Shaun E. McAlmont - Chief Executive Officer and Director Scott M. Shaw - President and Chief Operating Officer Cesar Ribeiro - Chief Financial Officer, Principal Accounting Officer, Executive Vice President and Treasurer.

Joseph D. Janssen - Barrington Research Associates, Inc., Research Division Jeffrey M. Silber - BMO Capital Markets U.S. Trace A. Urdan - Wells Fargo Securities, LLC, Research Division.

Good day, ladies and gentlemen, and welcome to the Q2 2014 Lincoln Educational Services Earnings Conference Call. My name is Latoya and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to Mr.

Shaun McAlmont, Chief Executive Officer. Please, proceed, sir..

Thanks, Latoya. Good morning, everyone. Joining me in the room today is Scott Shaw, our President and Chief Operating Officer; and 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.

The statements in this presentation concerning Lincoln Educational Services Corporation's future prospects are forward-looking statements that involve risks and uncertainties.

There can be no assurance that future results will be achieved, and actual results may differ materially from forecasts, estimates and summary information contained in this earnings release.

Important factors that could cause actual results to differ materially are included but not limited to those listed in Lincoln's annual report on Form 10-K for the year ended December 31, 2013, 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 some opening comments, and Scott will provide an overview of our company's operations. Cesar will then provide a financial review of the quarter and our third quarter forecast. We'll then take your questions.

It's difficult to discuss our company's second quarter performance without first acknowledging the environment in which we are currently operating.

And as I mentioned in our press release, recent events in our sector, including the closing and potential sale of one of our competitors, is unprecedented and has compounded the negative publicity in our industry, and it's also caused a major disruption for our company since we operate many of the same geographies and similar programs as those schools.

Since our last call in the mere span of 90 days, there has been, literally, chaos.

As we attempt to recruit students, motivate employees and attract investors, we're feeling the impact of negative news stories, political actions focused on our sector, investigations, large company potential shutdowns, lawsuits and macro employment trends, which are all acting as headwinds to our operations.

I am not exaggerating when I say that these events have been like an earthquake in the sector, and we're feeling the shock waves in various ways. We have campuses in close proximity to schools that may be closing, may be sold or also investigated in where -- in states where attorney general investigations are ongoing.

And we are in local markets where the media attention is evident to parents and high school administrators. It's virtually impossible to insulate ourselves from these realities. Also, all students are trying to understand what's happening to career educational institutions around them. There is a real short-term impact on us until the dust settles.

Likewise, there is a real long-term opportunity that comes with market consolidation and other strategic opportunities. Now in regards to our company's performance in the midst of this chaos, I'm pleased to report that we did achieve growth in our new student starts, and overall student population was just 2.4% short of prior year.

Both measures are important milestones for the company, helping us round out a first half performance which exceeded financial guidance despite coming in slightly below our enrollment expectations. We have a good regulatory and legal foundation with solid performance in the most basic metrics for an educational institution.

Student satisfaction survey results indicate that we are effectively educating a demographic within the U.S. that may be the toughest in education.

In a relatively short period of time, we continued to help transform students' lives and make meaningful differences in their ability to sustain themselves, especially when you compare their economic condition before and after their time in a Lincoln school.

Moreover, our 3-year default rates for all 7 of our OPEID institutions are below the 30% threshold, and our 90/10 balance is trending below prior year. We are operating solidly and improving our outcomes and regulatory strength since adjusting to changes driven over the last few years and amid regulatory and economic [indiscernible].

Our placements are increasingly scrutinized, yet we are helping our graduates find employment at rates even higher than last year. And our student retention and graduation rates continue to perform at the highest rates we've seen in years.

Our second quarter starts improved just under 1% over last year considering tough prior year comps and a tricky environment. The quarter was primarily driven by adults with approximately about 20% of the starts coming from high school seniors starting early.

In the second quarter, we continued to see increasing numbers of employers coming to us for partnerships specifically tied to fulfilling their employment needs. And we see this as a positive trend as many of the companies have plans to hire graduates and retrain many in their existing workforces.

