Lincoln Educational Services Corp (LINC) 2016 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter three 2016 Lincoln Educational Services earnings conference call. (Operator Instructions). As a reminder, this call is being recorded. I would now like to introduce you for your host for today's conference, Mr. Doug Sherk. Sir, you may begin.

Thank you Donovan, and good morning, everyone. Before the open of the market today, Lincoln Educational Services issued via news release its third quarter 2016 financial results. The release is available on the investor relations portion of the Company's corporate website at www.lincolnedu.com. Today's call is being broadcast live on the Company's website and a replay of this call will also be archived on the Company's website.

Statements during today's call may be made by management of Lincoln Educational Services Corporation regarding Lincoln's business that are not historical facts, and they may be forward-looking statements, as that term is defined under federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate and continue, and their opposites and similar expressions, are intended to identify forward-looking statements.

Forward-looking statements should not be read as a guarantee of future performance or results and will not necessarily be accurate indications of the times at or by which such performance or results will be achieved, if at all. Generally these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions, or depositions -- dispositions to be made by the Company, or projections involving anticipated revenues, earnings or other aspects of the Company's operating results.

The Company cautions you that these statements concern current expectations about the Company's future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond the Company's control, that may influence the accuracy of the statements and the projections upon which the statements are based. The events described in forward-looking statements may not occur at all. Factors which may affect the Company's results include, but are not limited to, the risks and uncertainties discussed in the Company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the Securities and exchange commission.

Any one or more of these uncertainties, risks and other influences could materially affect the Company's results of operations and financial condition, and whether forward-looking statements made by the company ultimately prove to be accurate, and as such the Company's actual results, performance, and achievements could materially differ from those expressed or implied in these forward-looking statements. Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties.

Important factors that could cause such differences include, but are not limited to, our failure to comply with the extensive regulatory framework applicable to our industry or our future -- or our failure to obtain timely regulatory approvals in connection with a change of control of our Company or acquisitions; our success in updating and expanding the content of existing programs and developing new programs for our students in a cost effective manner or on a timely basis; risks associated with changes in applicable federal laws and regulations; uncertainties regarding our ability to comply with the federal laws and regulations regarding the 90/10 Rule and cohort default rates; risks associated with opening of new campuses; risks associated with the integration of acquired schools; industry competition; our ability to execute our growth strategies, conditions, and trends in our industry; general economic conditions; and other factors discussed in the risk factors section of our annual and quarterly reports.

All forward-looking statements are qualified in their entirety by this cautionary statement and Lincoln undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events, or otherwise after the date hereof. Now, I'd like to turn the call over to Scott Shaw, President and Chief Executive Officer of Lincoln Educational Services.

Thank you Doug, and good morning everyone. Thank you for joining our third-quarter 2016 conference call. With me today is Brian Meyers, Lincoln's Chief Financial Officer. I will begin the call by reviewing our recent operational highlights and progress in achieving our corporate objectives. Brian will then provide further details on the quarter's financials, as well as our outlook for the remainder of the year. Then we will take questions from analysts and investors.

I'm pleased to announce that we remain on track to deliver positive earnings for our continuing operations, excluding the transitional segment, and we have continued to rebuild our student population in the transportation and skilled trades, with the goal of ending the year with the same population as last year. Our population goal will give us a strong foundation in 2017 from which to increase our population, as we execute on various initiatives. Our organization is steadily making strides towards enhancing the value of our enterprise while lowering our fixed costs where possible, and enhancing the student experience.

Beside stabilizing our population in the transportation and skilled trades segment, we have made exciting progress with our corporate partnerships. We were able to build on our successful relationship with Fiat Chrysler Automobiles US, and going forward, we will be able to offer select students a higher level of training, which will result in additional opportunities with this automotive industry leader upon graduation. Previously, we were offering an entry-level SCA program, but given the increasing demand for technicians and strong response from the dealers for our graduates, SCA decided to increase our level of training to MOPAR CAP 2. Graduates will be prepared to work on Chrysler, Fiat, Dodge, Jeep and Ram trucks, and will start off at higher than entry-level salaries. SCA has more than 2,500 dealerships and needs over 2,000 new technicians a year.

