Lincoln Educational Services Corporation (LINC) Q4 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q4 2022 Lincoln Educational Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference call is being recorded. I would now like to turn the conference over to Michael Polyviou. Please go ahead.

Thank you, Lisa, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results for the fourth quarter and full year ended December 31, 2022. 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 and 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 in management's good faith belief as of 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 a result of new information, future events or otherwise after the date thereof. Now, I'll hand the call over to Scott Shaw, President and CEO, Lincoln Educational Services. Scott, please go ahead.

Thank you, Michael, and welcome, everyone. Despite continued historically low unemployment and persistent economic growth, Lincoln established several positive trends throughout 2022 and generated 4.7% same-campus student start growth during the fourth quarter. We achieved strong financial results in the fourth quarter with both revenues and adjusted EBITDA growing in comparison to last year. For the full year 2022, we achieved all guidance targets, as the team continued to implement the new hybrid teaching model, the centralized financial aid process and our two major growth initiatives. We achieved a 500-basis point improvement in our graduation rate to 68.8% of students and increased the graduate placement rate to 81.6%. We enrolled the first class under our new partnership with Tesla, launched a new career pathways program with Johnson Controls, signed two new corporate partnerships and are engaged in negotiations with two existing corporate partners to expand our programs with them. Despite the operating environment of high employment economy and rising interest rates, we grew revenues 4.5% and adjusted EBITDA by 7.4%. And we finished the year with significant debt-free non-dilutive resources that are poised to grow in 2023 when we closed the sale of our Nashville campus. These resources are enabling the implementation of our two major growth initiatives as well as extending and expanding the size of our share repurchasing program to a total of $40 million. Over the past three years, we have transformed Lincoln's profitability and balance sheet. Now with the success achieved to date with our hybrid teaching model, centralized financial aid and program expansion, we have the opportunity to accelerate our investments to build a more scalable and higher-return business. Key to this strategy is our new hybrid teaching model, which we began to implement at our campuses in 2022. This model delivers our programs with a hands-on learning on campuses, combined with a greater component of classroom work delivered through online instruction. It enables our students to work part-time or manage other commitments, while they pursue their Lincoln education, which will enable a higher percentage of students to graduate. The model also standardizes our programs across campuses with on-campus time slots of morning, afternoon and evening and with consistent start dates that provides greater flexibility, efficiency and overall capacity at our existing campuses. The rollout of our hybrid model at most campuses, coupled with adding existing proven programs at select campuses, will drive higher campus and company profitability. We have already started the process to have 10 new program replications across our existing campuses over the next two years. This results in organic growth with the fastest and highest return on investment as we leverage our existing infrastructure, campus management and market knowledge. We anticipate that these 10 new programs will reach their full run rate after approximately three years of operation, at which time each is expected to provide an average of $1 million in added profitability annually. We expect to launch at least three programs before the year-end, with the remainder opening in 2024. Programs we are focused on include electrical, HVAC, welding, automotive and medical assisting, since these are all some of our most successful and in-demand programs. Pursuing this strategy requires a higher level of investment during 2023 in terms of both operating and capital expenditures. Completing the transition to our hybrid teaching model by the end of 2023 will result in increased instructional costs over the short term, but is expected to lead to greater efficiency beginning in 2024. Our investment in centralizing our financial aid process is extending into 2023, and we will also incur expenses associated with the initial launch of our new programs. We are forecasting modest revenue growth for the full year based on our forecast for an increase in new student starts of between 5% and 10% and higher revenue per student. Our efforts to roll out our hybrid teaching model, complete the centralization of our financial aid process, launch 10 new programs across our campuses and increase marketing spend to maximize our student start growth in a high employment economy will impact our profitability in the near term, resulting in a forecasted 2023 adjusted EBITDA of $19 million to $24 million. We will also significantly increase our capital expenditures to $35 million to $40 million to advance our growth plans, including our new campus in Atlanta. Balancing the capital expenditure spend will be the anticipated closing of the sale of our Nashville campus in the second quarter that is expected to result in approximately $35 million in gross proceeds and generate a significant net gain. We expect the successful execution of our business transformation plans will lead to significantly higher profit