Lincoln Educational Services Corp (LINC) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second-quarter 2013 Lincoln Educational Services earnings conference call. My name is Jackie, and I will be your coordinator today. (Operator Instructions).

As a reminder, this conference is being recorded for replay purposes. I will now turn the presentation over to Mr. Shaun McAlmont, Chief Executive Officer. Please proceed.

Thank you, Jackie, and good morning, everyone. Joining me in the room 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 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, 2012 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 Cesar will review our second quarter and provide our financial outlook for the third quarter of 2013. We'll then take your questions.

We announced five campus closures in a recent 8-K, reflecting our continued process to hone the Company to its most viable units. It's always difficult to close operating units in communities where we've operated for years. The changes to ATB funding and the loss of state grants which negatively affected our 90/10 balance made the long-term operations of these schools difficult. Closing expenses and the impact to Company operations are costly in the short term.

However, we feel that the closures will allow for more efficient long-term operations. We stopped enrolling students at these five campuses immediately after announcing the closures. Therefore, there were very few student starts at these campuses in the second quarter compared to last year.

Historically these schools had high ATB populations which affected student outcomes and 90/10 balances. With the loss of the Ohio state grant, we asked students to increase cash payments, and when ATB students were cut out of federal funding, the populations of these schools dropped to unsustainable levels.

We believe that the closure of this group has been managed very well and will be completed this year. Secondly, we've taken steps for staff and students to receive outplacement assistance to ensure a smooth transition for everyone involved.

Finally, the group will no longer be in operation and as such relieves the Company of its fastest declining school populations, our highest 90/10 and highest cohort default rate schools. These closures bring our Company to a core group of schools that we feel is sustainable in terms of long-term growth, profitability and regulatory outcomes.

The closure of these five schools and the seven last year are an incredible disruption to the lives of many and are temporarily disruptive to the operations of our national approach to managing the Company. It's a drain on our cash and our profitability will lag; however, we feel confident that we've taken the necessary steps to return our Company to profitability.

As stated in our press release this morning, after giving effect to the closure of these campuses, on a comparable basis, new student starts for the second quarter were essentially flat. Auto and skilled trades campuses continue to see improvement, which resulted in approximately 13% growth for the quarter from the second quarter of 2012. Unfortunately, while our health sciences and other programs improved from the first quarter of the year, they still experienced declines from prior year, thus offsetting the growth we experienced in the auto and skilled trades group.

We foresee more positive trends as we are experiencing growth at a number of our campuses, while at the same time closing these campuses whose performances were obstacles to our success. This should bode well for the future.

As we stated on our last call, we had expected growth in the second quarter and second half of the year. However, the Ohio school declines weighed heavily on the Company. Even after closing these schools, our expectations have tempered, and we expect flat growth for the year. Student retention for the quarter improved yet again, showing a 90 basis point improvement over the same period last year, which amounts to the third quarter over quarter improvement in student retention that we've seen. Our progress in graduate employment, 90/10 and default rates gives us confidence that, as we look forward, these key outcomes will surpass defined accrediting and federal thresholds.

The second half of the year will be marked by efforts to improve our enrollment to start rate conversions for new students, while continuing to manage expenses in a responsible way. We will continue our focus on educational quality and our commitment to the initiatives which are supporting the improvements we've experienced across all student outcomes. Even though our starts have not rebounded to expected levels and the costs of closing campuses is considerable, we are very pleased in our progress to date.

It should be noted that historically the demographics that we have served have been some of the toughest in the sector, and we've had to change our business model in order to keep access open to the many who need it while also managing outcomes for these consumers. And in many ways, we've created a new company.

To better serve this population and run a sustainable business, we changed our model and restricted admissions for the first time when we implemented our pre-orientation. We added the [Wunderlich] behavioral assessment and an academic assessment to create a baseline for each student's needs. We added the Early Student Engagement Program to address life in economic circumstances very early in the student's tenure, and we continue with career development and financial literacy now as a part of the Lincoln Edge program.

These efforts have been costly in terms of fewer starts and substantial resources. However, they've strengthened our Company and give us confidence that we can operate in any environment that may develop for our sector.

Due to well documented changes to the environment around us, over the past three years, our strategy has been focused on regulatory compliance, student outcomes and our admissions process. We've made significant strides in each of these three areas. We continue to be maniacal about compliance and outcomes. Recovery in sales is slower due to economic conditions and less financial resources for families.

Our progress toward successes in all of these areas continues. For example, in terms of 90/10, the Company sits at its lowest levels in years, actually below the 80% mark year-to-date.

