Lincoln Educational Services Corp (LINC) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2011 Lincoln Educational Services earnings conference call. My name is Janayta, and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr. Shaun McAlmont, President and CEO. Please proceed.

Thanks, Janayta. Good morning and welcome, everyone. Joining me today is Cesar Ribeiro, our Chief Financial Officer. Let me begin this morning by reading the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995. Statements in this presentation concerning Lincoln Educational Services Corporation's future prospects are forward-looking statements that involve risks and uncertainties. There can be no assurance that future results will be achieved, and actual results may differ materially from forecasts, estimates and summary information contained in this presentation. Important factors that could cause actual results to differ materially are included but not limited to those listed in Lincoln's Annual Report on Form 10-K for the year ended December 31, 2011, and other periodic reports filed with the Securities and Exchange Commission. All forward-looking statements are qualified in their entirety by this cautionary statement.

This morning I would like to provide an overview of our Company's operations, and Cesar will review our fourth-quarter and full-year 2011 financial results and also provide our outlook for the first quarter of 2012 and the full year. We will then take your questions. Let me start this morning by reiterating our Company strategy and mission which is squarely focused on becoming the leading provider of vocational training in the country. We feel that the programs we offer position us uniquely to fill this niche. Our New Careers that Built America brand campaign will drive this strategy and mission forward. We believe the vocational training we offer to students provides opportunities to expand our brand in both small and large markets around the country and that this training will differentiate us from our competitors. The demographics that will pursue these careers are challenged and accordingly requires that we continue to strengthen our outcomes and performance and find ways to introduce cash-based programs to offset reliance on Title IV funds. Overall we feel that our approach which we've honed since 1946 has been sharpened based on a new reality for our industry.

We are different than most of our competitors and we feel that we have an opportunity to expand our model and sustain long-term growth and profitability. Backing up this strategy is a history of 66 years of vocational training. Now for 65 of those years we've managed an open admissions policy, especially in markets where our programs could make a social and economic difference for thousands of students. This approach was altered in 2011 in order to remain compliant in an environment of rapidly-changing regulations, which essentially cut off access to professional vocational training for many students in our markets. As we stated a year ago, we aggressively implemented all of the changes that were required by the new regulatory environment. We felt the financial impact of those changes last year as we achieved compliance with the new regs.

The fourth quarter of last year reflected the culmination of these numerous changes to our business model as we completed the adjustments to our operations in a systematic way across the Company's 46 campuses. As a reminder, during 2011, we took measures to ensure compliance with the new Gainful Employment regulations, cohort default rates and a 90/10 rule, as well as reorganized our business processes, including changes to our incentive compensation practices and the removal of admission Safe Harbor rules. We've successfully implemented all of these changes and I am pleased to report that for 2011, all of our institutions complied with the federal rule changes. All Lincoln Institutions were below the 90/10 threshold. We improved our placement rate by 2 percentage points and we achieved a 2010 draft cohort default rate improvement to 19%, which is a 10% reduction over the official previous year's weighted average. Needless to say we take our regulatory responsibility seriously, and feel we have effectively accomplished what was necessary.

This said, we expect that 2012 will be a year of rebuilding. As we described last year, we anticipate flat to slightly down student starts in the first half of the year with a modest return to growth in the second half of the year. Also, our forecast is based on increasing conversions, favorable comparisons, and new program and campus contributions. During 2011, we introduced an Early Student Engagement, or ESE mentoring program, which is designed to ensure successful outcomes for our more challenged students. To date, this program is proving to be very effective and is having very positive impact on student retention. Our admissions representatives are becoming more comfortable working in this new environment, which we expect will lead to improved conversion rates over prior year. Easier year-over-year comparisons, coupled with the contribution of three new schools and the expansion of our new Denver facility last year make us optimistic we will return to growth in the second half of 2012. We'll continue to manage our expenses as well to ensure that we remain profitable through this period.

We continue to operate our institutions with the ultimate goal of improving our students' success outcomes which in simple terms to us means improved graduation, placement and debt repayment success for our students. While our visibility continues to be limited, we are optimistic regarding the long-term view of the Company as we anticipate an eventual end to this uncertain environment. We ultimately expect to emerge from these challenging times an even stronger Company, and as I stated earlier, a leading provider of vocational, career and technical programs in this country. Moreover, we believe that demand will always exist for vocational and technical training in areas like nursing, medical office, welding, automotive and other skilled trades.

