Douglas Sherk - CEO, EVC Group Scott Shaw - President and CEO Brian Meyers - CFO.
Alex Paris - Barrington Research Douglas Ruth - Lenox Financial Services Justin Putnam - Talanta Investment.
Good day, ladies and gentlemen, and welcome to the Quarter Three 2016 Lincoln Educational Services Earning Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded.
I would now like to introduce our host for today's call, Mr. Doug Sherk. Sir, you may begin..
Thank you, Darwin, and good morning, everyone. Before the opening of the market today, Lincoln Educational Services issued via News Release its third quarter 2016 financial results. The release is available on the Investor Relations portion of the Company's corporate Web site at www.lincolnedu.com.
Today's call is being broadcast live on the Company's Web site and a replay of this call will also be archived on the Company's Web site.
Statements during today's call made by management of Lincoln Educational Services Corporation regarding Lincoln's business that are not historical facts and they may be forward-looking statements as that term is defined in the federal securities law.
The words may, will, expect, believe, anticipate, project, plan, intend, estimate, and continue, and their opposites and similar expressions are intended to identify forward-looking statements.
Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved, if at all.
Generally, these statements relate to business plans or strategies, projected or anticipated benefits from acquisitions or dispositions to be made by the Company or projections involving anticipated revenues, earnings or other aspects of the Company's operating results.
The Company cautions you that these statements concern current expectations about the Company's future performance or events and are subject to a number of uncertainties, risks and other influences many of which are beyond the Company’s control, that may influence the accuracy of the statements and the projections upon which the statements are based.
The events described in forward-looking statements may not occur at all. Factors which may affect the Company’s results include, but are not limited to, the risks and uncertainties discussed in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K filed with the Securities and Exchange commission.
Any one or more of these uncertainties, risks and other influences could materially affect the Company’s results of operations and financial condition and whether forward-looking statements made by the Company ultimately prove to be accurate and, as such, the Company's actual results, performance and achievements could materially differ from those expressed or implied in these forward-looking statements.
Forward-looking statements are based on information available at the time those statements are made and/or management's good faith belief as of that time with respect to future events, and are subject to risks and uncertainties.
Important factors that could cause such differences to include but are not limited to our failure to comply with the extensive regulatory framework applicable to our industry or our failure to obtain timely regulatory approvals in connection with a change of control of our company or acquisitions, our success in updating and expanding the content of existing programs and developing new programs for our students in a cost-effective manner or on a timely basis; risks associated with changes in applicable federal laws and regulations, uncertainties regarding our ability to comply with federal laws and regulations regarding the 90/10 rule and cohort default rates, risk associated with the opening of new campuses; risk associated with the innovation of acquired schools; industry competition; our ability to execute our growth strategies; conditions and trends in our industry; general economic conditions and other factors discussed in the risk factor section of our annual and quarterly reports.
All forward-looking statements are qualified in their entirety by this cautionary statement and Lincoln undertakes no obligation to publicly advise or update any forward-looking statements whether it’s a result of new information, future events or otherwise after the date there off.
Now, I'd like to turn the call over to Scott Shaw, President and Chief Executive Officer of Lincoln Educational Services..
Thank you, Doug, and good morning everyone. Thank you for joining our third quarter 2016 conference call. With me today is Brian Meyers, Lincoln's Chief Financial Officer. I will begin the call by reviewing our recent operational highlights and progress in achieving our corporate objectives.
Brian will then provide further details on the quarter's financials, as well as our outlook for the remainder of the year. Then we'll take questions from analysts and investors.
I'm pleased to announce that we remain on track to deliver positive earnings for our continuing operations excluding the transitional segment and we have continued to rebuild our student population and transportation Skilled Trades with the goal of ending the year with the same population as last year.
Our population goal will give us a strong foundation in 2017 from which to increase our population as we execute on various initiatives. Our organization is steadily making strides towards enhancing the value of our enterprise, while lowering our fixed costs were possible and enhancing the student experience.
Besides stabilizing our population in the transportation Skilled Trades segment, we have made exciting progress with our corporate partnerships.
We were able to build on our successful relationship with Fiat Chrysler Automobiles US and going forward we will be able to offer select students a higher level of training which will result in additional opportunities with this automotive industry leader upon graduation.
Previously we were offering an entry level [SCA] [ph] program but given the increasing demand for technicians and strong response from the dealers for our graduates, SCA decided to increase of level of training to [indiscernible].
