Lincoln Educational Services Corporation (NASDAQ:LINC) Q2 2022 Earnings Conference Call August 8, 2022 10:00 AM ET
CompanyParticipants
Scott Shaw – President and CEO
Brian Meyers – CFO
Michael Polyviou – IR
Conference Call Participants
Alex Paris – Barrington Research
Eric Martinuzzi – Lake Street Capital Markets
Rajiv Sharma – B. Riley
Justin Putman – Talanta Investment Group
Operator
Good day, and thank you for standing by. Welcome to the Second Quarter of 2022 Lincoln Educational Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker’s presentation, there’ll be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded.
I would now like to hand over the conference over to your speaker today, Michael Polyviou. Your line is open.
Michael Polyviou
Thank you, Catherine, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results for the second quarter ended June 30, 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 expectation 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, and 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 would like call over Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.
Scott Shaw
Thank you, Michael, and welcome, everyone, to our call today to review Lincoln’s second quarter financial performance and recent corporate developments. Since we last talked to you in May, our team has made significant strides implementing our five-year growth plan strategy. Over the past three months, we’ve entered into three new corporate partnerships with industry leaders in the electric vehicle, automotive paints and coatings, and collision repair segments. We are especially pleased to be partnering with Tesla, the world’s leading electrical vehicle manufacturer, as we help them meet their growing technician needs, as well as potentially work with them in other areas of their organization. They like the quality of our students and the breadth of our program offerings and locations, especially our electrician program, since they view themselves as much more than just a car company. These new agreements will help our partners fill the urgent skills gap they are experiencing in light of the nation’s overall low unemployment rate, and increasingly more difficult search for employee training solutions required to continue their respective corporate growth.
Lincoln has paved the way in terms of creating innovative, customized training programs with our corporate partners, and each year, a larger and larger percent of our students directly benefit from our partnerships. Furthermore, we recently increased the size of several of our company paid partnerships, as demand for skilled technicians continues to remain strong. We also executed on our strategic initiative to identify and create new campuses in markets prioritized by our corporate partners, as well as potential partners. On July 23, we announced the creation of a second campus in the metropolitan Atlanta area, one of the fastest growing metropolitan areas in the country that’s strategically located in an area to serve students within the city limits, as well as Point South. The new campus is expected to open during the third quarter of 2023, and is designed to serve up to 700 students. Within four years of its opening, we expect the 56,000 square foot facility to be generating approximately $20 million in annual revenue, and $5 million in annual EBITDA. The campus is being designed to be more cost-efficient than our existing campuses, both in reduced square footage and personnel, as we plan to benefit from our new blended curriculum, as well as centralized services. The campus will focus on providing training programs in automotive technology, electronic and electronic systems technology, welding, and heating ventilation and air conditioning technology. It is expected that these industries will create an estimated 84,000 new jobs in Georgia by 2028. Combined with our existing Marietta, Georgia campus north of Atlanta, Lincoln is positioning itself to be a major resource of trained students to meet this expected demand. The new Atlanta campus is the first result of a plan to develop a minimum of five new campuses nationally within the next five years. Each campus is designed to serve a local metropolitan market, with the vast majority of the students coming from within 30 miles of the school. the curriculum will be blended, and new technologies will be incorporated that enrich the learning environment and student experience, while giving our highly trained faculty, tools to better track and monitor student success, all to continue to increase our strong graduation and placement rates.
Based on employer demand for skilled employees and job growth projections nationwide, we have currently identified 10 new markets where we can open new automotive and skilled trades campuses as part of our long-term strategic plan. Two major initiatives that we have underway that will improve our students experience and bring greater efficiencies are, the rollout of our new blended curriculum, and centralization and automation of our financial aid process. Our blended curriculum provides greater flexibility for both students and faculty, while lowering our operating costs. We are on track to fully transition 40% of our programs to this new model by the end of 2022. This new model provides our students with greater flexibility to work part-time or manage other commitments while they pursue their Lincoln education, which will enable a higher percentage of students to successfully graduate. When implemented, it will also reduce our complexity, and allow us to reduce expenses in several key operational functions. By the end of 2023, we expect to have moved all programs at our 23 campuses to this new model, and begin to fully realize all the efficiencies and benefits in 2024. At the same time, we have continued to implement the centralization of our financial aid services, which is a key component of our growth strategy. The COVID-19 pandemic shed light on some operating inefficiencies of our previously decentralized structure for this critical function. As a result, financial aid determination and qualification could be delayed, and this delay may have contributed to some enrolled students to push out the start of their program. Our new centralized approach is designed to speed both the financial aid application and award process, and is streamlining the realization of financial aid. It’s also lowering Lincoln’s cost when it’s fully implemented by the end of the year.
