LEASES

12 Months Ended

Dec. 31, 2023

The Company determines if an arrangement is a lease at inception. The Company considers any contract where there is an identified asset as to which the Company has the right to control its use in determining whether the contract contains a lease. An operating lease ROU asset represents the Company’s right to use an underlying asset for the lease term and lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are to be recognized at the commencement date based on the present value of lease payments over the lease term. As all of the Company’s operating leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available on the commencement date in determining the present value of lease payments. We estimate the incremental borrowing rate based on a yield curve analysis, utilizing the interest rate derived from the fair value analysis of our credit facility and adjusting it for factors that appropriately reflect the profile of secured borrowing over the expected term of the lease. The operating lease ROU assets include any lease payments made prior to the rent commencement date and exclude lease incentives. Our leases have remaining lease terms of one year to 22 years. Lease terms may include options to extend the lease term used in determining the lease obligation when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments are recognized on a straight-line basis over the lease term for operating leases.

On October 31, 2023, the Company entered into a lease for approximately 100,000 square feet of space to serve as the Company’s new campus in Houston, Texas. The lease term commenced on January 2, 2024, with an initial lease term of 21 years and 6 months. The lease contains three five-year renewal options.

On October 18, 2023, the Company entered into a lease for approximately 120,000 square feet of space to serve as the Company’s new Nashville, Tennessee campus. The lease term commenced on November 1, 2023, with an initial lease term of 15 years. The lease contains two five-year renewal options. See Note 8, “Real Estate Transactions”.

On September 28, 2023, the Company purchased a 90,000 square foot property located at 311 Veterans Highway, Levittown, Pennsylvania for approximately $10.2 million and has subsequently on January 30, 2024 entered into a sale-leaseback transaction for this property. See Note 8, “Real Estate Transactions”. As of December 31, 2023, this property is classified as held-for-sale on the Consolidated Balance Sheets.

On November 3, 2022, the Board of Directors approved a plan to close the Somerville, Massachusetts campus, which as of December 31, 2023, has been fully taught-out

On June 30, 2022, the Company executed a lease for approximately 55,000 square feet of space to serve as the Company’s new campus in East Point, Georgia. The lease term commenced in August 2022, with total payments due on an undiscounted basis of $12.2 million over the 12-year initial term. The lease contains two five-year renewal options that may be exercised by the Company at the end of the initial lease term. The Company had no involvement in the construction or design of the facilities on the property and was not deemed to be in control of the asset prior to the lease commencement date. For the year ended December 31, 2023, the Company incurred approximately $0.8 million in rent expenses.

The following table presents components of lease cost and classification on the Consolidated Statement of Operations:

		Year Ended December 31,
in thousands	Consolidated Statement of Operations Classification	2023		2022
Operating Lease Cost	Selling, general and administrative	$	19,235	$	18,943
Finance lease cost
Amortization of leased assets	Depreciation and amortization		175		-
Interest on lease Liabilities	Interest expense		224		-
Variable lease cost	Selling, general and administrative		475		55
		$	20,109	$	18,998

The net change in ROU asset and operating lease liability is included in the net change in other assets in the Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2023 and 2022.

The net change in ROU asset and finance lease liability is split between principal payments, interest expense and amortization expense. Principal payments are classified in the financing section, interest expense is included in net income and amortization expense is broken out separately in the operating section of the Consolidated Statements of Cash Flows.

Supplemental cash flow information and non-cash activity related to our leases are as follows:

	December 31,
	2023		2022
Cash flow information:
Cash paid for amounts included in the measurement of lease liabilities
Operating Cash Flows - operating leases	$	16,103	$	18,443
Financing Cash Flows - finance leases	$	-	$	-

Non-cash activity:
Lease liabilities arising from obtaining right-of-use assets
Operating leases	$	10,477	$	13,820
Finance leases	$	15,971	$	-

During the year ended December 31, 2023, the Company entered into three new leases and five lease modifications that resulted in noncash re-measurement of the related ROU asset and operating lease liability of $10.5 million. In addition, during the fourth quarter of 2023, the Company entered into a finance lease and recorded a $16.0 million ROU asset and liability.

Weighted-average remaining lease term and discount rate for our leases are as follows:

	Year Ended December 31,
	2023			2022
Weighted-average remaining lease term
Operating leases	11.16 years			11.23 years
Finance leases	15.09 years				-

Weighted-average discount rate
Operating leases		6.89	%		7.12	%
Finance leases		8.39	%		-

Maturities of lease liabilities by fiscal year for our leases as of December 31, 2023 are as follows:

	As of December 31, 2023
	Operating Leases			Finance Leases
Year ending December 31,
2024	$	18,053		$	1,421
2025		16,668			1,173
2026		14,385			1,671
2027		11,499			1,738
2028		11,331			1,808
Thereafter		67,311			22,796
Total lease payments		139,247			30,607
Less: imputed interest		(38,657	)		(14,411	)
Present value of lease liabilities	$	100,590		$	16,196