Graduate will be prepared to work on Chrysler, Fiat, Dodge, Jeep, and Ram trucks, and will start to opt at higher than entry-level salaries. SCA has more than 2500 dealerships and needs over 2000 new technicians a year.
Additionally we continue to expand the student population in our Audi program and finalize preparations to launch the first Volkswagen program in the second quarter of 2017. In addition I'm pleased to announce that our relationship with BMW North America is strong and growing.
We recently renewed for three years our partnership with BMW North America to offer the BMW step program at our Grand Prairie Texas campus and they have contracted with us to also provide many step training. We are proud that BMW North America values our trainings and that we are able to leverage our specialized shop to serve an additional BMW brand.
The first Mini have already arrived at the campus and training will begin in 2017. Another long-term corporate partnership continues to grow with Haas Automation, a leading national provider of computer numerical controllers or C&C equipment.
Haas and Lincoln launched a partnership in 2013 and we're pleased to note that we received last month of a third scholarship award from the Gene Haas Foundation to promote career training for computerized manufacturing at our Mahwah Campus.
On October 6, representatives of the HAAS Foundation presented our Mahwah New Jersey campus with a cheque worth $50,000 bringing the three-year total scholarship donation to $130,000.
The Haas Foundation's generosity is part of its mission to promote hands-on training for 21st century manufacturing careers and they have been a sponsor of our C&C program at both the Mahwah and Grand Prairie campuses.
We are proud that by improving the supply of quality C&C technicians, we are enabling numerous local manufacturers to grow their business and capture more on-shoring opportunities.
We greatly value our corporate partnerships and so our team is constantly having conversations with other potential corporate partners who have strong demand for the skill sets of our student population. Now turning to Student Starts.
Our transportation Skilled Trades, Starts for the third quarter were down only 68 students or 2.2% as compared to a year ago, a result that we attribute to the underperformance of a single campus. In fact the other 11 campuses in our transportation Skilled Trades segment generated a 1.5% increase in Student Starts during the quarter.
Our team has implemented a comprehensive program to address the issues at the one campus and we're already seeing improvement in the fourth quarter. Our key goal is to enter 2017 with the same population level as we had at the beginning of 2016.
You may recall that we entered 2016 down 568 students from prior-year and that we ended the first quarter down 531 to second quarter down 370 and now the third quarter we're down 185 students.
You can see that we've made progress each quarter and we are reiterating our target for finishing 2016 with roughly the same student population in this segment as we started the year. We've implemented programs to retain students currently enrolled bringing previously enrolled students back and graduating students in advanced degree programs.
Successful outcomes from these initiatives should enable Lincoln to achieve our student population year-end targets. In short, we’ve made great progress in stabilizing our transportation Skilled Trades segment and expect to achieve our goals established earlier in the year, while also laying the foundation for growth in 2017 and beyond.
Demand from employees for our graduates is just a strong if not increasing which leaves us focused on making more students aware of the great opportunities available to them. Now let me address our efforts to rationalize our business by exiting the healthcare and other profession segment.
We continue to work with an interested party for the majority of the campuses but unfortunately nothing in the current environment happens at a normal pace. When we have more definitive information to share we will.
During our last call I had mentioned that we had a buyer for our West Palm Beach facility but on September 1, 2016 they notified us that they were no longer interested due to a shift in their strategic plans. Subsequently we put the property back on the market and I'm pleased by the continued interest.
In conjunction with the sale we announced a plan to see certain programs at the West Palm Beach Florida campus which we expect to teach-out by the end of the first quarter in 2017.
However it's important to note that we continue to enroll student's into our automotive and HV/AC programs at our other West Palm Beach location located nearby in Mangonia Park.
Earlier this week the Board of Directors approved the teach-out of our Green Valley Nevada and Center City Philadelphia campuses which we believe will rationalize our presence in those market does benefiting our neighboring campuses in the future.
This will leave us with 14 campuses in the healthcare and other profession segment and despite the distractions of the divestiture effort, these campuses continue to perform well from all operator perspectives as evidenced in the 9 month financial results which Brian will discuss. Now onto regulatory matters.
For over 70 years Lincoln has prided itself on a strong regulatory record and I'm proud of our continued strength in this area. This past quarter has been a busy time from a regulatory perspective and the results have all been good.
The DOE released the final three-year cohort default rates and our rate of 12.2% was below the average of our peer two year and less schools and that includes public, private and nonprofit peers.
