Lincoln Educational Services Corp (LINC) 2012 Q2 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Quarter 2, 2012 Lincoln Educational Services Earnings Conference Call. My name is Marianna and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question and answer session toward the end of this meeting.

(Operator Instructions). As a reminder, this call is being recorded for replay purposes. And now I would like to turn the call over to Shaun McAlmont, President and Chief Executive Officer of Lincoln Educational Services. Please proceed, sir.

Thank you Marianna and good morning 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. The 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 forecast estimates and summary information contained in this earnings release.

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 SEC. All forward-looking statements are qualified in their entirety by this cautionary statement.

This morning I will provide an overview of our Company's operations and environment. And Cesar will review our second quarter financial results and provide our outlook for the third quarter and full year 2012. And we will then take your questions.

As an overview of the environment, I felt it important for me to address the final industry report issued by the Senate health committee this week, which was essentially a one-sided attack on our sector of education. It failed to share any positive elements of vocational training, especially the types of training Lincoln has offered to hundreds of thousands of people over a 66-year period. And the report also reflected outdated information.

Furthermore, the report did not focus on the many changes we've made to our operating model over the past two years to ensure our students achieve success according to the efforts they put into their education. We have carefully outlined as a part of this public forum over the past two years the many steps Lincoln schools have taken to improve our student completion and default rates at the expense of student start growth, yet with no mention in the report.

The heavy pressures applied to this industry forced us to move away from an open enrollment process, which historically gave many people a second chance in life to become automotive technicians, welders, heating and air conditioning technicians, or nurses. Over the years our graduates have made great careers working at the many auto dealerships and private service shops around the country. You will find Lincoln grads in hospitals and long-term care facilities. And many come to your homes and businesses to fix your heating and air conditioning when it needs repair.

We know that we're working with a challenged demographic, many of whom for some reason did not succeed in or initially choose traditional schools. We gave these students the opportunity to succeed, and the reality is that not all of them could find success. Because these students must go out and work in an environment where their skills are measured by trade certification tests or on-the-job mastery, our training rigor cannot be compromised to have more students complete.

But many students lack motivation and some need more coaching and remediation, which we will provide. And in the end, some may refuse to pay back their debt to the government, so we assist them with financial literacy as a part of our mentoring.

We accept the responsibility for the training and support of the students who enter our doors. However, over the past two years, we have said no to many students approaching us for an opportunity to better their lives and the lives of their families. We've excluded many students who could not demonstrate an early commitment.

And since July 1, we will now deny opportunities to ATB students who will not have many postsecondary training options available to them outside of obtaining a GED, which will prolong their entry to the workforce.

Because of these actions, we experienced significant declines in new student starts last year as we implemented change after change to comply with new federal rules and to manage the existing 90/10 and Cohort Default Rules. We laid off employees and we worked in a cloud of uncertainty as the court of public opinion also weighed in based on political scrutiny.

Although we still feel the fiscal pressures of last year's declines, we have emerged as a stronger, more resolute and disciplined Company. We know there are most likely additional changes to come. However, we know that as we work with a smaller population, increased understanding of the new rules and continue to see improvements in completion, placement, and default rates that Lincoln will emerge as a national leader in vocational education, despite some of those on the health committee's best efforts to say otherwise.

Interestingly, as we understand the health committee's stated mission, we agree with it. However, the approach used by some on the committee to further regulate our sector was, in our opinion, less than fair.

What we do know is this. As long as there are students seeking careers in the skilled trades and as long as traditional nonprofit and educational institutions continue to ignore this need, there will be a significant segment of the population generating sustained long-term demand for the programs Lincoln offers.

Now, as an overview of our Company, let me reiterate our vision which is squarely focused on becoming the leading provider of vocational training in the country.

Our mission is based in our students' career success, and our strategy includes three components to achieve this mission and vision. First, improving our student outcomes; second, maintaining a strong record of regulatory compliance; and third, returning to sustained new student start growth.

Overall we feel that our approach, which we have honed since 1946, has been sharpened based on the new reality for our industry. Our collective vocational expertise, the introduction of short cash-based programs and improving student performance metrics give us confidence that we are on track toward our targets.

As we stated previously, we introduced a pre-orientation program in 2010 which was designed to identify high-risk students. We added the early student engagement mentoring program in 2011, which in addition to the orientation program is focused on improving completion rates through student support and early retention efforts.