Now, let me transition and speak about our current results and what we see for the remainder of the year and the impact of these changes on our guidance. We finished our first quarter on plan financially, but with lower starts than we had expected. However, we had strong enrollments for the second quarter that were trending up meaningfully. Based on these enrollments, if our start rate had matched last year, we would have achieved double-digit start growth in the second quarter, which would’ve brought our population back close to plan. Unfortunately, a lower percentage of enrolled students decided to start in the second quarter. We believe several factors contributed to the lower-than-expected start rate, including the macro factors of a low unemployment economy providing students with other opportunities, concerns over taking on debt in a rising interest rate environment, and inflation’s impact on transportation costs. Drilling down a bit more with our starts, the second quarter shortfall from our double-digit expectations was due to both a shortfall in adult starts and high school starts. High school starts did increase compared to last year’s second quarter, but were not as high as we expected despite the solid enrollment indicators. We expect that these challenges will continue. And as a result, although we still are experiencing strong enrollments for the second half of the year, we believe that start rates are likely to remain depressed throughout the rest of the year.
Typically, during low unemployment periods, we first see a softening of interest in enrollments, rather than a decrease in start rate, which typically happens subsequently. This year, start rate has declined first, and frankly, we have not seen a decrease in enrollments. Specifically, as we look to the next two quarters, we expect these challenges to result in our starts being down from last year in Q3, but then ahead in Q4. The reduction in starts as compared to our original plan, results in lower population and a decrease in revenues for the year. We will experience an almost dollar-for-dollar decrease in our profitability during the second half of the year, given we will continue to invest across all of our initiatives. As we have mentioned previously, we have numerous initiatives underway this year to both create future efficiencies and to increase our non-Title IV revenue. Additionally, with regard to our expenses, we’ve had an uptick in wages for new employees, especially faculty, and in our medical costs. Our transition to the new blended learning model has higher temporary expenses, as it requires additional faculty to complete the education of students that are operating under the old model, while the new model has started. In addition, centralizing and adding some automation to our financial aid process, has also temporarily required additional people to be added to ensure no interruption to our business. While both initiatives are progressing very well, they are incurring additional one-time costs and some minor temporary inefficiencies to our business.
As the initiatives come to completion, the one-time cost will go away, and further efficiencies should be achieved. Our financial aid initiative will be completed by year-end, and our blended curriculum rollout should be done by this time next year. As for non-Title IV initiatives, both our Kindig rollout and exploration into shorter non-Title IV training opportunities, are both progressing, but short of our plans, which has also increased investment in these initiatives prior to them making a contribution. We are very disappointed that as the environment has changed, we have been unable to convert the strong interest in our programs and our double-digit enrollment growth, into corresponding growth in our starts and revenues. At the same time, we are very encouraged by the early results that we are getting from our campuses who have transitioned over to the new FA process and blended learning programs. The student experience and our operating efficiencies, both improved these initiatives, and Lincoln’s ability to scale more rapidly will be increased. We are fortunate that because of the growth in improvements that we have achieved over the past several years, we are able to continue to invest in our initiatives, even as the environment has become more challenging. While these decisions will result in a reduction in our profitability below our original financial projections for the year, we are highly confident that these efforts will lead to higher growth and profitability in the future.
Once students do start, we’ve done an excellent job at retaining them and placing them in high-paying rewarding careers. Lincoln’s overall student retention rate continued to advance during the second quarter, and graduate placements also increased. As I noted in the beginning of my remarks this morning, demand for our 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. Our challenge during the second half of the year, will be to regain momentum from this interest in the form of student start growth. We are cautiously optimistic that our programs and strategies will have a positive impact, but we also want to be prudent in our outlook. Despite these short-term challenges, we are quite optimistic that our strategic growth initiatives will generate consistent long-term growth for all of our stakeholders. Without a doubt, industry needs us, and demand from employers across the country has never been greater. In fact, we recently launched a podcast series to bring attention to career opportunities in some of America’s most critical hands-on industries, where according to the US Department of Labor’s Bureau of Labor Statistics, jobs are projected to surpass 1.1 million across the country by 2032. The first two episodes, computerized manufacturing, and computer networking, were made available. And in July, episodes examining the diesel technology and collision repair industries, were made available. Response to this has been overwhelmingly positive, and if you have not viewed these, I encourage you to visit our website to experience it for yourselves.