Additionally, we continue to expand the student population in our Audi program, and finalized preparations to launch the first Volkswagen program in the second quarter of 2017. In addition, I'm pleased to announce that our relationship with BMW North America is strong and growing. We recently renewed for three years our partnership with BMW North America to offer the BMW STEP program at our Grand Prairie, Texas, campus. And they have contracted with us to also provide MINI STEP training. We are proud that BMW North America values our training and that we were able to leverage our specialized shop to serve an additional BMW brand. The first MINIs have already arrived at the campus and training will begin in 2017.

Another long-term corporate partnership continues to grow with Haas Automation, a leading national provider of computer numeric control, or CNC equipment. Haas and Lincoln launched a partnership in 2013 and we are pleased to note the receipt last month of a third scholarship award from the Gene Haas Foundation to promote career training for computerized manufacturing at our Mahwah campus. On October 6, representatives of the Haas Foundation presented our Mahwah, New Jersey, campus with a check for $50,000, bringing the three-year total scholarship donation to $130,000.

The Haas Foundation's generosity is part of its mission to promote hands-on training for 21st century manufacturing careers, and they have been a sponsor of our CNC program at both the Mahwah and Grand Prairie campuses. We are proud that by improving the supply of quality CNC technicians, we are enabling numerous local manufacturers to grow their business and capture more on-shoring opportunities. We greatly value our corporate partnerships, and so our team is constantly having conversations with other potential corporate partners who have a strong demand for the skill sets of our student population.

Now turning to student starts. Our transportation and skilled trades starts for the third quarter were down only 68 students or 2.2% as compared to a year ago, a result that we attribute to the underperformance of a single campus. In fact, the other 11 campuses in our transportation and skilled trades segment generated a 1.5% increase in student starts during the quarter. Our team has implemented a comprehensive program to address the issues at the one campus and we are already seeing improvement in the fourth quarter.

Our key goal is to enter 2017 with the same population level as we had at the beginning of 2016. You may recall that we enter 2016 down 568 students from prior year, and that we ended the first quarter down 531, the second quarter down 370, and now the third quarter we are down 185 students. You can see that we have made progress each quarter and we are reiterating our target for finishing 2016 with roughly the same student population in this segment as we started the year. We've implemented programs to retain students currently enrolled, bring previously enrolled students back, and enroll graduating students in advanced degree programs. Successful outcomes from these initiatives should enable Lincoln to achieve our student population year-end targets.

In short, we have made great progress in stabilizing our transportation and skilled trades segment and expect to achieve our goals established earlier in the year while also laying the foundation for growth in 2017 and beyond. Demand from employers for our graduates is just a strong, if not increasing, which leaves us focused on making more students aware of the great opportunities available to them.

Now let me address our efforts to rationalize our business by exiting the healthcare and other professions segment. We continue to work with an interested party for the majority of the campuses, but unfortunately nothing in the current environment happens at a normal pace. When we have more definitive information to share, we will. During our last call I had mentioned that we had a buyer for our West Palm Beach facility, but on September 1, 2016, they notified us that they were no longer interested due to a shift in their strategic plans. Subsequently, we put the property back on the market and I'm pleased by the continued interest. In conjunction with the sale we announced a plan to cease certain programs at the West Palm Beach, Florida, campus, which we expect to teach out by the end of the first quarter in 2017. However, it's important to note that we continue to enroll students into our automotive and HVAC programs at our other West Palm Beach location, located nearby in Mangonia Park.

Earlier this week, the Board of Directors approved the teach out of our Green Valley, Nevada, and Center City Philadelphia campuses, which we believe will rationalize our presence in those markets, thus benefiting our neighboring campuses in the future. This will leave us with 14 campuses in the healthcare and other professions segment, and despite the distractions of the divestiture effort, these campuses continued to perform well from all operator perspectives, as evidenced in the nine-month financial results, which Brian will discuss.

Now onto regulatory matters. For over 70 years, Lincoln has prided itself on its strong regulatory record and I'm proud of our continued strength in this area. This past quarter has been a busy time from a regulatory perspective, and the results have all been good. The DOE released the final three-year cohort default rates, and our rate of 12.2% was below the average of our peer two-year and less schools, and that includes public, private and nonprofit peers. Also in September, as a result of improved financial strength, in compliance within prescribed DOE guidelines, the DOE notified us that we no longer are required to comply with the zone alternative. While this has no economic impact to our organization, it is a sign that we are becoming a stronger company.