margins beginning in 2024, with a more efficient and scalable platform to drive sustainable growth thereafter. Continued strong demand for our programs, combined with the efficiency and growth from these investments, including the early contribution from our new Atlanta, Georgia campus enable us to forecast that our adjusted EBITDA will approximately double from 2022 levels by 2025. We also continue to evaluate additional locations as part of the plan to open five new campuses optimized for our new hybrid delivery model in the next five years. Some of these new campuses may include the reallocation of current Lincoln campuses, such as Nashville. The first new campus under development is our second location in Atlanta. The build-out of this campus is progressing as planned, while some regulatory approvals are taking a bit longer than anticipated, and our first classes at this facility will begin by the first quarter of 2024. We continue to expect that within four years of its opening, the 56,000 square foot facility will be generating approximately $20 million in annual revenue and $5 million in annual EBITDA. We plan to replicate the cost-efficient design of the new Atlanta facility into the new Nashville campus. The development of this campus will begin once the transaction to sell the existing Nashville facility closes, which we expect will be by the second quarter of this year. As outlined in the sale agreement, we can remain at our existing location for up to 18 months while we build out the new campus. I should note that all of our initiatives are predicated on the current environment of moderate economic growth, high employment rates and no recession. With that said, we are benefiting from a positive trend of individuals considering careers and skilled trades. Our leads are increasing as are our enrollments. And once all the changes with our centralized financial aid processes are completed, we should be able to better capitalize on this increased demand with even more new starts despite the challenging environment. Even the economic growth deteriorate, we are poised to benefit from such macro development, and with our new hybrid model, we can efficiently scale up to meet higher levels of demand. However, our strategies are designed to foster growth even in a growing high employment economy. At the top of this call, I mentioned the successful launch of the Johnson Controls Academy, a six-week intensive training program focused on developing the next generation of building technicians. The program based at our Columbia, Maryland campus was created to provide a pathway to employment at Johnson Controls locations throughout the United States. Johnson Controls supports the students with on-site housing and relocation packages and plans to onboard approximately 130 new technicians or more each year. The hands-on learning opportunity of the Academy builds upon Lincoln Tech's electrical and electronic systems technician education for participants and prepares them for real-life experience in the field. The launch of the Academy follows a five-year partnership between Lincoln and Johnson Controls, and we are exploring other avenues through which we could expand the relationship. The new partnership with Tesla began operations quickly as we enrolled our first class in mid-December at our Denver, Colorado campus. We also launched the BMW FastTrack program in Mahwah, New Jersey and Grand Prairie, Texas; a new corporate partnership was signed with Peterbilt Trucks, under which we will be offering a 12-week advanced training program for diesel students at our Denver campus; and we launched a partnership with Marriott International at our Marietta Georgia campus to train HVAC and electrical students for careers with Marriott. These agreements help our partners fill the urgent skills gap they are experiencing in light of the nation's continued overall low unemployment rate and increasingly more difficult search for employee training solutions required to continue their respective corporate growth. Our company has paved the way in terms of creating innovative customized training programs with our partners and the percent of Lincoln students directly benefiting from our partnerships continues to grow. As we look to 2023, we continue to face the headwinds of a low unemployment economy that is providing students with other job opportunities, concerns over taking on debt in a rising interest rate environment and inflation's impact on rent, food and transportation costs. As I noted earlier, we generated same-campus start growth of 4.7% during the fourth quarter. And overall, we believe we will grow student starts in the 5% to 10% range for the full year 2023. Demand for highly skilled students remains extremely strong. This demand, along with our growing number of programs and corporate partnerships continues to generate strong interest in Lincoln training from prospective students. Despite the short-term challenges, we continue to be quite optimistic that our strategic growth initiatives will generate consistent long-term growth for all of our stakeholders. Finally, I'd like to welcome Sylvia Young to our Board of Directors. Sylvia brings deep knowledge and experience with over 35 years in the health care industry. This week, she retires from HCA Healthcare after having been the CEO and President of HCA Healthcare's Continental Division since 2012. Her division generates over $3.6 billion in revenue and serves over 2,700 patients daily. Sylvia's insights will support our initiatives around expanding our nursing and allied health programs as we seek to lessen the skills gap in this important and growing sector of our economy. Now, I'd like to turn the call over to Brian for a review of our fourth quarter financial results and 2023 outlook. Brian?

