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Edited Transcript of LINC.OQ earnings conference call or presentation 13-May-20 2:00pm GMT

Q1 2020 Lincoln Educational Services Corp Earnings Call

WEST ORANGE Jun 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Lincoln Educational Services Corp earnings conference call or presentation Wednesday, May 13, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Brian K. Meyers

Lincoln Educational Services Corporation - Executive VP, CFO & Treasurer

* Scott M. Shaw

Lincoln Educational Services Corporation - President, CEO & Director

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Conference Call Participants

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* Alexander Peter Paris

Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst

* Rajiv Sharma

B. Riley FBR, Inc., Research Division - Analyst

* Michael Polyviou

EVC Group Inc. - Managing Member

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Lincoln Educational Services earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Mr. Michael Polyviou. Thank you. Please go ahead.

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Michael Polyviou, EVC Group Inc. - Managing Member [2]

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Thank you, Jimmy, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its release reporting financial results for the first quarter ended March 31, 2020, as well as recent corporate development. The release is available on the Investor Relations portion of the company's corporate website at www.lincolntech.edu.

Joining us today on the call are Scott Shaw, President and CEO; and Brian Meyers, Chief Financial Officer. Today's call is being broadcast live on the company's website, and a replay of the call will be archived on the company's website.

Statements made by Lincoln's management on today's call regarding the company's business that are not historical facts may be forward-looking statements as the term is identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate and continue as well as similar expressions are intended to identify forward-looking statements.

Our forward-looking statements should not be read as a guarantee of future performance or results. The company cautions you that these statements reflect current expectations about the company's future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond the company's control that may influence the accuracy of the statements and the projections upon which the segment and statements are based.

Factors that may affect the company's results include, but are not limited to the risks and uncertainties discussed in the Risk Factors section of the annual report on Form 10-K and the quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements are based on the information available at the time those statements are made and management's good faith belief as at the time with respect to the future events. All forward-looking statements are qualified in their entirety by this cautionary statement, and Lincoln undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise after the date thereof.

Now I'd like to turn the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [3]

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Thank you, Michael, and good morning, everyone. In light of what is an extremely challenging period in our country, we appreciate your taking your time to join our call this morning. On behalf of our entire Board of Directors, we hope the impact of the COVID-19 pandemic on you and your families has been as limited as possible, especially from a health perspective. I'd also like to acknowledge the innumerable contributions being made by Lincoln graduates serving on the front lines in an effort to contain the virus. We thank them as well as all the frontline responders in the communities where we operate for their service.

While many of you know the history of Lincoln Tech, I'd like to take a moment to describe who we are as a company. In 1946, our founder, Warren Davies, had a clear vision to serve our returning World War II servicemen and women by providing them with hands-on skills to support their families and build a better postwar world. From our beginning, we've possessed a spirit of optimism, dedication and service. And over the years, we've added resiliency, adaptability and courage. It is the sum of these qualities that has enabled us to effectively respond to the COVID-19 pandemic. Furthermore, we have always believed that our graduates were the nation's unsung heroes, making significant contributions to the economy and their communities by -- but now it's official. Approximately 90% of our students are pursuing careers that the U.S. Department of Homeland Security deems as essential, critical infrastructure workers. From our licensed practical nurses and allied health care graduates who are testing people for the virus or helping them recover, to our auto and diesel technicians, keeping the delivery trucks running, our graduates are following their passion while serving our society. I encourage you to visit our website, lincolntech.edu, and click on our media gallery to watch a 2-minute video saluting our healthcare graduates who sent us message -- images of themselves on the front lines, along with words of encouragement and thanks.

I will later discuss our successful transition from on-ground to distance learning. But first, I want to share with you our robust first quarter results, which reaffirm the power of our actions to solve the skills gap.

Despite the disruption of the COVID-19 containment effort, which for Lincoln meant rapidly executing a distance curriculum delivery format across 22 campuses, we had an exceptional quarter. We grew revenue by a healthy 10.7%. Our Transportation and Skilled Trade segment and our Healthcare and Other Professions segment each grew at nearly identical rates for the period.

