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Universal Technical Institute Inc (NYSE:UTI)
Q2 2020 Earnings Call
May 7, 2020, 4:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, and welcome to the UTI Fiscal Second Quarter 2020 Earnings Call. [Operator Instructions] And after their each prepared remarks, we'll open the line for question. [Operator Instructions]

At this time, I would like to turn the conference over to Ms. Jody Kent, Vice President of Communications and Public Affairs for Universal Technical Institute. Please go ahead.

Jody Kent -- Vice President of Communications and Public Affairs

Hello, and thanks for joining us. With me today are our CEO, Jerome Grant, and CFO, Troy Anderson. During the call today, we'll update you on our fiscal second quarter 2020 business highlights, our financial results, and our vision for the future; then we will open the call for your questions.

Before we begin, we must remind everyone that, except for historical information, today's call may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. I'll refer you to today's news release for UTI's comments on that topic. The safe harbor statement in the release also applies to everything discussed during this conference call.

During today's call, we'll refer to adjusted operating income or loss, adjusted EBITDA, and adjusted free cash flow, which are non-GAAP measures. Adjusted operating income or loss is income or loss from operations, adjusted for items that affect trends and underlying performance from year-to-year and are not considered normal recurring cash operating expenses.

Adjusted EBITDA is net income or loss before interest expense, interest income, income taxes, depreciation, amortization, and adjusted for items not considered as part of the company's normal recurring operations. Adjusted free cash flow is net cash provided by or used in operating activities less capital expenditures, adjusted for items not considered as part of the company's normal recurring operations. Management uses adjusted operating income and loss, adjusted EBITDA and adjusted free cash flow as performance measures internally, and those will be the figures discussed on today's call.

Starting with the third quarter of fiscal 2019 and through fiscal 2020, we will report operating metrics such as student applications and starts, excluding our Norwood, Massachusetts campus. As we have shared previously, Norwood stopped accepting new student applications in the second quarter of fiscal 2019 and will fully close before the end of fiscal year 2020, so we believe it is appropriate to exclude its impact.

It is now my pleasure to turn the call to Jerome Grant.

Jerome A. Grant -- Chief Executive Officer

Thank you, Jody. Good afternoon, everyone, and thank you all for joining us today. First, I want to acknowledge that our thoughts are with those most affected by the pandemic; including first responders and medical professionals working on the front lines. I'd also like to thank our team for their tireless effort to continue to provide the highest quality technical for which we're known during this crisis.

Finally, I'd like to welcome to the call a notable number of new investors who have joined us since our last update. We sincerely appreciate your interest and investment in UTI and look forward to working with you in the future. As many of you know, and for those of you who are new to the call, UTI is the nation's leading provider of technical training for automotive diesel, collision repair, motorcycle, and marine technicians, and we also offer welding technology and computer numerical control, CNC machining programs. We have a nationwide network of 13 campuses, where we offer hands-on training in state-of-the-industry labs, complemented by our new online training, which allows us to offer quality education during the COVID-19 pandemic and will serve UTI and its students going forward.

Our newly assembled executive management team is leading that charge and is supported by a solid balance sheet and excellent financial flexibility. In our 54-year history, UTI has proven its ability to adapt to changing financial and regulatory landscapes and has seen increased student demand in times of economic hardship.

I'll add more on that later, but first, I'd like to discuss the recent quarter and review how we're approaching the COVID-19 crisis, preparing for the near-term, and positioning the company for the future.

In the second quarter, results were positive, and we demonstrated continued momentum. New student starts were, up 6.6% year-over-year, excluding our Norwood campus, where we're winding down operations. Contracts for the quarter grew 4.5% year-over-year, and our show rate improved 100 basis points. Total revenues increased 1.2% to $82.7 million. Net income, which included an income tax benefit of $10.8 million, was $10.1 million, and adjusted EBITDA was $3.1 million. Troy will get into more details of our financial results a little later in the call.

Indeed, it was a busy quarter. We bolstered our executive leadership team with new leaders heading up our corporate strategy, IT, and legal departments, changed our marketing and admission functions, and began the search for new commercial and human resource officers. We're also pleased to welcome George Brochick, Executive Vice President Strategic Development at Penske Automotive Group, to our board of directors. And we wish Roger Penske well, as he transitioned off the board after more than 20-years of insightful guidance and counsel.

Even in the face of the pandemic and as many challenges, we continue to move forward with our growth and improvement initiatives; including expanding our welding program to new campuses, optimizing admissions and marketing, and maximizing the productivity of our campuses. In February, we successfully raised $49.5 million in a primary equity offering led by B. Riley FBR, who also led the December secondary offering and brought in many new investors. Like many businesses, we began to feel the impact of COVID-19 pandemic in the last two weeks of March. We were able to quickly pivot the business model in response, implementing changes that will help see us through the pandemic and innovations that can serve our students and our business for the long-term.