Now in regards to our new student admissions, new student starts remained depressed in the fourth quarter as we reduced manpower and continued to feel the impact of the economy, which has made consumers hesitant to take on debt. In addition, we felt the impact of a reduction in ATB students as a percentage of our total population. We required increased cash contributions from students in order to manage our 90/10 ratio, and we continue to train our admissions personnel to work under new rules while also changing incentive compensation practices. All of these actions had an impact on our new student starts for the fourth quarter and the year.

As we look forward, we are pleased with our progress so far in the first quarter of this year. And while we still have three weeks of new student starts to come in, our starts are tracking to our expectations and trending toward flat to maybe 2% down over prior year, all while fully operating under new rules and processes. We see this as a major positive step toward our long-term rebuilding process. A couple of additional points in regards to student starts. ATB starts and students continue to be enrolled until June 30, however at much lower rates than in past quarters. ATB students were only approximately 5.8% of our total population at December 31, 2011. We'll also launch a GED preparation and testing programs at all of our campuses to be in place no later than May 1 in order to assist former ATB students who start school after June 30, 2012, when these students are no longer eligible for Title IV funds.

Now in regards to market demand, despite the lower admissions conversions experienced in the fourth quarter and year, we feel that, based on our ability to generate inquiries, our front-end demand characteristics for our programs has not changed substantially. In the fourth quarter, we drove lower-cost, web-based inquiry sources to approximately 90% of the quarter's total inquiries versus a more typical 80%. We reduced expenses for the first two months of the quarter by lowering the amount of higher cost TV ads, and overall our fourth-quarter inquiries were down over prior year about 17% based on these actions.

Looking forward and based on what we are currently experiencing, we believe there's enough market interest in our programs adequate to achieve our expected new student starts in Q1. January 2012 inquiries have declined approximately 16% based on our new spending trend. However, enrollment conversions have improved approximately 70 basis points from last year, same period, to help drive flat performance, as I mentioned earlier, for Quarter 1. I should also note that there are still some affordability issues pushing start decisions out further than normal for some students and their families.

Now in regards to student persistence, we've seen improvements in new student persistence within the first 90 days, especially in our schools where we made the earliest changes to high risk student admissions. We realized about a 5% improvement in the interrupt rate for new students over this 90-day period. In the fourth quarter, our net interrupt rate was 8.8% versus 12.2% prior year, or a 340 basis point improvement. For the full year, net interruption improved across the entire Company to 24.4% from 26.7% in the same period prior year, or a 230 basis point improvement, all accomplished against an interrupt headwind caused by program structure and program length changes related to 90/10 management. We are very pleased with this performance and continue working on executing our pre-orientation and early student engagement program to ultimately benefit completion, placement and repayment rate outcomes for our students and the Company.

Regarding job placement, we invested in our placement services in 2010 through '11, as we worked against yet a different headwind related to unemployment rate caused by a prolonged economic downturn. At the beginning of 2011, we replaced leadership in this area and instituted additional training and performance tracking systems to assist graduates in finding employment. Furthermore, all incentive-eligible corporate managers have a career placement outcome as a part of their incentive plan to ensure we are all focused on supporting our campuses and students in this important process. Our final placement rate for 2011 is forecasted to be 72.2% as compared to about 71% in 2010. This improvement, although modest, gives us confidence in our ability to train students for vocational careers through the current economy.

In regards to our growth-related actions, we slowed our growth-related initiatives in 2011, while we better understood the new environment. We did, however, continue to manage a number of initiatives already launched, focused on growth and our strategy. We saw some incremental contributions from our three new campuses in Columbus, Cleveland and Hartford. In addition, we opened our new, expanded Denver facility in July. We expect these new campuses and expanded programs to contribute to our incremental new student starts in 2012.

