Good day, ladies and gentlemen, and welcome to the Third Quarter 2018 Lincoln Educational Services Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Michael Polyviou of the EVC Group. You may begin, sir.

Thank you, Heather, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its release reporting the financial results for the third quarter and 9 months ended September 30, 2018. The release is available on the Investor Relations portion of the company's corporate website at www.lincolntech.edu. Today's call is being broadcast live on the company's website, and a replay of this call will be archived on the company's website. Statements made by Lincoln's management team during 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, planned, intend, estimate and continue 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. 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 projections upon which statements are based. Factors that may affect the company's results include, but are not limited to, the risks and uncertainty discussed in the Risk Factors section of the annual report on Form 10-K and quarterly reports on Form 10-Q filed with the Securities and Exchange Commission. Forward-looking statements are based on information available at the time those statements are made and/or management's good-faith beliefs 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. I'd like to turn the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thank you, Michael, and good morning, everyone. Thank you for joining our call today to discuss our third quarter operating and financial results. With me is Brian Meyers, our Chief Financial Officer. I'm pleased to report that over the past year, the Lincoln team has been successfully executing strategies leading to consistent predictable growth as well as improving our company's profitability. This morning, we reported that in the third quarter, student starts at our continuing operations grew 7.5%, and on a trailing 12-month basis, our student starts have also grown by 7.5%. That means for the last 4 quarters, we have achieved growth in both of our segments each and every quarter. A combination of new programs, curriculum diversification and improved marketing have all contributed to our success. With our improving operational and financial performance comes increasing optimism for the future opportunities. The mismatch of employer demand and the skills possessed by potential employees continues to grow. The number of employers and organizations seeking us out to help with training and placement of our graduates also continues to grow. Coupled with the acknowledgment of this skills gap is more research and discussion about alternative paths to college in order for one to obtain a solid middle-class career. All of these trends bode well for Lincoln, and we will capitalize on these trends to build a stronger, more impactful company that benefits all of our stakeholders. Our consistent student start growth has led to improved operating results from continuing operations and has positioned the company, we believe, to achieve GAAP profitability in 2019, which begins in less than 2 months. This consistency has been developed during an unprecedented period of high employment and perhaps the most challenging operating environment the industry has ever seen. For over 70 years, Lincoln has survived…

Thanks, Scott, and good morning, everyone. I am pleased to share with you our highlights from the third quarter 2018, the operating results for the individual segments and our raised 2018 guidance. To begin, revenue and operating income for the quarter improved by $2.8 million and $800,000, respectively, over the prior year. In addition, on a same-school basis, revenue was higher by $4.6 million or 7.1% over the prior year. Second, total student starts were up 4.7% over the prior year and 7.5% on a same-school basis. The increase in student starts represents the fourth consecutive quarter with start growth, which is attributed to continued investments in marketing, our enhanced high school admissions program and an improved admissions process driving more consistency in the student cycle from lead to start. Third, we continue to invest in marketing initiatives resulting in approximately $1 million of additional spending in the third quarter compared to the prior year. While the marketing investments are high, the quest to obtained prospective students has remained relatively flat when compared to the prior year. This means that marketing dollars are providing a return on our investment and should continue to yield start growth over the next several quarters. Fourth, as a result of our positive start trends, improved financial conditions, during the quarter we were able to secure new surety bond provider and negotiated better terms. Surety bonds are required by many states for companies within our industry. The new terms resulted in a $3 million of additional liquidity during the quarter, and we anticipate another $1 million of improved liquidity in the fourth quarter. Fifth, on August 20, 2018, we announced a teach-out of our Lincoln College of New England campus at Southington, Connecticut. The campus struggled financially over the last couple of years and was…

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

Wow, what a difference a year makes. I got a couple of questions, it might be all over the place. But first off, marketing costs up $1 million but costs per start flattish. Obviously, you're converting more leads. What's going on there?

Well, as I said in my remarks and as we've always done, we watch that very closely. So we're getting results, we're changing where we market, we're changing some of the channels and wherever we don't see a quick enough response, we try to reallocate those resources as quickly as possible. Our sales teams have been fully trained and we've been working on that for the last, frankly, 24 months giving them better tools, better practices, more consistency, more program training. All in all, there's been just a lot of initiatives taking place. And over time, they've all started build on one another to lead to the results that we're getting. So it's a lot of little things by a lot of -- everyone out there in the field and it's working and we see it continuing, frankly.

Despite the headwind from the job markets, which is impressive...

Yes. That surely is the most exciting part of it all because as you know, as unemployment rate drops, that does limit the number of people looking for our opportunities. But it does seem to be that we're at this stage now that there's so much demand by the employers that -- it seems like more and more people are just contemplating and looking at the opportunities that we offer even in this low unemployment level.