Our average student population ended up by 6.6%. This increase drove substantially improved operating margins as we began to realize the planned operating leverage from various operating expense reductions and margin enhancement strategies over the last several years. Both our Transportation and Skilled Trades segment and our Healthcare and Other Professions segment, each generated operating income that was more than double prior year results. As we've highlighted in the past, our business model achieves high operating leverage as evidenced by our more than 70% improvement in profitability for the quarter. In addition, we achieved growth in both key outcome metrics for retention and placement rates, which improved 2.3% and 1.7%, respectively, for the quarter. All in all, an excellent start to the year.

Now I'd like to discuss how we have successfully responded to the COVID-19 pandemic and our positive outlook on the future of Lincoln Tech.

In the latter half of March, we implemented a plan to comply with federal, state and local requirements to successfully move all of our programs to a distance education format. Our actions were 2-pronged: First, to take action for the safety and security of all students and employees; and second, to rapidly transition from on-ground distance education.

On March 17, we announced our plans to switch to Distance Education and, within 10 days, we had moved all programs online. More amazingly, out of over 11,300 students, only several hundred opted not to make the switch. This is a huge testament to the quality and capability of our instructors, even though students would temporarily not have the opportunity to work in our hands-on shops and labs or at clinical sites, they still chose to remain enrolled and continue to gain skills and insights from our real-world trained instructors. And speaking of our instructors, last week was Instructor and Nurse Appreciation Week and every Lincoln campus celebrated and honored our incredible educators.

The team's response as well as the students' engagement was quite heartening. Technology was successfully leveraged to develop online course curriculum to ensure students could continue their studies from the safety of their homes. Our instructors embraced distance education and all of our employees working remotely, having been provided with the equipment and technology needed to perform their day-to-day duties. All measures being taken are in compliance with the regulations and guidelines put in place by federal, state and local authorities across the nation. In addition, all student services, including admissions, financial aid and career services are fully functioning remotely while campuses are closed.

In order to execute this transition to the distance curriculum delivery format, the management team developed new methods and processes in an extraordinary short period of time and then gained rapid regulatory approval. Many of our accrediting bodies and states are providing temporary solutions that enable students and most programs to graduate on time. The result from this exceptionally coordinated and well-executed effort is that in addition to our average population rising 6.6% as of March 31, 2020, our April 30 level is up 8% from a year ago. So despite all the uncertainty and disruption caused by the COVID-19 pandemic, our population continues to grow.

However, we understand that not everything can be taught from a distance. And so each week more students, especially those in our health care programs, reach a stage in their education when they need to be at a clinical site to gain the critical hands-on skills needed for graduation. Up until now, most clinical sites were closed. And so each week, the number of leave of absence students was increasing. As of May 1, we had 375 students who had suspended their education for this reason. To address this issue, we have received approval from the accreditors and states to use simulations to deliver the required skills and other education -- required skills, and our education team will be launching the simulations over the coming weeks. In addition, each week new clinical sites are reopening. And as a result, we expect our LOAs to stabilize and even decline in the near term. As of May 1, total leave of absences are still below 10% of our end-of-period population as compared to rates in excess of 20% as reported by other educators in our space. While the COVID-19 pandemic has caused all of us to be more self-reflective, I believe it'll be transformational for Lincoln. In a very short period of time, we have learned to deliver education and services in a totally different way that provides enhancements to the student experience, while providing the opportunity for our company to drive down costs. These opportunities are currently being examined and evaluated and would improve our ability to execute our longer-term growth strategies as well as further improve the return on investment for all students.

Well, I'm going to let Brian go through the financial dynamics of our first quarter, I'd like to focus on our student start growth, which has been the driving force behind our return to profitability. You may recall that through the fourth quarter of 2019, Lincoln had generated 9 consecutive quarters of student start growth. This metric is a primary factor behind our first quarter revenue growth of 10.7%. As we entered March, we were on a roll and appeared as though we would report the 10th consecutive quarter of student start growth. In fact, starts were up 13.9% through February. Our class calendars are not aligned across all 22 campuses and 15-plus programs. So literally, every week, we may have a class start somewhere in our system. But at the same time, we don't have starts in every program every month. Unfortunately, the latter half of March included a fair number of start dates, which had to be postponed due to our closing of campuses and the transitioning to distance learning.