A good example is our CNC machining program, which is growing. We have plans to open our third program in New Jersey later this year. Employers are sponsoring various aspects of these programs, retraining employees and helping us promote the program on the front end with the goal of filling their demand for technicians.

Our earnings reflect a handful of campuses which continue to weigh the company's finances down in a disproportionate way. We took action within the quarter to dissolve 2 leases and merge 2 underperforming campuses into Lincoln campuses within the same geographic region.

This will drive savings in 2015, and we will continue to look at all solutions that can relieve the burden of underperforming campuses on the company. As we look to the future, we're building a new model for operating Lincoln campuses, in addition to retooling our destination high school recruitment and admissions processes.

Our new model will affect efficiency by reducing the number of start dates around the company and aligning related administrative efforts. We'll regionalize our operations where it makes sense geographically and programmatically.

We'll increase convenience for student schedules through blended learning, improve educational delivery and focus on building a curriculum around the national competencies which lay within our programs of study.

These changes will produce a program that is structurally different, requires less time on campus which is more affordable, and one which utilizes technology in delivering the education. Our first pilot will be our full automotive curriculum, which we'll launch in the second half of 2015.

We also have plans to open a welding and pipe-fitting program in 2015 in a location with attractive demand characteristics in terms of the addressable market and also employment opportunity for graduates. We're in the feasibility stages and have a dedicated staff working on this skill trade growth opportunity.

We continue to do great things in the communities we serve, which highlights Lincoln's role in the economic development within those communities. Over the past quarter at Lincoln, we've seen an impressive car show drawing thousands of enthusiasts.

We've had students use their training to literally save lives as one of our health students saved an infant using their training. We've had major employers continually visiting our campuses in search of graduates. We saw 14,000 of our students, staff and alumni respond to the unfair nature of the government's proposed gainful employment regulations.

In a partnership with Motor Trend, we launched HOT ROD Garage, which had over 1 million views online. In the quarter, our Allied Health schools were visited by Congressman James Himes in Connecticut, and one of our state representatives spoke to local graduates at our Massachusetts commencement ceremony.

We hosted an impressive welding contest for high school students at our Denver campus. It's really impossible to cover all of the events at our campuses that we are either sponsoring, partnering or providing for the benefits of their communities.

What I can tell you is we feel Lincoln is well positioned to benefit from a changing competitive landscape as the picture becomes clearer toward the end of the year and into 2015. All in all, considering the economic, political and regulatory headwinds the sector faces, we had solid performance in the second quarter.

We know what impact recent events will have on our third quarter, and we're not really sure what those impacts will be in the second half. We can't underestimate the scope of the temporary impact on schools like ours which offer similar programs and similar geographies to some of the schools affected.

This said, we feel that our sound footing will allow us to withstand those headwinds and gain competitively as time goes on and the markets settle into a new reality. Predicting the future is more difficult than ever at this point.

However, considering the unprecedented events in the sector as mentioned earlier, the shifting unemployment rate and also the trends we see in buying behavior [indiscernible] debt aversion, we feel that our third quarter new student starts will be lower by anywhere from 8% to 10% in the current quarter.

And we feel that our year performance will be down slightly to prior year by about 1% to 3%.

In order to best position ourselves to benefit from market consolidation, and in our view of the increasing reluctance of banks to lend to our industry, we're proceeding to monetize $50 million of our owned real estate, and we've reduced our quarterly cash dividend to $0.02 per share.

We feel that these steps will put us in a better position at this particular time. The new dividend amount should produce a yield in the 2% range, which we feel is reasonable at this time.

Overall, while we can't solve all of the issues facing education in this country, we still believe that students who secure a vocational or technical education or those who learn a trade will be prepared to quickly enter the workforce.

I know I speak on behalf of all Lincoln employees when I say that we remain optimistic and focused on our mission and strategy despite the external disruption, related distractions and negativity.

Scott Shaw, our President and Chief Operating Officer, continues to focus on ensuring our organization is capable of fulfilling our mission and that we're tracking against our initiatives. And I'll now turn this call over to him for an update on our operations.

