Lincoln Educational Services Corp (LINC) 2020 Q2 法說會逐字稿

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

I will now hand the conference over to your speaker today, Michael Polyviou with EVC. Please go ahead, sir.

Thank you, Carmen, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its release reporting financial results for the second quarter ended June 30, 2020, as well as recent corporate development. The release is available on the Investor Relations portion of the company's corporate website at www.lincolntech.edu. Joining us today on the call are Scott Shaw, President and CEO; and Brian Meyers, Chief Financial Officer.

Today's call is being broadcast live on the company's website, and a replay of the call will be archived on the company's website. Statements made by Lincoln's management on today's call regarding the company's business that are not historical facts may be forward-looking statements as the term is identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate and continue as well as similar expressions are intended to identify forward-looking statements. Forward-looking statements should not be read as a guarantee of future performance or results. The company cautions you that these statements reflect current expectations about the company's future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond the company's control that may influence the accuracy of the statements and the projections upon which the segment -- statements are based. Factors that may affect the company's results include, but are not limited to the risks and uncertainties discussed in the Risk Factors section of the annual report on Form 10-K and the quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements are based on the information available at the time those statements are made and management's good faith belief as at the time with respect to the future events. All forward-looking statements are qualified in their entirety by this cautionary statement, and Lincoln undertakes no obligation to publicly revise or update any forward-looking statements whether as results of new information, future events or otherwise after the date thereof.

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

Thank you, Michael, and good morning, everyone. Thank you for participating in our call to discuss Lincoln's continued operating and financial progress during the second quarter of 2020. We hope that since we last talked with you in May, the pandemic's impact on you and your families has been as limited as possible, especially from a health perspective.

Today, I'm going to focus my opening remarks on how we've successfully managed through many of the challenges presented by the COVID-19 pandemic to generate continued momentum within our organization. I'll provide some comment on our short-term outlook, although we are continuing to refrain from issuing guidance, and update you on our growth initiatives. Then Brian will delve into our second quarter financial performance, and then we will take your questions.

At Lincoln Tech, our team, including our Board of Directors, management, faculty, students and our corporate partners, are actively and aggressively managing the challenges presented to us by the pandemic as well as the resulting economic recession. To date, we believe we've made the right decisions and have executed our plans extremely well. While some uncertainties outside of our control remain, we feel very good of the overall direction of our company, what we are doing for our students and what we are doing for our shareholders.

From an operating perspective, we had an excellent second quarter. We fully executed on our plans to retain and support our diverse body of enrolled students. We grew student start at a double-digit rate. Our population is greater than last year. We generated positive net income for the first time in the second quarter in 5 years. We generated more cash in the quarter than last year. Our debt levels are down, and our liquidity is $26 million greater than it was last year at this time.

In addition, we continue to strengthen our partnerships as employers increasingly turn to us to help them solve their skills gap challenges. Terex Corporation, a global manufacturer of lifting and material processing products and services, donated equipment to foster enhanced diesel engine training at our Denver campus. The donation expands our partnership with Terex that promotes career opportunities for Lincoln students during their education and post graduation. We also just formed a partnership with Toyota at our Columbia, Maryland campus and are already discussing expanding it to other Lincoln campuses. And we are buttoning up on a proposal to provide training to a Fortune 500 company at a new training facility that they just opened. All in all, a very strong and productive quarter for Lincoln Tech.

Our recent achievements demonstrate our organization's flexibility and capability. The entire team exhibited exceptional cooperation as we closed campuses to comply with local regulatory requirements; transition the learning at all campuses entirely online; and as of now, reopened all 22 campuses. Our primary objective with the reopenings was and continues to be to ensure the safety of our students and staff. We have closely adhered to local and federal guidelines, including, but not limited to, social distancing, where require no more than 9 students for 1 instructor; the wearing of masks while on campus; staggered times for different classes; and daily sanitizing of the campuses. Initially, we brought back students who needed the hands-on skills to complete their education, and most of these students will be fully caught up by the end of this month. Now we are providing all students with hands-on training so that they can progress at a normal pace through their program. We have campuses where students are back on campus 100% of the time, but most students are coming back onto campus for approximately 20% of their education and doing the rest online. Also to be clear, the vast majority of our online training is happening via live broadcast, so students are interacting with their instructors just as they would if they were on campus.