We are fine-tuning our online delivery platform to move away from a heavy retail approach to an internal support system for our ground infrastructure and select partnership new start opportunities through our regionally-accredited programs. We are currently pursuing a number of small acquisitions and program extensions which we feel will drive growth in our core markets, increase our percentage of non-Title IV revenue and improve our outcomes. We expect these acquisitions to close in the first half of 2012. These acquisition opportunities, although small, will give us a platform for short, cash-based programs that fit our strategic model, assist with 90/10 and can be replicated across many of our schools, and we'll continue to launch new, select programs that meet our feasibility criteria. They'll probably remain in the nursing area in 2012.

In summary, we've been actively managing our Company internally to operate in a new environment. We've also spent time externally to ensure that our mission and our impact of Lincoln programs on students and communities is well understood. As a member of the APSCU Board of Directors, I'm also engaged in the matters of this sector to ensure our broader message is heard. For Lincoln, we clearly understand who we are. We understand who we serve, and what opportunities lay ahead. Our mission has been sharpened by necessity and our strong regulatory standing has positioned us to move forward. Our educational team and our many school operators understand the mission and are working hard with renewed energy to achieve it.

So finally, as you can see, we've been very busy executing on initiatives which have positioned us well in a time of uncertainty. We've managed 90/10 and cohort default rate risk factors. We've sharpened a strategy that will allow us to compete in a unique segment of education and training. And we have a long-term strategy to position Lincoln as a market leader. We believe strongly in vocational training and in the viability of skilled trades, training careers. We feel that our Careers that Build America campaign will drive our Company's strategy long-term. Now I will turn the call over to Cesar for our financial review, including our outlook for the first quarter and year. Cesar?

Thank you, Shaun. Good morning, everyone. As we disclosed in our press release earlier this morning and as Shaun stated in his prepared remarks, our fourth quarter culminated the end of a very challenging year. Our fourth-quarter results were negatively impacted by entering the quarter with approximately 10,600 less students than we had in the fourth quarter of 2010. This small [carry in] population resulted in a 30.8% decrease in revenue.

Other key highlights of our fourth quarter include, our operating margin decreased to 10.5% for the fourth quarter of 2011. As stated above, the decrease in operating margin is a result of a decrease in our average population for the fourth quarter of approximately 34%. This decrease in average population resulted in our capacity utilization decreasing to 42% for the fourth quarter of 2011 from 70% in the fourth quarter of 2010. Earnings per diluted share decreased approximately 70% to $0.28 a share from $0.93 a share from the fourth quarter of 2010. We generated free cash flow of $2.4 million, down from the $38.5 million we generated in the fourth quarter of 2010. We paid a $0.07 quarterly dividend from December 31, 2011. We finished the year with $26.5 million in cash and cash equivalents and no borrowings outstanding under our credit agreement.

Now turning to our full-year results. Revenues decreased by $126.9 million or 19.8% to $512.6 million for 2011, from $639.5 million in 2010. Revenues were negatively impacted during the year by us entering the year with approximately 4,700 less students than we had in January of 2010, and continued declines in student starts throughout the year. This resulted in a 22.9% decrease in average population for 2011, as compared to 2010. Average revenue per student increased 4% in 2011 from 2010. This was primarily due to tuition increases which averaged about 3% during the year and from the restructuring of some of our programs which resulted in the acceleration of revenue. Operating income margin for the year ended December 31, 2011 decreased to 6.8% from 19.2% for the year ended December 31, 2010. The decrease in operating income was related to decrease in our average student population, which resulted in capacity utilization of 48% at December 31, 2011 versus 65% at December 31, 2010.

The decrease in capacity utilization produced approximately 600 basis points of negative leverage in educational services and facility expenses and 640 basis points of negative leverage in Selling, General and Administrative expenses during the year. Cost per start increased 50.2% for 2011 to $4,091 from $2,723 in 2010. Cost per start was negatively impacted during the year by our decision to limit the number of ATB students we would enroll in our schools, the restructuring of certain of our programs and a requirement that students contribute more cash towards their education. Bad debt expense for the year was essentially flat at 6% of revenue.

All of the above factors resulted in diluted EPS for 2011 decreasing to $0.79 from $2.79 in 2010. EPS for 2011 and 2010 includes goodwill impairment charges of $0.31 and $0.25 per share, respectively. We generated cash flow from operations of $36.8 million for 2011, down from $114.5 million in 2010. We finished the year with $26.5 million in cash and cash equivalents and no borrowings outstanding on our credit agreement. Net accounts receivable at December 31, 2011 were $25.3 million as compared to $40.5 million at December 31, 2010. And net property and equipment grew to $180 million at December 31, 2011, as compared to $172.4 million at December 31, 2010. Capital expenditures for 2012 are expected to be about 5% of revenue.