Scott?.

Good morning, and thank you, Shaun. I'll spend my time sharing with you the progress that we've made in the second quarter as well as highlight changes and opportunities that we see for the remainder of the year.

In short, we continue to achieve improvement in all of our outcomes while we continue to wrestle with the choppy economic and industry environment. We remain committed to sustaining our strong regulatory record while we find new ways to attract and educate students in our core fields of study.

The most encouraging trend that I continue to witness is the strong demand by industry for our graduates today and for the foreseeable future as baby boomers increasingly retire from the workforce.

However, in order to fully capitalize on this demand, we need to better educate prospective students about the industry need and opportunities for long-term employment and career development. And I see ourselves increasingly doing this in partnership with employers and industry organizations.

Our attention is focused on growing our student population by both increasing the number of students entering our schools and increasing our retention rates. During the second quarter, we achieved growth in both of these goals, and for the first time in 17 quarters, we achieved positive start growth for 2 consecutive quarters.

We've placed a lot of attention on improving our admissions process by utilizing new technologies to educate and engage prospective students. Also, we are enhancing our online applicant portal and making additional changes to improve a student's experience during the enrollment process.

Finally, we continuously train our admissions representatives on how to provide the best customer service possible. These are just some of the actions taken that resulted in our enrollments for the quarter increasing by almost 4%.

Unfortunately, while we made progress in converting more of our leads into enrollment, we lost some ground with the number of students willing to transition from being in enrollment to a new active student.

We believe that this decline in what we call our start rate is attributable to many factors, ranging from failure to graduate from high school to deciding to attend another school. But the biggest reason students tell us why they cannot start involves money.

For example, a student could not afford the monthly payment, a parent was denied a PLUS loan, and sometimes a student or his parents just do not want to take on any debt. In order to address these financial concerns, we have introduced scholarships selectively.

However, since we have not consistently seen a growth in starts equal to or greater than a reduction in tuition resulting from those scholarships, we've concluded that more than just money issues are holding students back from starting.

As the economy continues to pick up, students do have more options and at times are deciding not to return to school at this time. With that said, we continue to experiment with various pricing adjustments and scholarships in order to find what works best in each market.

I'd also like to note that we refuse to lessen our lending criteria to increase starts since the short-term gains do not result in the outcomes that we seek. Assisting students who truly cannot afford our education may help in the short term but will result in poorer outcomes and higher default rates.

Since we are committed to the long term and clearly see Lincoln's opportunity to become the leading middle schools provider, we will not jeopardize this opportunity. As a result of sluggish and choppy growth for the foreseeable future, we are rationalizing our cost structure accordingly.

Besides continually matching our staffing needs to our current population, we have also taken steps to change how we operate in each region under our leaner organization structure. Our goal is to reduce our fixed costs along with our variable costs so that we can be profitable at our current population levels.

An example of how we are reducing our fixed costs occurred during the quarter when we took the opportunity to merge 2 unprofitable campuses that had leases up for renewal into neighboring campuses. This action will increase profitability by not only eliminating 2 unprofitable campuses but also by reducing excess capacity in those 2 markets.

From a qualitative standpoint, Lincoln continues to improve on every measure. Our retention rate at the end of the second quarter was better than prior year's second quarter.

As of June 30, our placement rates are running ahead of prior year as we continue to see the benefits of a strengthening economy along with increased focus and attention by our career services staff.

We are also receiving strong interest from our existing employers as well as new companies to form partnerships and affiliations that will better enable them to fill their hiring needs and provide them with industry- or company-specific training.

This strong demand from industry reassures us that Lincoln has a golden opportunity to grow and become an even more important industry partner for many large regional and national companies. Another positive outcome has been our continued improvement in our 3-year cohort default rates.

We've utilized in-house staff as well as third parties to provide all of our students with comprehensive financial literacy training. As a result of these actions as well as others, we are seeing a meaningful improvement in our projected 3-year cohort default rates.

Based off our current information, we expect that all of our schools will be safely under the 30% threshold. We will further enhance our systems and practices since our goal is to bring our company average under 20%. Also, I would like to note that our 90/10 ratio remains safely under the 90% threshold.