As we bring students back on-campus in smaller groups, we are finding that the students are more engaged, and we are able to cover more material in a shorter period of time. All of these changes are leading us to explore how we offer our curriculum in the future. However, first, we are seeking all necessary regulatory approvals to keep offering distance education beyond December 31. As you may recall, the DOE, states and accreditors gave all institutions temporary license to offer online training since we all were forced to shut down on ground learning. However, since we don't expect this COVID situation to be ending by year-end and we don't know if the current temporary licenses will be extended, we've applied to offer hybrid distance education for all programs permanently. Moreover, we are taking what we are learning about the good and the bad about distance learning in developing our new delivery model, which we expect will provide students with greater flexibility, more engaging training and possibly lower expenses. We are still in the development stage, but I'm excited by the progress that we are making.

What has been particularly exciting during this tumultuous period was the willingness of our instructors to swiftly react and enthusiastically embrace the new instructional procedures, be them online or in the classroom, and it was equally rewarding to see the student engagement regardless of the learning format, but especially when they could get back in the lab. Our students love the hands-on training they receive in all of our curriculums. It's the key reason why they choose Lincoln over other schools. I think our relatively low rate of leave of absences during the quarter helps illustrate the engagement of our students as they move through our programs towards graduation.

From a financial perspective, while our revenue for the second quarter was down slightly as we had to slow or stop the progress of certain students who could not complete on ground lab work or visit clinical sites, we were able to reduce expenses to a greater extent, which resulted in increased profitability. Brian will share much more detail in his remarks. But in short, while we have had to make lots of operating changes to our business, we continue to make progress on our growth plans.

Our Transportation and Skilled Trades segment grew student starts by 13.5% over the second quarter of last year, which resulted in an increase in population of 2.3% or 170 students over prior year. Our Healthcare and Other Professions segment grew student starts 18.8%, and our ending population in this segment grew an impressive 17.9% for 640 students. Overall, as we mentioned during our last call, in May, our leave of absences had increased to approximately 1,100 students, which was well below the 20% of total student population levels reported by our peers but high for our company. We continuously reduce the leave of absences. And as of June 30, the overall total number was at 696 students or approximately 5.7% of our total population. This comparatively low number helps illustrate the level of student engagement across the Lincoln campuses and our capabilities to rapidly pivot to a distance model. And with many of the students on leave of absences resuming their program during the current third quarter, we should see a positive impact on our revenues as we finish the year. As a reminder, when a student remains enrolled at Lincoln but on a leave of absence, we aren't booking revenue during that leave of absence.

A major factor behind our second quarter start growth was our successful transition of the admissions process from one being heavily focused on bringing students into our facilities to see all the equipment and training aids to one being 100% remote. Our admissions teams have done an outstanding job with this transition, which we continue to deploy. While the marketing landscape remains fluid as some regions where we have campuses have reopened only to turn around and partially closed as COVID cases increased at high levels, our messaging is generating strong response. The number of students signing enrollment agreements continues to be up over last year. The demand by students for our central career offerings is strong, and the productivity of our admissions teams has increased. Also, the interest in our health care programs continues to build with so much attention being brought to the dire need for more health care workers, both because of the COVID-19 pandemic and overall need that existed previously.

Lincoln is ready and has always been ready to bridge this skills gap with our accelerated programs and real-world experienced teachers to rapid train eager and talented students. When the pandemic forced us to close campuses in March, our team set out to proactively manage our operating costs. While I already mentioned that our profitability increased in the quarter, I simply want to thank our organization for their quick response. We asked landlords for assistance in lowering rents, curtailed travel, froze all new hires given the uncertainty and simply asked the campuses to be prudent with all expenses. Given our strong results, I'm happy to say that we achieved all of our goals in this area.