Now turning to our loan program. As of December 31, 2011, loan commitments to our students, net of interest that would be due on the loans to maturity, were $20.2 million as compared to loan commitments of $15.4 million at December 31, 2010. For 2012, we expect that these loan commitments will increase by $2 million to $5 million.

As of December 31, 2011, we had capital lease obligations of $26.8 million, which were assumed in connection with our acquisition of the Baran Group of schools. We finished the year with shareholders' equity of $239 million, up from $222.5 million at December 31, 2010. And shareholders' equity at December 31, 2011 reflects approximately $1.8 million of dividends [in cleared].

I will finish my prepared remarks by providing our current outlook for the year 2012 in the first quarter. Our guidance is based on our current expectations and reflects the impact of the changes we made to our business in order to ensure that we are prepared to meet what we believe are the Department of Education's focus on improving student outcomes. With that, we expect revenue of $440 million to $460 million for the year, representing a decrease of approximately 10% to 14% over 2011. We expect, for 2012, diluted EPS of $0.25 to $0.40, representing a decrease of approximately 49% to 68% over 2011. We expect an increase in student starts of 6% to 8% over 2011. Student starts are expected to stabilize during the first half of 2012, and increase in the second half of 2012. For the first quarter of 2012, we expect revenues of $102 million to $105 million, representing a decrease of approximately 29% over the first quarter of 2011, and a loss per share at $0.18 to $0.22. Guidance for the first quarter of 2012 is based on flat to slightly negative student starts over the same period in 2011.

Finally, the Board of Directors has set the record and payment dates for the dividend for the first quarter of 2012. The cash dividend of $0.07 per share will be payable on March 31, 2012 to shareholders of record on March 15, 2012. In conclusion, we believe that 2012 will be a rebuilding year and we expect to return to positive growth in the second half of the year. We will continue to balance our growth objectives with our responsibility to deliver quality education and to enhance student outcomes. Now we will open the call to your questions. With that said, I would like to turn the call back over to the operator. Operator?

Thank you. (Operator Instructions) Your first question comes from the line of Gary Bisbee with Barclays Capital. Please proceed.

Hi, this is Zach Fadem for Gary. Your guidance for the first quarter implies about 1,800 basis points in operating margin contraction. Can you give us a sense of how that breaks out across line items or if it will be similar to the Q4 trend? Thanks.

Yes, Zach. This is Cesar. As you know, in the first quarter we obviously ramp up our expenses to ensure we may meet the expected enrollments that come. As far as individual line item guidance, I would say it would follow what we did in the fourth quarter.

Okay. I have a second question. You mentioned that you are going to ramp up a new GED program for ATB students. Can you give us a little bit more color on that as far as how you're marketing the program and what potential pricing might be?

Zach, this is Shaun. Let me handle that one. I'll just say that before we launched this program, I will go short on details and we will have more details once it's launched, but the idea is to give students a little bit more runway if they're an ATB student, to prepare for the GED test and then take the test either at one of our facilities or a facility that is close by that we can help them get to.

As far as cost, it is going to be minimal to the students; and to the extent that a student successfully gets through the prep program, the cost for the test may be taking care of. We don't want that to be a burden to the student. But we do want to facilitate an opportunity for them to get prepared and get tested in as short a period as possible and then enrolled in Lincoln programs.

Okay. And if I could just sneak in one last question. What is -- did you guys provide guidance for bad debt for '12? I'm sorry if I missed that.

We did not, but we expect it to range about 6%.

Okay, thanks a lot.

Thanks, Zach.

The next question comes from the line of David Chu with Bank of America Merrill Lynch. Please proceed.

Good morning. Thank you. Guidance suggests that starts are expected to return to double-digit growth in the back half of the year. Based on these expectations, how many quarters of post returning-to-start growth do you expect enrollments to turn positive?

I'm sorry, could you restate the question, David?

