-term	192
Total lease liabilities	$	111,275


Other Information (Unaudited)
Weighted average remaining lease term (in years)
Operating leases	5.35
Finance leases	2.75
Weighted average discount rate
Operating leases	4.0	%
Finance leases	3.8	%