The good news is that we were able to reschedule most of these students to start over the next 3 months. Moreover, we successfully transitioned our admissions process from one being heavily focused on bringing students into our facilities to see all the equipment and training aids to one being a 100% remote. Our admissions teams have done an outstanding job with this transition, as evidenced by April's robust start number of over 850 new students. This is our largest number of starts in April in over 10 years. Approximately 200 of these students were scheduled to start in March, which means that approximately 650 students started with the new remote admissions process and most had never been on a Lincoln campus.

While the marketing landscape remains fluid as we all adjust to life while being in locked down, we are seeing strong response to our messaging. The number of students signing enrollment agreements continues to be up over last year. The demand by students for our central career offerings is strong, and the productivity of our admissions teams has increased. Also, we are seeing increasing interest in our health care programs, with so much attention being brought to the dire need for more health care workers, both because of the COVID-19 pandemic and overall need that existed previously. Lincoln is ready and has always been ready to bridge this skills gap with our accelerated programs and real-world experienced teachers to rapidly train eager and talented students. Again, through the success of our distance curriculum delivery format, we are actively enrolling, providing financial aid, educating and placing students into rewarding careers across all of our programs.

With the passage of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, the federal government and the Department of Education recognized that students are being adversely affected by the disruption caused by COVID-19. Lincoln moved swiftly to apply for appropriate federal grants. As a result, Lincoln will receive a total of $27.4 million from the CARES Act. The first 50% will go directly to our students. And so far, we have received about $10 million of the $13.7 million allocated to students. These funds are being sent to students. And as soon as the remaining $3.7 million arrives, we will distribute those funds as well. As prescribed in the act, these students' funds are being distributed to eligible students to offset the additional life expenses incurred as a result of COVID-19. Lincoln will receive the second $13.7 million in funding some time over the coming months, and these funds may be used both for students and as reimbursements for some of the expenses incurred to implement our distance delivery format. We are very grateful to the Department of Education for recognizing that students have been adversely affected by the disruption caused by the pandemic and providing these grants through the CARES Act.

The Lincoln team has already begun planning to reopen campuses as soon as permitted, and today, we are announcing that we expect 7 campuses to be opened by June 1. Our primary objective will be to ensure the safety of our students and staff. We will follow local and federal guidelines, including, but not limited to: social distancing; no more than 9 students per 1 instructor; staggered times for different classes; and daily sanitizing of our campuses. With campuses in 14 different states, we expect our return to vary by state.

Now I'd like to address our decisions today to withdraw our full year guidance that we provided back in February. For the first 2 months of the quarter, we were well ahead of our internal budget. And as a result of quickly migrating our students and faculty to the distant delivery format, we achieved double-digit revenue growth and sharply improved profitability compared to the year ago period. As I mentioned earlier, our average student population at the end of the quarter was up 6.6% and advanced 8% at the end of April. However, as we look out at the remainder of the year, the lack of clarity as to when we will be able to reopen our campuses and what limitations will be imposed to ensure the safety of both our students and our staff creates a tremendous challenge in forecasting our financial performance. As a result, at this time, we have withdrawn our previously disclosed full year 2020 guidance, a decision we will reevaluate when our operating environment becomes clearer.

Over the longer term, given the dramatic rise in the unemployment rate, we anticipate demand for our programs will increase even further as it has in past economic downturns as the unemployed seek new paths to a better career. Throughout the nearly 75 years of Lincoln's operations, we have seen increases in leads, enrollment and student population during rises in unemployment and economic downturns. An early analysis of our lead data from the past 2 months indicates that they are on the rise. During the last recession, between 2007 and 2010, we saw consistent increases in leads enrollments in student population that peaked 2.5 years after the recession started.

However, given the dramatic and unprecedented rise in unemployment during the past 2 months, one could imagine a much faster ramp-up in our student population. Obviously, we have to have campuses opened before we can service increased demand. But based on our early analysis, it appears that our marketing programs are working. And once campuses are opened, we can turn our full attention to satisfying increased demand. Remember, the same 22 campuses that we have today had approximately 18,000 students and generated over $80 million of EBITDA back in 2010 at the peak of the last recession. We are ready to serve the needs of any displaced worker looking to secure solid skills, which can provide a rewarding essential career with a lifetime of opportunity. Due to the lack of visibility, one of our campuses will reopen and the full extent of what measures we will need to adopt to ensure they can operate safely under social distancing guidelines, we -- I apologize. It seems that's the end of my remarks. I'll turn it over to Brian.

