Leases

9 Months Ended

Sep. 30, 2023

The Company’s principal leasing activities include leases for facilities, which are classified as operating leases, and, as a result of the GSUSA Acquisition, leases for copiers and printers, which are 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 that 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 and, beginning in January 2023, in Florida, under operating leases that expire in May 2024 and January 2026, respectively. The RU Segment leases administrative office space in suburban Chicago, Illinois, and Minneapolis, Minnesota, and leases 22 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 eight campuses located in three states under operating leases that expire through December 2032. 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 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 and nine months ended September 30, 2023 was $5.3 million and $15.7 million, respectively, compared to $5.0 million and $15.1 million for the three and nine months ended September 30, 2022, 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 and nine months ended September 30, 2023 was $5.0 million and $15.2 million, respectively, compared to $4.8 million and $14.7 million for the three and nine months ended September 30, 2022, 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 September 30, 2023, the total finance lease liability was $0.1 million, with an average interest rate of 3.75%. The ROU assets are recorded within Property and equipment, net on the Consolidated Balance Sheets. Lease amortization expense associated with the Company’s finance leases was approximately $27,000 and $81,000 for the three and nine months ended September 30, 2023 and 2022, respectively, 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 operating and finance leases as of September 30, 2023 (dollars in thousands):


Maturity of Lease Liabilities (Unaudited)	Operating Leases		Finance Leases
2023 (remaining)	$	4,832	$	28
2024	18,345		113
2025	16,765		—
2026	15,844		—
2027	15,653		—
2028	14,228		—
2029 and beyond	52,408		—
Total future minimum lease payments	$	138,075	$	141
Less: imputed interest	(26,716)		(4)
Present value of operating lease liabilities	$	111,359	$	137
Less: lease liabilities, current	(14,098)		(109)
Lease liabilities, long-term	$	97,261	$	28


Balance Sheet Classification (Unaudited)
Current:
Operating lease liabilities, current	$	14,098
Finance lease liabilities, current	109
Long-term:
Operating lease liabilities, long-term	97,261
Finance lease liabilities, long-term	28
Total lease liabilities	$	111,496


Other Information (Unaudited)
Weighted average remaining lease term (in years):
Operating leases	8.52
Finance leases	1.25
Weighted average discount rate:
Operating leases	4.5	%
Finance leases	3.8	%