With the reopening of campuses, the return of many of the students on leave of absence and the student start growth during the second quarter, we will be issuing more books and tools using more consumable supplies and occupying facilities that were vacant for up to 3.5 months. In addition, we've deployed comprehensive social distancing measures at each campus in each classroom. The combined result of these developments is that our operating costs in the third and fourth quarter are currently planned to increase over the second quarter.

In May, the uncertainty surrounding the impact of the pandemic in our operations led us to withdraw all full year guidance that we provided back in February. Because we still face some of these uncertainties and a few others have been added to the mix, we will forgo the opportunity to reinstate guidance today. However, during my remarks this morning, I have noted our outlook on a few of the operating cost metrics for the second half of the year, and Brian will offer additional comments during his remarks. From a top line perspective, we have built into our operating strategies the continued presence of COVID-19 for another 12 months. At this point in time, enrollments are increasing, and as of today, we are operating under our new social distancing procedures at all campuses.

Longer term, we are continuing to pursue our growth strategies coming for new programs at existing campuses and perhaps a new campus. We just had a successful launch of an electrical program at our Queens campus and welding at our Melrose campuses. We also continue to explore tuck-in opportunities that would facilitate additional growth but have nothing specific to report today. Given the uncertainties caused by COVID and the upcoming election, we are being and will remain prudent with using our cash, but we definitely expect to see opportunities arise that we will capitalize on.

I also want to highlight our recent changes at our Board. Bud Austin, the Chairman of the Governance and Nomination Committee, retired after serving more than 10 years on our Board. Bud was a former college president and actively involved with accreditation, and he brought tremendous insights to our Board discussions, especially around topics of curriculum and education. We will miss his guidance and insights, but feel that Dr. Michael Plater will build on Bud's legacy with his own very unique background. Besides being a Harvard graduate with an MBA from Wharton, Dr. Plater has worked at or with almost every form of post-secondary institution including Ivy League, state schools, historically black colleges and community colleges and most recently as the former president of Strayer University. We are excited and honored to have Dr. Plater joining our Board.

Similarly, I could not be more thrilled to have Carlton Rose join our Board. Besides being a Lincoln Tech graduate, Carlton is a highly respected professional in the transportation industry. As the President of Global Fleet Maintenance and Engineering for UPS, Carlton oversees a global workforce of over 8,000 technicians and more than 380,000 vehicles. Carlton has remained active and involved with our schools, often speaking to students and participating in scholarship events. Carlton represents the true power of a Lincoln education, and we could not be more honored to have him now helping to lead the organization that helped unlock his potential.

As we look out into next year, we announced in July that Jeremy Snepar had joined the Lincoln organization as an entrepreneur in residence and would work with our leadership team over the next 6 months to identify new opportunities around student acquisition, curriculum delivery and job placement. Jeremy is a well-regarded thought leader in closing the middle skills gap. He and the Lincoln team believe closing this gap is a critical component to rebuilding America's middle class, and we are actively working with Jeremy to flush out ideas that could be integrated into our operations beginning in 2021.

We continue to believe that with the dramatic rise in the unemployment rate and the increasing realization that many of the unemployed won't have jobs to come back to once the nation's economy is fully reopened, demand for our programs will increase even further as it has in past economic downturns as the unemployed seek new paths to a better career.

Throughout the nearly 75 years of Lincoln's operations, we have seen increases in leads, enrollment and student population during rises in unemployment and economic downturns. During the last recession, between 2007 and 2010, we saw consistent increases in leads, enrollments in student population that peaked 2.5 years after recession started. However, given the dramatic and unprecedented rise in unemployment during the past 5 months, we continue to imagine a much faster ramp-up in our student population beginning in the fourth quarter of this year and continuing into 2021. Remember, the same 22 campuses that we have today had approximately 18,000 students and generated over $80 million of EBITDA back in 2010 at the peak of the last recession. We are ready to serve the needs of any displaced worker looking to secure solid skills, which can provide a rewarding central career with a lifetime of opportunity.

A key factor behind our success is our focus on training and education for essential critical infrastructure careers. Approximately 90% of our students are currently pursuing careers that meet the U.S. Department of Homeland Security's definition for essential critical infrastructure workers. These are well-paying, stable careers that are enabling our graduates to establish themselves soon after leaving Lincoln.