Thanks, Scott. Good morning, everyone, and thank you for joining us. As Scott described, we ended 2022 on a positive note with growth across starts, revenue, adjusted EBITDA in the fourth quarter, meeting all our 2022 guidance metrics. I'll begin my remarks by discussing recent operational developments, followed by an overview of our financial results and finally conclude with our financial outlook for 2023. First, as Scott mentioned, the sale of our Nashville, Tennessee campus for $34.5 million is moving forward as planned. The local meetings and approvals have all taken place according to plan, and we continue to anticipate that this transaction will close in the second quarter. Through December 31, we received $500,000 of non-refundable deposits towards the purchase price, and we are scheduled to receive an additional $700,000 during the first quarter of 2023. We are pleased with the progress and look forward to the campus relocation. Second, in November, we were able to force the conversion of all of our outstanding preferred stock into 5.4 million shares of common stock. We executed this transaction as soon as the third anniversary of the preferred stock investment had occurred, since the price performance and volume of our common stock met all the applicable requirements. As a result, the associated quarterly dividend ceased, translating into a $1.2 million annual cash savings in 2023 and beyond. Beginning with the first quarter of 2023, our EPS will be calculated using the standard common treasury stock method as opposed to the two-class method, which we utilized for the past three years. We currently have 31.1 million outstanding common shares. Third, we continue to return capital to our shareholders through our stock repurchase plan. During the fourth quarter, we repurchased 489,000 shares for $2.7 million. And in total, during 2022, we repurchased 1.6 million shares with $9.4 million. Subsequent to year-end, our Board of Directors extended the plan by one year through May 2024 and increased the total authorized amount to $40 million, resulting in available balance of $30.6 million for future repurchases. Fourth and finally, as previously announced in November, our Board of Directors approved a plan to close our Somerville, Massachusetts campus as a result of the landlord exercising its option to terminate the lease as of this December. For 2022, this campus had revenue of $6.8 million, representing 2% of our total revenue with an operating loss of $400,000. We anticipate that the closure of the school, including expenses associated with providing the approximately 200 remaining students with the education and support to complete their training will result in a loss of approximately $2 million in 2023. Our students are our priority, and we are pleased to report that we expect all our current students to complete their education prior to the campus closure at the end of 2023. For reporting purposes, the Somerville campus is presented under the Transitional segment in our financials beginning in the fourth quarter. Now before I discuss the financial results, please keep in mind that all of these results exclude the impact of the Transitional segment. Our revenue for the fourth quarter grew 4.8% or it's $4.2 million to $90.2 million. Revenue increased mainly due to a 6.8% increase in average revenue per student, which more than offset the decline in average student population of 2.3%. Increased average revenue per student was driven by tuition increases, along with the rollout of our hybrid teaching model, which delivers higher daily rates in certain programs due to a reduction in the overall program length, both notable in our evening program. Another contributing factor to the revenue growth worth highlighting was our solid organic growth of 4.7% during the quarter. Our consolidated operating expenses were $77.6 million, up 5% over prior year, excluding the non-cash impairment and gain on sale of assets in both years. The increase in expenses was expected in line with our internal plans. Increases in operating expenses were both notable in instructional costs, which increased largely due to higher staffing levels. We are currently operating with higher staffing at several of our campuses that have launched the hybrid teaching model as we provide instruction through both the new and traditional models. We anticipate the majority of our campus will transition will be -- will have transitioned by the end of 2023. Whilst we're experiencing higher expenses across the board as inflation price costs up in consumables, books and tools, to mitigate cost increases, we have added a procurement manager focus on expense controls. Facility expenses increased as a result of additional rent expense in 2022 in connection with the sale leaseback transaction executed in November of 2021 in combination with repairs and maintenance expense. Administrative expenses increased due to several factors, including bad debt expense, employee medical benefits due to higher claims, severance expense incurred to better align our cost structure in certain functions and startup costs related to our new Atlantic campus. Partially offsetting the increase in