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Brian K. Meyers, Lincoln Educational Services Corporation - Executive VP, CFO & Treasurer [4]

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Thanks, Scott, and good morning, everyone. As Scott indicated, our first quarter results were strong. Despite the challenges created by the COVID-19 pandemic in March, we are very pleased that we achieved positive EBITDA in the quarter for the first time in over 5 years.

We entered 2020 with positive momentum as our beginning population was higher by approximately 760 more students than the prior year. Then during the pre-COVID period through February, this momentum continued as student starts finished 14% ahead of last year. However, in March, the impact from COVID-19 forced class starts scheduled for the latter part of the month to be postponed. As a result, we ended the quarter with 2,716 starts, down about 150 or 5% compared to the prior year. Subsequently, in April, we more than made up for the first quarter shortfall, achieving a 30% start growth over April 2019. We finished the quarter with 10,947 active students, 267 more or 2.5% higher than last year. This population increase grows to 591 students or 5.5% when we include students on leave of absence due to COVID-19 circumstances, which I will discuss shortly in more detail.

Now turning to the financial highlights for the quarter. First, revenue increased $6.7 million or 10.7%, driven by a 6.6% increase in average student population and a 3.7% increase in average revenue per student. The largest increase in average student population occurred in our Healthcare and Other Professions segment, up 12.5%, while our Transportation and Skilled Trades segment increased 3.7%. In March, we anticipated that COVID-19 would have an impact on our first quarter results as we incurred additional COVID-19-related expenses and experienced a small revenue decline. As a result, we promptly implemented measures to reduce expenses in order to mitigate the loss of revenue in subsequent quarters.

Second, operating loss was reduced by $3.5 million or 72.3%, primarily driven by revenue growth. We generated an overall operating leverage of approximately 50% on our $6.7 million increase in revenue. We leveraged our large amount of fixed costs as population of revenue grows with minimum related incremental expenditures, resulting in more revenue contributing to operating income. On a segment level, the operating leverage was approximately 60% and 50% for Transportation and Skilled Trades segment and our Healthcare and Other Professions segment, respectively.

Third, as mentioned, we had positive EBITDA of $500,000 compared to negative EBITDA of $2.8 million in the prior year. The first quarter is historically our weakest quarter of the year in terms of EBITDA profitability, so this performance is especially encouraging.

Now turning to operating expenses. There was an increase of $3.3 million or 4.8% to $71.4 million. The main contributing factors were bad debt expense and instructional expenses resulting from a larger student population. Bad debt expense for the quarter was higher as accounts receivable grew primarily due to our revenue growth coupled with a delay in Title IV disbursements and a decline in collections in the second half of March, mainly related to financial hardships due to the COVID-19 pandemic. As a result, we are working with our students to provide financial relief and support during the health care crisis. Most recently, as the environment began to stabilize, we have seen an improvement in collections towards normalized levels.

In regard to corporate expenses and other costs, we had expenses of $8.2 million or $500,000 over the prior year quarter. The increase was primarily due to increases in salaries and benefit expenses and approximately $700,000 of expenses incurred as a result of COVID-19. Partially offsetting these costs were nonrecurring strategic initiative expenses incurred in prior year.

Now in terms of liquidity. As of March 31, we had approximately $30.7 million of liquidity comprised of cash on hand of $9.7 million and a $21 million in availability under our credit agreement. The CARES Act will provide significant additional liquidity in 2020 through the following provisions: first, we've elected to defer the employer FICA payroll tax through the end of 2020, including to an estimated $3 million. 50% of deferred amount will be paid by December 31, 2021, and the remaining 50% will be paid by December 31, 2022.

Second, we are following current guidelines, which weighs our obligation to return Title IV funds for any student that withdraws during a payment period or a period of remote enrollment due to COVID-19. We estimate saving over $1 million per month through at least June 30, 2020. As mentioned, we anticipate receiving a total of $27.4 million from the CARES Act Higher Education Emergency Relief Fund. The majority of these funds will be used to provide financial support to our students. In addition, per guidance from the Department of Education, we anticipate a portion of these funds to be used towards offsetting costs incurred as a result of COVID-19, including costs associated with transitioning to and from our online platform.