Yes. Starts are expected to return to growth in the back half of the year. I'm just wondering when you guys expect enrollment to turn positive based on that guidance?

As you know, starts and enrollment are pretty much -- they correlate. I would say that what we are seeing right now is enrollment trending positive. Between enrollment and start, we do still have some delays as I mentioned in my prepared remarks, because of affordability, students taking on debt or hesitancy to take on debt, et cetera. So there's a little bit of a lag in the starts turning positive, but we've already seen some positive movement against prior-year in enrollment. So we will continue to see that, we feel, for the first half. We feel that positive, incremental growth in enrollment will accelerate in the second half and thereby produce positive starts in the second half.

Okay. Also, you and your peers continue to allude to the challenging economy as a reason for a weakness in student demand. I'm just wondering if you're starting to see prospective students now less willing to enroll, because the labor market is improving?

We have not really seen that. I will tell you this, the way we look at demand is twofold. Number one, on the front end as we generate inquiries, we've not seen that demand subside, only when we force it down because of spending. But on the backside, the demand has wavered just a little bit, mostly because of the student's inability to finance the gap; and our gap is a little wider, because of our managing 90/10. But we haven't seen anything that gives us an indication that demand is wavering because of the job market.

Okay. Last question. I think in the last quarter's call, you talked about increasing marketing costs and possibly headcount of enrollment counselors; is that still expected in 2012?

It is. Remember we ramped down marketing costs and manpower. I would say we probably took manpower down about 15% throughout 2011. We will bring that back slowly in the first half and then ramp it up in the second half. And so, we do still expect that in order to achieve the goals we set for ourselves.

What type of increase are we talking about in terms of headcount by year-end?

Yes, I can't give you that exact number, David, but what we are anticipating is all factored into the guidance that Cesar gave.

Okay, thank you.

Thank you.

The next question comes from the line of Jeff Silber with BMO Capital Markets. Please proceed.

Thank you so much. I just have a follow-up from the last couple questions. In trying to model-out the expense line items for the rest of the year, and if we use the first-quarter 2012 as a base, where would we be seeing most of the increase?

SG&A.

SG&A, okay, great.

Just remember that what happens in the first quarter, Jeff, is that we ramp up both our sales and our marketing efforts. So specifically our marketing usually goes up significantly in the first quarter from what it was in the fourth quarter of the year.

But in terms of keeping that throughout the remainder of the year, it should be increasing from first-quarter 2012 levels?

No, it should be -- well again, our marketing spend is seasonal, it's usually somewhere around flat for the first three quarters and it goes down in the fourth quarter.

That's helpful.

As well, you should expect to see additional administrative expenses as we begin the new year for salaries and benefits, et cetera.

All right, that's great. What type of tuition increases are planned for this year?

3%.

When does that take place?

It took place January 1.

Okay. I just wanted to double-check on that. Just one more numbers questions. For taxes and share count for both the first quarter and for the year, what is implied in your guidance?

Taxes is 40.5%. And share count should be somewhere around 22.5% for the year, 22.6%, somewhere around there.

Shaun, you talked about some acquisitions, and I know you mentioned that they were small. If we can get a little bit more color, I'm just curious what type of programs you might be adding. Thanks.

I will share this. These things are all in process. I can't give you too much details, Jeff, other than saying, we're looking at shorter programs that are not Title IV-eligible. So they are all going to be, or for the most part, around a certain amount of hours that we would consider a short program. The goal is to acquire platforms so that we can grow these programs that will take us away from a reliance on Title IV dollars.

I would say that our vision down the road is that no matter what happens with 90/10, whether it gets better or worse, we would like to have more of our revenue coming from, or at least increased, non-Title IV revenue year over year for the next five years or so. And accelerating a platform to do that, just puts us in a better position. So I think you could expect to see programs that are not typical in length to Lincoln programs, but fit our vocational approach and mission.

And they can range anywhere from 200 to 400 hours for a particular student, and in addition to that, there might be some that are a little longer. But these are small acquisitions that give us an opportunity to kick-start it and then also replicate where it makes sense around our footprint.

That's very helpful. Thanks so much.

Thank you.

Next question comes from the line of Scott Schneeberger with Oppenheimer.