Furthermore, the current generation continues to seek alternatives to college that are cheaper, faster, and more assured to deliver skills and not just a job, but a rewarding career. We firmly believe that the operating environment presents Lincoln with substantial opportunity to prosper. Our new partnerships demonstrate that we bring value to their business, and these new partnerships present opportunities to expand to multiple campuses and with related industries. Before I hand the call over to Brian, I want to conclude with the Board’s authorization to repurchase up to 30 million of Lincoln shares. The initiative reflects the confidence the board has in our ability to execute our growth strategy, in addition to the achievements we have and will continue to make in the coming quarters.
Now, I’d like to turn the call over to Brian for a review of our first quarter financial highlights and outlook. Brian?
Brian Meyers
Thanks, Scott. Good morning, everyone. I’ll start with a few key operational developments, followed by our second quarter financial results, and conclude with our updated 2022 guidance. As Scott mentioned, our new campus in Atlanta, Georgia, is expected to open in about a year. For the buildout of this new campus, we plan to invest approximately $12 million in capital expenditures, net of $2 million allowance from the landlord. We will completely renovate the interior of the facility, offering students a modern learning environment with advanced technology, which will allow us to maximize the efficiencies of our new hybrid learning model. Construction is scheduled to start this year, resulting in CapEx of approximately $1 million in 2022, with the remaining balance incurred during the first nine months of 2023. In terms of its impact on the 2022 financial results, we anticipate that the Atlanta campus will incur approximately $600,000 of expense related to rent and other startup costs during the second half of the year, with the majority recognized in the fourth quarter. As previously announced, we project that the new campus will contribute approximately $20 million in revenue and $5 million in EBITDA within four years of opening.
Another highlight during the quarter was the Board Directors approval of the share repurchase plan of up to 30 million of our common stock. Through June 30, we repurchased approximately 400,000 shares for $2.5 million. The repurchase plan was authorized for 12 months, and additional purchases may be made during the second half of the year and into 2023. Our strong balance sheet, solid cash flow generation, enables us to undertake this repurchase plan. At the same time, we are able to fund all our growth initiatives, including new campuses. And lastly, we have two real estate developments to update you on. First, in June, we completed the sale of a former campus facility in Southfield, Connecticut, for net proceeds of $2.4 million. Beyond the liquidity benefit, the sale provides annual savings of approximately $250,000 in facility costs. Second, in July, we agreed to an extension of the due diligence period, with the purchase of our Nashville, Tennessee property. The extension provides additional time for the purchasers to obtain the necessary zoning approvals for the redevelopment of the site. As part of the extension agreement, we will receive monthly non-refundable deposits totaling $1.1 million until the closing date, which we now estimate to be in the second quarter of 2023.
Now, turning to our financial results for the second quarter. As Scott walked you through previously, our new students starts came in below the double-digit growth that we had originally anticipated, due to the reduction in start rates. Despite the lower start conversion rate, we still saw approximately 3,900 students in the quarter, which represented a growth of 4% over prior year.
Turning to revenue, we had revenue growth of 2.1% or $1.6 million to $82.1 million. The growth was mainly driven by the higher beginning population of 230 students at the start of the second quarter, with our start growth during the quarter also contributing. Although revenues were higher than last year, our growth was lower than our plan as a result of flat starts for the first six months of the year versus our growth expectations. Our consolidated expenses were $81.7 million, up 6.1% over prior year. This increase is in line with our projections, and was driven by three main areas. One, instructional costs, which increased largely due to higher salary expenses resulting from market adjustments and expanding staff levels. In addition, training consumables were higher due to the rising inflation and supply chain shortages. Higher facility expenses due to additional rent expense of $800,000 in connection with the sale leaseback transaction completed in 2021, and administrative expenses, which increased mainly due to bad debt expense as a result of the lower stock repayment rates, and employee benefits impacted by higher medical claims. In addition to the above, we incurred one-time expenses of $700,000 related to initiatives to advance our growth and operation efficiencies that Scott discussed earlier. Our adjusted EBIDA was $2.4 million compared to $6.1 million after adding back non-cash stock compensation in both periods. For more details, please refer to the non-GAAP schedules in our Q2 earnings release.