Our retention performance has improved for four consecutive quarters, giving us confidence that our completion rates will see the same improvement. We're focused on our student placement in terms of quality and quantity of working graduates. Ultimately default rates will improve as student completion rates improve. We've branded the collection of these student services the Lincoln Edge, a program that will serve as a competitive advantage for the Company long-term.

To reinforce the 90/10 improvement component of our strategy, we acquired Florida Medical Training Institute in April. Although small, it will positively impact our 90/10 ratio as tuition revenue from students in these short training programs does not rely on federal funding.

We ultimately expect to emerge from these challenging times an even stronger Company, well positioned to address the skills gap in this country. Moreover, let me say that we believe demand will always exist for Lincoln's programs in areas like nursing, paramedics, welding, automotive and other skilled trades.

Now, in regards to our new student admissions, our corporate and campus admissions teams have done a fantastic job adjusting to recruitment in this new environment. We have trained all representatives and managers. We have thoroughly on-boarded new admissions personnel. We consistently test product and process knowledge and we continue to aggressively mystery shop our teams.

For the quarter, new student starts increased by 18.4%, which includes the number of students who decided to start early by a few weeks. Despite these early starters, on a comparable basis we surpassed prior-year by 13%. It should be noted that the addition of FMTI and other short program new starts are not counted in these numbers.

As we look forward, our third quarter will see a slight decline against prior-year performance, primarily attributed to the lack of ATB starts, which totaled about 390 students last year third quarter. In addition, our high school enrollments are flat against prior-year. Also, we no longer enroll online starts and we have stopped enrolling at seven campuses. Despite all of these, we expect to stabilize our starts year-over-year, which is a major positive step toward our long-term rebuilding process.

We don't have visibility into the fourth quarter and we expect pressure to remain on student financing and lack of ATB starts. This said, we're working to offset this impact through continued improvement in year-over-year conversions and our growing GED program.

Now in regards to market demand, Lincoln directly addresses the skills gap in this country. We are not only different than our traditional counterparts, but also unique within our sector, which we feel has slowly graduated away from its vocational roots. So, to sustain long-term growth in this new environment, we will differentiate our offerings by focusing on this important sector within education by promoting our Careers that Build America campaign.

Furthermore, success in this arena will require a keen ability to succeed with more challenged students who are many times attracted to these fields. In short, we feel that long-term demand characteristics for this training will continue to be strong. Moreover, we assert that the competitive market dynamics for vocational training will shift in our favor as we continue to hone our Lincoln Edge program and add short-term training programs.

For the second quarter, our front-end demand characteristics in terms of new student inquiries adjusted correspondingly to our spending levels. We spent 10% less and generated about 20% fewer inquiries against prior-year. In terms of enrollments, however, we improved our conversion of these inquiries by about 100 basis points.

25% of our advertising dollars were spent on TV, which generated about 11% of our inquiries for the quarter, while 55% of our spend was in web-based channels which generated 75% of our new starts for the quarter.

Looking forward and based on what we are currently experiencing, we believe market interest remains adequate to match our prior-year new student enrollment performance. However, I should note that there are still affordability issues pushing some start decisions out further than normal for some students and their families.

Now in regards to student persistence, we've seen an improvement in overall student persistence in the second quarter and expect the positive trend to continue into Q3. This marks the fourth consecutive quarter that we have seen improvements in retention as measured by our net interrupt rate. For Q2 our net interrupt rate was 11.2% versus 12.1% prior year, or a 90 basis point improvement.

This significant improvement is driven by our early student engagement efforts which are functioning well in all of our campuses, and which we hope will start influencing graduation rates in 2013. This second quarter performance follows a 2011 full-year improvement of 230 basis points and a first quarter 2012 improvement of 300-plus basis points, all accomplished against a retention headwind caused by program structure and program length changes related to 90/10 management and other affordability issues faced by in-school students.

We're very pleased with this performance and continue working on executing our pre-orientation and early student engagement programs to ultimately benefit the overall completion, placement and repayment rate outcomes for our students and the Company. Our faculty have done a great job in not only working with the students to meet industry certification benchmarks, but also in helping with orientations, mentoring and financial literacy.