Throughout the quarter, we continue to have normal reaccreditation visits and other third-party visits with no significant findings of any kind. In fact, the team from our most reaccreditation visit commended -- commented that they rarely receive survey ratings over 90% for all 8 categories set -- survey.

In addition, they were impressed with the great campus culture of caring and support for the students, the tenure of the faculty and staff, and the engagement of the faculty in ongoing learning and training. These are the exact items that we've been focusing on as a company with our Lincoln Edge program.

Strategically, we are focused on being the leading middle schools provider by offering hands-on associate degree and less programs that enable students to quickly and conveniently acquire skills and find employment. However, our true differentiator is our people.

By having well-trained, student-centric, compassionate people throughout our campuses and organization, we create a learning environment that is second to none. Every one of our campuses is committed to delivering a similar experience.

And by remaining focused on quality and compliance, we will enable Lincoln to gain market share and better serve each of our communities. Our attention is not only on the present but also towards the future. We need to make sure that what we offer is affordable, compelling and convenient. Our marketplace is changing, and we need to change with it.

Our research tells us that once someone has decided to become a practical nurse or automotive technician, the 2 biggest obstacles to his or her starting are affordability and time commitment.

To address affordability, we are evaluating a number of alternatives from shortening programs, making them more financially friendly, and having students come to school fewer days in a week so that they can work longer.

This latter solution overlaps with the need to make our programs more convenient for students by lessening the time commitment of being on campus. We overwhelmingly serve a working adult population that has family and work obligations in addition to going to school.

By reducing the amount of time that a student is required to be away from home or work, we will make it easier for students to seek an education with Lincoln and, thus, will increase our potential market.

Our blended learning pilots are clearly demonstrating that students like the additional flexibility afforded by attending school only 3 days a week rather than 4 or 5 days.

Since our students seek constant support and motivation and since our programs are geared around providing a robust hands-on experience, we will see -- we still see value in face-to-face learning.

But working remotely for a portion of one's program has not diminished our students' learning or satisfaction and, in fact, has increased the perceived value of our program over others. To date, we have piloted a few courses and one full program.

And over the next 12 months, we expect to have more full programs up and running in this new blended model. In summary, we continue to position Lincoln for long-term health and success. We achieved our second quarter of growth in new students and improved all of our outcome metrics. Our greatest challenge remains our relatively low student populations.

And until we are confident that overall populations will grow, we will rationalize our costs in order to operate profitably at our current levels. On a positive side, all indications from employers and industry remain very bullish with a need for more middle skills professionals.

As the medium markets become increasingly fragmented, we will never have the resources to cover them all, and thus, we must become more creative and resourceful in our approach to attracting students.

An example of how we can convert more of our inquiries into new students is with our patient care technician program, which we are launching in the third quarter of this year at our 3 New Jersey Allied Health campuses.

This program will appeal to prospective students who want to work in a hospital, but who are unable to pass our nursing entrance exam. Today, at least 40% of those interested in nursing cannot pass our entrance exam, and we really did not have another program that will enable these students to work in a hospital.

Now with the patient care technician program, we will have a program that will enable more students to work in hospitals. All industries go through change and ours is no different. I'm confident that Lincoln has the talent, vision, integrity and passion to overcome our current challenges and thrive in this new market.

And with that, I'll turn the call over to Cesar..

Thank you, Scott. Good morning, everyone. As we disclosed in our press release early this morning, student starts increased 0.6% for the second quarter of 2004 as compared to the second quarter of 2013. As we previously mentioned, we began the first quarter of 2014 with approximately 1,800 less students than we had on January 1, 2013.

This [indiscernible] average population declining 4.8% for the second quarter of 2014, which resulted in revenue declining by 5.6%, or approximately $4.6 million, as compared to the second quarter of 2013.

In addition, the decrease in revenue for the quarter was also somewhat impacted as a result of a decrease of 0.9% in average revenue per student over the second quarter of 2013 due to an increase in institutional scholarships in the first half of 2014.

