Lincoln Educational Services Corporation

Ladies and gentlemen, thank you for standing by and welcome to the Q2 2021 Lincoln Educational Services Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press star then zero on your touchtone phone. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Michael Poliviu. Please go ahead, sir.

Thank you, Tiffany, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results for the second quarter end of June 30, 2021. 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 Myers, 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 guarantee of future performance or results. The company cautions you that these statements reflect current expectation about the company's future performance or events 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 factor section of the annual report on Form 10-K and quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Total of the statements are based on the information available at the time those statements are made and management's good faith believe as at the time with respect to the future events. All public statements are qualified in their entirety by this cautionary statement, and Lincoln undertakes no obligation to publicly revise or update any public statements, whether as a result of new information, future events, or otherwise after the date thereof. Now, I'd like to turn the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thank you, Michael, and good morning, everyone. Thank you for joining our call to discuss Lincoln Educational Services' recent financial and operating performance advancement. Our financial results for the second quarter came in right as we expected. From all perspectives, with half the year under our belts, we remain on target to achieve our goals and objectives for the full year. We grew student starts, graduate placements, and expanded our corporate partnerships. Each of our campuses generated positive EBITDA during the quarter, and we stepped up investments to ensure future growth. As we discuss our second quarter results with you today, it is important to bear in mind that this period compares with the second quarter of 2020, which was positively impacted by approximately 300 student starts delayed from Q1 2020 during the early days of COVID-19. Nevertheless, we generated a healthy 8% student start growth during the quarter. Excluding the impact of moving these 300 students into Q2 last year, our start growth would have been a healthy 19%. During the quarter, as the economy continued the reopening process, demand for our graduates by employers increased, as did the placement of our graduates into well-paying positions. With the rebounding economy and slowly rebuilding supply chain, there is even more pressure building within corporate America to identify new and innovative ways to recruit trained talent to its workforce to meet growing demand. Given our proven track record of helping companies find as well as retain that talent, we are experiencing increased interest from corporations in forming partnerships to help them recruit and train personnel to help them narrow their skills gap and meet the increased demand for their goods and services. During the quarter, we continued to build our vital corporate partnerships. Daimler Trucks of North America named our South Plainfield, New Jersey and Denver campuses as two of their top schools for training and supporting students for diesel technology careers. We also expanded our Mazda program to our Columbia, Maryland campus. Our partnership with Mazda has grown over the past year despite COVID, and we are looking to expand to another campus in the near future. Mazda has developed a very comprehensive training and hiring package that addresses today's students' wants and needs. Besides offering a strong wage along with discounts for tools and Mazda car payments, they also provide mentors after hiring so that new technicians are assured of gaining the skills to make them more valuable to the dealership and personally more successful. On top of all that, they also provide up to $15,000 in tuition reimbursement, which means that the typical Lincoln Tech graduate working for Mazda can be debt-free in three years. I believe the success of the Mazda partnership, as well as our other partnerships, demonstrate the value proposition that Lincoln delivers. Another example of our ability to innovatively meet the needs of our partners is Lincoln's new partnership with Kindigit Designs, which is based in Salt Lake City, Utah. Yes, you are hearing it here first. We have partnered with Dave Kindig, the star of the very successful Motor Trend TV show, Bitchin' Rides. Dave, like many in his industry, cannot find talent, and instead of complaining about it, Dave took action. Lincoln and Dave have partnered to develop a six-week cash pay master skills custom car fabrication program to share some of Dave's experience with aspiring talent that is already in the industry and wants to advance their skills. The program will be offered at our Denver campus, and as soon as the state of Colorado approves the program, Dave and Lincoln will be out promoting the program. For those who may not know Dave, many consider him to be the best designer and builder of custom retro mod cars in the world. When Dave brings a car back to life, he not only captures the nostalgia of the car, but also incorporates the latest technologies to deliver safety, performance, and convenience. His cars cost well into the six figures, if not more, and he has a multi-year waiting list. I look forward to sharing more about this program once it is approved. We expect to have our first class start in Q1 of 2022. When we show our prospective partners the customized programs we've created with Kindigit, Johnson Controls, Hussman, and the Food Processing Association, and then layer on the before and after recruitment and retention results achieved through our Lincoln partnership, the case to work with us especially in