Our cohort default rate progress for continuing operations is significant. We expect that we will see long-term improvements in both two-year and three-year rates taking the Company out of jeopardy. Graduation rates are trending better, and we expect rates to improve to a Company best based on the progress we are seeing in retention rates at this point. And for job placement, despite national unemployment rates and increased verification for our placements, we are tracking 2% ahead of the same time last year in this key outcome.

ATB students are almost completely out of our system, and our positive performance in Department of Education program reviews displays our commitment to accuracy, compliance and a solid working relationship with the Department.

The transformation of our Company is almost complete, and as I look back, the defensive posture we took was necessary in order for us to position ourselves with a solid foundation before we grew again.

We now think differently about student access, and we consider demand in terms of inquiry attainment and demand for graduate employment and the types of programs that can sustain reenrollment in this type of environment. Our new student recruitment shows improving metrics. However, we saw a variance to the forecast we had last quarter based on start rate variance. We had ample enrollments, but the enrollment to start rate was lower than expected, especially in our non-auto campuses.

I'm not sure how to predict exactly where our demand characteristics and conversions will settle. However, it is a critical moment for the Company as we see an end to the steep and steady declines of the past three years.

Based on performance in the most recent and past quarters, we feel growth is imminent. It just didn't come as soon as we expected.

As we look forward, we continue to work to stabilize the business amid external pressures, and to understand our second-quarter and first-half performance, we also have to look closely at the trends affecting the majority of our sector. First, the weak economy continues to pressure the value proposition of education. New student starts are down across education. We look at this in terms of consumer confidence and affordability issues and a cycle that we feel will eventually revert back to positive.

Second, recruitment policies are less aggressive due to a myriad of changes in the federal rules for admissions and misrepresentation. We've seen a slow but steady increasing level of comfort in our new admissions process, resulting in better lead to enrollment conversions, yet enrollment to start is still lagging.

Thirdly, the negative publicity around for-profit evocation education has impacted consumer confidence in this sector. However, we're seeing less negativity and hearing fewer comments about the bad press.

Self-regulation is the fourth area that has affected the sector. Lincoln has continued to maintain a strong regulatory record with no student or staff class-action, extremely clean Department of Education program reviews and accrediting visits and limited contact from other regulatory agencies. Lincoln was at the forefront in managing our student outcomes by reducing the number of challenged students in our schools over the past three years.

Because of these macro factors, we continue to look closely at our continuing operations and our programs to effectively measure our performance trends.

Our outcome or our outlook for flat growth for the third quarter and the remainder of the year is based on July results; August enrollment trends; new programs that will launch in 2013, including manufacturing and RN; improved student persistence; and increasing comfort of the admissions process. These growth factors will offset softness in new health sciences student starts.

Furthermore, early indicators show our high school leads and enrollments are slightly ahead of prior-year same time. And early financial aid package students are ahead of prior-year. The number of representatives is flat, indicating at least at this point that comfort in the enrollment process is taking hold. Slowly recovering new student enrollment rates are pulling starts to flat.

Our long-term optimism for our strategy of leading the skilled training segment of our sector is based on competitive landscape within the segment, which we feel positions us well. The high barriers to entry for auto and skilled trades and also nursing, the expectations for continued long-term demand and a myriad of recent studies showing the increased demand and success opportunities for certificate versus degree training and related fast-track to the job market.

In addition, let me briefly mention a couple of other areas where the Company is strengthening our performance and infrastructure. Student persistence is maintaining at rates that are the best the Company has ever seen. Our Lincoln Edge student program continues to show progress. The online teach down, the closing of 12 schools and the elimination of the ATB program were difficult processes to manage for the Company, but despite this, all were executed well and produced no regulatory or legal repercussions. Cohort default prevention efforts, including financial literacy education, are in full swing as a part of our Lincoln Edge program and giving us confidence that cohort repayment within 2 to 3 years will be at all-time lows for the Company.

For cohorts from past years in current repayment, we continue to contact these students aggressively to let them know their payment and hardship options.

Finally, the Company has made substantial gains in new partnerships, which continue to develop and produce earnings for the Company. Although these numbers are small, they are significantly higher than the previous three years and expected to grow at impressive rates based on contract commitments.

OEMs, which produced the machines for our new manufacturing programs, are donating a significant amount of equipment to launch these new programs, which are unique to our sector. Our partnership with Raytheon has begun as GM vehicles have arrived at our Denver facility, and we will begin training GM technicians this quarter. The BMW training programs in Texas and New Jersey are in full swing, and we continue to work with other external businesses to identify training needs where Lincoln can add value.