Following up on the tuition-pricing question. What are your longer-term thoughts there, Shaun, with regard to maybe -- I'm not forcing you into it, but looking out to 2013 and beyond with some regulatory changes. Do you view the 3% ballpark as what it is going to be consistently going forward?

I think we feel that we can sustain the 3% long-term just because of where we are priced today. We are not highly priced. Many of our programs are short. We don't necessarily have a Gainful Employment issue or anything like that. As it relates to 90/10 and other potential regulatory changes, we have to see what happens from the Department of Ed's side before we change our long-term expectations on tuition pricing. But I will let Cesar jump in as well.

Yes, I would agreed. I think for the time being, all we are looking to do, we don't pass on 5%, 6% tuition increases. We just look to increase our cost of doing business. Everything goes up every year, whether it is your benefits, or whether it's your rents, et cetera. So all we are looking to do is to pass that cost, not anything else. So the 2% to 3% we think is reasonable, and we do have room under the Gainful Employment to be able to continue to do that, so until we see some additional changes that might come out or might not, that is our intent. Obviously if we see something new, we will adjust accordingly.

Thanks. I noticed capacity utilization down to 42% in the fourth quarter and that was down from 70% year over year. Obviously now you have these new campuses open and the Denver expansion. Could you speak a little bit to what is occurring there? Might we see how much that plays into the 42% number? And are you considering further expansion? Will you allude to acquisitions. Will we see more expansion or might we see contraction of the branch system going forward?

Let me jump in real quickly and just say that the new campuses we've opened are probably smaller than our typical campus footprint. And so, they are not adding dramatically to our overall capacity as a Company. Secondly, I think the Denver expansion was not just an expansion on a basic -- on the current programs. It was to add three new programs to that campus' programmatic lineup, which will all contribute in 2012 until we feel that that capacity expansion will be beneficial. I will turn it over to Cesar for any more color on this.

Yes, again, I think we would look to expand in different markets for select vocational programs. I think as we look at markets, secondary markets, partnership with employers make sense to us. But again, all small footprints. Again, we would continue to look to add programs to our existing facilities in order to improve that capacity utilization. I think one of the goals of these acquisitions that we talked about is that we replicate some of those to schools where it makes sense and increase that capacity utilization as we wait for the students to rebound in the second half of the year. So that is our current goal.

Thanks. A couple more for me if possible. Could you speak a little bit to where the leads, inquiries are coming from just to compare and contrast high school students versus a few-years-older students and just give us a feel for that? Thanks.

We expect for 2011 -- well, 2012 will match 2011. We feel that about 20% of the overall enrollments and starts will come from recent high school graduates, so high school graduates that are graduating the most recent year. As far as where we generate most of our media inquiries, in a normal year it's probably around 80% web-based. And of that 80%, about 50% of them come from third-party aggregators; and that's actually down from about 60%. We expect that to continue.

The fourth quarter was an anomaly for us, in that we went heavy on the web. It was a more cost-effective approach. Plus conversions were down, and so we sort of ramped down our TV spending, but that is back up, and so it'll trend more normally. By the end of 2012, you should expect that it'll be about 80% web-based inquiries, about 10% TV, and another 10% other.

Thanks, that's helpful, and then the last one. Cesar, anything material, one-time charges, be them unique or be them still related to campus start-up or anything that we should have in mind that's included in the guidance? Thanks.

Our guidance does not include anything. Obviously we always need to keep in mind that changes in market capitalization, the Company could trigger additional impairment losses down the road. We were fine as of December 31. We don't have an issue. Our guidance also does not include any impact whether on revenue or operating income or EPS for the acquisitions that we will be undertaking in the first half of this year. We will provide that to you at that time. So again, no, the guidance does not assume any one-time charges. We do not expect any. But some of those things are outside of our control.

Great. Thanks.

Next question comes from the line of Jeff Lee with Wunderlich Securities. Please proceed.

Hi, thank you very much. My question is how does visibility on starts compare with last year compared with a couple years ago? If your visibility is worse, what specific components are different? Is it [lease] predictability, conversion predictability or something else?

If we are looking at those factors that are within our control, our visibility is better. You recall at the beginning of last year, we thought that once we stabilized all of our changes and if our front-end, demand characteristics stayed somewhat stable, we saw an increase in conversions coming at the beginning of this year; and that's come to pass.