an operating environment where it's becoming increasingly difficult to find motivated, trained employees, well, that case becomes exceptionally compelling. We also continued the expansion of our existing programs during the quarter with the launch of a welding program at our Mahwah, New Jersey campus and the expansion of the welding program at our Indianapolis campus. Welding has been a big contributor to our recent growth and is now offered at nine Lincoln campuses. We also initiated the medical assistance program at the Indianapolis campus, which we reviewed with you during last quarter's call. It's quite gratifying to see these new and expanded programs and partnerships take hold and become valued contributors as the countdown continues to our 75th anniversary in November. Lincoln has always provided the training required for students seeking essential and high-in-demand careers, and our nimble operating structure enables our team to swiftly modify curriculums and entire courses to reflect advances in skilled trade technologies and processes at a pace that our publicly funded peers are not able to match. This structure is enabling Lincoln to react quickly to trends in employer needs as the economy reopens and the nation struggles to match a continually high unemployment rate with exceptional job opening and creation by employers. As part of our efforts to mark our 75th anniversary, we began implementing our program to increase the scholarship opportunities at Lincoln to $75 million over the next five years. We think it is a fitting way to celebrate our 75 years of putting students first, as well as being prudent stewards of our shareholders' investment. This increased scholarship funding is helping to lessen our students' burden as they train for careers that should enable them to become productive contributors to our national economic well-being and growth. During the quarter, we continue to implement ways to improve the efficiencies at the campus level. Over the past several years, we've introduced a number of operating efficiencies to our campuses, which, along with enrollment growth and reduced debt costs, has enabled us to generate cash flow from our operations. During the second quarter, the cash flow from operations of more than $9 million enabled Lincoln to build a cash position at quarter's end of $33 million. We anticipate putting some of this cash to work to execute our internal growth strategies. For example, we are planning for our first new campus in over a decade. We have selected a market and are refining our list of locations with a goal of opening a campus before the end of next year. We also have identified five additional markets where our partners have expressed an interest in our entering, and we have determined that there are good growth prospects. At the same time, we are pursuing additional actions that would further expand our liquidity by unlocking value in our own real estate and virtually eliminate our debt through non-dilutive transactions. These transactions would fund new program and campus development and provide additional financial strength to weather any potential interruptions to our operations, like we experienced in March of 2020 due to COVID. Once completed, these actions in our current operating trends put Lincoln into an excellent position to meet the training and skill development needs of our corporate partners and our students for another 75 years. We enter the second half of 2021 with great momentum and expect to be able to announce a number of initiatives before the end of the third quarter. As we look out over the remainder of 2021, the only challenge I see is our expected decline in student starts for Q3. As we mentioned during our last call with investors back in May, The pandemic shut down our high school campuses and most of our markets, which resulted in denying us in-person access to high school graduates considering this type of education. As a result, we had fewer high school enrollments, and that is why our start guidance appeared low to many of you, especially given the strength in our first quarter. Now that the quarter is underway, our forecast for fewer high school starts is materializing. Again, this decrease has already been factored into our guidance, and so nothing changes there. However, the team is disappointed to interrupt their 14 quarters of growth, but we expect to return to growth in Q4. As we get into the fall, we do expect to pursue in-person high school campus recruitment efforts. Combined with our exceptional track record, we expect that our in-person efforts and our new market initiatives directed to this target market will turn the high school graduate student starts positive in 2022. Our graduates continue to be in high demand. if not even higher demand than in the past. While businesses adjusted to the pandemic by scaling back on hiring, our graduate placement is now running ahead of last year, and we expect to be at 2019's record level in the coming quarters. In short, we had a very productive quarter, and we are confident that we will achieve our guidance for the full year. In just a moment, Brian will provide more details. Just as we've been productive, so has our board. Our board of directors has been quite active and helpful in guiding us through the unique and unprecedented operating environment of the past year and a half. The board has been making a very focused effort at increasing the scope and diversity of our board during this same period. One result of that effort is the announcement today of a new board member, Felicia Pryor, who is the Chief Human Resource Officer of BorgWarner, a 50,000-employee worldwide manufacturing company serving the automotive market. We believe that Ms. Pryor's experience and success at BorgWarner will be beneficial to Lincoln's ongoing development, and we look forward to working with her. Now I'd like to turn the call over to Brian for a review of our second quarter results and updated guidance.