Average revenue per student for the second quarter of 2014 was $5,590 versus $5,638 for the second quarter of 2013. The decrease in student population during 2014 also impacted our capacity utilization, which decreased to 34.5% for the second quarter of 2014 from 35.8% in the second quarter of 2013.

The decrease in capacity utilization produced significant negative leverage as our operating margin decreased to negative 13% for the quarter from a negative 12.1% for the second quarter of 2013.

Other key highlights for the quarter included loss per share from continuing operations was $0.51 for the second quarter of 2013 as compared to a loss per share from continuing operations of $0.30 for the second quarter of 2013.

For the second quarter of 2014, we were not able to avail ourselves to a benefit for income taxes as a result of the valuation allowance in our deferred tax assets. The impact of the valuation allowance on a comparable basis was $0.21 per share for the second quarter of 2014.

Free cash flow for the second quarter of 2014 was a negative $8.5 million as compared to negative free cash flow of $11.3 million for the second quarter of 2013. We paid a $0.07 quarterly dividend on June 30, 2014. We finished the quarter with $6.8 million in cash and cash equivalents and $15 million of warrants outstanding on our credit agreement.

Net debt for the quarter was up 5.7% of revenue as compared to 3.3% for the second quarter of 2013. Net debt was negatively impacted during the quarter by slower-than-normal collections due to our emphasis in accelerating the packaging for our third quarter starts.

Costs per start decreased 2.2% for the second quarter of 2014 to $4,461 from $4,563 in the second quarter of 2013. Costs per start during the quarter was positively impacted by a shift in advertising away from lead aggregators. Net accounts receivable at June 30, 2014, were $25.2 million as compared to $23 million at December 31, 2013.

This increase in net accounts receivable is primarily due to timing of receipts related to Title IV funds due from the government. And capital expenditures for the first half of 2014 were $2.6 million and are expected to be about 3% of revenue for 2014. Now turning to our loan program.

As of June 30, 2014, loan commitments to our students net of interest that will be due on the loans to maturity were $22.5 million as compared to loan commitments of $26.5 million at December 31, 2013. For 2014, we expect that the loan commitments will increase by $2 million to $3 million.

We finished the quarter with shareholders' equity of $121 million, down from $145.2 million at December 31, 2013. Shareholders' equity at June 30 reflects $3.4 million of dividends paid to our shareholders. I'll finish my prepared remarks by providing our current outlook for the third quarter and for the full year.

Our guidance is based upon our current expectations. For the third quarter of 2014, we expect revenue of $83 million to $85 million, a decrease of $4.5 million, or 5%, from the third quarter of 2013.

Net loss per share from continuing operations of $0.14 to $0.20 per share as compared to breakeven per share from continuing operations for the third quarter of 2013. Net loss per share for the third quarter of 2014 excludes any benefit from income taxes.

We expect student starts from continuing operations for the third quarter of 2014 to be down 8% to 10% from the third quarter of 2013. We are reaffirming our previously issued 2014 guidance in loss per share, and we continue to expect to be cash flow and free cash flow positive, consistent with prior years.

We are revising our revenue estimates for 2014 to $330 million to $340 million, and we now expect that student starts will be down 1% to 3% for the year. We expect to offset the shortfall in revenues with expense management in the second half of the year.

The Board of Directors has set the record and payment dates for the dividends for the third quarter of 2014. Cash dividend of $0.02 per share will be payable on September 30, 2014, to shareholders of record as of September 12, 2014.

In conclusion, we continue to manage our operations and expenses based upon expected student populations without sacrificing student services and outcomes. We remain committed to return to profitability in the fourth quarter of the year. And now, we will open the call to your questions.

With that, said, I'd like to turn the call back over to the operator.

Operator?.

[Operator Instructions] Your first question comes from Alex Paris with Barrington Research..

This is actually Joe filling in for Alex. Shaun, you opened kind of with some strong language regarding COCO and kind of the impact that's had on the industry as well as your business. And you were kind of talking about their short-run impact.