And then speaking of which, that 80% placement rate that you're forecasting for 2018, is that Lincoln in total, Lincoln overall includes both the auto schools and the HOP schools?

Yes. Yes, that is. Last year, we're around 79%. As you probably know, our Transportation and Skilled Trades side is probably closer to 85% level and the Healthcare side is around the 75% level, but they average out around 80%.

Great. Let me see. So now that you sold the last piece of real estate in West Palm Beach, is there anything left in the real estate portfolio that's going to be turning to cash at some point in the future?

We do have one other facility that's vacant -- that's been vacant for a few years. It's in Connecticut, in Southfield, Connecticut. The appraised value of that is approximately $3 million. We are receiving some interest, not much on the sale. We did lower the price down so hopefully, in the next year or so. It's hard to say because we haven't had much interest there, but the appraised value is about $3 million of that.

But that's the last unproductive asset that we have.

Got you. And then ACCSC, the seven campuses, now you can introduce new programs. What are you thinking there in terms of new programs? Should we expect new programs in 2019 and should we expect them early in the year?

You definitely should expect some new ones. It's really up to kind of the timing of getting through the accreditation. I would be looking for them more in the second half of next year. And these programs we're looking at, frankly, two massage programs where employers have come to us. These will be small programs, maybe 50, 60 students in two markets, and we've revamped our entry-level IT program. And so we anticipate, once that's fully approved, having some growth there in the existing campuses as well as we're going to introduce it to get good traction into two more campuses. So those are the expansions that we'd be looking at in 2019 for those 7 ACC new campuses.

Okay. And then I have your guidance here, which is raised from the most recent guidance, and then you had furthermore to say, expect GAAP profitability in 2019.

That, we do.

I was just going to add the main driver of that, as Scott mentioned, is we're anticipating over 400 students higher in carrying population, which will really drive the profitability for 2019.

And how goes the fourth quarter, I guess? That would be my last question. Any change from trends we've been seeing because the trends have all been favorable over the last four quarters or so?

No changes.

[Operator Instructions]. Your next question comes from Justyn Putnam of Talanta Investment.

I have a question for you on what you mentioned about your surety bonds. Just want to clarify, it sounds like you cleared out about $3.7 million in this quarter and you're expecting another $1 million in the fourth quarter, is that correct?

It was $3 million. We had a restricted cash because we had a cash collateralized risk. So with the new bond provider, we were able to greatly reduce that so we were able to move $3 million in the third quarter from restricted to operating and then we anticipate at least another $1 million in the fourth quarter.

Okay. So as you move toward the end of the year, do you have any thoughts on what your net debt should look like?

With the teach-out of LCNE, it's going to probably be slightly in a debt position by $1 million to $2 million.

Okay. To clarify, last year, you were net debt about $30 million at the end of the year?

Last year, we were slightly positive, I think, by about $2 million when we add all the restricted to cash versus our debt. Yes, I think we have something in the press release I can send you. In the fourth quarter, I can send you after the call as well.

Okay. All right. Moving into -- okay, then moving into 2019, assuming you meet your objectives and profitability, what other opportunities are there to free up some liquidity? I mean, you hold -- a big amount of your debt you hold because of responsibility ratios and buying requirements and so forth. So what opportunities do you see in 2019 to free up some further liquidity?

Yes. We do have that one property that we could be selling. We don't know if that would free up liquidity. We will have to work with the bank. Similarly, as I mentioned in the remarks, we had that a little over $2 million sitting in restricted cash. We're working with the banks now and we're optimistic that, hopefully, that could get freed up. But also with our profitability for 2019, we should be -- we will generate cash from operations and even add to the cash position. We anticipate we'll be in a positive net debt position.

But you don't foresee lowering your overall debt cost during the year substantially?

Not for 2019, not that much. That one facility, which is our facility one, which is about $25 million. Next year, I anticipate it being outstanding for the most part of the year, at least the first half of the year, and then maybe during the second half of the year start paying it down a little bit like we did historically.

Okay. So this year, you were somewhere -- looks like you're going to be somewhere in $2.2 million in interest expense for the year. For 2019, that would be falling in the same ballpark maybe a lower, but...

Correct.

Not a big change.

Correct.

No big change.

And I am showing no further questions at this time. I'd like to turn the call back over to Scott Shaw for closing remarks.

Thank you, operator, and thank you for joining us today, and we look forward to updating you on our progress as developments merit. We feel very good about our progress to date, and we remain bullish on our opportunities going forward. Thank you, everyone, and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a wonderful day.