Additionally, over this past quarter we had eight reaccreditation visits with no major findings, and in fact two campuses had zero findings. We received draft information about gainful employment and once again I'm pleased to announce that less than 1.5% of our students are in continuing programs that failed. And even with these programs, we have solutions in place that will allow us to continue to serve students interested in these disciplines. No programs in our transportation and skilled trades segment failed. While Lincoln has always focused on delivering a strong ROI to all of our students and all of our programs, we were concerned about being measured on a metric, tax returns, in which we have no visibility, nor which we can verify. However, our results clearly demonstrate the strong value proposition of our programs.

Lastly, let me address our ACICS schools and where we stand. First, no schools in our transportation and skilled trades segment are accredited by ACICS. We have 11 ongoing campuses in our healthcare and other professions segments that are accredited by ACICS, and we have started the process to switch them to another accreditor in the event that the US Department of Education revokes the recognition of ACICS. Based off the timeline provided by the other accreditor, and assuming that all campuses meet their standards, we expect all these campuses to be re-accredited by the third quarter of next year.

We remain focused on our students' success and continue to make investments that will enhance their overall experience. Despite a challenging economic and regulatory environment and a lengthier time than anticipated for our divestiture initiative, we continue to make progress toward stabilizing our business and laying the groundwork for future growth. I'm thankful to all the dedicated individuals at our campuses and corporate office who remain committed to ensuring that Lincoln truly stands out from the competition and provides a superior experience and education for our students.

We remain committed to successfully transitioning Lincoln to sustainable profitability by maximizing the return from our assets and lowering our fixed costs to levels appropriate for our student population. Our team has done an excellent job in this area for the past several years, and yet additional progress during our -- and has made additional progress during our third quarter. While we carry out our 2016 initiatives we are also looking to the future. We have multiple new initiatives underway for 2017. For example, we expanded our high school admissions team to increase our reach into new and existing markets. We believe the additional representatives, coupled with new and enhanced materials, will provide the opportunity to educate prospective students about the rewarding career opportunities in the transportation and skilled trades sectors in a more impactful way.

It is clear to us that while the general public is less knowledgeable about careers that involve not manual labor, there is a strong need for the Renaissance of these fields that offer competitive wages and positive job outlook growth, and we are prepared to bring these opportunities to the public's attention. Consequently, we see a need and a tangible benefit to increasing the scope of our dialogue with high school students and sharing the opportunities our programs can create for their students. The large number of retiring baby boomers, combined with the ever-changing technological landscape, are creating increased demand for technicians of all types. And while we communicate this opportunity on our website and in our marketing materials, we see a need and tangible benefit to creating an open and direct dialogue with our high school students.

In summary, we are well-positioned to continue moving toward sustainable profitability and enhance student outcomes. At this time I'll turn the call over to Brian for a more detailed review of our financial performance.

Thanks Scott, and thank you all for joining us this morning. I'll begin my comments with the highlights of our continuing operation financial performance. Continuing operations are comprised of our transportation and skilled trades segment, our transitional segment, and our corporate and other segment. The transitional segment refers to operations that are closed or are currently being taught out. For the third quarter, this segment consists of our Fern Park, Florida, campus; the Hartford, Connecticut, campus; and certain programs at our West Palm Beach, Florida, campus. In addition, as Scott mentioned, we will begin the teach-out of our Center City Philadelphia and our Green Valley, Nevada, campuses.

The decision to close these campuses did not come lightly, and was primarily the result of consistent losses. We believe the closure of these two campuses will enable us to rationalize our presence in these markets to create efficiencies and profitability at our neighboring campuses. For example, our Green Valley students will be able to transfer into our neighboring Summerland, Nevada, campuses to complete their specific areas of study. We are optimistic that the majority of students will opt to continue their studies with Lincoln due to the convenient close proximity of the two campuses. Similarly, we ceased operations at our Center City Philadelphia campus. We expect to strengthen the population and operational results at our neighboring campus offering the same programs. We believe such strategic plans will strengthen the organization efficiencies and profitability.

Revenue from continuing operations for the quarter was $49.8 million versus $54 million the prior year comparable period. The decrease was a result of starting 2016 with approximately 800 fewer students than on January 1, 2015, which led to an 8.1% decline in average student enrollment population. Average population was 7,400 as of September 30, 2016, compared to 8,100 for the prior year quarter. However, it is important to note that our transitional segment accounted for approximately 58% of the revenue decline and about 53% of the average population decline.