administrative cost was a decrease in incentive compensation expense. To clarify, the $1 million non-cash impairment resulted from a single underperforming campus and plans have been implemented to adjust the program offering at this campus to drive increase in profitability. Also, startup costs related to our new Atlanta campus were close to $400,000 in 2022, in line with our projections. In 2023, we anticipate expenses associated with the opening of the campus will result in an EBITDA loss of approximately $3 million. As Scott noted, we now expect classes to begin in the first quarter of 2024. Our adjusted EBITDA for Q4 was $15.7 million or 7.4% over prior year, after the add-back of non-cash and non-recurring items detailed on non-GAAP schedules in our Q4 earnings release. Turning to the balance sheet, our cash position at year-end was strong with a total of $65 million in cash and cash equivalents, restricted cash and short-term investments with no debt outstanding. During Q4, we experienced a delay in Title IV receipts due to a system upgrade, resulting in our ending cash balance being reduced by approximately $8 million. These funds was subsequently collected in the first few weeks of 2023. Looking ahead, according to our internal plan, we anticipate that our cash balance to be approximately $85 million at the end of the second quarter. Although I'll note that this cash projection may vary depending on changes in CapEx spending and share repurchase investments. To complement our cash balance and increase our total available liquidity, we are looking to add a new credit facility to have available for funding future growth initiatives, if needed. We anticipate sharing more details on our next earnings call. As we reflect back on 2022, it was a pivotal and progressive year for Lincoln. We made significant investments focused on our financial aid services, create future efficiencies and savings while also improving the student experience. In addition, we use capital resources to redesign our programs through a hybrid learning model, incurring additional temporary expenses, particularly in instructional salaries during the transitional phase. While these investments reduce our profitability in 2022 and 2023, we believe that these key initiatives should deliver sizable returns beginning in 2024. Our three-year goal is to double our adjusted EBITDA from 2022 levels by 2025. Now I'd like to introduce our 2023 guidance, which excludes the impact of our new Atlanta campus and our Transitional segment. Revenues ranging from $345 million and $360 million; adjusted EBITDA ranging between $19 million and $24 million; adjusted net income ranging from $7 million to $11 million; student stock growth ranging from 5% to 10%; and capital expenditures ranging from $35 million and $40 million, with approximately $30 million earmarked towards growth initiatives, including program expansions. In addition to the guidance, I'll share a bit more insight into our outlook for 2023. Consistent with our seasonality, we expect revenue to grow during the first half of the year in low single digits with slightly higher growth in the second half; operating expenses should be in the mid- to low-$80 million range with the exception occurring in Q3 when the higher number of starts is expected to push total operating expenses in the mid-to-low $90 million range; interest income of approximately $1 million from short-term investments spread evenly through the year; non-cash stock-based compensation expense of $2.5 million, recognized evenly each quarter; depreciation and amortization of approximately $9 million with about 60% in the second half of the year; and finally, our effective tax rate is expected to be around 28.5%. Please note, adjusted EBITDA includes an add-back of non-cash stock compensation, the Atlantic campus startup costs, our Transitional segment and one-time expenses now considered part of our normal business operation and the gain and expenses associated with the Nashville sale and relocation. The same add-back adjustments will be factored to arrive at adjusted net income. As we progress through the first quarter, we are pleased to report that costs are trending positively according to plan, and we're confident that we'll achieve our targets. Lastly, as Scott mentioned, to leverage our total campus infrastructure and better utilize our capacity, we will integrate some additional skilled trade programs into our health care campuses. And similarly, we plan to integrate nursing and health care programs into our transportation and skilled trades campuses during 2023. With this approach, the majority of our campuses will become more blended, making it more difficult to distinguish between the two segments. As a result, we are currently evaluating our segment reporting for 2023 to determine whether transitioning to a single segment would be appropriate. With that, I'll conclude my remarks by thanking our entire team, including our faculty and students for their outstanding efforts during 2022. We look forward to [communicating] (ph) our progress throughout 2023. And now, I'll turn the call back over to the operator so we can take your questions. Operator?