In summary, despite the noise caused by 12 school closures over the past 12 months, we've created a foundation from which we can now manage reasonable growth, successful outcomes and a return to profitability.

Now I'll turn the time over to Cesar to discuss our second-quarter financial results and the guidance for Q3 in 2013. Cesar?

Thank you, Shaun. Good morning, everyone.

As we disclosed in our press release earlier this morning, student starts decreased 20.4% for the quarter. Excluding online operations, the announced campus closures and ATB students, which we stopped enrolling in 2012, student starts were essentially flat for the quarter. Although new student starts were still down for the quarter, it reflects an improvement from the comparable decrease in student starts of 12.4% for first quarter of the year.

We started the second quarter of 2013 with approximately 2600 less students than we had on April 1, 2012. This led to a decline in our average population for the second quarter of 2013 of 15.4%, which resulted in revenue declining by 11% or approximately $11.8 million as compared to the second quarter of 2012. The decrease in revenue for the quarter was somewhat offset as a result of annual tuition increases, which averaged 3%.

The decrease in student starts also impacted our capacity utilization, which decreased to 36% from 41% in the second quarter of 2012. The decrease of capacity utilization produced significant negative leverage as our operating margin decreased to a negative 17.8% for the quarter from a negative 12.1% for the second quarter of 2012.

Other key highlights in the quarter included loss per share from continuing operations was $0.42 for the second quarter of 2013 as compared to loss per share from continuing operations of $0.62 for the second quarter of 2012. Loss per share for the second quarter of 2013 and 2012 includes goodwill and long-lived asset noncash impairment charges of $0.10 and $0.38 respectively and also includes operating losses for the announced campus closures of $0.12 and $0.16 per share for the second quarter of 2013 and 2012 respectively.

Free cash flow for the second quarter of 2013 was a negative $11.3 million, down from negative free cash flow of $3.8 million during the second quarter of 2012. We paid a $0.07 quarterly dividend on June 28, 2013, and we finished the quarter with $4.3 million in cash and cash equivalents and no borrowings outstanding under our credit agreement.

Bad debt for the quarter decreased to 4.7% of revenue as compared to 5.9% for the second quarter of 2012, and average revenue per student increased 4% for the second quarter of 2013 to $5632 from $5417 for the second quarter of 2012. Average revenue per student increased primarily from tuition increases, which averaged 3% during the quarter, and better improved student retention.

Costs per start increased 18.7% for the second quarter of 2013 to $4678 from $3641 in the second quarter of 2012. Cost per start during the quarter was negatively impacted by elimination of online and ATB leads, as well as the announced closure of the five schools.

Net accounts receivable at June 30, 2013 were $26.6 million as compared to $23.5 million at December 31, 2012. This increase in net accounts receivable is primarily due to seasonality. Capital expenditures for 2013 are expected to be about 4% of revenue.

Now, turning to our loan program, as of June 30, 2013, loan commitments to our students net of interest that would be due in the loans to maturity were $24.2 million as compared to loan commitments of $25 million at December 31, 2012. For 2013 we expect that these loan commitments will increase by $2 million to $5 million. We finished the quarter with shareholders equity of $180.2 million, down from $198.5 million at December 31, 2012. Shareholders equity at June 30, 2013 reflects $3.3 million of dividends paid.

Outlook -- I'll finish my prepared remarks by providing our current outlook for the third quarter and for the full year. We are updating our guidance to give effect to the announced campus closures and the continuing softness in our student starts. Our guidance is based on our current expectations.

For the third quarter of 2013, we expect revenues of $86 million to $88 million, representing a decrease of approximately 15% over the third quarter of 2012 and a loss per share of $0.20 to $0.25. Loss per share includes $0.12 to $0.14 loss related to the announced campus closures.

Guidance for the third quarter of 2013 is based on our expectation that student starts will be essentially flat on a continuing operation basis as compared to the third quarter of 2012.

For 2013, we now expect revenue of approximately $355 million and a diluted loss per share of $1.00. Diluted loss per share includes approximately $0.60 to $0.65 loss related to the announced campus closures. We now also expect student starts to be essentially flat for the year as compared to 2012.

And finally, the Board of Directors has set the record in payment dates for the dividend for the third quarter of 2013. The cash dividend of $0.07 per share will be payable on September 30, 2013 to shareholders of record on September 13, 2013.