During the quarter, student starts were down 10.5% at approximately 3,100 versus 3,500 in the prior year, but once again the transitional segment accounted for 81% of this decline. The remaining decline of student starts, as Scott mentioned, was primarily impacted by the underperformance at one of our campuses. Management has since taken steps to improve operations and expects better performance in the near future. Excluding this campus and the transitional segment, our starts for the quarter would've grown over the prior year quarter.

Turning to operations -- operating expenses, we continue efforts to implement efficiencies and cost reductions across the entire organization. Education services and facility expenses from continuing operations decreased by $0.6 million or 2.4% to $24.4 million for the quarter, from $25 million in the prior year period. The decrease in cost was a result of successful renegotiation of certain leases, reduced costs as a result of the closure of our Fern Park, Florida, campus during the first quarter of 2016, and reduced instructional costs as we continue to realign our cost structure to meet current and anticipated needs.

Selling, general, and administrative expenses from continuing operation increased by $1.6 million or 7.2% to $24.4 million for the three months ended September 30, 2016, from $22.7 million in the prior year quarter. The increase in expenses were driven by a variety of factors, including a $1 million increase in administrative expenses as a result of closing costs associated with the teach-out of certain programs at our West Palm Beach, Florida, campus. In addition, sales and marketing costs were higher as we increased our marketing spend in order to reach more prospective students and impact enrollments in the fourth quarter. Net income from continuing operations for the third quarter was $1.3 million or $0.05 per share as compared to $4 million or $0.17 per share in the prior year period. Excluding the transitional segment, the third-quarter net income from continuing operations would have increased to $2.7 million as compared to $5.6 million in the prior year period.

Now focusing on our third-quarter segment result highlights. Our transportation and skilled trades segment revenue was $47.9 million for the three months ended September 30, 2016, as compared to $49.7 million the prior year period. This decline was primarily driven by a 4.3% decline in average student population to approximately 7,100 from 7,400 in the prior year period. This decline mainly stemmed from lower carrying population into 2016 and the underperformance at one campus as, I previously highlighted. Excluding this campus, our starts for the quarter would've increased compared to prior year.

Operating income for the transportation and skilled trades segment decreased by $4.5 million to $6.1 million versus $10.6 million, mainly as a result of increased marketing spend and lower student population. Our transitional segment, which for the quarter ended September 30, 2016, had revenue of $1.9 million compared to $4.3 million the prior year, mainly attributed to the closing of our Fern Park, Florida, campus during the first quarter of 2016 and the suspension of new student enrollments at our Hartford campus, effective during the fourth quarter of 2015. And lastly, our healthcare and other professional segment, which is classified under discontinued operations, continues to demonstrate improvement, with a net loss of $2 million for the nine months of 2016 compared to $4.3 million in the prior year period.

Let's now turn to the balance sheet and cash flow for the quarter. We finished the quarter with $45.8 million of cash and cash equivalents and restricted cash. Restricted cash represented $26.6 million of the total. For the nine months, the decrease in our cash balance was a result of several factors, including our net loss, $8.5 million of school closing costs, $0.7 million of our term loan modification fee, $0.7 million of severances, and the seasonality of collections. We continue to expect to increase our cash balances by year-end.

Finally, we are reiterating our previously provided guidance for 2016 as follows. First, we continue to execute on a plan to exit the transitional segment campuses, reducing the losses. We are on track to close our Hartford and Green Valley campuses by year-end and the Center City campus during the second quarter of 2017. Second, we continue to expect revenue from the transportation and skilled trades segment to decline by low to mid single digits on a percentage basis compared to 2015 revenue from this segment. Lincoln anticipates ending 2016 with approximately the same student population level as at the beginning of the year in our transportation and skilled trades segment.

Third, we continue to anticipate generally slightly positive net income for the year from continuing operations, excluding the transitional segment. The profitability outlook includes a non-cash gain in 2016 of approximately $6.6 million relating to a lease amendment. Fourth and last, we anticipate a positive cash position net of our term loan repayment obligation at year-end. With that, I'll now turn the call back over to the operator so we can take your questions. Operator?

(Operator Instructions). Alex Paris, Barrington Research.

A couple questions, not necessarily in any order. So, first of all, with regard to West Palm Beach, you're teaching out certain programs. Is that all the programs that are not automotive, essentially?

That's correct. Automotive and skilled trades.

Okay. And then the automotive and skilled trades, it's essentially a branch building of that campus there. Does that come back into -- is that still part of discontinued operations, or is that part of continuing operations, because it's auto?