Now regarding job placement, we strengthened our placement leadership and services in 2011. And as we continued to work against high unemployment numbers across the country, we also added training and performance tracking systems to assist graduates in finding employment.

Furthermore, we have added social networking elements to our training and services. Our job placement process is very straightforward in relation to the areas we train. However, in cases where we identify any weakness in our process, we thoroughly investigate and make appropriate and immediate changes.

Our final placement rate for 2011 is 72.2% as compared to 71% in 2010. This improvement, although modest, gives us confidence in our ability to train students for vocational careers through the current economy.

In summary, the industry has been faced with unprecedented challenges. Yet our teams at Lincoln have managed each element of the change in compliant and effective ways to the point that we adapt early and now we focus on year-over-year improvement and a new operating model. We're still working with an academically challenged population. However, we're seeing successes every day.

Now I will turn the call over to Cesar for the financial review, including our outlook for the third quarter and year. Cesar?

Thank you, Shaun. Good morning, everyone.

As we disclosed in our press release earlier this morning, on July 31, 2012 the Company's Board of Directors approved a plan to cease operations at seven of our campuses. The adjustments we made to our business model to better align with the Department of Education's increased emphasis on student outcomes, and our efforts to comply with the 90/10 Rule and Cohort Default Rates greatly impacted student population at these campuses.

In addition, the current economic environment and regulatory changes under the Consolidated Appropriations Act of 2012, signed into law on December 23, 2011, which eliminated the ability to enroll -- ability to benefit students have made these campuses no longer viable. Accordingly, the Company has decided to cease operations at these campuses and has stopped enrolling new students.

For 2012 these campuses were expected to contribute approximately $14.5 million in revenue. These campuses were expected to contribute approximately 570 students to second half of 2012 student starts. We anticipate that the Company will incur additional pretax expenses during the second quarter of the year of approximately $11.4 million to shut down these facilities.

Once all operations have ceased at these campuses, the results of operations will be reflected as discontinued operations in our financial statements. We anticipate that the impact of this decision will be accretive to earnings in 2013 by approximately $0.21 per share.

For the second quarter, student starts increased by 18.4% as compared to the second quarter of 2011. Student starts for the second quarter include some students who were originally scheduled to start in July 2012 but started in late June of 2012. Excluding these students, starts for the second quarter were up approximately 13% versus the second quarter of 2011.

The deteriorating start numbers we experienced during 2011 resulted in us commencing the first quarter of 2012 with approximately 7500 less students than we had on January 1, 2011. This resulted in a decline in our average population during 2012. For the second quarter of 2012 our average population declined 25%, which led to a decline in revenue of 21.7% or approximately $27.9 million as compared to second quarter of 2011.

The decrease in revenue for the quarter was somewhat offset as a result of annual tuition increases which averaged about 3%.

The decrease in student starts also impacted our same-school capacity utilization, which decreased to 36% from 50% in the second quarter of 2011. The continual decrease in capacity utilization has produced significant negative leverage as our operating margin, excluding the impact of the impairment of goodwill and long-lived assets, decreased to a negative 4.4% for the quarter from 7.3% for the second quarter of 2011.

At June 30 we tested our goodwill and long-lived assets for impairment and determined that a non-cash pretax impairment charge of approximately $23.7 million existed for five reporting units relating to goodwill and ten reporting units related to long-lived assets.

Other key highlights in the quarter included -- loss per share was $0.93 for the second quarter of 2012 as compared to earnings per share of $0.22 for the second quarter of 2011. The loss per share for the quarter includes the non-cash pretax impairment charge of $23.7 million of goodwill and long-lived assets. Excluding the charge, loss per share was $0.14 per share for the quarter.

We generated negative free cash flow of $3.8 million, an improvement from negative free cash flow of $8.1 million during the second quarter of 2011. We paid a $0.07 quarterly dividend on June 29, 2012 and we finished the quarter with $20 million in cash and cash equivalents, and no borrowings outstanding on our credit agreement.

Bad debt expense for the quarter was 5.8% of revenue, essentially flat with the 5.8% for the second quarter of 2011.

Average revenue per student increased 4.4% for the second quarter of 2012 to $5417 from $5189 in the second quarter of 2011. Average revenue per student increased primarily from tuition increases, which averaged 3% during this quarter, and from changes to some of our program offerings which shortened the delivery time of these programs and slightly accelerated revenue.