We also are proud of the diversity of our student body, which is preparing students from a broad range of racial, ethnic, social and economic backgrounds for those well-paying, stable careers I just referenced. As a result, we are helping expand the country's skilled labor force while expanding the participation in our country's long-term economic growth. As we enter the second half of 2020, the Lincoln student body breakdown by racial background is 31% white, 30% Hispanic, 20% African-American and 10% other. This diversity is helping set historically underrepresented groups on a path to economic success, which we view as a key component in narrowing the wealth gap that different groups in this country currently experience as well as rebuilding the country's middle class.

Now I'd like to turn the call over to Brian for a review of our second quarter results and additional comments on our response to the pandemic. Brian?

Thanks, Scott, and good morning, everyone. I want to start by thanking the entire Lincoln team for their tireless efforts during the quarter and navigating through all the COVID-19 pandemic challenges. We are very pleased with our strong financial performance and believe it highlights Lincoln's distinguishing strength, including our diverse offerings of high-demand career programs and our success in quickly transitioning our programs, admissions and education process, first, through remote delivery and now through a hybrid approach now that our campuses have reopened.

Notably, as Scott mentioned, we achieved net income in the second quarter for the first time in over 5 years despite the challenges of these unprecedented times. This is an important achievement due to our seasonality, which in recent years has delivered net income almost exclusively in the second half of the year. Net income was $800,000, nearly a $4 million improvement for the quarter from 1 year ago. Similarly, EBITDA for the quarter was $3 million, representing a $3.2 million increase for the quarter compared to last year. The EBITDA improvement was driven by higher efficiencies and cost savings, which I will discuss in detail shortly.

We also had significant student stock growth of 15.2% for the quarter over prior year upon signing approximately 3,430 new students in Q2. This very strong performance demonstrates that the underlying organic growth in our student start continues. Our year-to-date new student starts are ahead of last year by 5.3%, with the only interruption in growth over the past 2.5 years coming in the first quarter when the pandemic interrupted starts in the month of March. In addition, our positive trends with starts had continued into the third quarter, with July starts ahead of prior year.

Moreover, our ending population increased by 7.5% or about 800 students after excluding about 700 students who are elected to take a leave of absence or LOA due to the pandemic. About 30% of these students were out on leave of absence due to lack of externship sites and hands-on labs during the quarter that was necessary to complete their programs. We anticipate the majority of these students to return in the third quarter. As for the rest of the LOA students, we are diligently working to reengage them now that our campuses have reopened and we can deliver a hybrid education experience. Any additional reentries would add to our robust population.

Another key highlight in Q2 was our positive cash flow from operations of $3.9 million. The metric is calculated excluding the additional contribution from the Federal CARES Act funds we have received in response to the pandemic. This is a significant improvement since we generated only $100,000 cash flow from operations in Q2 of 2019.

Now let me share some additional financial highlights, including the impact from the pandemic. Our successful transition to remote learning limited the overall financial impact from the pandemic as we experienced a slight revenue decrease that was more than offset by cost reduction and mainly attributed to our campuses being closed during the quarter. More specifically, revenue of $62.5 million for the quarter was down slightly by $1.1 million compared to the prior year due to 3 main factors: one, revenue deferral of $900,000 related to programs lengthening of our cosmetology programs as well as a few of our nursing programs well online. We extended the length of these programs by approximately 2 months and expect to recognize this deferred revenue during the second half of the year; two, a nontuition revenue reduction of $800,000 in connection with student credits issued for dorms and meal fees during our campus closures. We are awaiting further guidance from the Department of Education but anticipate this to be recovered through the Federal CARES Act. And three, revenue was lower due to our LOA students since we do not recognize revenue on students out on LOA.