Thank you. [Operator Instructions] Our first question coming from Steven Frankel of Rosenblatt. Your line is open.

Good morning. Thank you. So, your start growth looks very healthy, especially given the current environment. Maybe you could give us some insight into how you get to that number? Kind of what's the pipeline look like? And what makes you believe you can accelerate from the current rate to somewhere in the mid-single digits?

Sure. Well, thanks, Steve. Well, we had success last year in growing our enrollments. We grew them probably about 7%. And as we highlighted before, our challenge is more converting more of those enrollments into starts. We believe that part of the issue is simply in how we're processing students. And to the extent we're able to process more students through our system, we think that, that's how we can capture more growth. It certainly is how we captured some of the growth in the fourth quarter of last year. So, as we get past the centralization process completely, we think that we can get some marginal improvement there. And given that we continue to have strong pickup in our leads, that's what gives us the confidence, along with -- we rolled out some programs in the last quarter that will get more benefit in the year that we're in today. So those are the things that are going to help us drive to get that 5% to 10% growth rate.

And any insight in the different cohorts, young adult versus high school and military?

Sure. So, for us, our high school in 2022 was basically flat. It was up maybe a dozen students or so. And so, our adult market was down. Overall, we were down with 2.7%. So, our adult market was down maybe 2 or 3 percentage points, overall. And we kind of can see those -- same trends. We see steady enrollments happening with some growth in the high school market, and we anticipate getting growth this year, as I said, through execution on the adult side. And military for us is flat.

Okay. And then just some clarification on the guidance. I know there's some puts and takes that like the sale of Nashville, but startup costs around the new campus, could you clarify for us how much that is and that you're backing out of your adjusted EBITDA target?

Sure. As I mentioned in the remarks, startup cost in 2023 would be approximately $3 million. A lot of that is due to rent and we'll still have to hire the people even though slightly before year-end and starting in the third quarter, some departments a little bit earlier, even though we're not going to have to start until the first quarter of 2024.

Okay. Great. I'll jump back in the queue. Thank you.

Thanks, Steven.

Thanks, Steven.

Thank you [Operator Instructions] Our next question will be coming from Eric Martinuzzi from Lake Street. Your line is open.

Hey, congrats on the good Q4 results here. I wanted to ask specifically about the investments you're making in the hybrid education model. Could you take us a layer deeper? Where are we investing on the CapEx side? Where are we investing on the OpEx in support of the hybrid teaching model?

Sure. On the hybrid side, there's really no CapEx of any note going into that. It's really operationally where we've had to spend a lot of time going into each state and getting all the approvals that we need at the state and the crediting level to switch to this new program. And then as Brian highlighted, we've had to hire some additional faculty members as they launch the new program and existing faculty members teach out the existing program. So, we have about some overlap in operating expenses between say, $1 million to $2 million in the current year for the teach out.

Okay. And then back to CapEx, what was CapEx for 2022? I know you said $35 million to $40 million for '23, but what was the total for '22?

Right. For 2022, it was $9 million.

Okay. And that step up to $35 million to $40 million, can you help parse that...

Correct.

What -- is that all Atlanta?

No, no. Go ahead, Brian.

No. So, it's about, as I mentioned, $29 million for growth initiatives, that's new programs as well as some program expansions. Atlanta is included in there. I think it's approximately $13 million of that is for Atlanta. The rest is really just for new programs and program expansions of the $30 million. So, about half is Atlanta half is new programs and expansions, right? And that number does not include the natural relocation expense -- well, not expense, build out once it closes in June -- not in June, in the second quarter.