Lastly, our balance sheet remains very strong, as we ended the quarter with $67 million of cash, $53 million of working capital, and debt-free. We generated cash from operating activities of $4.4 million during the quarter. We anticipate cash from operations will increase significantly in the second half of the year, in line with our seasonality, which will result in our cash balance returning to approximately the same $83 million level we began the year. As Scott mentioned, our strong cash flow and the operating improvements we have achieved over the past several years, allows us to take the necessary steps to fund our growth and efficiency efforts from a strong financial position. There are no changes to our credit facility. However, we are negotiating a new credit facility, which we anticipate announcing during the third quarter.
Finally, to conclude my remarks, we are updating our 2022 guidance based on the current macroeconomic environment that we’re navigating through, and our recent experience. Given the reduction in our revenue growth, we are focused on the operational me measures within our control, including right-sizing certain expenses in the second half to counterbalance the pressure on starts. At the same time, we are continuing with high-level investments in our existing operations, to continue to drive higher student outcomes, and in our special initiatives to drive growth and efficiencies in the future. While continuing this level investment, when our expected revenue will fall short, will certainly impact our profitability, we can see the substantial benefit for future periods. And also, our updated – and so, our updated 2022 guidance is, revenue between $340 million and $350 million, adjusted EBITDA between $25 million and $30 million, net income ranging from $10 million to 15 million, flat students starts in the range of minus 3%, deposit of 3%, and lastly, capital expenditures of between $8 million to $11 million.
As additional color, we anticipate our third quarter revenue to remain essentially flat compared to prior year. Student starts are expected to decrease in the third quarter compared to 2021 and return to growth in the fourth quarter. In terms of adjusted EBITDA, we now expect the add-back of non-cash stock compensation expense to be $3 million for the year. The expense for the six months was $1.6 million, and the remaining balance should be recognized evenly in the second half of the year.
And with that, I want to thank our entire team for the continued effort and support. Now, I’ll turn the call back over to the operator so we can take your questions. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Alex Paris with Barrington. Your line is open.
Alex Paris
Hi, guys. Thanks for taking my questions. I just have a couple of follow-ups related to things that you had put in the press release and said in your prepared comments. With retention up, graduation and student placement rates improved, the issue is starts conversion, and I think you were clear there. and it’s not unlike your peers in the space. It looked, though, that the greater impact was on transportation and skilled trades versus the healthcare and other professions segment. Transportation skill trades were up 3%, I think, and starts were – HOPS was up 6%. I was wondering if you can give us a little bit of color there by program – or by segment, by program, by geography, by channel. And I know you touched on some of this, but maybe just go over it again for me, please.
Scott Shaw
Sure. Thanks, Alex, for the question. So, transportation has much more of an impact from our high school marketplace. And while high school was up, we were anticipating that would be, frankly, up even more, given some of the indications that we saw. We did see particular softness at our Nashville campus, which is really very much dependent more so on high school than our other campuses. Otherwise, there really isn’t any kind of consistent trend that I would highlight that points at any one campus or program as far as being weaker than anything else.
Alex Paris
And then, just a reminder, what percentage of your transportation and skill trade students come from – directly from high school as a percentage of the total.
Scott Shaw
Yes. about 30%.
Alex Paris
About 30%. Okay. All right. And then guidance midpoint to midpoint, I think you noted this in the prepared comments, but the reduction in revenue is nearly the same as the reduction in adjusted EBITDA on a dollar-for-dollar basis. And I think that you attributed that to additional expenses, like rent for example, and things like that. Just a little bit more color there, please.
Scott Shaw
Yep. No problem. So, definitely, with the shortfall in revenue, there’s definitely a lot of profitability that is lost there with that incremental revenue, but we’re also seeing some increased costs beyond what we anticipated, especially let’s say around faculty costs. Our whole intention is to ensure that the quality of our education remains as high as possible in order to get the faculty that we need in the timeliness that we need, we did have to pay more than anticipated. And then we also were experiencing, I think, like a lot of maybe companies, more employees going back to get their healthcare than they did pre-COVID. I guess they’re catching up and were kind of self-insured. So, we’re seeing an impact in those costs. And then, while we budgeted for increase in costs due to a number of the initiatives we have underway, we are seeing some increases in those areas as well, but those will be one-time costs that will go away once we complete the centralization of financial aid and the completion of the rollout of the blended learning. So, those are kind the biggest buckets.