I'm just curious of your thoughts, and if you look kind of the long-run view here with kind of a supply-demand equation with potentially COCO's campuses closing down, I mean, could this -- do you view this as a benefit in the long run?.

That's a good question, Joe. It's something that we've been assessing here, as you can imagine, over the last few weeks. It really is unprecedented what we're seeing right now in the sector and what's been happening there in particular. And I think that we're all trying to figure it out and figure out what the real impact is on us short term.

We look a lot like that company. We sit in the same geographies, and there's a lot of uncertainty, fear and confusion surrounding all of that in the short term.

I think that -- just to relate it to some of our other comments, it's why we are really fortifying our company, ensuring that our outcomes are where they need to be, keeping our legal exposure low, et cetera, and maintaining that strong foundation we've had over the last few years.

With that said, we also are shoring ourselves up financially as well, making sure that our balance sheet is strong because there are 2 elements here, as you mentioned. There's a short-term uncertainty.

We don't know how it's really going to affect the second half of the year, but we're assuming, based on our forecast, that we can withstand it, but it will be tough. And then, we do think that there's long-term opportunity.

I mean, any time that the market changes could be so dramatic in terms of consolidation where it also impacts us directly in terms of geographies and programs, we think that there is long-term benefit when the market adjusts. The only question for us is when all of that happens, and that we can't predict.

But we do think that the short-term strain will turn into long-term opportunity. And I'll let Scott or Cesar tag on to that as well..

Yes, I agree 100% with what Shaun's saying. I guess, we're still unclear what's really happening to COCO. People are talking about it as if it's a done deal. And it seems as if there's still uncertainty as to actually what's going to happen with the campuses.

But we do view it as a long-term opportunity for us to, frankly, strengthen our position in certain markets..

Maybe in the short run, just talk to me in what -- I'm assuming parents are coming to you, students are coming to you from COCO or from -- and other competitors. How are you explaining your value proposition, your messaging? Because you guys are a clean operator. You have a regulatory free track record.

Are you doing anything differently or to communicate that to potentially students coming from WyoTech or anybody else?.

I wouldn't say that we're communicating any differently. I mean, as you know, Joe, the admissions process has gone through a number of changes over the last little while. The disclosures are pretty evident on the websites, and we sort of communicate with students in a very clear way.

We also shop our processes to make sure that quality standards and regulatory standards are being met. So we really haven't changed our approach or our language.

I think all we really have done is equipped our schools with the tools they need to communicate with a student that's coming in that may have already gone to school, or utilize a certain amount of their federal funding, or they might be coming in fearful about transferability of the credits that they've already achieved and those kinds of things.

And so we've just given them guidance on how to deal with that, but it's really how you deal with any type of transfer student. So we haven't done anything in particular yet. And yes, we have had students come to our schools from some schools that are going through closure or other types of hardship.

But I can't say that we've done anything outside of that..

Okay. And one last question and I'll jump back in queue. And this is kind of a modeling guidance question. If based on everything you said, your second half expectations, you expect starts to be down 1% to 3%. If I model in your Q3 expectations of starts down 8% to 10%, mathematically, you could make a -- you could see flat to positive growth in Q4.

Is that wrong?.

It's not wrong. I'll turn it over to Cesar. Yes, we said 1% to 3% down for the year. And we do expect that Q4, I mean, just really based on the comps, isn't going to be down dramatically..

You would be correct. Right now, we're expecting Q4 to still be positive for the year although slightly on easier comps. But yes, the guidance is 1% to 3% down for the year..

Your next question comes from Jeff Silber with BMO Capital Markets..

In your prepared remarks, you talked about the improving economy helping your placement rates.

I'm just curious if you think that might be having an adverse impact on your enrollment ensure [ph] rates? I know this was an issue for the company last cycle, and I'm wondering if it's happening again now?.

Yes, I think we're seeing that, Jeff. This is Shaun, and I'll let Scott finish up. But yes, I think that it is definitely benefiting placement, and I think that it provides a little bit of a headwind in admissions. And students are constantly making the decision.