In response to this unprecedented situation, we implemented strict, CDC-guided safety precautions at all of our campuses and our home office, and quickly transitioned our in-person education model to online. As the threat was first identified, we remained operational and immediately implemented protocols recommended by the CDC. As governors and local officials began to issue orders and mandate closings of schools and businesses, we suspended all in-person classes at our 13 campuses on March 19 and transitioned all classroom learning to online. The following week, we transitioned our first wave of students to the online platform, and within less than two weeks, we were fully operational and up and running.

We're proud of the dedicated team and their extraordinary efforts, as this type of curriculum transition would normally take many schools many, many months to execute. Today, we have over 11,000 students enrolled, with more than 8,000 currently progressing their education through the online platform, including over 500 students, who have started directly into the online platform over the past several weeks.

Our online curriculum consists of instructor-led lectures and demonstrations, and we continue to engage students and give them one-on-one support through virtual classroom reviews and virtual office hours. The transition to the online curriculum has been successful and opens new opportunities for the company and our students. However, the uncertainty and disruption created by COVID-19 crisis means we do have more students on leave of absence. We are now beginning to meet those students' need to practice and master hands-on skills that are so important to their success, by resuming in-person training, while online education continues.

To protect our students and staff, and align with the CDC guidelines and state and local directives, we have -- we are modifying our class sizes and schedules for safety and social distancing. As of today, Dallas, Ft. Worth and Houston campuses are operating in this modified format, and our Avondale, Arizona, Phoenix, Arizona, Long Beach, California, and Mooresville, North Carolina campuses should resume face-to-face labs the week of May 11th, and Florida's not far behind.

We've also revised our marketing message to focus on the durable opportunities for skilled technicians in the transportation field. Broadly, our message to potential students feeling the economic impact of the virus is, we feel for you, we're here for you, and we want you to come to UTI because this is where the jobs are now and in the future.

Now, with no live sports on TV, broadcast media consumption among our target demographic is down. In order to optimize our lead generation in this environment, we cut $2 million from our broadcast budget and have intensified our focus to where our target audiences are spending their time right now, which is social media. It's paying off, evidenced by our inquiry activity. Inquiries pre-COVID through the first half of March were better than the prior year and beat our internal expectations. While we did see a significant dip in mid-March through the first week in April, we've seen an accelerating improvement since then. The full month of April performed similar to the first half of March, solidly above prior year and our internal expectations.

We also have shifted our admissions model, which has been almost exclusively face-to-face, and are now connecting with students and their parents through online meetings, virtual tours, and other events. For example, in April, in addition to telephone interview, our admission reps averaged 80 virtual interviews a day. Our admissions reps have noticed an increase in the number of people, who want to talk and meet with us virtually, many of whom have come away with the -- impressed by the technical education we offer and our teaching facilities. If you haven't had a chance to visit one of our campuses in person yet, I invite you to go to our investor website, where you can take a virtual tour and see for yourself.

While it by no means has been easy transition, we're proud of the work to keep the students in school through the crisis and are finding innovative ways to introduce our education to people, who can greatly benefit from it, especially now, as our country begins to process and emerging from the crisis and moves into a period of economic recovery. Today, new student enrollments are above where they were last year at this point. This bodes well for our fourth quarter, where the majority of our students start.

But with fewer students currently active in school overall, and the expense of transitioning online and modifying our educational model, we've taken some decisive actions to reduce cost. This required some very difficult decisions, including the furlough of approximately 280 of our employees. Employees on furlough continue to receive full benefits, and we look forward to bringing them back as soon as we're able to reopen all of our campuses and our student population continues to recover.

So, to sum it up, right now, we're keenly focused on student retention, continuing to grow and bring in new students, and cash preservation. There of course will be challenges as the world recovers from COVID-19, but we believe our deeply held commitment to delivering value for both our students and industry partners, and our strength in innovation, which allowed us to transition to an online model and find safe and effective ways to offer our unique, industry-aligned education, will continue to serve UTI and our students.

I'd now like to turn the call over to Troy for a deeper discussion of our financials and student metrics, after which I'll return to provide some insight and thoughts post-COVID-19.

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Thank you, Jerome. Before I jump into details, I'll note that we've created a financial supplement that is posted to our investor website, along with our standard investor presentation, that provides additional details to our prepared comments in the press release.

As Jerome noted, we performed well for the majority of our fiscal 2020 second quarter and posted solid results, but they were impacted, starting in mid-March by the COVID-19 pandemic, which lowered our revenue approximately $2.5 million to $3 million from our pre-COVID expectations for the quarter.