For the third quarter it was part of discontinued operations still.

Okay. At some point does that come onto continuing operations (multiple speakers) campus?

Correct, it definitely could.

Okay. And then just to be clear, so Green Valley and Center City come into transition in the fourth quarter. Did you say -- I think you might've just said but I missed it -- when those teach-outs will be completed?

Right. The Green Valley will actually be closed by year-end; Center City will be closed by second quarter 2017.

Okay. And then -- Brian, it would be nice to have the restated year ago numbers. I have them for Q3, obviously, because that's how you report it, but for each of the quarters it would be nice, but we can talk about that off-line. So then, what's left in healthcare and other professions being sold? Is it 15 campuses then?

Yes, there are 15 campuses in there, like Scott was saying. We have a majority -- we have one prospective buyer for a majority of those campuses.

And obviously this has taken longer, as you said in your press release, than you had initially anticipated. What are the issues that really govern that process? Is it financing?

I don't want to get too much into it, but it's kind of like everything that's hitting the industry. There's financing issues, there's regulatory issues, the little bump with ACICS is a bump along the way. But again, overall, we are moving forward and anticipate a successful outcome there.

Good. Then with regard to regulatory, congratulations on all the good news that came out of that over the last few months, like getting out from under the zone alternative, heightened cash monitoring thing, the cohort default rates. I just wanted a little more color on GE, just to make sure I heard that correctly, gainful employment. You said less than 1.5% in continuing programs failed, but no programs in transportation and skilled trades. So would those be in the transition segment, the ones that actually did fail?

They would be in the discontinued ops segment.

I got you. Okay. Discontinued operations. But no programs failed in auto and skilled trades?

That is correct.

Were any in the zone?

Yes, we had some in the zone, but the zone is 8% to 12%, and they were at the bottom end of the zone. So I'm not concerned about them, especially given where they were and some of the other initiatives we've taken over the last couple of years with some of our pricing.

Okay. Got you. Let me see, I guess that's all I have for right now. I'll get back in the queue. But congratulations on hitting the numbers, and looking forward to a sequentially stronger fourth quarter.

Thank you. All also just to be clear, it's a 14 campuses that are in discontinued ops, not the 15 Brian mentioned.

I guess I have one follow-up on that, then. 14 campuses, okay. You started off with what, 17 that were for sale initially?

Yes.

I got to assume that the ones that get taught out are the least well performing schools, the ones that are losing money, the ones that have the smallest enrollment -- which are related, I guess. So that -- if I am right there, that improves the portfolio of the schools held for sale.

That is correct.

You're not putting your best schools into teach-out, you're putting the underperformers --

You got it. That's what we do here.

And it's a substantial network. We think about it as very small when you collapse it into one line, but I'm just looking at the press release for the nine months. Those schools generated $75 million in revenue and a small loss of about $2 million. But $75 million in revenue, for the 14 schools I guess, right?

And it seems like every day it becomes more and more substantial, given what's going on out there.

And there has been an improving trend, which is important. And then the ACICS schools, were some of the schools that got shoved into transition, ACICS?

Yes. Yes, because the Center City school was an ACICS school.

Okay. But regardless, the regulation -- if the Department of Education shuts down ACICS, the precedent is schools in good standing have up to 18 months to make that transition to the new accreditor. And with your target of the new accreditor giving you some indication for third quarter of 2017, you should be able to make that transition with time to spare?

That is correct. But I also -- just in full disclosure, there are other subtleties with regard to these schools losing accreditation that, depending upon what the Department does, will provide some challenges in the near term. But I'm assuming the Department is going to make the right decisions to ensure that students who are currently enrolled in any ACICS program are not harmed in any way.

Got you. Okay. Well, thanks very much.

Douglas Ruth, Lenox Financial Services.

Congratulations. I also want to give you credit for hitting the guidance. Could you -- what campus is creating the challenge for the Company?

I think I may have mentioned it before or not, but it's our Indianapolis campus.

Okay. At one point you thought you might have it -- you thought you might have had it improved, and then -- do we have to replace the management a second time? Is that what happened there?

Yes, without getting into too much, yes, we made lots of changes there to make sure we have the right team, reorganized things. But as we said when we look towards the fourth quarter, things are definitely looking better. So I feel good about where we are headed there.

And could you talk some about -- spending the additional $1 million on marketing, what you're doing and what you think might happen with that?