In conclusion, we continue to make progress with our initiatives and are optimistic that we will return to profitability in the second half of the year.

Now we'll open up the call to your questions. With that said, I'd like to turn the call back over to Jackie. Jackie?

(Operator Instructions). Scott Schneeberger, Oppenheimer.

I guess the -- one of the things I'm curious about, Cesar, is, with the cash position and the continuation of the dividend, what is the thought going forward? It sounds like you're optimistic about profitability going forward. What's consideration for the dividend program? Thanks.

Obviously every quarter the Board of Director takes a look at dividend. I think the policy of the Company is, as long as we believe that the losses that we've been incurring are short-term in nature, in my opinion I believe the Board will support it until they see something different. As you know, they approved the dividend for this quarter, and it is our expectation that as things improve, that the dividend will not be in any harm -- (multiple speakers)

Cool beans! (laughter)

Okay. Thanks.

-- that the Board will consider every quarter.

Thanks. And then you mentioned some new 2013 programs in manufacturing and RN. Could you elaborate a bit more on that, please?

Let me just say, Scott, at this point -- this is Shaun -- that we've been preparing for the last year to launch the manufacturing programs, which are unique to our sector, and we feel will add a lot of value to Lincoln's programs in a meaningful way down the road.

These programs are being added with a lot of feasibility on the front-end that looks at demand for students on the front from an interest perspective and also jobs on the back.

The good news about the manufacturing program was the fact that those who manufacture the equipment for these programs, CNC Machining in particular, are searching for qualified employees. And so the cooperation with these employers has been tremendous as we develop the program. We think we will probably use this model for other programs we developed down the road.

So, as those programs launch in the fourth quarter, we expect a managed start to the growth of these programs to ensure that we're covering all of the student onboarding metrics, good faculty qualification and preparation and also solid educational outcomes.

So we're very excited about that program in particular, and that will launch in Grand Prairie, Texas and Indianapolis, Indiana in the fourth quarter.

The RN program is one that we're also excited about. It is a natural extension of our LPN program, and it will launch in a number of sites around the country for us. This program is typically limited in enrollment on the front-end until the program has legs. And so, again, it will be like manufacturing with measured growth, and then we'll watch all of our metrics in terms of educational quality as we go along. We think that both manufacturing and RN will be solid pieces of our program lineup and portfolio as we move forward.

Thanks, Shaun. And then, with regard to health sciences, you mentioned improvement quarter over quarter. Is it still down year over year and a bit of a trouble area? Could you speak to what are the headwinds there and anything you guys can proactively do to address that and maybe speed or magnitude of when you think you can bring that back? Thanks.

Thanks, Scott. I'll start and Cesar can jump in.

Just in looking at the metrics for these particular programs, and especially the admissions metrics, I would say that the demand on the front is there. So students are interested in coming into programs within the health sciences vertical for Lincoln. I see an affordability problem that has continued, and you know we just see some people sitting on the sidelines instead of starting school. I think that that trend will turn. We've seen a cycle that looks at those kinds of metrics over the last few years, and I think that that cycle will come back. Cesar?

Yes, I think today as we look at it, I think affordability in some of our programs is the biggest challenges we face with more and more parents being denied plus loans, and some of these programs is the large gaps that students are either not able or not willing to finance. So I think until they get some more confidence, I think a lot of them are just deciding to stand on the sidelines. It's something that we continue to look at to see how we can either change delivery models or make other options to the program so that we can make the program more affordable to students, and that's something we continue to look at to see how we can attract more students to these programs during this time of economic uncertainty.

Let me just and then to close this particular question I'll just tell you that there were some geographies where we saw changes that we made to credit hours within programs affect the Title IV availability to students and their families. And so we saw that as also an extenuating circumstance for some. We have made some adjustments to programs to address that in particular, and I think that that will show in future terms. And I'll also say that we've added scholarships where it made sense, especially for high school students coming in to the summer and fall starts. And so there are some ways I think we can offset the affordability issue, but we're looking for the cycle to turn ultimately.

Great. Thanks, guys. That's all for me.

David Chu, Merrill Lynch.

Thank you. So last quarter I believe you expected starts to be flat underlying. You maintained these forecasts but shut down the worst-performing campuses. So if these campuses were running, what would you expect starts to be for the year? So I'm just trying to gauge it on an apples-to-apples basis here

I'll just say for the quarter, David, if those starts had continued, we would expect overall starts to be down about 11% versus the 20% in total.

11% for what time period?

For the second quarter.

Second quarter.