I think this falls under affordability for us, whether a student doesn't want to take out some level of debt or their family doesn't want to take on debt, or the student doesn't want to necessarily make a monthly payment, or they make a decision to work versus going to school, that all falls under accountability -- I'm sorry, affordability for us.

And so we're seeing that headwind right now.

I think for us, knowing that, that cycle has shifted a little bit in terms of employment rate across the country, one of the things that we are essentially strategizing for the future involves some of the points we mentioned in the prepared remarks, making the programs not only more affordable but also more convenient so students can continue to work part time and then also promoting our evening programs as well to offset some of that..

Yes, I think that, as you said, it is a typical cycle that as the economy improves, people have other options and maybe less inclined to return to school. We're not seeing it being raised as a direct reason why people aren't coming to us at this time. We did grow our enrollments in the second quarter.

But it's only natural that we will still be facing some headwinds, as Shaun said, as that option becomes more available to people.

And we just have to get more creative and partner with more individuals, especially industries that are really in desperate need for people to help bridge that gap and really educate, frankly, more people about what the opportunities are that do exist out there..

Okay. You also talked about your cost rationalization in the back half of the year. I know this is a sensitive issue, but has anything been announced? I'm just curious which specific line item on the income statement that will affect..

I mean, we're continually looking at this. And so basically, obviously, our largest cost ends up being people. So whenever our populations are down, we're constantly rationalizing our people force so that could be in faculty or could be in administrative levels. It really varies campus by campus..

So with that said, we're looking at a couple of things structurally. And I think most of those will fall within typical SG&A lines..

Yes, there's obviously some instructor, faculty. But for the most part it, would be within SG&A..

[Operator Instructions] Your next question comes from Trace Urdan with Wells Fargo Securities..

Shaun, I don't want to put words in your mouth, but it sure sounded like from your opening statement that, given the lack of visibility in the sector and I think the anxiety that you described in some form on the part of lenders, that it would be unlikely that you guys would be a bidder on the Corinthian assets that are on the market right now.

Is that a fair statement?.

I didn't necessarily say that. I mean -- I'll just tell you this, Trace. I mean, historically, we've always looked at opportunities that have come our way, and if it makes sense and adds value to the company, we would look at it. We can never really comment on hypotheticals. And as Scott said, we're not even sure what's going on over there.

So it's just really impossible to even comment on it right now..

Okay.

I wonder if I could just -- because investors are so focused on the lending side of the equation right now and you did make those comments about the lending environment, are you experiencing any pressure from your lenders to change the terms of your agreements in any way?.

No. As you might recall, we did an amendment back in December of last year, and we amended it then. We had to make an amendment because of -- we had to provide a valuation allowance in our deferred tax assets and that would have violated some of our covenants.

So we made all those amendments, and our credit agreement today, we're in compliance with all debt covenants, and there's really no pressure on that side. With that said, we do see these are opportunistic times. We have a lot of real estate, and we are choosing to monetize some of that real estate and put some cash on the balance sheet..

Okay, great.

And then, again, just from the inoculation standpoint, could you guys make a comment based on your current projections for where you think you'll end the year? Sort of how comfortable you are that you're going to be above 1.5% in your financial responsibility ratio?.

We are not commenting whether or not -- where we're going to be at the end of the year, whether we're going to about 1.5% or not. I can assure you that we would certainly be about 1%. But it's still 6.5 months to go and who knows what can happen. So it's too early to comment on that..

There are no further questions in the queue. I would now like to turn the call over to Mr. McAlmont..

Okay. Thank you, Latoya. So to the listeners, as you can see, we're focused and have been very busy on executing our initiatives, which continue to essentially better position us in this time of uncertainty.

We have a strong foundation of the company, and we've had a strategy that we feel will allow us to compete in a very unique segment of education and training. We also have a long-term strategy to position Lincoln as a market leader in diversified career training.

We believe strongly in vocational training and the viability that these careers make on people's lives, and we'll drive our company toward that strategy long term. Thanks for joining us, and we look forward to updating you on our third quarter results in October..

Ladies and gentlemen, thank you for your participation. This concludes today's conference. You may now disconnect. Have a wonderful day..