On the positive side, revenue benefited from our largest student population during the quarter. Also, we had a positive results at our operating income level. Operating income was $1.2 million for the quarter, representing a $3.3 million increase over the prior year. This improvement resulted from lower operating expenses of approximately $4.4 million or 6.6%, largely due to facilities, instructional, sales and marketing expenses. Facilities expenses were lower by $2.1 million, resulting from rent abatements for Q2 at several locations totaling $500,000, coupled with general facility cost savings during campus closures. We are very thankful to our landlords for providing this rent relief. Also, instructional expenses decreased $1 million driven by savings in payroll expense and consumable supplies since these students were mainly online throughout the quarter. In addition, sales expense decreased by $900,000, resulting from a significant drop in our admissions reps' travel expense combined with lower salaries due to furloughs. And lastly, marketing investments decreased about $500,000 due to a timing shift from Q2 to Q3 production. While we realized these cost savings in Q2, I want to underscore that we anticipate most operating expenses returning to normalized levels for the remainder of 2020 as our operations also return to a more normalized state.

We expect certain student-related expenses such as consumables and books and tools to increase over prior year due to higher active population. However, to offset, we anticipate ongoing savings in travel expense campaign to prior year as we limit personnel travel for the safety of our employees and continue to conduct admission processes remotely. Still, our entire team remains highly focused on cost optimization to further improve our financial performance.

Lastly, expenses -- corporate expenses remained essentially flat at $6.4 million compared to prior year. And interest expense decreased $500,000 for the quarter over prior year to $300,000 as a result of lower outstanding debt compared to a year ago and lower interest rates as a result of financing transaction we completed in the fourth quarter of last year.

Now turning to liquidity. As of June 30, we had approximately $32.5 million of available funds compared to $6.5 million a year ago. Our available funds at the end of Q2 consist of $21 million of availability under our credit facility and $11.5 million of net cash and cash equivalents, excluding the Federal CARES Act funds. The combination of our improved financial performance and the financing transaction that we completed in the fourth quarter of last year have allowed us to significantly strengthen our balance sheet. As such, we reduced debt by approximately $7 million while increasing our restricted cash by over $5 million. We generally -- we typically generate cash flow from operations in the second half of the year due to our seasonality. And despite the pandemic, we believe this trend will continue in 2020.

In terms of the Federal CARES Act funds, we have received a total of $27.4 million in 2 parts. For the first part, Lincoln has received $13.7 million earmarked for students to offset their additional expenses related to the disruption of school operation. To date, we have distributed $11.1 million to almost 13,000 students, and we expect to distribute the remaining of the funds over the next few months. For the second part, Lincoln also received $13.7 million, which may be used towards the company's cost associated with significant changes to the delivery of instructions as a result of pandemic or towards additional aid to students for the purpose I just described. As of June 30, 2020, we utilized $1.3 million of these funds that cover eligible expenses, which largely related to the purchase of laptops for our students who otherwise did not have access to remote learning while our campuses were closed. We recorded $1.3 million credit expense to offset the impact of our P&L year-to-date.

And lastly, regarding our 2020 guidance. During the first half of the year, our year-to-date student enrollment metrics, starts and population and profitability continue to exceed last year's levels. While we have provided an outlook for the second half of the year on some operating metrics this morning, we are still experiencing several operating variables that can continue to be impacted by the pandemic. Given these uncertainties, we have elected to postpone the guidance -- postpone the issuance of our 2020 guidance, and we'll continue to evaluate this decision as the year progresses.

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

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

Congratulations on the quarter. I have a few questions beginning with starts. Starts were obviously quite strong in the quarter. We had expected that given your commentary on the last call. In fact, you got some lift from COVID-related delays that pushed some new enrollments from Q1 to Q2. Did that come to pass as expected, first off?

And second, have you noticed any lift in terms of -- that you could trace to COVID or the rise in unemployment? So far, I realize that this might be a fall term and beyond phenomenon, but I'm wondering what you've seen to date, even what you're seeing to date in Q3.