All right. And then, given your guidance for 2023 coming up with the midpoint, it's about a 1.2% growth for the total revenue. You had roughly equivalent growth rates between the two segments, transportation and skilled at 3.9% and health care and other at 4.0%. What are you assuming as far as the segment's growth rate for '23?

That's a good question. I don't have -- give me one second. Let me see -- I have it in total. Let me see if I have it by segment. If not, I can definitely call you after this if it's anything significant by segment.

I would think it wouldn't be too different this year. It will be more different next year simply because a lot of the program expansions are all in what would be considered today the transportation segment. [Multiple Speakers] Yes. We'll have to get back to you on that, Eric.

Okay. That's fine. And last question for me. You talked about the regulatory approval timeline having changed on the Atlanta campus pushing you into Q1 of '24. Can you enlighten me there what specifically with the timeline issue?

Sure. Well, I guess we're kind of seeing across the board no matter what state we're in, whether it's trying to get building permits or whether it's trying to get approvals at the state level or even sometimes through our accreditor, everyone seems to be "understaffed" and so everything takes a little bit longer. So, we're factoring in basically another quarter into all of our decision-making processes because of that. So, it's nothing. It seems to be nothing more than that. People just don't seem to have enough people to do all the work that needs to get done.

Okay.

And Eric, I'll add back to your other question about the two different segments. A lot of reports that we're looking at now takes my last remarks about the segments that we are considering moving to one because we're co-mingling a lot of them. So that's why it's one reason why I don't have the segments in front of me, I'll get you that information. But going forward, it might move to that one segment. We might disclose some of the information for the different automotive and others, but it won't be -- it might not be as what we do today, that's for sure.

Got it. Thanks for taking my questions.

No problem. Thank you.

Thank you. [Operator Instruction] Our next question is coming from Alex Paris of Barrington Research. Your line is open.

Hi, guys. I just have a couple of cats and dogs here. In the guidance, Brian, you said that the tax rate would be 28.5%. That was higher than I was modeling. What is to account for the higher tax rate than it has been recently and versus expectations?

Right. So, some of that is due to a little bit of lower income, but a lot of that's a discrete item that helps in the first quarter, and a lot of that is due to what our stock price is at. So, we really weren't taking that into account. So, the first quarter could be slightly low due to the discrete items when things vest versus the price that they were granted at. That accounts for most of the higher rates.

Okay. Thank you. And then, early in the call, Scott, I think you mentioned the grad rate -- graduation rate and grad placement. Can you just go over that again? I missed it.

Sure. We improved our graduation rate up to north of 68%, about a 500-basis point improvement, I think it's 68.8%. And our placement rate increased about 2 percentage points to 81.6%.

That's great. Okay. Thank you. I'll take the rest of my questions offline.

Okay. Great. Thanks, Alex.

Thank you, Alex.

Thank you.

Thank you. [Operator Instructions] Our next question is coming from Raj Sharma of B. Riley. Your line is open.

Yes, thank you. Again, congratulations on good results in Q4. I have a couple of questions. First on the new programs, the 10 new programs. With Atlanta and Nashville already in progress, what are -- so I just wanted to clarify the additional expenses that are budgeted for the new programs. I know you said $29 million of CapEx. What is the operating expense increase for the new programs? And also, can you talk about the potential revenue and profitability we can assume on these new programs? Just more color.

I'll talk about [Multiple Speakers] the probability for 2023, depending on the timing of the rolling out of these programs and a lot of them, as Scott mentioned, is going to be going into 2024. So, I'll say the EBITDA is, I would say, under $100,000 loss for the rollout of the new program. So, it won't really be contributing this year, but it will be contributing in the future. And as far as, I would say, when the new programs reach capacity, we're hoping to add our EBITDA of about $1 million for each new program should be adding by 2025 $1 million.

And what does that translate into revenues?