Brian Meyers
Right. And Alex, if you remember, in the beginning of the year, we mentioned that those – I’ll call it the efficiencies initiatives, would be approximately $2 million. It looks like we’re running at almost double that now. And as Scott mentioned, it is all one-time.
Alex Paris
Yes, I got you. Just – it’s just bad timing, of course, the slowdown in starts conversion. At the same time, you have increased investments in the future, right?
Scott Shaw
Couldn’t agree with more.
Alex Paris
And then based on the color commentary that Brian provided, third quarter starts down, fourth quarter starts up, to get us to the full year target number. What gives you the confidence that fourth quarter starts would be up when you’re expecting third quarter starts to be down?
Scott Shaw
Sure. Well, we frankly planned for the third quarter to be basically flat to maybe slightly down, just given the way the starts were falling. And we have a number of our new programs that will be coming online by the third quarter. So, we’re hoping that those will help us with the fourth quarter growth that we’re anticipating.
Alex Paris
And just remind me, what are the new programs coming online in the fourth quarter?
Scott Shaw
Sure. Well, we have medical assisting at a campus, and we have an electrical program, which is, frankly, one of our strongest programs coming out on another campus. And we’ve rolled out two other programs earlier in the year that will have more momentum, and we’re increasing the capacity of our welding program at two campuses, which should all help us in the fourth quarter.
Alex Paris
Great. And then I’ll just finish with a question, on a very positive note, I was very impressed and excited to see in early August, the announcement of the Tesla agreement. Very exciting to be teaming up with such a high-profile EV manufacturer. And I think you mentioned in your prepared comments that the fact that you offer electrician programs, were an attractive component to Tesla making that decision. And I think, correct me if I’m wrong, is Lincoln the first for-profit post-secondary education school to do a formal agreement like this with Tesla?
Scott Shaw
Yes. Well, I’ll answer the last part first. Yes, we are the first. And so, we’re very excited by that. And while still electric cars remain such a small percentage of the cars sold, we all know the expectations that are out there for that to increase dramatically. And when we were touring the Tesla folks through our facilities, it really was amazing to see how the students would see the Tesla logo on their shirts, and immediately start gravitating towards them. So, there is definitely a lot of interest in demand in electric vehicles. And we were surprised, frankly, as we were showing them around the campus and showing them HVAC and welding and other things, how you could see their minds starting to spin about how else we might be able to partner with them in the future, because I guess we learned along the way that they view themselves as much more than just an automotive company. They’re looking to build these very large batteries to help solar and wind farms store the energy, and they’re looking at other initiatives that some of our programs piqued their interest. So, we look forward to getting back to the discussions with them on that. But yes, it will be very exciting for us. And also, we already have an enhanced electrical curriculum in our new automotive curriculum that we’ve started rolling out through Electude. But we anticipate, and Tesla has said that they will work with us on refining our overall electrical vehicle program, hopefully to make it as robust as possible. So, yes, it’s a very exciting initiative for us.
Alex Paris
Well, congratulations on that win, and I’ll get back into the queue. Thanks.
Operator
Our next question comes from Eric Martinuzzi with Lake Street. Your line is open.
Eric Martinuzzi
Yes. Curious to know if you’ve made any changes in your marketing outreach as you parse through the enrollments to starts conversion data, if there’s lessons learned here about the students you’re going after.
Scott Shaw
Yes, it’s a good question. It certainly is something that we’re focused on trying to understand what is it that we can alter to help drive that start rate back up. There are certain areas that we are looking at scaling back where the start rate per student is definitely not as attractive in some of our third-party leads, which we’ve been scaling back anyway. We’re looking for other ways and channels to, frankly, get more interest out there as well, to drive more into that – into the front channel, knowing that maybe the start rate will be lower. But also, we think that operationally, Eric, there are things that we can do to, on the margin, make things more efficient. We certainly have the switch taking place with financial aid, and have more bodies in financial aid today than we did a year ago. But as we’re switching from operating at the campus level and at the corporate level, always there are some, I’ll say challenges in getting that executed. We definitely got more students through financial aid this year than last year, but as a percentage of the opportunity, we got a little bit less. So, I’m looking to get that project behind us and make sure that we can be as efficient as possible, which should also help us marginally on that start rate.
