Business Context and Reporting Period
This Form 8-K, dated August 20, 2018, reports a material event for Lincoln Educational Services Corporation. The Company announced a decision to cease operations of the Lincoln College of New England (LCNE) campus in Southington, Connecticut, effective December 31, 2018. This decision follows the placement of LCNE on probation by its accreditor, the New England Association of Schools and Colleges (NEASC).
Key Financial Metrics and Closure Costs
The filing provides specific financial data regarding the LCNE campus and the anticipated costs of its closure:
- LCNE Historical Performance (FY 2017): Revenue of $8.4 million, net loss of $1.6 million, and an ending student population of 397.
- Estimated Closure Costs (2018): Expected to range between $3.5 million and $4.5 million.
- Cost Breakdown: Includes approximately $2 million for lease termination (paid through January 2020) and roughly $700,000 in severance payments.
Material Changes and Segment Reclassification
Effective September 30, 2018, LCNE results will be reclassified from the Healthcare and Other Professions segment to the Transitional segment. The Company has partnered with Goodwin College to facilitate a "teach-out" for the majority of LCNE students, which is expected to limit certain closing costs. The Company anticipates no operating statement impact from the LCNE campus in 2019.
Guidance, Outlook, and Management Commentary
Management has updated its 2018 guidance, excluding the Transitional segment:
- Student Starts: Expected to increase by low single digits compared to the prior year.
- Revenue: Expected to increase by low single digits compared to the prior year.
- Year-End Population: Expected to be greater than the prior year.
- Operating Income: Revised to a range between $2.0 million and breakeven.
Management expects that savings realized from the closure will enhance the prospects of achieving profitability in 2019.
Investor Verification Checklist
- Verify the actual execution of the partnership with Goodwin College and the progress of the student teach-out.
- Monitor the realization of the estimated $3.5 million to $4.5 million in closure costs against actual 2018 financial statements.
- Confirm the impact of the LCNE closure on the revised 2018 operating income guidance ($2.0 million to breakeven).
- Review future filings for updates on the lease termination payments scheduled through January 2020.