The revenue impact is primarily a timing differential, due to the temporary student leaves of absence, or LOAs, we have discussed. We partially offset the revenue impact on profitability by taking steps to mitigate costs, such as the employee furloughs, and reduced variable and discretionary spend across the enterprise for categories like travel, contract services, and campus supplies, so that the profitability impact in the quarter was approximately $1.25 million to $1.7 million. As students on LOA return to continue their education, we fully expect to recover the associated revenue and profit. We're also stringently managing payment terms with our vendors, working cash optimization opportunities on a number of fronts. I'll cover this in more detail later in my prepared remarks, but first, let me cover our second quarter and first half student metrics and financial results.

For student metrics, new student starts in the second quarter increased 6.6% year-over-year, and were 2,093 in the quarter. In the first half of 2020, starts were higher by 7.1% year-over-year. We saw start growth across all three channels in the quarter and year-to-date. This is all same-store growth and is driven by enrollments, which were higher by 4.5% in Q2 and 5.1% year-to-date, and show rate improvement of 100 basis points in the quarter and in the first half. We continue to yield very positive results from our marketing, student engagement, and grant strategies.

I'll now turn to a few highlights on our second quarter and first half 2020 financial results. Revenue increased 1.2% to $82.7 million, driven by higher revenue per student, partially offset by a decrease in the average student population, due to the student LOAs that caused the $2.5 million to $3 million impact in the quarter I mentioned previously.

First half 2020 revenue of $170 million is up 3.1% versus the first half of fiscal 2019, due primarily to higher revenue per student. Average students for the quarter were down 3.1% year-over-year, and slightly positive for the first half of the year, when compared to the first half of 2019. We ended the second quarter with 7,373 active students. This has since increased to approximately 8,300 active students, with another approximately 600 students on LOA, who only need to complete their remaining hands-on labs to graduate from the program. There are approximately 2,500 other students currently on LOA versus approximately 300 at the same time last year.

While we cannot be certain, based upon their scheduled return dates and feedback we have gathered to-date, we would expect that a significant majority of these students will elect to resume their education over the coming months, as we resume hands-on labs on our campuses and the overall COVID-19 situation further stabilized.

Operating expenses decreased by 4.7% to $83.2 million, for our fifth straight quarter of year-over-year expense declines, while growing revenue. The year-over-year decrease in the quarter is primarily due to lower costs related to compensation and benefits, as a result of reduced headcount and benefit plan savings. Compensation and related costs were 52% of revenue in the quarter and down 450 basis points as a percent of revenue year-over-year. Headcount was 1,645 as of March 31st, a decrease of 70 versus the end of the prior-year quarter.

Also of note, when you look at the P&L line items, you continue to see the impact of the lease standard implementation this fiscal year, with higher year-over-year occupancy costs offset by lower depreciation costs, due to the change in treatment for build-to-suit leases. First half 2020 expenses of $166.2 million are down 6.4% year over year.

Specific to COVID, we incurred expenses from increased cleaning and related supplies throughout March, as well as costs related to our online learning transition and disrupted campus operations in the last two weeks of the month. We're quantifying all the COVID cost impacts, beginning in March and continuing through the duration of the crisis, so we can better understand run rate impacts, and also ensure we have appropriate details to support available cost offset opportunities afforded with the CARES Act.

As we think about our cost structure and our employee-related costs on our campuses, the introduction of the online curriculum enables significant efficiency opportunities. Our student-to-on-campus instructor ratio is typically 27:1, while a typical online learning ratio is much higher. As we begin to resume hands-on labs on our campuses in the near term, we will have some inefficiencies, as the student-to-instructor ratio will be 9:1. However, we will maintain a blended model, with online learning for the classroom component, and we'll look to integrate this more permanently over time, along with other efficiencies we develop through our current remote operation.

Net income for Q2 was $10.1 million, translating to basic and diluted EPS of $0.18. We had 32.7 million basic shares outstanding as of the end of the quarter, which reflects the 6.8 million shares transferred from treasury stock for our February equity offering. Q2 net income improved $15.4 million from the prior-year quarter and included a $10.8 million income tax benefit resulting from net operating loss carryback revisions within the CARES Act.

Assuming the IRS is able to process the refund request in a reasonable timeframe, we would expect to receive the cash refunds by the end of the fiscal year. First half 2020 net income is $14.8 million, up $27.8 million year over year, and also includes the income tax benefit. Operating cash flow of $10.9 million for the first half of 2020 increased $8.1 million year-over-year and reflects our improved profitability in cash management, as well as working capital timing.

As I spend a moment on our adjusted results, a quick reminder that our adjustments for FY '20 reflect costs associated with the Norwood campus closure and with our CEO transition, while in FY '19, they reflect costs associated with the termination of our transformation consultant agreement and with the Norwood campus closure.

Adjusted operating income for the quarter was $500,000, a $4.7 million increase year-over-year, and $7 million for the first half of 2020, a $14.2 million year-over-year improvement. Adjusted EBITDA was $3.1 million in Q2, a $2.3 million year-over-year increase, and $13.1 million for the first half, an $11 million year-over-year improvement. Both the Q2 and first half results include the $1.3 million per quarter negative year-over-year impact, due to the leasing standard implementation this fiscal year.