Also in September as a result of improved financial strength in compliance within prescribed DOE guidelines, the DOE notified us that we no longer are required to comply with the zone alternative. While this has no economic impact to our organization, it is a sign that we are becoming a stronger company.
Additionally over this past quarter, we had [indiscernible] visits with no major findings and in fact two campuses had zero findings.
We received draft information about gainful employment and once again I'm pleased to announce that less than 1.5% of our students are in continuing programs that failed and even with these programs we have solutions in place that will allow us to continue to serve students interested in these disciplines.
No programs in our transportation and Skilled Trades segment failed. Well Lincoln has always focused on delivering a strong ROI to all of our students in all of our programs, we were concerned about being measured on a metric tax returns in which we have no visibility nor which we can verify.
However, our results clearly demonstrate the strong value proposition of our programs. Lastly let me address our ACICS schools and where we stand. First no schools in our Transportation and Skilled Trades segment are accredited by ACICS.
We have 11 ongoing campuses in our healthcare and other profession segments that are accredited by ACICS and we've started the process to switch them to another accreditor in the event that the U.S. Department of Education revokes the recognition of ACICS.
Based off the timeline provided by the other accreditor and assuming that all campuses meet their standards we expect all these campuses to be re-accredited by the third quarter of next year.
We remain focused on our student success and continue to make investments that will enhance their overall experience despite a challenging economic and regulatory environment and a lengthier time than anticipated for our divestiture initiative, we continue to make progress towards stabilizing our business and laying the groundwork for future growth.
I'm thankful to all of the dedicated individuals at our campuses and corporate office who remain committed to ensuring that Lincoln truly stands out from the competition and provides a superior experience in education for our students.
We remain committed to successfully transitioning Lincoln to sustainable profitability by maximizing the return from our assets and lowering our fixed costs to levels appropriate for our student population.
Our team has done an excellent job in this area for the past several years and yet additional progress during our - and has made additional progress during our third quarter. While we carry out our 2016 initiatives, we are also looking to the future. We have multiple new initiatives underway for 2017.
For example we expanded our high school admissions team to increase our reach into new and existing markets.
We believe the additional representatives coupled with new and enhanced materials will provide the opportunity to educate perspective students about the rewarding career opportunities in the Transportation and Skilled Trades sectors in a more impactful way.
It is clear to us that while the general public is less knowledgeable about careers that involve manual labor there is a strong need for the renaissance of these fields that offer competitive wages and positive job outlook growth and we are prepared to bring these opportunities to the public's attention.
Consequently we see a need in a tangible benefit to increasing the scope of our dialogue with high school students and sharing the opportunities our programs can create for their students. The large number of retiring baby boomers combined with the ever-changing technological landscape are creating increased demand for technicians of all types.
And while we communicate this opportunity on our Web site and in our marketing materials, we see a need intangible benefit to creating an open and direct dialogue with our high school students. In summary, we are well positioned to continue moving towards sustainable profitability and enhance student outcomes.
At this time we'll turn the call over to Brian for more detailed review of our financial performance..
Thanks Scott and thank you all for joining us this morning. I'll begin my comments with the highlights of our continuing operation and financial performance. Continuing operations are comprised of our Transportation and Skilled Trades segment, our Transitional segment and our Corporate and other segment.
The Transitional segment refers to operations that are closed or are currently being toed out. For the third quarter the segment consists of our Fern Park Florida campus, the Hartford Connecticut campus and certain programs at our West Palm Beach Florida campus.
In addition as Scott mentioned will begin to teach-out of our Center City Philadelphia and our Green Valley Nevada campuses. The decision to close these campuses did not come lightly which primarily the result of consistent losses.
We believe the closure of these two campuses will enable us to rationalize our presence in these markets to create efficiencies and profitability at our neighboring campuses. For example, our Green Valley students will be able to transfer into our neighboring Summerlin Nevada campus to complete their specific areas of study.
We are optimistic that the majority of students will opt to continue their studies with Lincoln due to the convenient close proximity of the two campuses. Similarly, we cease operations at our Center City Philadelphia campus. We expect to strengthen the population and operational results at our neighboring campus offering the same programs.
We believe such strategic plans will strengthen the organization efficiencies and profitability. Revenue from continuing operations for the quarter was $49.8 million versus $54 million in the prior year comparable period.
The decrease was a result of starting 2016 with approximately 800 fewer students than on January 1, 2015 which led to an 8.1% decline in average student enrollment population. Average population was 7,400 as of September 30, 2016 compared to 8,100 for the prior year quarter.