Cost per start decreased 27% from the second quarter of 2012 to $3957 from $5385 in the second quarter of 2011. Cost per start during the quarter was positively impacted by improved conversion rates.

Net accounts receivable at June 30, 2012 were $23.4 million as compared to $25.3 million at December 31, 2011. This decrease in net accounts receivable is primarily due to the decrease in average student population.

Capital expenditures for 2012 are expected to be about 5% of revenue.

Now turning to our loan program, as of June 30, 2012, loan commitments to our students net of interest that will be due in the loans to maturity were $22 million as compared to loan commitments of $20.2 million at December 31, 2011. For 2012 we expect that these loan commitments will increase by $2 million to $5 million.

We finished the quarter with shareholders' equity of $213.6 million, down from $239 million at December 31, 2011. Shareholders' equity at June 30, 2012 reflects $1.6 million of dividends paid during the quarter.

I will finish my prepared remarks by providing our current outlook for the third quarter and for the full year. Our guidance is based on our current expectations and reflects the impact and effect of the shut down costs expected to be incurred, goodwill and long-lived asset impairment charges, and 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.

Accordingly for the third quarter of 2012 we now expect revenue of $102 million to $104 million, representing a decrease of approximately 16.6% over the third quarter of 2011, and a loss per share after giving effect of the shut down costs expected to be incurred in the third quarter of 2012 of $0.45 to $0.50. Guidance for the third quarter of 2012 is based on an expected decrease in student starts of approximately 10%. This decrease in student starts includes the effects of scheduled July starts that actually commenced in June, as well as the expected decline in starts related to the shutdown of the campuses.

Excluding the impact of these items, student starts would be expected to decrease by approximately 1% to 3% from prior year levels.

For the full year we now expect revenue of $420 million to $430 million, representing a decrease of approximately 16% over 2011, and a loss per share of $1.24 to $1.30. Guidance for the full year includes approximately $1.34 in charges related to the goodwill and long-lived assets impairment and the campus shutdown costs. Expected starts for the year are now expected to be flat versus prior year after giving effect to the shutdowns.

The Board of Directors has set the record and payment dates for the dividend for the third quarter of 2012. Cash dividend of $0.07 per share will be payable on September 28, 2012 to shareholders of record on September 14, 2012.

In conclusion, we are beginning to see stabilization in our operations. And while we expect the remaining second half of the year to continue to be challenging, our expectations are that we'll return to profitability in the second half of the year, excluding the aforementioned costs. We will continue to balance our growth objectives with our responsibility to deliver quality education and to enhance student outcomes.

Now I will open the call to your questions. With that said, I would like to turn the call back over to the operator. Operator?

(Operator Instructions) Gary Bisbee, Barclays.

It's Zach Fadem for Gary. Can you give us some color on what drove the starts performance this quarter, and whether the lower starts guidance for the year from 6% to 8% to flat is primarily due to ATBs and starts from the closed campuses?

This is Shaun. I'll start and then Cesar can jump in if necessary. But I will just say that in the second quarter, despite fewer reps and a lighter inquiry flow, we saw stabilization in the reps' performance. And they were able to convert the inquiries that came in at a higher rate than we've seen over the last year or so.

And that conversion improvement was not only on the inquiries, but it was also on the enrollment, the start category as well. So, that primarily drove the starts in the second quarter. In addition, as both Cesar and myself mentioned, there were some students that started early, that moved from Q3 to Q2, which also impacted those second-quarter starts.

In terms of the year forecast for flat starts, that does account for slight down starts in the third quarter, driven by ATB but also the closed schools. And really those are the only contributing factors. I will also say, though, that ever since the first quarter we have not enrolled online students. And so there is a small factor there as well.

But in summary, I will just say that flat starts for the year, considering the closed schools, no online this year and ATB, does show us good stability in our admissions processing.

Okay. And another question, can you walk us through the timing of the school closures and how we should think about costs in the second half of the year and the first half of next year?

We anticipate that we will close all the schools by December 31. We are projecting, obviously subject to accreditation and other, that most of the costs will be incurred during the third quarter of the year with just a few costs incurred in fourth quarter. Our intention -- I think we said we expect about $11.4 million of costs to shut down these facilities.