Eric Martinuzzi
What about adult versus high school learner? If I look at your student body wide, what is the – I know you just answered the question in transportation and skilled trades as 30% high school, but what is high school for the total?
Scott Shaw
Yes. overall, it’s about 20% of our students. And again, we were seeing some high school enrollments that were greater than what we had last year, but the start rate wasn’t nearly as strong as it was last year. And we’re seeing a somewhat similar trend. We also have students that come to us that are not high school students, but adults who relocate to go to our campuses. And we definitely saw a downturn in those students, probably because of either transportation costs or other economic factors driving them not to want to relocate to get an education.
Eric Martinuzzi
Okay. And then on the financial aid centralization effort, do we have lessons learned here, or is it just – it probably wouldn’t have even been – that it was just a marginal issue with the consolidation effort that got exposed with the reduction and with the improved unemployment figures, or is it something that – an operational issue that we- the opportunity to do it over again, we would’ve changed how we did it?
Scott Shaw
No, I think that your discussion of the fact that unfortunately without the growth at the topline, we’re just looking at every item of impact to our business, and I just highlighted that more. Otherwise, the transition from what we anticipate to where we are, it’s not exactly where we want to be, but it’s also not a huge negative, but it’s something that we know will get better and it will be executed on over the next quarter. So, by the end of the year, we should start moving in a much more positive direction with it.
Eric Martinuzzi
Okay. And then last question on the – just as you looked at the figures month by month, start by start, did you notice things worsening in kind of a June or July versus April and May, or was it pretty challenged throughout the last four months?
Scott Shaw
Yes. No. So, that’s – it hasn’t been a steady state. It was obviously – when we spoke with you all back in May, we were seeing some positive momentum. Then throughout the quarter, while there was some softening in the intake of leads, we still had a nice pool of candidates that were going to help us achieve our results. We did see some softening in the month of June, but to confuse matters more, we’re 10% up for the last four weeks in our enrollments. So, it’s up and down, but given that we’ve been, I guess, negatively surprised for two quarters, we think it’s prudent to factor all that in for the rest of the year.
Brian Meyers
And also, one of the things that led to it was for the quarter, the more – I guess, the starts were weighted a lot more towards June. So, that added to the little bit of the surprise in the reduction in start rates.
Eric Martinuzzi
Understand. Thanks for taking my questions.
Operator
Thank you. [Operator instructions. We have a question from Raj Sharma with B. Riley. Your line is open.
Rajiv Sharma
Hi. Good morning. Thank you for taking the questions. I just wanted to follow up on the starts and understand – just try to understand, get more color on the third quarter, fourth quarter, if you expect starts any different, starts growth or declines any differently amongst the transportation and healthcare segments.
Scott Shaw
Yes. No. between the two – I can’t say that – yes, sorry, that we’re forecasting anything materially different in one segment versus the other. We’re seeing a softness in the start rate kind of across both segments. So, we factor that into our assumptions. As I mentioned, we kind of forecasted or anticipate the third quarter to be relatively flat with last year, given kind of just where the starts are falling and what we anticipate to happen with our high school in the second quarter. And then in the fourth quarter, we do expect growth to return mainly because of all the benefit that we’re going to receive from the new programs that will be up and running by then.
Brian Meyers
And we are forecasting growth for the second half of the year in total.
Rajiv Sharma
Right. And that’s – so high schoolers are mostly in the auto segment, and the young adults are impacting the healthcare. And the reason for this significant drop, you said, was the conversion rate essentially. And that is because, I mean, what do you attribute that to as just the tight labor conditions the standard reasons. What are you hearing from the students that are showing interest, but not finally closing in that part of the enrollment?
Scott Shaw
Right. So, as we’ve said, we’ve seen good, strong indications of interest, and we’re staffed to handle the increase in inquiries. And so, we’re getting those enrollments. And then the next stage for those students is to go through the financial aid process, and then start when the classes begin. Those – throughout that process, certainly as they’re talking to financial aid advisors, you can hear when there might be issues of certain doubt coming into a student’s mind. The issues that – when we kind of canvas the group, our group, and try to understand what is happening out there, the issues are kind of around the typical things that people talk about, oh, my gas bill is so high. It’s going to cost me so much to commute. I just don’t know if this is the right thing at this time for me to do, or people are concerned about taking on debt, or they’re saying that there’s other opportunities for them. So, those are kind of the basic ones that we hear for why the soft rate – sorry, why the start rate has softened. As I said, I think there are things that we can do, both from the standpoint of ensuring we get as many enrollments as possible, but also get the students through the financial aid system more quickly. We’re certainly eliminating one’s concern over how they pay for their education, would allay any kind of fears in that area. But it’s not unusual to have lower growth during periods of low unemployment, but we do expect to still have growth.