And finally, we are currently evaluating the mainstream-lending program for midsized companies affected by COVID-19 as a potential source of additional liquidity, if needed. Also, we're pleased to announce that we have been given some rent relief in the second quarter thanks to certain landlords, who have worked with Lincoln to support us during the COVID-19 pandemic.

Now expanding on the revenue impact from COVID-19. First, as Scott mentioned, as of the quarter end, 97% of our student population was active and about 325 students were under leave of absence due to COVID-19. While this number increased to around 1,000 students since March, we expect the number to decline in the coming weeks. As a reminder, revenue recognition is suspended on leave of absence students until they are able to resume their education.

Second, as noted earlier, programs such as welding and cosmetology, which require majority of hands-on trading, have been decelerated while online. As such, these programs are being extended to allow students more time to complete their hands-on labs. Accordingly, the revenue daily rate on these students were adjusted downward to reflect the longer period. For the most part, we anticipate this revenue to be recovered during 2020.

During the quarter, we continued to focus on plans to grow our business as we completed the build-out of 1 welding program and made significant progress on a second. However, certain program expansions were delayed due to COVID-19 circumstances. Additionally, we decide to postpone other capital expenditure projects until the second half of the year in order to preserve cash and gain greater clarity of our financials and our business landscape. Keep in mind, as we continue to grow our business, additional upfront costs will be incurred, which will temporarily cause operational leverage to go down slightly. However, as new programs are launched and grow, our ability to leverage our growing revenue into higher margins will return.

And lastly a reminder, our 2020 guidance. Due to the lack of visibility as when our campus will reopen and the full extent of what will be needed to adopt to ensure they operate safely under the social distancing guidelines, we are withdrawing our 2020 guidance. Thank you for your time today.

And with that, I'll turn the call back over to the operator so we can take your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Alex Paris with Barrington Research.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [2]

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Congratulations on a really strong quarter. I think you topped my expectations on all metrics with the exception of starts and despite incurring those additional costs related to COVID.

I guess I'll begin with starts. Starts were very strong, up 13.6% through February. Obviously, for the quarter, it was down 5%. So you took a hit in the month of March. My expectation is I thought you'd grow starts 3.2% for the quarter. So the delta is really about 200 students. Now you say April, you're up 30% to 850. Just a point of clarification, those 200 that didn't start in late March, started in April, I'm assuming, and -- but you still had 650 new starts, right?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [3]

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That's correct.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [4]

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And have you made any changes to your marketing? It seems like a really good number. Perhaps it's influenced by COVID and the rise in unemployment. But are you changing your marketing message? Are you changing your marketing mediums? I think a competitor said on the call the other day that some of the typical places they had advertised, live sports and things, since they're not getting played, they've had to shift their marketing to elsewhere.

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [5]

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Yes. I wouldn't say that ours have been maybe as dramatic as that. But certainly, with marketing in general, we're constantly reevaluating. It's a very fluid marketplace. And certainly, one seeing more and more social media coming into -- playing a bigger part. So our team is constantly reevaluating and constantly looking for those channels that are going to be the most productive. So that's an ongoing thing. I would say that one of the things that has changed, though, which is that people are at home. So when they express an interest, frankly, they're not as distracted by other things and have more time to spend with our admissions people. And I think as a result of that, our admissions people are able to convey what we do and how we do it, and the students seem to be very responsive to that. So I would say it's -- a lot of it's due to the improvement that we're seeing just in the conversations that we're having with the interested parties. But marketing is always constantly evolving.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [6]

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And then this is also sort of a remarkable starts number in the month of April, given all this uncertainty related to COVID. I'm assuming these new starts, because campuses are closed, had to start online and that didn't really deter these students from starting?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [7]

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Yes. That's been really one of the most exciting aspects of all this. And not only are they starting online, but for the first time, we have students who have never been on one of our campuses. Kind of as I referenced, our typical process would be to encourage students to come to our campuses so they can see how robust the facilities are. And these are students who aren't visiting our campuses live. We obviously have videos and images up on our website, so they get exposed to it. But again, it's very encouraging news, both for this period as well as we look to the future to figure out ways to further enhance how we reach students.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [8]

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Okay. Great. And then moving to LOAs. I think you said in the press release, you had 324 leaves of absence as of March 31, and now you have about 1,000. So it looks like you're adding, what, 150 over a week or so.