Yes. So I'll take that. Yes, we did get some carryover, as you mentioned, from the first quarter into the second quarter kind of as expected. Enrollments remain very strong, but I can't say that I see a big uptick as of yet because of the unemployment levels. I would anticipate that happening, frankly, later into the fall. Obviously, there's still -- people, I guess, it stopped, but it maybe gets reinstated that we're receiving the supplemental on insurance benefits. It's summertime, so people may be enjoying the summertime. And what I anticipate is as the fall kicks in, as summer comes to a close, as people realize that maybe their jobs are not going to be there or come back or maybe the government is not going to provide them with as much assistance that we will start seeing more of an uptick. But right now, I see some strength in the health care side, I think mainly because of just demand and interest and just -- there's lots of talk about health care. So that's certainly up a little bit. But otherwise, I don't see the big uptick that I know is coming.

Right. And the only thing I'll add, Alex, we did get a little lift from starts going from March into the second quarter, but our year-to-date starts are over -- prior year by over 5%.

Good point. And then inquiries are strong. What's been the productivity of your enrollment chain, conversion, show rates, things like that?

Yes. What we're experiencing is that our teams are doing better. So from the standpoint, we definitely are enrolling more students than we have in the past. Because of the strong enrollment, some of our show rates have gone down. But all in all, we're still growing our population. We're finding that the admissions folks -- frankly, just being able to operate virtually and speak with the students seem to be converting more of the leads into enrollments at a much higher rate, and that's driving overall growth for us, and it's something that we're exploring and trying to understand so that we can continue that success going forward.

Great. And then at the end of the quarter, you had 696 students still on LOAs. You're working those down. When do you expect that they'll -- you're going to -- the LOAs will be completely restarted?

Yes. Well, I don't expect all of them to restart, to be honest with you. I would say that maybe up to 2/3 of them will finally just not want to wait around for on-ground opportunities. I would anticipate at least about 1/3 of them are out there because of either they haven't had the chance to do as much on ground work as they need to, to graduate. So I'd imagine we definitely get at least 1/3 of them back. But the other 2/3, we'll probably get some of them back, but I think some of them are just -- they're just too averse to doing things online. So it's all added -- all potential added population since we don't count it in our population today.

Correct. The one thing I'll add is by the end of -- we're anticipating by the end of the third quarter, really, to have very few students still left on LOA.

Got you. All right. And then all your campuses are reopened now, which is great. Obviously, there's been social distancing restrictions, federal, state and local rules. Have things been steadily getting better in terms of restrictions? Or are they about the same? Or has it worsened in some cases?

Yes. I'd say there have been no changes in the restrictions that have been imposed on us. What's getting better is our just execution of dealing with the social distancing and bringing students in on multiple shifts and getting more -- I'll say again better at bringing students on and having them do their training in the labs for a shorter period of time. We've gotten much better at that scheduling so it's becoming more effective. But we haven't experienced anything that's either increased our ability to bring more students on or decreased the number of students that we're bringing on to campus to date.

All right. And then I guess my last question for now is, what are the long-term implications of COVID on your business? I think you touched on it a bit in your prepared comments, your blended learning. I would assume the ensuing recession will drive higher demand, and higher starts should drive higher retention in the future. Maybe just a little additional commentary on what you expect in a post-COVID Lincoln.

Oh, yes. I think that we're going to emerge from this a much stronger, better, resilient company. We're definitely learning that we can do a lot more remotely than we ever thought we could do before. We're definitely hearing from our students what aspects of distance learning they enjoy as well as what aspects they don't enjoy. We know that going forward, we'll definitely have a blended curriculum of some sort. And this whole nightmare experience, whatever you want to call it, is really opening our eyes to new potential opportunities. My expectation is that Lincoln will be more efficient. We'll be doing things more virtually. We'll be doing things in a better way, and I think that it'll attract new people to our education model. I think it's going to be very positive once we get through all this.

Well, that's great. It sounds like the worst is behind you and the best is yet to come. So congratulations.

Our next question is from Raj Sharma with B. Riley.

Congratulations. Congratulations on the results. I just wanted to understand the revenues for Q2 a little bit better. I know that the average quarterly tuition rate seems to be down year-on-year and as you guys noted because of deferred revenue, nontuition costs, LOAs. So can you help me understand what was the overall COVID impact on revenue? What would have been -- what would the revenue reported have been had we not had COVID on this level of enrollment?