I would say it'd be somewhere around, let's say, a $4 million level.

Got it. And the additional expenses entirely account for -- what are the additional expenses? Is that the operating increase from this year is about the increase you're seeing in the third quarter of about $10 million to $15 million?

For 2022, you're talking about...

You're saying, Raj, looking at expenses for 2023, what's driving the increases there?

Yes. Just -- yes, the delta between '23 and '22, is that entirely driven by the new programs? And is that mostly to...

Right. So, most of them for the new programs is later in the year, but what's driving that, as we said, is we continue to roll out the hybrid teaching model. So, we do have a lot of, I'll call it, double expenses as we teach the old program, and we're teaching the new program. So, a lot of those expenses are occurring this year as well as we do have additional expenses for -- should be done by the end of the year in our financial aid, because that is our financial centralization that's going through 2023 as well. A lot of increase is mostly due to the instructional plus translating -- transitioning to the hybrid model as well as we are making greater investment in marketing as well for 2024 -- 2023, rather.

Got it. And then, just moving on to the starts. The starts, you're projecting 5% to 10%. That's -- is that same-store starts? Or does that include the contribution from new programs and new campuses?

It doesn't include any new campuses. It does include whatever new programs we launched last year, which we launched up two or three in the fourth quarter. And then, the rest of the growth is what we believe we can achieve through greater efficiencies of converting all the leads and enrollments that we're getting today.

Right. So, I just wanted to understand the composition of that. Do you think that young adults are probably going to be down the same day more in '22? Is that -- did I hear that correctly? And high school [indiscernible] growth -- I just want to understand [Multiple Speakers]

Yes, good question. So again, our enrollments were up 7% last year. Our challenge was we couldn't convert enough of those into starts. Obviously, we were down overall about 2.8% with all that really being in the adult sector since the high school sector was flat. Going into 2023, we think the high school market is going to perform at a similar level that it did slightly up from 2022, but we're anticipating being more efficient and effective in converting our enrollments into starts, which will enable us to achieve that 5 to 10 percentage growth rate that we're anticipated. Part of that increase is due to two or three programs that did launch in the fourth quarter of 2022, but a lot of it is just due to improved conversions of enrollments into starts.

Got it. And then just lastly on the sales the Nashville, Tennessee campus. So, you're still confident that closes in Q2? Any developments on that front? Any new demand? Any changes? Or is that business as usual?

Yes. So, they have -- their last major, I guess, town hearing is on March 7, I believe. And so, based off of everything that they've heard to date, that should go well. So basically, in about a week's time, that should hopefully give us the final go-ahead to start moving to a close of that sale.

As well as Raj, I'll add, we get a very large non-refundable deposit in the month of March as well.

Got it. Okay. Thank you for answering my questions. I'll take it offline. Thank you, again. Congratulations.

Thanks, Raj.

Thank you. [Operator Instructions] There are no more questions in the queue. I would like to turn the call back over to Scott Shaw for final remarks.

Thank you, operator, and thank you all for joining us today. We are all very excited and encouraged by our progress and opportunities. I want to thank our great instructors and campus staff along with the corporate team for their dedication to our students. Everyone at Lincoln Tech is working to be the leading career of technical school in the country, offering high ROI careers. Our strong improvement in graduation and placement rates, along with complementary feedback from recent accreditation visits assures me that we are on the right track to achieve this objective. Employers continue to express frustration with finding talent and continue to see growing needs for technicians of all kinds as baby boomers retire. At Lincoln, we believe more families and career seekers are looking for shorter, faster, cheaper and more assured path to employment as compared to college, and a Lincoln Tech education is increasingly becoming a preferred choice. Our balance sheet is strong and should strengthen with the sale of Nashville and we have identified numerous programs and campus expansion opportunities. And when the employment market does soften, we will be there to retrain the workforce with efficient campuses and engaging curriculum. Thank you again, and I look forward to updating you in May. Bye-bye.

This concludes today's conference call. Thank you all for joining, and enjoy the rest of your day.