We hope to mitigate some of those costs by transferring some students to other institutions as well as subleasing some of our properties to the extent that is possible. But for now, we are projecting approximately $11.4 million of costs, most of which will be incurred in the third quarter.

Okay, and just one last question. You're now breaking out the enrollment for your new shorter duration programs, the cash programs. Can you give us a sense of just the revenue impact of these programs? Is there any impact at all there?

Yes, for the year, we believe FMTI will produce about $2.5 million of revenue and so, yes, there is revenue impact in those programs. Obviously the reason we break them out is that while our average revenue per student is in the $20,000 range, average revenue per student with these short programs are a lot smaller than that. And so we did not want to mix that into the equation, and that is why we show them separately so you could provide your own analysis.

Got you, thanks a lot.

Jeff Silber, BMO Capital Markets.

Thanks so much. I just wanted to focus again a little bit on these campus closings. You mentioned the capacity utilization was down to about 36%. Is it safe to assume that the seven campuses you are closing has a lower utilization or would it be higher or about the same?

It would be safer to say they would have a lower utilization.

Okay. And have you released the names of the campuses that you are closing yet?

No, Jeff, we have not. Obviously we're in the process of notifying the campuses as well as the accrediting bodies. So until we have all that done and make sure there is no -- waiting for their approvals, we will not release the name of the campuses to the public.

I understand. It's a very sensitive issue. I do understand that. And just a little bit more color on the guidance side, just trying to model out the different expense line items. If you can give us some color on that, that would be great.

Well, obviously, most of the shutdown expenses are going to come through SG&A.

Then I guess forgetting the shutdown, just in terms of the go forward, the continuing operations, what should we expect on the expense line items?

We would expect that those line items will remain relatively stable to second-quarter, ex charges.

Okay. And also just in terms of the tax rate and share count we should be using for the rest of the year?

We are projecting tax rates for the rest of the year to be about 35% and the share counts should be somewhere around 22.2 million to 22.3 million.

All right, thanks so much.

Jeff Meuler, Baird.

Just wanted to start with a follow-up on Zach's question. So what are you assuming in terms of your Q3 EPS guidance in terms of the closure costs? I know you said the majority, but is it like $9 million in Q3? Is it like $7 million in Q3?

No, we are assuming -- again these costs can change from one period to the other. Our estimates are that we'll have about $10 million to $10.5 million of those costs incurred in Q3.

Okay, that is helpful.

Again, these costs can change. That is what we predict the timing to be. If it gets pushed out into the fourth quarter obviously there could be a change in what period the costs are recorded in.

Understood, that is why I wanted to know what was factored into the guidance. And then on the -- just trying to get between what you are calling out as the EPS impact versus looking at the pretax impact, it looks like it implies something like a 15% tax rate on the impairment charges and the closures. How should we think about that (multiple speakers)

Obviously the EPS impacts include not only the impairment and a little bit of asset charges as well as the shutdown costs, as well as the decreased revenue that is going to be coming from these campuses. And I believe we utilized about a 32% tax rate.

Okay, so you are assuming the decreased revenue in that figure as well. I know that you said you expected $14.5 million of revenue for the year. How much revenue did you have in the first half? And then with the timing of the closures, what are you assuming for revenue in the second half? (multiple speakers)

We are not prepared to disclose that information. We obviously -- the campuses were not meeting their stated objectives. That is one of the reasons that we decided to shut them down, in addition to the regulatory changes and the inability to enroll ATB students.

We believe in our opinion that these campuses are no longer viable, and therefore we decided to shut them down. But these campuses, as we said, were projected to produce about $14.5 million of revenue, and they were producing at less than that.

Okay. And then with the closures, should we kind of view this as one fell swoop where anything that was kind of close, you are deciding to close all at the same time? Or is there another group that you are kind of monitoring and could potentially be closing in the next 12 to 18 months?

I would say that we are continuing to review our reporting units. There are other reporting units that have operating losses, but we think that those are easily turned around. And we have new programs going into those schools, and they are not in the same category as the one we're shutting down.

So, for now these are the ones that we feel we don't have a way forward with. But again, we continuously monitor our reporting units and their performance and what we believe their eventual outcome will be. So I can't tell you for sure that there will not be more forthcoming, but as of now we are comfortable with the seven that we chose.

Okay. And this may be too soon to answer this, but thus far, how is the receptivity among prospective students been for the GED program?