Raj, I'll take that first. So as we disclosed when we talked about the extending some of the graduation dates, that was like $900,000 as well as the housing for our own dormitories of another, I think, $800,000. So that was like $1.7 million. What I don't have for you if all the students that were LOA, if we earn the revenue on those, I don't have what the impact that would have been material.

Right. So you would just -- I mean, I guess, for the calculation, you would assume that those were the LOAs that were absent. There was no revenue recognition for most of the quarter over x number of weeks in the quarter.

Right.

Right. And then...

And the ending of 700 started with more LOAs. They came down to 700. So we would even had more revenue earned.

Correct.

That's right. So starts are really good. What -- the starts are really good for the June quarter. And how are they looking for the fall quarter? And also, could you help me a little bit with our show rates?

I'll just start. In my prepared remarks, we did mention we'd give a little insight into July, which our starts are ahead of prior year July. So that's a good metric.

Yes. So that's about as much guidance as we're going to give, but everything is moving in the right direction and looking very positive. That's all I can say.

Right. Right. So the show rates are trending okay as well. I mean I'm just trying to get -- I mean I know there's a lot of uncertainty with students, and so there's a lot of reticence on their part to go through course work.

Yes. I mean as I mentioned in my remarks -- sorry to cut you off, Raj. The show rates are down a little, but that's simply because of -- somewhat the math, our enrollments are up so much higher. We're finding exceedingly high productivity with our admissions folks, and so I wouldn't say that there's hesitation on students' parts to come to us any greater than it ever was. In fact, our high school starts were quite strong for the quarter. And as you may or may not know, many of those high school students are relocating to come to us. And we didn't -- we frankly exceeded our high school budget. So we're seeing no real unusual hesitation whatsoever on students' part because of the COVID situation.

And just last question. So on the enrollment, do you see sort of a recessionary or an unemployment rate-related pickup in starts? Do you see there's going to be a lag? Or do you see that sort of happening with the fourth quarter and the first quarter?

Yes. My -- yes. I definitely don't feel like we're seeing it yet, and I would expect it to happen certainly in the latter part of the fall just given how things have happened in the past. Obviously, this is a bit of a different situation. But I definitely see strong interest, but I don't see something causing the spike that we saw during the last recession, but it did take several months for that to occur.

Our next question is from Steven Frankel with Colliers.

I'd like to try to get a little more insight into the pipeline. So could you give us maybe some numbers on the growth in contracts and the growth in leads on a year-over-year basis?

Yes. We don't disclose that level of detail, Steve, going forward. All I can say is, as Brian mentioned in his remarks, we had a very strong July. And I see good indications going forward for growth in a nice level, consistent with where growth was historically. And I would anticipate that with the recession sinking in and definitely out there and as people get more and more comfortable for thinking about their future and maybe going back to school, I would anticipate, as I just said, later in the latter part of this year. I'm hoping or anticipating increased growth because of the recession.

Okay. And if you adopt blended learning, and it sounds like you're going to permanently adopt blended learning, is that a material reduction in your fixed cost going forward? Is that a big part of the answer?

Yes, yes -- not yet because obviously, we have all the existing fixed costs that we have. What it does do, though, as we look to open new campuses, we can operate in a smaller footprint going forward simply because some of the education will be delivered online. And obviously, once it is rolled out there, there could be some efficiencies. I would anticipate receiving efficiencies. But it's not going to be, I would say, a meaningful number in the near term.

Okay. And then you did a very good job of knocking down the LOAs in the quarter. Still some work to do, but good progress. Is some of that a reflection of the fact that relative to your competitors, you tend to have a larger commuter footprint than a destination?

Yes. I think that -- yes, I think that's exactly certainly one of the drivers to it. Our students are able to come into our campuses for 2, 3, 4, 5, 6 hours a day and then return home. And so it certainly would be more challenging if they had to make a commitment probably to relocate and pay housing for an abbreviated day.

And with the new model and the focus on online, have you made any changes to your marketing strategy, either the messaging or the channels you're using to attract potential new students?