Sure. Needless to say, we are always looking for opportunities for growth. The market place is changing. We can't keep doing the same thing over and over again, so we do explore new channels and try to figure out ways, through the Internet and social media, to reach our students. So we will continue to make some investments for the future. And some will work and some won't and time will prove that out, but we think we continue to enhance what we are doing through these efforts.

Is a lot of that through the website? (multiple speakers)

Absolutely, yes.

And then can you talk some about the initiatives? I think that makes a lot of sense to me to try to bring back some of the previously enrolled students, and then also expanding to some advanced programs.

Sure. It's something that we are doing constantly, but we are always trying to reach out to students who may have dropped out to get them to come back into the campuses. So we have very concerted efforts around those initiatives. As we continue to build our industry partnerships, we continue to have additional programs that we can offer students to enhance their skill sets, so we can go back out and reach prior students as well as upsell existing students into some of these other programs, like the Chrysler program and the Audi program and some of the others.

Okay. Is the potential buyer of the healthcare properties, are they also the people or the potential buyer for the Florida property, or are those different buyers?

Different entities, but again, we are under confidentiality so I really can't comment beyond that.

Is it still possible that the Florida property could be completed by the end of the year?

Anything's possible, but I don't want to get anyone's hopes up for that. There's interest, but given that it's November, I wouldn't think it would happen by year-end.

All right. Well, I think you are on track and you pretty much have done what you said, and thank you for doing what you're doing and thank you for answering my questions.

Appreciate your support, Doug. Thanks.

(Operator Instructions). Justyn Putnam, Talanta Investment.

Thank you. I just want to follow up, first of all, on the marketing spend question and especially as it relates to 2017. First of all, are you going to continue to increase marketing spend in 2017? And then if you are, presumably that means you do see opportunity for that to drive growth in enrollments in 2017.

Yes. We are still working on our budgets for 2017, but we are anticipating that marketing spend will be up. Not I hope dramatically; we are still refining that. But there are opportunities out there for us, so we will look at that very carefully over the next 45 days as we finalize our budgets.

Okay. And then related to that, as you work through this transition and get the business stabilized, particularly in the core areas, how do you feel about the business at the -- call it $180 million annual revenue level? Is that a level where you can be consistently profitable in a meaningful way going forward? Or do you see there's opportunities to perhaps -- economies of scale with the business?

I think that I see opportunities to grow the business, and I see that we need to grow our business as well going forward. I think at the $180 million level we are -- we can create profits, but they are not going to be profits that we are going to settle on or accept. There's more opportunity out there for us, and therefore we will continue to look for opportunities to grow beyond $180 million.

Okay. Good. Then last question from me is on your credit facility. I mean obviously, in normal times, normal business, having a credit facility in place and drawing on debt is equal to what the cash you have on the balance sheet, doesn't make a lot of sense normally. But obviously you being in the for-profit sector these days, you have to do things like that. And I guess my question is you're holding that debt because of financial responsibility ratios and so forth. Can you give us a little bit of an ability or plan toward how you're going to work to get out from under that going forward?

Sure. Again, we are a cash positive company. There are periods of the year when we use cash and periods of the year where we actually generate more cash than we need. The challenge we have with our existing credit facility is that it's all a term loan, not a revolver. So if we had a normal revolver, our debt balances would be dropping this time of year. And instead, though, given the environment, we had to go out and get a term loan. That's why the debt number stays fixed and high throughout the year. So, long story short, it is expensive debt, and so we are constantly looking for ways to minimize that expense. And the best way to do that, needless to say, is to grow the overall profitability and strengthen the Company so that we can find additional sources for credit going forward. I don't know, Brian, if there's anything else?

Right. The only thing I'll add, as we get stronger we don't need all that loan debt, so we would be looking to pay back some of that debt over the near future.

Right, because you're holding most of that debt right now because of financial responsibility ratios and so forth, right?

Right. And (multiple speakers) as well, but it does help our balance sheet. It makes our balance sheet stronger, correct.

Okay. That's it for me, thank you.

I'm showing no further questions at this time. I would now like to turn the call back over to Scott Shaw for closing remarks.

Great. Thank you all for joining us today. We continue to focus our efforts in this, Lincoln's 70th year of operations. I'm returning to the Company to sustained profitability while offering an enhanced educational experience to our students. We are continuing to move in the right direction and we look forward to updating you on our progress as developments merit and talking with you again in March. Have a good day. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.