This is Shaun. I will just say that today the GED program has a longer span to it than our prior ATB testing. So, today, we are sitting at about 150 students in the GED queue, compared to last year we had maybe 380 or so ATB students. So you can see it's probably half of the volume.

Now there are a number of students that went in and went out of that GED queue. These are the ones that are still in and we feel will be successful. We think that number will continue to grow and that there is potential upside in the fourth quarter, just because of the length of time the students will be in that program and when they finish.

That's helpful, thanks guys.

David Chu, BofA Merrill Lynch.

So, of the 500 new starts expected in the second half of the year of these campuses, can you break that out between 3Q and 4Q?

Yes, I think it was roughly 320 to 350 in the third quarter and the rest in the fourth quarter.

Okay. And so, just if you can repeat what you're saying about the ATB population in the second half of last year, so are you saying there were 380 ATB students in total second-half?

Starts, David. (Multiple speakers) 380 ATB starts in the third quarter last year.

380 in the third. How about in the fourth?

I don't have that number but I can give it to you at some other point.

Okay, no problem. And let's see -- just, I think Cesar, I talked to you offline last -- post the call last quarter that this impact of larger graduating classes on persistence should end soon. Is that the correct way to think about it, just because we model to include graduations?

Correct. I mean obviously, I think what you are seeing as part of the decline in average population is that we have more students coming out of the system, which is a good thing, because they're actually succeeding. And so we probably will lap that, I would say, probably within the next quarter or two.

Okay, now that is helpful. In terms of I guess campus closures and capacity utilization, should we expect that to kind of ramp somewhat significantly going forward due to the campus closures?

We -- to be quite honest, I have not worked out what the new capacity utilization would be with the campus closure. But on a same-school basis, we expect that to -- we are predicting flat starts for the year, so I would not necessarily expect that utilization would ramp up significantly until next year.

Okay, thank you.

Scott Schneeberger, Oppenheimer.

Thanks, good morning. Guys, how should we expect to see the ATB students wind down through the coming quarters? What was the percentage of overall at June 30, and then what do you anticipate that percent being over the next few quarters? And when will it be at zero? Thanks.

At June 30 they were 8% of the population and that number is going to ramp down. The majority of our students are in average 12 month programs. With nobody starting in July, that number will ramp down we feel pretty significantly over the next three quarters.

So, Shaun, it's fair to say that by maybe end of first quarter next year we -- well, end of second quarter next year it will be down to the zero?

Exactly.

Okay. Then a lot of talk about campus closures; could you speak to some of the more recent opened campuses and -- or built out campuses and anything interesting you are seeing at those?

Yes, I'll just -- let me focus on the Denver campus just for a second. We essentially added programs to that school. We built out an additional 100,000 or so sq. ft. and it is proving to be a successful addition for us.

There are a number of incremental starts to those new programs in addition to increases in their high school enrollment. So, that school is performing according to plan over the last year especially. We expect it to do good things moving forward.

I would say that our Cleveland expansion is also performing well and according to plan. There are a couple of other of the expansion schools that are not, and so we're working with them accordingly. But at this point in time I would say that we have incremental starts in Q2 and Q3 from the growth actions that you described.

Could you address the pricing, revenue per student, use of scholarship? I'll just ask that broadly and let you take it from there, thanks.

Certainly. So obviously I think you saw this morning that revenue per student actually increased during the quarter. It was about $5417 as compared to $5189 in the prior-year quarter. So basically that includes a 3% pricing as well as, don't forget, that we told you that last year we have accelerated some programs to limit the amount of financial aid available to students. So that also contributed to that 4.4%.

Thanks. And any considerations on scholarships? Is that something that's being discussed?

Yes, we have continuously given scholarships out. We don't make a big mention of it. But our students are -- we give scholarships anywhere, depending on their need, up to $3000. Plus there are other scholarships that we give that could be a full scholarship, a half a scholarship. So that is something we continuously do.

We increased it at the beginning of the year to try to bridge the affordability gap that some of our students have, especially since we have a lot of destination students whose parents are being denied Plus loans and that gap becomes pretty big when they have to pay for not only housing, but a meal plan. So, we are offering more scholarships to those students to help them bridge the affordability gap.