So from a performance level of visibility, we feel pretty good. Now in terms of what can happen from a competitive standpoint, seasonality, how election coverages affect our media buys, et cetera, some of that remains unpredictable for us and with a little less visibility. But I think we are in a better position than we were last year. There was a lot of uncertainty in the markets. There's a lot of bad news out there regarding the sector, and we feel that that's all not completely gone, but relieved. So our visibility is a little better and that's what is baked into our forecast for the year.

Great. Thank you.

You're welcome.

Your next question comes from the line of Jeff Meuler with Baird. Please proceed.

Good morning. I was just wondering if you could talk anymore to the Q1 starts, both in terms of what you're seeing thus far in the quarter and the guidance? It's a pretty marked improvement from where you were in Q4, and it seems like a lot of the sectors that you're talking about that should drive the starts' improvement, you should have seen some of that impact in Q4.

So asides from the [count in aneesium], I was just wondering if you could provide any more color on what you are seeing there?

Jeff, let me go back to Q4 for a second then. Our Q4 starts were driven primarily by a reduced marketing spend, lower manpower and lower conversion just based on the fact that we were marking the end of a pretty rough transition period, with lots of change, lots of training of representatives, et cetera. We also felt the continued impact of reduced ATB starts and some 90/10 efforts that we had in place that were a little more aggressive than we had in prior years and that we have now.

We really needed to make sure that our one OPE ID number that had eight schools attached to it did not cross a 90/10 threshold for the second year. That affected front-end starts, but based on increased cash contribution expectations for students. That process came to an end along with all of the training, et cetera. So [Q4] really marked the end of a pretty tumultuous period of change.

What gives us confidence in Q1 is essentially our admissions managers and reps are out of that change and fear and retraining mode. They are essentially back to operating. Their conversions have come back. We have spent up in marketing again to more normal levels. Although ATB students continue to be enrolled, they are enrolled at much lower rates, especially considering the fact that Title IV goes away for them down the road.

As far as Q2 goes, it's much of the same outlook as Q1. All in all, there are a number of factors that were at play in Q4 that are not at play today, which gives us confidence and you can see it in the forecast we're giving you for Q1 starts.

Okay. Thanks for that. How close to 90% was that OPE ID with its goals that had been above in 2010? How close was that in 2011?

It was at 89%.

Okay. Finally, you guys gave the percentage of total enrollments that are ATB students, but in the recent quarters, what percentage of starts have been coming from ATB students?

I don't have an exact number for you on that. But I will tell you it's lower than it has been historically. It will probably stay somewhat stable for Q1 and Q2; then again, going away in Q3 and Q4. But the GED program will come in and take place there.

Okay. Thanks, guys.

(Operator Instructions) Michael Dahl with Credit Suisse.

This is Michael on for Kelly. Just have a few quick questions. Thanks for providing the two-year, CDR number. But we were wondering if you guys had any commentary in regards to the three-year number that was just released.

Actually our K will be filed on Friday. Those numbers will be there. It came in pretty much as we anticipated, within the ranges we expected. I don't have those numbers in front of me, but they will be -- we have a comment on the K that gives you the range. And they think the range -- well, I don't want to say, because I might get it wrong. But they were obviously higher than the two-year rates. But we'll give you the ranges within the K that will be filed on Friday.

Great. Thanks. My other question was just in regards to persistence. It seems like you guys are pretty hopeful that that is going to improve in fiscal-year '12. But given your revenue guidance and the program changes that you guys have made, I was just hoping that you could provide some more commentary around that. It seems as though your guidance implies a pretty nice improvement in fiscal-year 2012. And I was also just hoping that -- I know last quarter you guys touched on persistent rate for the students within their first 90 days.

Yes.

I was wondering if maybe you could update us on where that is today.

Yes, I covered persistence in my prepared comments, Michael. And just to recap, we saw pretty good improvement in Q4. The way we look at persistence, the measure we use is a net interrupt, those students on a net basis leaving school. And the net interrupt rate for the fourth quarter over the prior-year fourth quarter improved by about 320 basis points, which we thought was very, very good.