Adjusted free cash flow was $6.7 million for the first half of 2020 and increased $3.7 million versus the prior year. Capex was $5.2 million for the first half of 2020, up slightly versus the prior year, and reflects spend associated with our welding program expansion investments, the Exton, Pennsylvania facility rightsizing, and other spending. Through our February equity raise, we significantly strengthened our balance sheet to enable further steps in our long-term strategy of growth, diversification, and scale.

Our available liquidity as of March 31st was $118.1 million, which includes $76.6 million of unrestricted cash and cash equivalent, and $41.5 million of short-term held-to-maturity securities. These consist of Treasury securities and high-quality corporate bonds, and provide us incremental yield benefits. In addition to the cash preservation, operational and cost efficiencies, and working capital management actions I've mentioned, there are further opportunities resulting from potential applicability of the CARES Act.

As we announced previously, we expect to receive approximately $33 million in grant funds through the CARES Act Higher Education Emergency Relief Fund. Per the Department of Education's guidelines, at least 50% of these funds will be used to grant emergency financial aid to students impacted by COVID-19. The company also intends to use a portion of these funds to offset costs that have arisen as a result of the COVID-19 crisis, for the operations and infrastructure investments needed to support our students' education and curriculum needs during this time.

We are expecting additional guidelines from the Department of Education that will give us better clarity on what costs and investments these grant funds can be used to offset. There may also be opportunities for us to leverage the employee retention credit. We are currently reviewing the updated guidelines released by the IRS late last week for potential applicability.

From a cash perspective, we are electing to defer our payroll tax payments starting with April 2020 through the end of calendar 2020, and expect a quarterly cash benefit of approximately $1.5 million to $2 million. Note, we are not eligible for the Payroll Protection Program, due to our size, and are not currently applying for any other loan programs, but do not completely rule out doing so if we deem it beneficial or necessary.

Turning briefly to our real estate footprint optimization efforts, for the Norwood campus closure, we were running ahead of schedule, prior to the suspension of in-person instruction at the campus. We are still pushing to have the campus fully closed before the end of this fiscal year, dependent upon the timing of the campus resuming hands-on labs, and potential delays to those students' graduation date. Our headquarters relocation and downsizing remains on track for completion by June 30th. As noted previously, this action will save approximately $1.3 million annually.

We also have longer-term opportunities across a number of our campuses for consolidation and rightsizing, and are actively engaged with landlords on these discussions. The introduction of the blended learning environment may afford us new efficiency opportunities in the future and is something we will incorporate into these discussions. We expect to have more details on these actions in the coming quarters.

As we announced in our business update on April 22nd, we have withdrawn our guidance for fiscal 2020. As we noted then and I've touched on today, there are multiple variables related to COVID-19 that can impact our business. The five key variables we are closely tracking, continued engagement of students in the online curriculum; timing of resuming hands-on labs at our campuses; timing of students returning from LOAs; potential cost recovery opportunities associated with the CARES Act, and Q4 and post-COVID-19 student demand.

Assuming by the end of the third fiscal quarter all of our campuses are open for hands-on labs, and a significant portion of the current student LOAs return without material new LOAs, we estimate that the overall negative impact from COVID-19 would primarily be realized in the fiscal third quarter. In this type of scenario, we estimate full-year revenue could be roughly flat to FY '19. However, if any of these are not the case, or we see deterioration in our current Q4 start expectations as a result of COVID-19, then we will likely see negative financial impacts extending into Q4 and an overall greater impact to the fiscal year.

Regarding cash, as we look to the third quarter under the same scenario, we expect we will be a measurable cash user. The seasonality of our business would normally have us consume cash in the quarter, given Q3 is our lowest-revenue quarter in the fiscal year. This will be heightened in the quarter, due to the expected Q3 COVID impact, and also, the delay in receipt of Title IV funds for existing students, until they complete their current hands-on labs. Under this scenario, we estimate that the net cash burn in Q3 could range between $25 million and $35 million, and that we could fully recover it in Q4.

However, while we normally generate most of our full-year cash flow in the fourth quarter, we will need to see how these factors play out, along with a more complete view of Q4 starts, before we can understand how the year will look from a cash and total liquidity perspective. We will continue working to minimize impacts to profitability and cash flow under any scenario. Note, these are only estimates around potential scenarios and should not be considered revised guidance.

As leading indicators, we are very encouraged by the fact we were able to start over 500 students directly into the online curriculum in April. We started resuming hands-on labs at several of our campuses, and that we are pacing ahead of last year and are within a few percentage points of our original goal for FY '20 new student enrollments. We still have a few months to make up the gap caused by COVID-19, which is not out of the question, given the momentum we've regained with our marketing and admissions activity. We will also be looking to attract a broader audience of potential students, given the macroeconomic circumstances.