Thanks. Two more if I can sneak them in; they're separate but I'll ask them both up front. Could you compare and contrast what you are seeing with high school entering students as opposed to adult entering students? And then just, Cesar, thoughts on dividend going forward.

All right, Scott, let me just handle high school very quickly. For the high school students who have already started and those expected to start within the third quarter, we see flat performance against last year.

As far as the dividend is concerned, our continuation is -- our expectation is to be a dividend-paying Company. And as long as our cash flow and our performance support that, we expect to continue to be. Obviously the Board of Directors will have the ultimate say, but our expectation will be to continue to pay a dividend.

Thanks guys.

Trace Urdan, Wells Fargo.

Shaun, I wonder if you could talk about the difference in the consideration process between teach-out versus closure versus sale, and how you made the decision you made.

Well, Trace, I think as you've seen and most have seen as the reality of the sector, sale is a difficult prospect at this point of time, for a myriad of reasons. One of the things that we wanted to do, if you look at the schools that we are closing, they all sit in territories where we have additional campuses. We're closing schools in Connecticut, Florida and Ohio where we have groups of schools, large groups of schools.

And so these schools, when taken out, we remain a presence in the state and we have students which will have the opportunity to attend either Lincoln schools in most cases. So that was a large factor in our decision-making process.

Okay. That is exactly what I was looking to understand. And then I wonder if you could talk a little bit about how disruptive the turning on and off ATB is, and if for some reason Congress were to change its mind and reinstitute ATB, how would you respond to that? Obviously you're not going to open up those campuses that you're closing.

But are there costs associated with turning ATB on and off from your perspective? And is it worth the trouble if it comes back? And how do you think about that?

I would say that the way we look at ATB, I mean you're always going to have those students inquiring as to attendance in those programs. So, we still have ATB students contacting us today. Instead of enrolling them through the ATB process, we talk to them about the GED program. Those who are interested in going that route we will enroll in the GED program, and then they can enroll in the school once successfully completed.

Our advertising will have tags on it at times that used to say if you didn't have a high school diploma, we might be able to help you. In many cases those ads have been changed. Those tags have come off. Yet we still have those students inquiring.

I would say that, as you know, about a year ago we made the conscious decision to reduce the number of ATB students in our schools, and so our ATB percentage dropped dramatically. If ATB was to come back as an option for students without a high school diploma, I think we would have to look at it in a very select way. And we might only open it up in schools that were successful with those students in terms of outcomes in the past. Any school that struggled with those types of students in terms of outcomes, we might not open it up in those cases.

But, one other point, remember, when we kept ATB students on board, we also added our early orientation and our early student engagement program to help with those types of high risk students. So although we wouldn't open it up dramatically again, we're much better prepared to deal with those types of students. And we are seeing great success from a lot of those efforts, as we talked about earlier, in our Lincoln Edge program.

So it is a long way of saying that we would probably not go back fully that direction. But in schools that have succeeded in the past, we would open it up to them.

Okay, fair enough. And then just a quick question for Cesar. The effect of the accelerated programs on the revenue per student, when would you -- when should we expect that to normalize? And would you expect to see then a decline in the rate of growth in that metric?

Yes, obviously that probably kind of accounted for about 1% or so. It was only certain programs at select schools. And I would expect we open -- we did that starting in June of 2011 through December of 2011. So I would expect that by the second quarter of 2012, most of that will be gone.

Okay. So basically in the 2013 -- I'm sorry, in the Q3 numbers, that aspect will be gone.

Correct.

And hey, by the way, really like the French operator. Thank you very much.

It's the least we could do. (laughter)

There are no further questions at present. (Operator Instructions). There are no further questions.

Okay. With that said, let me just give you some quick closing comments. As you can see, we are focused and have been very busy executing on initiatives which really continue to better position us in a time of uncertainty. We're very confident in the steps we have taken. And I think it is evident, as you can see the stability that we have gained as a Company in our performance metrics.

We're managing our 90/10 and Cohort Default risk factors. We've sharpened the strategy that really will allow us to compete in the 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 the skilled trades careers, and we feel that our Careers that Build America campaign will drive our Company's strategy for the long-term.

Thank you to all for joining us and we look forward to updating you on our third-quarter results in October. Thanks everybody.

Thank you for your participation, ladies and gentlemen. This concludes the presentation. You may now disconnect. Have a good day.