So, for example, when we announced closures, we had most of the starts in those campuses come late in June. We had about 400 or so starts that we did not start in southwestern campuses because then we just would have to teach them out. So once we announced and even before that we stopped enrolling at those campuses, so obviously the second-quarter start numbers that you see for 20.4%, had we started those students, we probably would've been down about 11% for the quarter.

Which would be up in the continuing operations.

That's correct.

Okay. So I'm still trying to gauge it on an apples-to-apples basis. So, if last quarter you had mentioned starts for the year to be flat, how are you thinking about it comparably for the year now? Like I understand that you've closed accounts, but anyway you can kind of -- (multiple speakers)?

Well, we were saying that starts for the year were supposed to be flat with Southwest. Now we're seeing starts for the year will be flat on the continuing operational basis, including Southwest. So obviously the numbers in Southwest continue to deteriorate. So starts would've been down with Southwest, but we continue to open those (multiples speakers).

Can you help us quantify that? So let me ask it a different way. What were starts for Southwest in the four quarters of 2012?

There were 1582 students.

1582 students in the Southwest last year.

Correct.

And separately, in terms of costs for the second half of 2013, how much in costs will be taken out due to the closure of these campuses?

We estimate -- will be taken out or will be incurred?

Just on a recurring basis, so taken out.

Well, Southwest will probably lose, I think as I said, $0.60 to $0.65 this year. Of that, there is about, I would say, $0.30 a share or $0.25 to $0.30 a share that our normal operating losses, and the remaining would be teach out and shutdown costs.

Okay. And so in 3Q, I guess the costs, the one-time costs mentioned, should that be it, or should we expect more one-time costs in 4Q as well?

I know, most of the costs will come in Q4. There will be some costs in Q3. Most of the costs will come in Q4.

You mean these one-time costs?

That's correct.

Okay. Okay. Thank you very much.

Jeff Lee, Wells Fargo Securities.

Can you guys just please remind us how many ATB students were enrolled last year in Q3 and in Q4?

I'm sorry. Can you repeat the question?

Sure. Can you remind us how many ATB students you had enrolled last year in Q3 and then in Q4?

I don't know if I have that information handy. I mean I know how many we started. Obviously it would have been 0 last year, but I don't know how many were sitting in the population. I believe it was probably somewhere around 5%, 6%, but I don't have those numbers in front of me.

We'll have to get you that number separately, Jeff.

Okay. Thank you. And then how many students are there currently at the five closed campuses, and when do you fully expect to close them out?

I believe there's about 240 or 250 students left, and we expect that all students will be -- we plan on shutting the school -- all the campuses down by December 31. So all students will be gone by then. So basically then, if you are graduating by December 31, you are allowed to continue your studies and graduate with a degree. If you're not going to graduate by December 31, we refunded your money.

Okay. Great. And then the last question, what other sources of strength do you feel drive student starts flat for the year from the negative 20% that we've seen in the first half of the year? Is it largely the high school enrollments that are giving you confidence, or is there anything else?

I just want to clarify something, Jeff. The guidance we're giving is for continued operations. So that concludes Southwest online and ATB. For the first half of the year, that's only down 6%.

Got it.

And then just to follow up on the remainder of your question, I would say that we see a number of things. I mean as we said just a minute ago, we've got a couple of new programs that will be added in the fourth quarter, which we think will have incremental growth for prior year.

Secondly, we're really encouraged by the growth we're seeing in our auto and skilled trades campuses, and we feel that that will be a continuing trend. The comps, I mean if we look at our fourth quarter last year, the spending, the conversions from both inquiry to enrollment and enrollment to start, were the lowest in three to years years, and just based on our trends today and what we expect to spend, including our manpower, we feel that we will beat the fourth quarter pretty significantly.

And so, just again, looking at the trends that we've seen today in all of our metrics, also the tenure of our reps, the process, etc. gives us confidence in the second half. And although we've tempered what we expect for the next two quarters, we still think on a continuing basis that starts for the year will be flat. And I've got to say that that is significantly better than we've seen over the last three years, and it allows us to actually plan accordingly moving forward for growth from a new foundation.

Remember, the Company has been repositioning itself for the last few years in a number of areas, including sales. So we feel that our footing has become solid, and now we can look forward to it a little more aggressively.

Great. Thank you. That's all for me.

Paul Condra, BMO.

I wanted to ask about -- well, let's see. It looks like you gave us restated starts numbers for second Q 2012. So this is, I guess, similar to other questions that have already been asked, but can you give us what the restatements will be for starts for 3Q 2012 and 4Q 2012?