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [9]

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A week. Yes.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [10]

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Yes. And why is that? I'm assuming, in some cases, there's no online classes available for these students that are enrolled in your programs. So they have no choice, but to stop. And then I would assume, too, there's others that say, you know what, I'll just wait till your campuses are open again. I'll take a leave of absence.

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [11]

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Yes. So it's happening because, certainly, on the health care side, externships and being in clinical sites is a part of the curriculum and required for them to get -- reach graduation. And in those instances, we've been able to work with the states and the accreditors to replace the on-ground with simulation, and that's being rolled out over the next couple of weeks. And so students that aren't able to go to a clinical site will be able to do the simulation to get the hands-on skills and knowledge that they need.

At the same time, though, we are seeing every week, even in certain states like here in New Jersey, that is very much locked-down mode for COVID-19, even more doctors' offices and hospitals are opening up. And each day, frankly, more of our students are able to get back inside one of these facilities to do their clinical work. And so that's very reassuring in why we think it will decrease going forward, the number of people in LOAs.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [12]

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So that 1,000 number is -- based on everything that we know now and a gradual reopening of the economy, is that LOA number sort of a peak or within -- very close to a peak?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [13]

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Yes. I would say that maybe it goes up another 300, but then I believe it's going to start dropping as well by that amount, certainly by June 1.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [14]

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And then they'll come off LOA if they can do simulation, if they could get into the clinic and then if they could get into the campus, right? So as those things start to come on, we'll start to see those LOAs come off. And not only do the students get to continue their education, but you get to resume recognizing the revenue associated with their enrollment.

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Brian K. Meyers, Lincoln Educational Services Corporation - Executive VP, CFO & Treasurer [15]

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Correct. There are 7 schools that are coming -- due to come back on June 1. As soon as they come back, we'll start recognizing the revenue for that and they'll start coming off of the LOAs.

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [16]

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Well, also they'll recognize revenue for the ones doing the simulations that are going to clinical sites besides the 7 that are reopening.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [17]

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Got you. And then speaking of reopenings, I think you said in the press release, Dallas is reopening this week, which I assume is the Grand Prairie campus. And you'll have 7 in total open by June 1. What's next? What's next after Grand Prairie?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [18]

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We have Nashville, Denver, East Windsor and New Britain and Shelton and then our Indianapolis campus. So again, that's based off of what we know today. Some days, these local officials tweak what they think. But based off of what we know today, that's the starting date we anticipate with probably Nashville and Grand Prairie starting next Monday.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [19]

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And then what is your thoughts for the rest of the campuses? So that will be 7 of your 22. What about the other 15? What you -- based on what you know today, what would be next after that? And when should we have all these campuses open? I know it's difficult but...

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [20]

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Well, it's probably easier to say what will be last. So I'm guessing, unfortunately, New Jersey and New York, where we have 7 campuses, would probably be last, just given the severity. But with that said, we are looking to see what we can do to accelerate that because in New Jersey, 100% of our students, or 98% of them, are in programs that are deemed to be essential infrastructure workers according to Homeland Security. And if you go on our website, you'll see pictures of our students. We have lots of LPNs and people in health field who are, frankly, truly on the front lines, testing people for the COVID virus. And so in a state that's looking for more support in the health care field, we believe that we provide a very important resource to the state. So we're trying to accelerate that process, but nothing is given. But I would think that New Jersey, New York would be last. And then the other states should come in -- up online, and we're hoping over the following 30 days. So by July 1, we anticipate or hope that, if not every campus, the vast majority of our campuses are reopened. It's just hard to know at this time.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [21]

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Okay. So not only are you near the peak in LOAs, and I know you've withdrawn guidance. But I suspect Q2 would also be the bottom in terms of its impact on your financials, driven by the LOAs, right, because you're going to have those start to come back. And with most campuses opened by July, I would think we're going to back to somewhat normal operations. I realize there's going to be some inefficiencies like 9:1 student-teacher ratios and things like that. But is it reasonable to assume that second quarter would kind of be the trough?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [22]

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I would say so. It's typically our trough and just given the scenario that you just laid out, I think that's very logical.