We are working as diligently as possible across all the dimensions I've discussed to minimize financial impacts, while ensuring the health and safety of our students and employees. Success on near-term student retention and cash preservation will ensure that UTI's long-term growth agenda can be maintained, and the company could possibly emerge even stronger on the other side of the COVID-19 disruption.

Before closing, I want to commend all of our UTI employees for their amazing efforts over the past two months, overcoming every challenge put in front of them. We are fortunate to have such a dedicated and talented workforce, which is one of our key competitive advantages.

With that, I'll turn the call back over to Jerome.

Jerome A. Grant -- Chief Executive Officer

Thank you, Troy. As we continue to support our students and team through this uncertain time, we remain confident in our ability to attract and train the technicians this industry needs. In times of weak economy, like what we are facing today, there will be fewer jobs available that offer competing entry-level wages, which drives interest in the technical trade skills education and the student value proposition that UTI provides. We have the campuses, the financial resources, and the infrastructure to serve this need and grow rapidly and profitably, thanks to the leverage in our fixed-cost structure, where each additional student has 60% to 70% incremental margin.

Thanks to the work we've done recently, we have a more dynamic and flexible business model that could drive further upside. We anticipate seeing benefits gained by the new marketing and admissions and blended learning approaches we are using, which have potential to accelerate timelines and speed and increase capacity.

Online instruction is more efficient in terms of number of students per teacher, and the format could help reach new students, for whom the program format, in particular the length, did not work for them in the past. The new blended learning offering would help increase capacity, for example, at Dallas and Bloomfield, and will help us allow to have staggered lab starts. It can also help us reevaluate our real estate footprint moving forward, as a significant space is currently used in in-person classroom instruction.

We are moving ahead, while deliberately being cautious on identifying longer-term organic and inorganic growth opportunities. Now, the lead times on these opportunities vary in length, none with an immediate turnaround, and some that can be very long. We look forward to providing updates as appropriate on those.

I'd now like to turn the call over to the operator for Q&A. Operator?

Questions and Answers:

Operator

[Operator Instructions] First question comes from Eric Martinuzzi of Lake Street. Please go ahead.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Thanks. Appreciate the level of detail you've provided, and it's good to see a couple of the campuses back open. I actually want to start there and get a little bit more detail about what you're doing in Dallas and Houston that's different than the way you used to do it before. I understood you mentioned something about the student -- the teacher-student ratios, but what specific operational changes have you had to make, at least at those two campuses, to get back in the in-person teaching?

Jerome A. Grant -- Chief Executive Officer

All right, thank you very much. Great question. It's Jerome here. First of all, let me put some context around this, about 50% of our auto diesel curriculum is in-classroom instruction, where a teacher is at the front of the class, either doing a demonstration or talking about concepts associate it, and the other 50% is in the lab, hands on, working on engines, transmissions, etc, the hands-on work that's so very important. And so, it's important first to understand that what we took online was the 50% that was in the classroom, leaving open the opportunity to get back into the labs.

And so, our campuses will all be opening, first Dallas and Houston, and then the ones I'm talking about will be opening next week, to serve the need of all of that hands-on lab instruction. Our normal lab instruction is a teacher-to-student ratio of 1:27. Generally speaking, what you'll have is a teacher in a lab with three students at an engine, working on a project together, etc. We've modified that to stay under the CDC guidelines of not having more than 10 people in a room to a 1:9 ratio. So, you'll have one student at each of the engines, and the instructor in the class.

In order to create the capacity to be able to do that, we're starting to run our labs at about 6'o clock in the morning, and we're running through midnight to get the throughput to be able to -- until we're able to bring more people together in a certain lab. And so, we expect that all the students that were online for the last seven weeks will catch up on their labs no longer than three weeks, and then they'll move along in the normal curriculum, with take your concepts online, and when you're finished, come in and do the lab.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

So, for instance in a normal curriculum, I think 51 weeks, if I'm correct, on the auto side. You're saying that 51 weeks becomes 54, and we're still graduating in 54 weeks?

Jerome A. Grant -- Chief Executive Officer

No, we're saying you still graduate in the regular timeframe. What we've done -- so three week course sequences, about a week and a half of that course sequence is in a classroom, listening to someone talk, taking notes, quizzes, etc. That's what we've replicated online, right? And so, students have progressed through three or four of those in the last seven weeks as they've moved through the curriculum. Now we're bringing them back in to go through their three or four lab sequences, and we expect them to be completely caught up within three weeks. But the same classroom, same face time, whether it's virtual or in the labs, and it will all be caught up in that three week timeframe.

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Yes. Eric, this is Troy. The other beauty of having the online component is that, throughout that, while they're doing the lab catch-up, they'll also be able to go back and reference the virtual curriculum throughout that entire time, so they really can be fully immersed in all the content, both in the lab and online, throughout that timeline and going forward.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

As far as state-by-state, is there any reason to believe that what you're doing in Texas can't be replicated across the campuses in the other states?