However, it is important to note that our transitional segment accounted for approximately 58% of the revenue decline and about 53% of the average population decline. During the quarter Student Starts were down 10.5% at approximately 3,100 versus 3,500 in the prior year but once again the transitional segment accounted for 81% of this decline.
The remaining decline in Student Starts as Scott mentioned was primarily impacted by the underperformance at one of our campuses. Management has since taken steps to improve operations and expect better performance in the near future.
Excluding this campus and the transitional segment our starts for the quarter would have grown over the prior year quarter. Turning to operating expenses, we continue efforts to implement efficiencies and cost reductions across the entire organization.
Educational services and facility expenses from continuing operations decreased by $0.6 million or 2.4% to $24.4 million for the quarter from $25 million in the prior year.
The decrease in cost was the result of successful renegotiation of certain leases, reduced cost as a result of the closure of our Fern Park Florida campus during the first quarter of 2016 and reduced instructional cost as we continue to realign our cost structure to meet current and anticipated needs.
Selling general and administrative expenses from continuing operation increased by $1.6 million or 7.2% to $24.4 million for the three months ended September 30, 2016 from $22.7 million in the prior year quarter.
The increase in expenses were driven by a variety of factors including a $1 million increase in administrative expenses as a result of closing costs associated with the teach-out of certain programs at our West Palm Beach Florida campus.
In addition sales and marketing cost were higher as we increased our marketing spend in order to reach more prospective students and impact enrollments in the fourth quarter. Net income from continuing operations for the third quarter was $1.3 million or $0.05 per share as compared to $4 million or $0.17 per share in the prior year period.
Excluding the transitional segment, the third quarter net income from continuing operations would have increased to $2.7 million as compared to $5.6 million in the prior year period. Now focusing our third quarter segment results highlights.
Our transportation and Skilled Trades segment revenue was $47.9 million for the three months ended September 30, 2016 as compared to $49.7 million in the prior year period. This decline was primarily driven by a 4.3% decline in average student population to approximately 7,100 from 7,400 in the prior year period.
This decline mainly stem from lower carrying population into 2016 and underperformance at one campus as I previously highlighted. Excluding this campus our Starts for the quarter would have increased compared to prior year.
Operating income for the transportation and Skilled Trades segment decreased by $4.5 million to $6.1 million versus $10.6 million mainly as a result of increased marketing spend and lower student population.
Our transitional segment which for the quarter ended September 30, 2016 had revenue of $1.9 million compared to $4.3 million in the prior year mainly attributed to the closing of our Fern Park Florida campus during the first quarter of 2016 and the suspension of new student enrollments at our Hartford campus effective during the fourth quarter of 2015.
And lastly our healthcare and other professional segment which is classified under discontinued operations continues to demonstrate improvement with a net loss of $2 million for the nine months of 2016 compared to $4.3 million in the prior year period. Let's now turn to the balance sheet and cash flow for the quarter.
We finished the quarter with $45.8 million of cash and cash equivalents and restricted cash. Restricted cash represented $26.6 million of the total.
For the nine month decrease in our cash balance was a result of several factors including our net loss, $8.5 million of school closing cost, $0.7 million of a term loan modification fee, $0.7 million of severances and the seasonality of collections. We continue to expect to increase our cash balances by year end.
Finally we are reiterating our previously provided guidance for 2016 as follows. First we continue to execute on our plan to exit the transitional segment campuses reducing the losses. We're on track to close the Hartford and Green Valley campuses by year end and the Center City campus during the second quarter of 2017.
Second, we continue to expect revenue from the transportation and Skilled Trades segment to decline by low to mid single-digits on a percentage basis compared to 2015 revenue from this segment.
Lincoln anticipates ending 2016 with approximately the same student population level as at the beginning of the year in our transportation and Skilled Trades segment. Third, we continue to anticipate generally slightly positive net income for the year from continuing operations excluding the transitional segment.
The profitability outlook includes a non-cash gain in 2016 of approximately $6.6 million relating to a lease amendment. Fourth and the last, we anticipate a positive cash position net of our term loan repayment obligation at year end. With that I'll now turn the call back over to the operator so we can take your questions.
Operator?.
[Operator Instructions] And our first question is from Alex Paris with Barrington Research. Your line is now open..
Hi guys good morning. Couple of questions not necessarily in any order. So first of all with regard to West Palm Beach you are taking out programs.
Is that all the programs that are not automotive essentially?.