And then for the year, the net interrupt percent for all schools improved by about just over 200 basis points. Those are meaningful numbers to us. In addition to what we are seeing in the first 90 days, we are seeing improved persistence. So all in all, we expect that kind of retention or persistence improvement to stabilize at a very, very good rate. One of the reasons we are very confident is the earlier the pre-orientation that we started over a year ago for students to ensure that they were academically and behaviorally sound before they started Lincoln programs.

What we've added to that in 2011 is what we call our Early Student Engagement, or our ESC, program which assigns a mentor to students. There's a tracking metrics; and importantly in that process, students are introduced to job placement and job readiness programs in addition to financial literacy and loan obligation instruction. Everything they're going to need for not only being successful within their program, but also when they leave school.

The ESC program and the early orientation have provided great benefit to the students and the schools in retaining them; and we feel that over the long haul that will all be reflected in our completion rates, which is why we started those programs in the first place. And they will also improve placement and loan repayment down the road as well. That is the summary on persistence. The numbers we saw in 2011 give us a lot of confidence and those programs will only get better in 2012.

Great. Thanks for the commentary.

Your next question comes from the line of Alex Paris with Barrington Research.

With regard to the acquisitions that you are looking at, it looks like content or curriculum or programs to be put into the existing institutes to help with capacity issues, sounds like there's more than one. It sounds like you're going to close these in the first half, but they are not big. What's your expectation in terms of the impact on the financials? Will they be dilutive, neutral, accretive?

Our expectations is that it'll probably be slightly dilutive in the first year as we apply purchase accounting. But again these are several acquisitions; they are not significant in size. We are probably talking somewhere around $7.5 million or so. But again they do provides us the programs. These will be standalone entities, but they do provide us the opportunity to replicate those programs into our existing schools. So really, what we are buying is the programs that these institutions have so that we can further replicate them.

And pricing on these acquisitions, without getting into detail, I assume they're so small, they're not represented by an investment banker and you're paying auction-type prices? (multiple speakers)

No, they are not. They are fairly small and pricing is not what you typically would expect. Obviously it's completely different from what historically we would expect.

Okay. The goal there would be obviously not only to soak up some capacity utilization, but also to help in the 90/10 calculation?

That is correct.

That is. But also, let me just say, that I think we would expect the expansion of these program and the broader 90/10 benefit to come in subsequent years. 2012 was really a year to just learn more about them, get them on their feet, look at the management, et cetera, strengthen them to the best we can. And then look at an expansion plan subsequent to 2012, just to set your expectations the right way.

Great. Did you give an exact number on the two-year CDRs?

19.15%.

That is a 10 percentage point improvement or a 10% improvement from last year?

Yes, the official rate that was originally released I believe was 21.26%.

Prior year.

Prior year, yes.

And then with regard to the guidance for the full year, especially in the bottom line, it is a pretty wide range. What would make you be at the higher end versus the lower end?

The reason it's a wide range is because it's such a low number. It doesn't take a heck of a lot to drive that number up or down, because we are coming from such a low base. That is really the only reason is that you are not talking -- if you're talking $0.25, you are talking less than $5 million of net income. It doesn't take a lot to move it one way or the other.

With regard to the starts, you said stabilization in the first half, the first quarter down, second quarter may be moving towards flat, and then positive in Q3 and Q4; is that how I should think of that to get to 6% to 8% for the full year?

Yes, I think we are looking at flat to slightly down for the first quarter; and again, I think for the second quarter, it's still too early to tell, but it might be flat to slightly down or slightly positive as of right now. And yes, we certainly would expect the third and fourth quarter to be positive.

To follow-up on a previous question, somebody asked about lag. What is the typical lag before a turn-up in new student starts finds its way into total. Is it two or three quarters, or is it three or four quarters?

It's usually two or three quarters.

Good, that's very helpful. Thanks, guys, and good luck in 2012.

Thanks, Alex.

At this time we don't have any further questions. I would now like to turn the call over back to Shaun McAlmont for any closing remarks.

Thank you very much. Thanks, everyone, for joining us on the call today. As you can see, we've taken important steps to improve the long-term strength of our institutions and the Company. We are working within the evolving regulatory matrix to position Lincoln to really be the leader in vocational and technical education. We look forward to updating you on our next quarter's results. And I would like to thank you and wish you a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.