Jerome A. Grant -- Chief Executive Officer

Well, the campuses that will open next week in Arizona, California, and North Carolina are all going to be following the exact same format. So, you know, we've redesigned our labs to get some of our machinery a little further apart from each other. Every one of them will be following the same cadence, as will our motorcycle campuses in Orlando when we can get it open, and we believe that will be within a week or two, and then our Arizona campus that will open next week.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Okay. Right, and then, as far as the students, who are on LOA, what are you doing to engage them, you know, beyond just kind of a email, you know, email campaign or something like that? Is there an active outreach effort for those LOA students?

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

So, there's been an ongoing active outreach effort throughout the time period that they've been on LOA. So, first, yes, there have been texts and emails that have been exchanged with each and every one of them throughout the six or seven week period. We've also reengaged the salesforce, which brought them in to contact them individually. And also, our student services people on each of the campuses have been assigned the LOAs for each of their campus and are helping them reschedule their reentry into the school. And it's going pretty well.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Okay. All right, and then, I wanted to go back -- circle back to the prepared remarks regarding the scenarios. So, I'm not going to confuse the scenario with the guidance, but your comment about potentially flat revenues versus FY '19, assuming we're able to, you know, sort of trough the negative impacts in Q3 and then come in strong on Q4, what are the barriers to having that kind of robust traditional Q4 start?

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Well, we're still actively engaged from an enrollment perspective. We've moved our entire admissions process virtually. Jerome touched on that. And so, we're still highly engaged, you know, with prospective students, as well as students, who have already enrolled, but on a future start date, to continue keeping them up to date on what's happening with the online curriculum, what's happening with our campus openings, etc.

So, certainly, getting the students who have already enrolled, but on a future start date, comfortable and keeping them engaged is a critical element, and then, you know, finishing our enrollment activity for the remainder of year. And, really, it's time. I mean, as we said, we're essentially -- we're slightly ahead of where we were at this time last year, and we don't finish our enrollments, really. We can still be enrolling people now, in fact, for even a Q3 start, let alone Q4 start. So, we've got a little bit of time to -- and we did have, you know, a disruption there, you know, call it mid-March through the first or second week of April, probably a little bit more on the admissions side than the inquiry side, just because we had to convert everything to virtual and it was a very face-to-face oriented process previously.

But both aspects of the admissions and the marketing side have tremendous momentum coming out of April, and I think we just need to execute. And I think having the campuses open, resume operations here for the labs, is only going to help us. And then, you know, just keep progressing.

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Okay, that covers it for me. I'll release the microphone. But I appreciate the level of detail you provided, as well as the amount of effort that you've had to go through, sort of, on the fly, rewiring decades-old habits and taking a good chunk of this business virtual. It had to have been a substantial challenge, and it looks like you've executed well.

Jerome A. Grant -- Chief Executive Officer

Thank you. Thank you very much, Eric.

Operator

Thank you. [Operator Instructions] Our next question comes from Raj Sharma of B. Riley FBR. Please go ahead.

Rajiv Sharma -- B. Riley FBR -- Analyst

Hi, good afternoon, guys. I have a couple of questions on the revenues, just a few clarifications. We had assumed that the LOAs were around 2,500, and we only missed about two weeks in the March quarter. And I guess we were thinking of mid-May of a return back to. Is that still a good timeline, a mid-May return back to all the campuses being open and in-class instruction that starts? And that, I guess that impacts how many of these LOAs come back online -- come back, you know, and revoke the LOAs and are fully on. Is that a good timeline, mid-May, still, for all the campuses?

Operator

Hello? Hello? Raj, are you still there with your question, please?

Rajiv Sharma -- B. Riley FBR -- Analyst

Yes, can you hear me?

Operator

Yes, go ahead, sir.

Rajiv Sharma -- B. Riley FBR -- Analyst

I don't know if I sort of lost you. So, my question was [Technical Issues]

Operator

[Operator Instructions]

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

We've rejoined the line. We lost our connection for some reason. This is Troy and Jerome. Can you hear us?

Operator

I can hear you. Raj has dropped off. If you would like to make final remarks, if he does join back in, I will let you all know. But at this time, he is off the line, so go ahead with any closing remarks, sir.

Jerome A. Grant -- Chief Executive Officer

Okay. Thanks a lot, operator. Unfortunately, we have some technical difficulties. I think a lot of the conference lines tend to get overwhelmed during this virtual commuting timeframe. But I think I'll just go ahead and close, and if you have any -- I'm sure we're going to have time to talk to a lot of you individually, and we will take questions then as well.