That's correct automotive and Skilled Trades..
Okay. And then the automotive and Skilled Trades it's essentially a branch building of that campus there. Does that come back into - is that still part of discontinued operations or is that part of continuing operations because it's auto..
For the third quarter it was part of discontinued operations still..
Okay. At some point is that come onto continuing operations and represent the 13th campus..
Correct it definitely could..
Okay. And then just to be clear so Green Valley and Center City come into transition in the fourth quarter.
Did you say I think you might have just said but I missed it, when those teach-outs will be completed?.
Right, the Green Valley will actually be closed by year end, Center City will be closed by second quarter 2017..
Okay. And then Brian I'd to be nice to have the restated year ago numbers. I have them for Q3 obviously because that's why you reported but for each of the quarters would be nice so we could talk about that offline. And then, so then what's left in healthcare and other professions being sold is it 15 campuses then..
Yes, there are 15 campuses in there like Scott was saying that we have a majority, you know we have one prospective buyer for a majority of those campuses..
And obviously this has taken longer as you said in your press release than you'd initially anticipated.
What are the issues that really govern that process, is it financing?.
I don't want to get too much into it but it's kind of like, everything that’s hitting the industry, there is financing issues, there is regulatory issues a little bump with ACICS is a bump along the way but again overall we're moving forward and anticipate a successful outcome there..
Good. Then with regard to regulatory congratulations on all the good news that came out of that over the last few months like getting out from under the zone alternative, I guess monitoring things, the cohort default rates. I just wanted a little more color and GE just to make sure I heard that correctly gainful employment.
You said less than 1.5% in continuing programs failed but no programs in Transportation and Skilled Trades.
So would those be in the Transmission segment the ones that actually did fail?.
They’d be in discontinued ops segment..
I got you. Okay, discontinued operations. But no programs failed in Auto and Skilled Trades..
That is correct..
Were any in the zone?.
Yes. We had some in the zone but the zone is 8% to 12% and they are at the bottom end of the zone, so I'm not concerned about them so given where they were and some of the other initiatives we've taken over the last couple years with some of our pricing..
Okay, got you. Let me see, I guess that's all have for right now. I’ll get back in the queue but congratulations on hitting the numbers and looking forward to sequentially stronger fourth quarter..
Thank you. And also just to be clear it's 14 campuses that are in discontinued ops not the 15 Brian mentioned..
I guess I have one follow up on that then..
Sure..
14 campuses, okay.
You started off with what 17 that were for sale initially?.
Yes..
I got to assume that the ones that get toed out are the least well performing schools, the ones that are losing money, the ones that have the smallest enrollments which are related I guess but so that if I'm right there that improves the portfolio of the schools held for sale..
That is correct..
Okay. You're not putting your best schools into teach-out, you’re putting the underperformers..
You got it, you got it. That’s what we do here..
And it’s a substantial network. I mean, we think about it as very small when you collapse it into one line but I'm just looking at the press release for the nine months those schools generated $75 million in revenue and a small loss of about $2 million but $75 million in revenue for the 14 schools I guess right..
And it seems like every day it because more and more substantial given what's going on out there..
And there has been an improving trend which is important and then the ACICS schools.
Were some of the schools they got shoved into transition ACICS?.
Yes because the Center City school was an ACICS school..
Okay.
And then but regardless the regulation - if the Department of Education shuts down ACICS the precedent is schools in good standing have up to 18 months to make that transition to the new accreditor and with your target of the new accreditor giving you some indication for the third quarter of '17 you should be able to make that transition with time to spare?.
That is correct, I also - full disclosure, there are other subtleties with regard to the schools losing accreditation that depending on what the department does will provide some challenges in the near term but I'm assuming that the department is going to make the right decisions to ensure that students who are currently enrolled in any ACICS program are not harmed in any way..
Got you. Okay well thanks very much..
And our next question comes from Douglas Ruth of Lenox Financial Services. Your line is now open..
Hi, congratulations I also want to give you credit for hitting the guidance.
Could you - what campus is creating the challenge for the company?.
I think may have may have mentioned it before not but it's Indianapolis campus..
Okay.
At one point you thought you might have it - you thought you might had it improved and then do we had to replace the management a second time is that's sort of what happen there?.
Without getting into too much, we have made lots of changes there make sure we had the right team we organize things. But as we said when we look towards the fourth quarter things are definitely looking better. So I feel good about where we're headed there..