Well, from a continuing operations basis, again, this is excluding Southwest, ATB and online Q3 2012 were 6857 and Q4 2012 were 2577.

And then I also wanted to ask about on capacity. Is that your continuing operations capacity number, that 36% I think you said?

I don't recall. I'll have to get back to you on that question.

Okay. And I guess those are the only two questions that I had, so thanks a lot.

(Operator Instructions). Alex Paris, Barrington Research.

It's actually Joe filling in for Alex. Shaun, you kind of mentioned the high school channels. You mentioned your student lead flow and enrollments. Those trends are higher from previous years. Maybe just take a step deeper and are you doing something differently there to kind of driving the value proposition differently, or I know you have new management in place there, maybe just take it a step further and kind of tell me what you're doing on the ground level?

Yes, I'll just give you a couple. First of all, manpower is critical in our high school sales in that the high school group for the most part generates their own inquiries. They go into schools. Many of them have been doing it for a long time, and they speak to seniors. And so having a solid tenure in that group just continues to improve our inquiry generation, and so that's been very positive for us.

Secondly, I think we're seeing comfort in the admissions process in general over the last couple of years. It's very difficult to manage admissions in this particular environment, and I think we've gotten more comfortable in doing that, considering new rules around misrepresentation, etc. And so we see that comfort coming in terms of the inquiry to enrollment conversions.

Thirdly, one of the differences we've made year over year is the rate at which and the timing of how we financially package students, especially those who are enrolled early in the process. We used our centralized financial aid group to process the packaging process for many of the early enrollments, which was very positive for us.

So the June starts that were high school-specific exceeded last year's June starts pretty significantly, especially in the auto and skilled trades side.

And so those are some of the efforts that we've made from an operations perspective to help that process along. We still feel, though, that overall once you start getting into July, August and September, we'll see flat growth in the high school area, and again for a company that has seen declines in a number of our sales metrics, we are pleased seeing in these starts taper off and, again, giving us at least a look forward to how we might grow based on this new footing we have.

So, anyway, I hope that answers your question, but we've seen just lots of good things from our representative force, the processes and the rate at which students are being packaged.

It does. Thank you. And then my second question, maybe just comment on the school footprints. Are there any -- the way you see it now, is there one or two possibly that you're just keeping a close eye on that might come down the road depending upon performance, or do you think 38 is the right number?

The way we look at it, we've closed 12 schools over the last year, and our footprint is a place that we feel today we can manage forward.

You know, the schools we closed, I just want to reiterate the fact that we closed the schools that were suffering from a number of impairments. Remember, the loss of the state grants in Ohio. The restructuring of those programs. The need to collect more dollars from students to manage 90/10. And then cohort default rates that were skyrocketing because of some of the attrition from high ATB populations. Those issues were very unique to that group in Ohio and the one Kentucky school, the former Southwestern schools. And so that's why we made that particular decision, and we really assess the operation, the current look and the future look very carefully before we make these decisions because they impact so many lives.

So, at this point in time, we feel that the group we have is a manageable group. We always look at the metrics of these schools on an ongoing basis and make decisions accordingly. But the footprint we have right now, we feel that we will manage forward in its current form. The 38 will soon be 33 with five of the FMTI learning sites. So that will be our long-term footprint.

Great. Thank you.

Trace Urdan, Wells Fargo Securities.

Just a housekeeping question, and I'm sorry to be so dense about this. But, Cesar, could you give us the four quarters from 2012 now that reflect the no ATB, no online and no Southwest? Because I think you have given us three out of four quarters now, if I'm not mistaken.

Q1 2012 was 4170, Q2 was 3608, Q3 was 6857 and Q4 was 2577 for a total of 17,212.

So 17,212 is the foundation for the flat start guidance for the year; is that correct?

That is correct.

Okay. Great. Thank you. Sorry for that.

With no further questions, I would like to turn the conference back to Mr. McAlmont. You may proceed.

Thank you, Jackie. Well, as you can see, we're focused and have been very busy executing on a number of initiatives, which continue to better position us in a time of uncertainty. We are managing our 90/10 and CDR risk factors and also our closed operations very carefully. We've sharpened a strategy that will allow us to compete in in the unique segment of education and training for the long-term, and we've got a strong position here as a market leader. We believe strongly in vocational training and the viability of skilled trades, and we feel that our Careers that Build America campaign will drive our strategy for the long-term.

I just want to thank everybody for joining us today, and we look forward to updating you on our next quarter call. Thank you.

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