So, in closing, we're pleased with the progress we made in the first half of fiscal 2020 and proud of our response to the COVID-19 crisis. We're encouraged by the interest we're seeing today for our blended learning platform, and we're excited about resuming hands-on lab instruction at all of our campuses, so our instructors and our students can get back to work safely as soon as possible. Leading indicators show that we're doing very well generating interest in leads through our revised marketing and admissions strategy. However, that's only part of the puzzle, and we continue to track how we're capturing this interest, demonstrated by enrollment starts and how our students progress through the high-quality technical trade education for which we're known.

One final note: we do intend to host virtual investor and non-deal roadshows and fireside chats, with support from our covering analysts, throughout the fiscal third and fourth quarter and look forward to reporting on our progress and successes as the year progresses.

Thank you, everyone, for joining us, and have a great rest of your day. Oh, and Raj may have joined.

Operator

Yes, we do have Raj back on the line.

Rajiv Sharma -- B. Riley FBR -- Analyst

Yes, can you hear me now?

Jerome A. Grant -- Chief Executive Officer

Yes, sorry, Raj.

Rajiv Sharma -- B. Riley FBR -- Analyst

SO no worries. Hey, how are you. Good afternoon. So, the two areas I wanted to just touch upon, one is revenues. so I know that my question was, what is -- what timeline are you expecting all the campuses to be fully open and functional, even, you know, with COVID restrictions? Is that -- initially, we were talking about somewhere in mid-May. Is that still a good timeline?

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Well, clearly, we're dependent upon the various states and jurisdictions and their approaches to reopening businesses as they address the specific situations in their geographies. But, you know, through next week, we'll have about 60%. We have a table on our website. We actually added the percentage of students for each. You know, we hope to have Florida shortly thereafter, and then, really, that leaves us primarily with New Jersey and Pennsylvania and Chicago, which are some of the harder hit areas. So we -- and we also have Sacramento and Rancho in California. So we probably expect those sooner, and then the first three I mentioned are probably looking more like an end of May or sometime early June. But, again, we're [Technical Issues] and we don't think there'll...

Jerome A. Grant -- Chief Executive Officer

And just to be clear, those are -- those expectations of, you know, through May and into June are baked into the models that Troy has been talking about.

Rajiv Sharma -- B. Riley FBR -- Analyst

Yes, right. So, I guess it's related to two things. So the key gating item for these LOAs to come back is the fact, you know, when these campuses reopen, the chances go up dramatically that they'll come back. And that is my understanding, that is -- is that correct?

Jerome A. Grant -- Chief Executive Officer

Yes, I would say the two gating factors are when we get the campuses open and resume the hands-on education. And the second gating factor is people's perception of the health risks associated with going out into the world and reengaging, right?

Rajiv Sharma -- B. Riley FBR -- Analyst

Right, exactly.

Jerome A. Grant -- Chief Executive Officer

Those are the two big issues.

Rajiv Sharma -- B. Riley FBR -- Analyst

Right. So now, you said that the labs would be open from 6:00 in the morning to 12:00 midnight. That's relative to -- what were the timings prior to COVID? In other words...

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Depending on the campus, if we were running -- if we were running two sessions or three, they were either 8:00 in the morning until about 5:00, or 8:00 in the morning until about 10:00, so depending if they were a three-session campus. We've also reconfigured the campuses to, you know, move equipment around to places so that we can do more labs simultaneously with nine people in a lab. You know, we've got all that classroom space that was not being used, because that's what we've gone online with. Well, we brought some of the equipment into there so that we can execute on labs in spaces that previously wasn't designated for a lab.

Rajiv Sharma -- B. Riley FBR -- Analyst

Right, so out of what we can control, you're saying that as and when these students return, if they return, then they could be complete -- they could complete their lab work within three weeks.

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Yes, they can get caught up. All of the tools -- and again, the asterisk on that is, depending on when we get it open, because, you know, New Jersey, Pennsylvania, and Illinois, if we don't get them open until June or -- you know, into June, you're talking about more like nine to 12 weeks of online before they can start, so it may take them four or five weeks to get caught up. Right now, all the schools that are opening in the month of May, we feel very, very confident that we can get all the students caught up within three weeks.

Rajiv Sharma -- B. Riley FBR -- Analyst

Got it. So, on the revenues, I know, Troy, you mentioned that, you know, the revenues for this fiscal might be flat to last. And the assumption underlying that is that we don't open until the end of June, or?

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Well, it's May and June. I mean, we obviously have line of sight to the campuses, you know, that we're opening here this week and next week. We have certain expectations around the others. So, essentially, the timeline we've been talking about here the last few minutes is what that assumes, that those last handful of campuses go into June. You know, we do -- when a student takes a leave of absence, it's an exit date and a return date. It's part of the process, so we do have direct visibility into the currently scheduled return date. Now, they can always change that, but we do have visibility into that.