Okay. And could you talk some about the spending the additional $1 million on marketing what you're doing and what you think might happen with that..
Sure. Needless to say we’re always looking for opportunities for growth. The marketplace is changing. We can’t keep doing the same thing over and over again. So we do explore new channels and try to figure out ways to the Internet and social media to reach our students.
So we'll continue to make some investments for the future and some will work and some won't and time will prove that out. But we think we continue to enhance what we're doing through these efforts..
Is a lot of that through the Web site are you --.
Absolutely, yes..
And then can you talk some about the initiatives, I think it makes a lot of sense to me to try to bring back some of the previously enrolled students and then also expanding to some advanced programs?.
Sure. I mean, it's something that we are doing constantly, but we're always trying to reach out to students who may have dropped out to get them to come back into the campuses, so we have very concerted efforts around those initiatives.
As we continue to build our industry partnerships, we continue to have additional programs that we can offer students to enhance their skill sets, so we can go back out and reach prior students, as well as upsell existing students into some of these other programs like the Chrysler program and the Audi program and some of the others..
Okay.
Is the potential buyer of the healthcare properties, are they also the people that are the potential buyer for the Florida property or are those different buyer?.
They are different entities, but again we come under confidentiality, so really can't comment beyond that..
Is there still possible that the Florida property could be completed by the end of the year?.
Anything is possible but I don’t want to get anyone's hopes up for that, I mean there's interest but given that's November I wouldn’t think that happened by year-end..
Okay. All right. Well, I think you're on track. And you've pretty much done what you said. And thank you for doing what you are doing and thank you for answering my questions..
[Operator Instructions] And our next question is from Justin Putnam with Talanta Investment. Your line is now open..
Thank you. I just want to follow-up first of all on the marketing spend question and especially as it relates to 2017.
Are you going - first of all are you going to continue increase marketing spend in 2017 and then if you are presumably that means you do see opportunity for that to drive growth and enrolments in 2017?.
I mean we're still working on our budgets for 2017, but we are anticipating that marketing spend will be up, not I hope dramatically. We're still refining that. But there are opportunities out there for us and so we will look at that very carefully over the next 45 days as we finalize our budgets..
Okay.
And then related to that as you work through this transition and get the business stabilized particularly in core areas, how do you feel about the business at the call it $180 million annual revenue level, is that a level where you can be consistently profitable in a meaningful way going forward, or do you see these opportunities to perhaps economies of scale with the business?.
I think that we - I see opportunities to grow the business and I see that we need to grow our business as well going forward. I think at $180 million level we are - we can create profits, but they are not going to be profits that we settle on or accept.
There is more opportunity out there for us and therefore we will continue to look for opportunities to grow beyond $180 million..
Okay. Then last question for me is on your credit facility. Obviously in normal time you have normal business having credit facility in place and drawn on that the cash you have on the balance sheet doesn’t make a lot of sense normally, but obviously being for-profit sector these days, you have to do things like that.
And I guess my question is, you are holding net debt because of the financial responsibility ratio and so forth.
Can you give us a little bit of the visibility or plan to how you’re trying to work you did from under that going forward?.
Sure. Well, I mean again we are a cash positive company. There are peers as the year when we use cash and peers the year where we actually generate more cash than we need. The challenge we have with our existing credit facility is that it’s all a term loan, not a revolver.
So if we had a normal revolver, our debt balances would be dropping this time a year, and instead given the environment, we had to go out and get a term loan. So that’s why the kind of debt number stays fixed and high throughout the year.
So long story is short, it is expensive debt and so we are constantly looking for ways to minimize that expense and the best way to do that needless to say is to grow the overall profitability and strengthening the Company, so that we can find additional sources for credit going forward.
I don’t know Brian, is anything else?.
Right, the only thing I'll add as we get stronger, we don't need all that loan - debt, so we would be looking to pay back some of that debt over the near future..
Right, because you’re holding most of that debt right now because of financial responsibility right, I think so forth, right?.
Right – another - as well, but it does help our balance sheet, makes our balances stronger, correct..
Okay, that's it for me. Thank you..
And I'm showing no further question at this time. I would now like to turn the call back over to Scott Shaw for closing remarks..
Great, thank you all for joining us today. We continue to focus our efforts in this Lincoln's 70th year of operations and retrain the Company to sustain profitability while offering and enhanced educational experience to our students.
We're continuing to move in the right direction and we look forward to updating you on our progress as develop its merit and talking with you again in March. Have a good day. Thank you..
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone have a great day..