No. We haven't made any changes due to online training or things of that nature as of yet. We certainly are always looking at changing our channels and trying new things in order to attract our existing students. But until it really becomes much more of a part of who we are and we can articulate clearly the benefits and why students should be excited by it, we're basically continuing with our same form and messaging in our advertising. But as I said, we're constantly exploring new forms of social media, other channels to -- in order to attract students and find where our future potential is.

And my last question, what's the job market currently look like for those that are graduating this quarter or next quarter? What's the job world telling you?

Well, what we're seeing is that I think orders are picking up. And actually, we just did a survey of a number of our employers. And the ones that respond -- we actually just did 2 days ago. 70% of those that responded said, yes, they are hiring. So we are seeing an uptick. There certainly are certain markets in certain areas where I'll say the opportunities are less. But overall, we are seeing an uptick, and we recently had an uptick in our placement rates over the last couple of weeks. So I think that things are coming back to more normal.

(Operator Instructions) And our next question is from Austin Moldow with Canaccord.

You mentioned shifting some marketing spend from Q2 to Q3. Can you elaborate on that? And also, can you speak more broadly about the changes you're making to your marketing channels?

Sure. So the change that we made was simply one on production. We're creating some new TV advertisement. And just given the uncertainty, we just figured we could delay the launch of those new TV ads. So we moved about $500,000, Brian, from the second quarter to the third quarter in production costs. Overall for marketing, what I can share with you is it's a day-to-day battle, always trying to figure out what channels are working and what channels are not. Obviously, given the COVID situation, we don't have events taking place. That used to be one of the sources of new leads that we would get. And so we've reallocated resources there, probably mostly into more social media channels to get our word out, get more engaged with the students and try to get exposure wherever possible. Obviously, the Internet is still driving the vast majority of all the marketing dollars that we're doing. We have increased in certain markets where we've seen opportunities, some billboards and things of that nature. And we're exploring some other new channels. There's lots of creativity out there for ways that people are looking to get people's attention in this new environment when people are maybe staying home more and not going out. So that's really about all I can share with you.

The one thing I'll add, we did move some production into Q3, but we think there are some opportunities out there for marketing. So we will look to spend some additional marketing versus Q2 and even versus Q3 of prior year as well.

Got it. That's quite helpful. And then my second question is, given what we're seeing in the health care sector right now and knowing there's a lot of demand for those professions going forward, can you talk a little about the trends you saw in your health care segment during the quarter and maybe how you expect that to trend going forward?

Yes. We're definitely seeing strong response, which I think is great for all of us who may need health care in the future. Certainly, people that want to help and serve and help others get better seem to be attracted to that sector. And all the attention that is out there in the media about the need for health care workers instead of scaring people away has certainly, I'd say, attracted a lot more people to us. So we're definitely seeing some upswing there, especially around our nursing programs. And I would anticipate that, that will continue going forward because even without the pandemic, as we all know, with the aging population, there's a strong need. And it's just such a great profession for people because they can work anywhere, and they don't ever seem to be unemployed.

And this concludes our Q&A session for today. I would like to turn the call back to Scott Shaw for final remarks.

Thank you, operator. In closing, during the second quarter, we began to rebuild the momentum that the pandemic derailed in the first quarter. We've regained significant student start growth, increased student population and achieved net income during the second quarter for the first time in 5 years.

We've reopened all campuses under rigid operating procedures to protect our instructors and our students, and we are growing enrollment as we head toward the fall as more and more displaced workers seek a better opportunity through a Lincoln Tech education. Furthermore, we are looking at new ways to deliver our industry-recognized curriculum as technology and needs change, and we are exploring new training opportunities and revenue streams. Also, over the past 6 months, we have expanded our Board both in number and talent. While the COVID-19 pandemic continues to create uncertainty in the near term, Lincoln's future remains right.

Finally, I'd like to welcome our new shareholders and thank the shareholders who have stayed with us over the past several years. Over the past 3 months, Wall Street has begun to recognize our progress and our potential. Our shares have risen approximately 100% since reporting our first quarter results on May 13. Furthermore, our average daily trading volume has increased by nearly fourfold. We appreciate this new interest and look forward to updating all of our shareholders and team members on our progress in early November. Until then, stay safe and have a great day. Thanks, everyone.

Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.