And again, the significant majority of those have return dates in May and June. And we're also, as we talked about earlier, in a significant outreach effort ongoing with them to make sure, you know, we have -- are getting them back and understanding, you know, kind of when to schedule them for their labs, etc. So, all of that assumes, you know, we've essentially got whoever we're going to get back by the end of June. We have campuses open by the end of June, and Q4 looks, you know, more normal.

Rajiv Sharma -- B. Riley FBR -- Analyst

Right. Well, that's very helpful. So, just my next couple of questions is around the cost cuts. Obviously, I know that you've talked about quite a bit of the cost cuts and the employee furloughs. Can you kind of give a sense of what the run rate -- how much of that is impact -- how much of the cost -- quarterly run rate is impacted, and how much are you driving down, you know, in this quarter or the next quarter?

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Yes, I mean, the -- you know, our labor cost is, like we said, about 52% of revenue in the quarter. You know, Jerome mentioned the 280 employees furloughed, you know, 1,645 employees in total. Now, again, they were skewed more toward our campus operations, just given the variability more in the operations there. So, you know, you're talking about 20% or so of the cost from a campus perspective, 20% to 25% of the cost at the campus level. We have a lot of variable spend -- you know, travel's a few hundred thousand a month, right, has essentially gone away.

Supplies, you know, think about all the things you've got to buy to have 1,000 people your building every day, you know, doing the work that we do with our students, so there's a lot of variable expense as well. So, you know, we have quite a few levers, I think, to try and align better the cost side with the revenue side. But we don't have a lot of it depends on the timing, right? If you asked me that question [Technical Issues] I would have given you a different number than today, because now I'm opening four campuses on Monday that I wouldn't have thought of, you know, a week or two ago.

Rajiv Sharma -- B. Riley FBR -- Analyst

Alright, and I know that there were some cost increases with, you know, COVID-related, with you bringing them online. And I know that some of those are expected to be, or hopefully, you know, offset by the CARES Act. Is there any more thinking around that, or update around that?

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Yes, we're being advised that the Department of Education will be coming out with some pretty significantly enhanced guidelines, you know, imminently. And so, you know, at this point in time, there are some very broad guidelines that were issued at the time of the initial CARES Act, and then in subsequent communications by Secretary DeVos. But there's a lot of grey in between what was clearly, explicitly allowed and explicitly not allowed. So, we're a little bit in pause mode on that. We're obviously working through the process of getting the funds and then, for the student grants, being able to issue those, you know, potentially as soon as next week. And then, on the institutional funds, again, we're collecting all the data, based upon what we believe will be eligible. But the definition around that, you know, we're kind of paused, waiting for further guidance.

Rajiv Sharma -- B. Riley FBR -- Analyst

And so, and just this last question. The $10 million of the benefit, that's outside of the CARES Act. That's just the NOL -- well, it's related, but that's the NOL carryback that the IRS has allowed, right?

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Correct.

Rajiv Sharma -- B. Riley FBR -- Analyst

That's not part of this...

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

That's correct, yes. So, $4 million of that was the 2018, tax year '18 carry back to '17 and '16, and the other approximately $7 million is -- will be the '19 carry back, which we haven't filed yet. But we'll be filing that in June, and we'll be able to carry that back to the tax years '14 and '15.

Rajiv Sharma -- B. Riley FBR -- Analyst

And when do you expect to get that?

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Well, we actually already filed the refund for the '18 carryback at the end of April, and so we...

Rajiv Sharma -- B. Riley FBR -- Analyst

That's helpful.

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

We expect to get both of them by the end of the fiscal year, but a little bit of that obviously depends on the IRS and its backlog and its ability to process...

Rajiv Sharma -- B. Riley FBR -- Analyst

Right, so whenever that wire hits your account, it is.

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Yes.

Rajiv Sharma -- B. Riley FBR -- Analyst

Got it. Okay [Speech Overlap]

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

I think your [Speech Overlap]. We're expediting what we control, and then we'll facilitate what we don't control.

Rajiv Sharma -- B. Riley FBR -- Analyst

Great. Thank you. Thank you. I'll be offline.

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Great.

Rajiv Sharma -- B. Riley FBR -- Analyst

Thanks.

Jerome A. Grant -- Chief Executive Officer

Thank you.

Operator

That concludes our question-and-answer session. I'll turn the call back over to Mr. Jerome Grant if there's any other closing remarks.

Jerome A. Grant -- Chief Executive Officer

Thank you, operator. A little anticlimactic. I feel like I've already made them. So, I will just say, thank you all for your patience through some of the technical glitches here. We look forward to answering more questions for those who have been kind enough to call in, and we'll talk to you all again soon. Thank you very much.

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Jody Kent -- Vice President of Communications and Public Affairs

Jerome A. Grant -- Chief Executive Officer

Troy R. Anderson -- Executive Vice President and Chief Financial Officer

Eric Martinuzzi -- Lake Street Capital Markets -- Analyst

Rajiv Sharma -- B. Riley FBR -- Analyst

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