Rajiv Sharma
So, just how long do you think this lasts? Is this largely a function of unemployment rising, or are there initiatives that you’ve put in place that you think could – I mean, other than the financial aid system being more efficient. I have – and I have a question on that later, but how do you think this churns?
Scott Shaw
Well, I think that …
Rajiv Sharma
Simply if I’m – yes.
Scott Shaw
So, yes, I think that certainly in the near term, given where unemployment is, as we’ve said prior – pre-COVID, we would anticipate our topline to be growing in the low single digits during periods of low unemployment, without additional growth vehicles, those being either opening new campuses and/or acquisitions. So, I certainly wouldn’t forecast over the next say six to 12 months that we would be in that environment of low single digit revenue growth for the company without these additional opportunities for growth.
Rajiv Sharma
Right. Thank you. And then on the Nashville, I have a question on the Nashville close. So, that’s been extended because they need more rezoning. And is the purchase price still the original purchase – the original – the sale price, the original sale price of $34.5 million (indiscernible) extended because they need more rezoning. The – is the purchase price still the original purchase, the original – the sale price, the original sale price of $34.5 million. Is that right?
Brian Meyers
Correct. Yes, 34.5 million. And we should generate a large amount of proceeds, about $34 million.
Rajiv Sharma
And you’re getting an additional $1.1 million a month for …
Scott Shaw
Not additional of deposits.
Brian Meyers
Yes. Not a month. We’re getting – up till the – I’ll call it the due diligence, but they’re really just going through their zoning right now. So, each month, they add to their deposit. Like in the month of August, we had $75,000 and it ratchets up from there to $1.1 million to by March 2023.
Rajiv Sharma
Right. So, by the end of the 12 months, they would’ve paid you an additional $13.2 million of the $34.5 million purchase price. Is that right?
Scott Shaw
No, no, Raj. It’s only, I think, $75,000 for this month. In aggregate, it’s going to be $1.1 million in total non-refundable deposit over the next 12 months, but it’s not $1 million a month.
Brian Meyers
Correct.
Rajiv Sharma
Okay. Thanks for clarifying.
Brian Meyers
And it takes a deposit.
Scott Shaw
Yep.
Rajiv Sharma
No problem. That pushes it out. So, then I have a question on the financial aid system. Was this something that was already initiated prior to a quarter or two or whenever ago? And how did this sort of come about? Was this – I know that you commented that in the process of looking – process of lower starts, you started looking at things that could make it more efficient. And what is this financial aid system that you’re wanting to be centralized?
Scott Shaw
Sure. So, it’s something that’s been underway, and frankly, it’s something that’s moving forward at a good pace. The comments about it is just as – our start rate is softer than we would like. And as we look for every kind of opportunity to correct that, we see that there’s an opportunity to be had with our financial aid processing in that we did process more students this year than last year, but as a percentage of the potential students to process, it was down slightly. So, that’s how we can hopefully leverage that opportunity more to help improve starts going forward. But the way it works or the way it has worked at Lincoln is that traditionally, all the campuses had a full financial aid staff, and they processed and handled financial aid locally at the campus level. We believe that we can better serve students and be more scalable by centralizing the financial aid system. Still probably have a body at the campus to deal with students and certain questions, but have the bulk of the assets at a centralized location where you can make it more flexible to reallocate resources amongst campuses, depending on their growth. And we think it’s a much more efficient model, and we know of a lot of other larger organizations like us that have adopted this model. In addition, as we centralize it, we’re also adopting some software that we’ll be able to utilize that will also make us more efficient in operating and processing the financial aid that we have. I hope that helps.
Rajiv Sharma
Yes. And do you think that this gets completed and rectified by the end of the year?
Scott Shaw
Yes, absolutely.
Rajiv Sharma
Okay. And then last question, on the Tesla program, congratulations on that and being the first for-profit provider for getting that. That’s exciting. Any sort of indication on approximate revenues for a program like that?