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Brian K. Meyers, Lincoln Educational Services Corporation - Executive VP, CFO & Treasurer [23]

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For our revenue compared to prior year, yes, I would definitely agree. Expenses might drag along a little bit longer than that, making up some overtime and with the 9:1 teacher ratio that you mentioned. So it could be additional expenses. And when we get more clarity on the other portion of the CARES Act that the company can use, maybe we can offset some of those costs as well for a transition of students from online.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [24]

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Got you. And then, I guess lastly, given that it looks like, based on what we know now, Q2 being the trough, the ample liquidity that you have looking over the valley to the other side, you should not only get back to normal, but you should derive the benefit from the rise in unemployment. And I would assume, given your success with these online programs, should we expect a different approach to business going forward, maybe blended programs, more use of online in the curriculum?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [25]

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Definitely, going forward, we're looking at that and creating and evaluating that as we speak. Obviously, it takes a long time to get the approvals and to get it fully designed. But certainly, this experience has proven to us that our students are very receptive to it, and many are looking forward to a blended program. It will help us in our planning for the future, create greater capacity for us, which means we could frankly, have potentially smaller campuses and be more efficient as well as just the fact that everyone within Lincoln is working remotely and working just as effectively as they were before. That can cause other opportunities for us to look for ways of delivering services to our students in a more effective way. So this is a really -- needless to say, who knows how traumatic this whole thing has been. But for us, as an organization, what we're going to take away from it will be very powerful, I believe, and help us going forward.

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Alexander Peter Paris, Barrington Research Associates, Inc., Research Division - Director of Research and Education & Business Services Analyst [26]

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And then lastly, I guess, based on everything that you know now and if things kind of roll out, as you expect, and there's no resurgence in COVID, is it your intent to restore providing guidance when you report next time?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [27]

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Gladly. As soon as we have some greater clarity, we will gladly provide guidance.

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Operator [28]

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(Operator Instructions) Our next question comes from Raj Sharma with B. Riley FBR.

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Rajiv Sharma, B. Riley FBR, Inc., Research Division - Analyst [29]

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So I just wanted to go forward in the same line. I think your stocks were great. More -- any color on -- are they happening in one program more than the other? Or -- and how is that -- what do you explain the success in starts?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [30]

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Sure. It's happening across the board. There are always programs that 1 particular month might be stronger than the next, but there's nothing that I would say really sticks out. Except that, I would say, we are seeing going forward, some increased demand for our health care side, that's just getting a lot -- so much attention, I guess, with everyone's seeing what's happening in the news that, that is certainly helping us. And we just -- certain programs do remain very robust, welding remains very popular, our Skilled Trades programs remain popular. But there's nothing really that jumps out as being -- like this is the only thing that's driving our growth. It's pretty spread out.

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Brian K. Meyers, Lincoln Educational Services Corporation - Executive VP, CFO & Treasurer [31]

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Right. And specifically, the start increases in April 2020 over 2019, we're split 50-50 between transportation and HOPS evenly, the number of starts. So it was both segments.

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Rajiv Sharma, B. Riley FBR, Inc., Research Division - Analyst [32]

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Got it. And so any indications or early indications? I know it's early for fall quarter starts to get a sort of sense, because I know that's your biggest quarter, anything indicating now today that your fall quarter starts are intact or would probably show -- because of the weaker economy and higher unemployment and -- any sort of indications on that today?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [33]

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Yes. What I can share is that indications are good right now. So it's still preliminary. But certainly, things are on a positive side. Definitely, not on the negative side as far as interest coming in, enrollments, things of that nature. We still have a long ways to go between now and August, September, October. But as of right now, things are definitely on the positive side.

