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 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 the future results will be achieved, and the 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'll provide an overview of our company's operations, and Cesar will review our second quarter and provide the financial outlook for the third quarter of 2013. We'll then take your questions. We announced 5 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. 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 to these 5 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…

Thank you, Shaun. Good morning, everyone. As we disclosed in our press release earlier this morning, our 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 the first quarter of the year. Start of the second quarter of 2013 with approximately 2,600 less students than we had in 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 in capacity utilization produced significant negative leverage as our operating margin decreased to a negative 17.8% for the quarter or negative 12.1% to the second quarter of 2012. Other key highlights in the quarter included a 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…

. [Operator Instructions] The first question comes from the line of Scott Schneeberger with Oppenheimer. Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division: Yes, the -- one of the things I'm curious about, Cesar, is with the cash position and the continuation of the dividend, what is the stock going forward? It sounds like you're optimistic about profitability going forward. What's the consideration for the dividend program?

Honestly, every quarter, the Board of Directors takes a look at the 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, I -- in my opinion, I believe the board will support it until we see something different. As you know, they approved the dividend for this quarter, and it is our expectation that if things improve, that dividend will not be in any harm. But again, that could [indiscernible] that the board will consider every quarter. Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division: And then you mentioned some new 2013 programs manufacturing and RN. Could you elaborate a little 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. The programs are being added with a lot of feasibility on the front end that looks at demand for students on -- upfront 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'll probably use this model for other programs that we'll develop 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 in Indianapolis, Indiana in the fourth quarter. Our 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. Scott A. Schneeberger - Oppenheimer & Co. Inc., Research Division: And then with regard to health sciences, you mentioned improvement quarter-over-quarter is 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 just maybe speed or magnitude as to when you think you can bring that back?

Thanks, Scott. I'll start and Cesar can jump in. I -- just 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 at Lincoln. I see an affordability problem that has continued. And we do see some people sitting on the sidelines instead of starting school. I think that, that trend will turn. We see in a cycle that look to 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 challenge that we face. With more and more parents being denied PLUS loans and some of these programs has 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 see the change in delivery models or do -- 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 say that the there were some geographies where we saw changes that we made to credit hours within programs affect the Title IV availability, the students, 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 are looking for the cycle to turn ultimately.

Your next question comes from the line of David Chu with Merrill Lynch.

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? I'm just trying to gauge it on an apples-to-apples basis here.

Yes. 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.

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

Which would be up in 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 mentioned starts for the year to be flat. How are you thinking about it comparably for the year now? I understand that you, like, you've like [indiscernible] Any way you can kind of...

Well, we were saying that starts for the year were supposed to be flat with Southwest. Now we're saying stars for the year will be flat on a continuing operations basis, including Southwest. So obviously, the numbers in Southwest continue to deteriorate. So starts would have been down with Southwest.

Right. And I understand, but can you quantify? Can you help us quantify that? Let me ask you in a different way. What were starts for Southwest in 4 quarters of 2012?

There were 1,582 students.

1,582 students in the Southwest last year?

Correct.

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

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

Just on a recurring basis, taken out.

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

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

No. Most of the costs will come in Q4. There will be some costs in Q3, but most of the costs will come in Q4.

You mean these onetime costs?

That's correct.

. Your next question comes from the line of Jeff Lee with Wells Fargo Securities.

Can you just remind 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 have enrolled last year in Q3 and then in Q4?

I don't know if I have that information handy. I mean, I know 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 will have to get you that number separately, Jeff.

Okay, thank you. And then how many students are there currently at the 5 closed campuses, and then when do you fully expect to close them out?

I believe it'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, if you are graduating by December 31, you are allowed to continue your studies and graduate with a degree. If you are not going to graduate by December 31, we refunded your money.

Or transfer...

Okay. And then the last question. What other sources of strength do you feel drive student starts to 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 have given 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 excludes Southwest, online and ATB. For the first half of the year, that's only down 6%.

And then just a 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 over prior year. Secondly, we are really encouraged by the growth we're seeing at our auto and skilled trades campuses and we feel that, that will be a continuing trend. But 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 3 to 4 years. 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 see today in all of our metrics, also the tenure of our reps, the process, et cetera, gives us confidence in the second half. And although we've tempered what we expect for the next 2 quarters, we still think, on a continuing basis, that starts for the year will be flat. And we've got to say that, that is significantly better than we've seen over the last 3 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. And so we feel that our footing has become solid, and now we can look forward a little more aggressively.

. Your next question comes from the line of Paul Condra with BMO.

I wanted to ask about -- let's see, it looks like you gave us restated starts numbers for second Q '12. So this is, I guess, similar to the other questions that have already been asked, but can you give us what the restatements will be for starts for 3Q '12 and 4Q '12?

Well, from a continuing operations basis, again, this is, excluding Southwest, ATB and online, Q3 '12 were 6,857 and Q4 '12 were 2,577.

Okay, great. And then, I also wanted to ask about -- on capacity, is that -- does 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.

[Operator Instructions] And your next question comes from the line of Alexis Paris with Barrington Research.

It's actually Joe, filling in for Alex. Shaun, you kind of mentioned the high school channels. You mentioned you're seeing lead flow in enrollments, those trends are higher from previous years. Maybe just take a step deeper and kind of -- are you doing something differently there, 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.

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, et cetera. And so we see that comfort coming in, 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 financial-aid 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. And so the June starts that were high school-specific exceeded last year's June starts pretty significantly, especially on the auto and skill trade 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, I mean, 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's seen declines in a number of our sales metrics, we're pleased in seeing the starts taper off, 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, 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, are there -- is there 1 or 2 possibility that you're just keeping a close eye on that might come down the road depending on performance, or 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 at a place that we feel today we can manage forward. The schools we closed -- I just want to reiterate the fact that we closed the schools that were suffering from a number of impairments, the loss of the state grant 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 in Kentucky School, the former Southwestern School, and so that's why we made that particular decision. And we really assess the operation, the current look and the future looked very carefully before we made these decisions because they impact so many lives. And 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 5 of the FMTI learning sites. And so that will be our long-term footprint.

. And your next question comes from the line of Trace Urdan with Wells Fargo Securities.

It's a housekeeping question, and I'm sorry to be so dense about this. But Cesar, could you give us the 4 quarters for 2012 now that reflect the no ATB, no online and no Southwest? Because I think you've given us 3 out of 4 quarters now, if I'm not mistaken.

Q1 2012 was 4,170; Q2 was 3,608; Q3 was 6,857; and Q4 was 2,577, for a total of 17,212.

The 17,212 is the foundation for the flat start guidance for the year. Is that correct?

That's correct.

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're managing our 90/10 and CDR risk factors and also our closed operations very carefully. We've sharpened the strategy that will allow us to compete in a 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.