Scott Shaw
Yep. In this case, there are no revenues to us. What the benefits are, our students will become Tesla employees as they’re going through the program, and then they get to be hired by Tesla. And it will help us, we believe, greatly in our marketing initiatives, as well as we think that based off of the conversations we’ve had, we’ll be able to further enhance our overall electrical curriculum. Plus, eventually, hopefully down the road, maybe have some other opportunities with Tesla.
Brian Meyers
Right. As well, Tesla will be donating a few of their cars to us each year.
Scott Shaw
Yes. We’ll get two cars a year per location, if we have more than one location.
Rajiv Sharma
Got it. And what do you expect enrollment – ongoing enrollment to be for the program like this?
Scott Shaw
Oh, for the Tesla program?
Rajiv Sharma
Yes.
Scott Shaw
It’s going to start off small, like all programs, like 50 to 75 students, and then hopefully we’ll be able to ramp it up from there.
Rajiv Sharma
Got it. Thank you so much for taking my questions. I’ll take this offline. Thank you.
Operator
Thank you. We have time for one more question, and that question comes from Justin Putman with Talanta Investment Group. Your line is open.
Justin Putman
Thank you. Scott, and Brian, your first line in your press release is you continue to execute on your five-year growth strategy. I was curious if you could give us a little more details about that five-year growth strategy. You mentioned opening five new campuses, but is there anything else specific to go with that?
Scott Shaw
Sure. Well, part of these initiatives that we have underway, moving to the blended learning and centralized FA, are part of the plan as well, because both of those address two important initiatives. One is improving the student experience and making it more attractive for students. And second is creating greater efficiencies for us to, frankly, become more scalable by having uniform processes and programs across our campuses. So, that’s kind of a foundational aspect of the program. Then the next aspect is to open up new campuses in markets that our partners have highlighted would be very attractive to them for us to be operating in, as well as markets that, based off of our own research and third-party analysis, would suggest there’s good demand. And then there is continued operational opportunities – well, not operational, but opportunities to make acquisitions. And so, that is also something that’s being contemplated. As Brian said, we still have a good strong cash position. We obviously will be prudently be evaluating whether or not we use some of that cash to buy back stock over the next nine months or so. But we definitely have enough wherewithal to both look at tuck-in acquisitions, as well as opening up new campuses with the resources that we have available to us.
Brian Meyers
Right. And the only other thing I’ll add is, for degree granting, we’re hoping to get degree granting in New Jersey and several States so we can start rolling out the RN program, and hopefully we can get it organically degree granting, where maybe we’ll be able to get it through an acquisition as well.
Justin Putman
So, do you have any financial targets or goals that might go along with this kind of – this five-year growth strategy?
Scott Shaw
Yep. Definitely looking at getting EBITDA margins up into the high teens in the next four years and revenue close to – north of $500 million.
Justin Putman
And if you open five new campuses and assuming they’re the same general size as that Atlanta one, that’s about $100 million from that.
Scott Shaw
Correct.
Justin Putman
Does that include new – okay. So, what kind of organic growth rate are you kind of looking at?
Scott Shaw
We’re looking at low single digits for the core business.
Brian Meyers
Within five years, it’s not exactly $100 million for the five new campuses because it ratchets up in the first year at zero, then moves up from there.
Scott Shaw
But on a run rate basically.
Brian Meyers
Yes. Run rate, absolutely. Yes.
Justin Putman
Okay, great. Thank you for that discussion.
Operator
Thank you. And there are no other questions in the queue. I’d like to turn the call back to Scott for closing comments.
Scott Shaw
Thank you all for joining our call. As mentioned already, while we are disappointed in how the environment has changed for us and the impact that it’s had to our guidance, we are very pleased with the progress that we are making with our various initiatives to improve the student experience, while driving future cost efficiencies across our campuses. Our balance sheet is strong as we remain debt-free, with plenty of cash on hand. We have secured a lease for a new campus that will open by third quarter of next year, and are actively searching in several other markets for additional new campuses. Most importantly, we continue to improve upon our already strong outcomes, and this enhances our students’ ROI, as well as attracts additional partners. I want to thank our faculty and staff for their unwavering commitment to our students, the best educational opportunity possible. Thank you again, and we look forward to updating you on our progress this fall. Enjoy the rest of your summer.
Operator
This concludes today’s conference call. Thank you for participating. You may now disconnect.
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