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Rajiv Sharma, B. Riley FBR, Inc., Research Division - Analyst [34]

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Got it. And on the LOAs, again, remarkable, given some of your competitors are showing higher LOAs. Are these -- how are the LOAs here split? Are they one particular program more than the other or they're evenly split across program?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [35]

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It's about 50-50 between HOPS and our auto and Skilled Trade side. And then -- and so on the HOPS side, it's really the medical programs that we have, which have these external shifts. On the auto side, it's really just -- it's kind of spread out across all the programs, wherever we had an externship or there were some additional hands-on training that they needed to take because the welding students are impacted, but they're in our population. We're just earning less revenue on them while they're in our population. And they're the students, as Brian mentioned, as well as our cosmetology students that were most anxious to get back into our campuses.

The good news is, as I mentioned, the 7 campuses that we're going to open up, all of our largest welding programs, I believe, are in those campuses. So that will be a good benefit to those students. They'll be able to get back on track. We'll be able to earn more revenue on them, and they'll be able to graduate sooner rather than later.

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Rajiv Sharma, B. Riley FBR, Inc., Research Division - Analyst [36]

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Got it. And so my question on the expense levels. Any variability in your expense levels given the fact that you can't recognize revenue during the last quarter and this quarter, some on the LOAs. And any -- do you have levers to pull to control expenses? Can you talk a little bit about that?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [37]

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Yes. In March, we only lost, I would say, less than $0.5 million worth of revenue due to the starts that we didn't get at the end of the month and people going on the LOAs. But naturally, we did have some, like, tools expenses associated with the starts come down, consumables have been weighed down. For the most part, a lot of that will just be timing because while the students are online or not earning revenue. We won't have those expenses, but that's more timing. Marketing was down. The pay for clicks has been a little bit down. We're able to push out some of our production to later half of the year. So marketing, there's some savings there as well. But -- and as I mentioned, we'll have significant rent savings, almost about $0.5 million in the month of -- in the second quarter due to our landlords working with us. And actually, to their credit, not asking for the rent at all for the 2 months, not even making up for it a lot of our landlords. So that's going to be a lot of savings there.

And then there's savings due to travel. Our buses as well, which is over $100,000 a month. So as we're online and not having on-ground campuses. So there is a lot of savings there. Unfortunately, we did furlough about 100 employees as well. So there are ways. And in the month of April, expenses due to what I mentioned, came in very favorable to our internal budget and prior year as well.

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Rajiv Sharma, B. Riley FBR, Inc., Research Division - Analyst [38]

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So I know that you pulled guidance. Is it fair -- is it your understanding that they -- that you should be able to make back this missed revenue or displaced revenue within this year? I mean given where -- what you think is the schedule right now of the campuses reopening. I mean is that a fair assumption?

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [39]

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Yes. That's what we're assuming now. Obviously with the social distancing, that's going to play a role into that, but we definitely believe at least the people on the LOAs today, will make up all that revenue this year. And we got to see how the social distancing. And our facilities will be open longer, trying to get the students in there to complete their clinicals, all of their labs as well.

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Operator [40]

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And I'm showing no further questions in the queue at this time. I'd like to turn the call back to Scott Shaw for any closing remarks.

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Scott M. Shaw, Lincoln Educational Services Corporation - President, CEO & Director [41]

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Thank you, operator. In closing, I'd like to say that in my over 18 years with Lincoln, I have never seen our organization more aligned and motivated to serve our students. We entered 2020 with tremendous momentum. Student population had been growing for 9 consecutive quarters and was continuing to grow, increased population and cost controls enabled Lincoln to dramatically increase profitability in the first quarter despite the negative impact of closing down campuses due to COVID-19. The organization rapidly rallied to move all programs in operations to a distance delivery model, which enabled us to continue to grow our population over prior year even through April. We are now implementing plans to reopen campuses as soon as permitted, with 7 campuses representing about 40% of our students expected to open by June 1.

And as we look to the fall and beyond, we expect our population will grow as more and more displaced workers seek a better opportunity through our Lincoln Tech education. While the COVID-19 pandemic continues to create uncertainty in the near term, Lincoln's future remains bright. And we will be sharing our story with investors through virtual non-deal road shows over the coming weeks. We look forward to updating you on our progress in August. Until then, stay safe. Have a great day.

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Operator [42]

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Ladies and gentlemen, thank you for your participation on today's conference. This does conclude your program, and you may now disconnect.