Lincoln Educational Services Corporation

Good day, ladies and gentlemen. Welcome to the Lincoln Educational Services Third Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will follow at that time. If anyone should require assistance during the conference, please press star zero on your touchtone or phone. As a reminder, this conference call is being recorded. I would now like to hand the conference over to Michael Polivio. Sir, you may begin.

Thank you, Blue, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results for the third quarter ended September 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 a guarantee of future performance or results. The company cautions you that these statements reflect current expectations about the company's future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond the company's control that may influence the accuracy of the statements and 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-Q 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 results or 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 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 performance and corporate developments. Our third quarter financial performance came in better than we were expecting when we last talked with you in August. Our student starts were better than planned, and graduate placements continue to be exceptionally high due to the persistent increasing demand from corporate America for our skilled graduates. We continue to expand our corporate partnerships, initiate the launch of our new and enhanced automotive curriculum in mid-October, and continue to invest in various programs and strategies designed to foster growth over the short and long term. Our financial results were impressive. We grew the top line 13%, grew operating income nearly 50% despite some inflationary pressures, and more than doubled the amount of cash generated from operations to some $16 million. As of September 30th, our unrestricted cash position was up some 200% over the same period a year ago. This figure includes none of the net proceeds from the sale-leaseback transaction, which was recorded in the fourth quarter. For the past several quarters, our team has demonstrated a commendable ability to respond to the rapidly evolving dynamics introduced to our operations due to the COVID-19 pandemic. For instance, we discussed last quarter how high school closures during the past academic year had severely restricted our ability to meet with students on campus. And as a result, we expected our third quarter starts to be off as compared to our strong third quarter 2020 start level. In August, we anticipated third quarter 2021 overall starts could be down several hundred students, temporarily interrupting our string of quarterly student start growth. However, our team worked with our campus management to implement a variety of special initiatives and the result was a sharp reduction in the actual start decline. Overall, student starts during the third quarter declined by only 80 students, obviously a marked improvement from our outlook in August. The activities and programs implemented in August and September have carried over into October, and as we speak with you today, we believe we will achieve 7% to 8% start growth for the full year. Last quarter, we also outlined actions we were pursuing to unlock value in our own real estate while eliminating our bank debt through non-dilutive transactions. In September, we reported on agreements for two such transactions, one of which closed a little over a week ago. The sale-leaseback transaction of our Denver and Grand Prairie properties was completed for a total sales price of $46.5 million. In turn, we have extended our commitment to these two markets and campuses by entering into 2020 year leases for both facilities. By all measures, both campuses are consistently among our most successful, and the proceeds from the sale-leaseback transaction has gone to strengthening the entire Lincoln organization in two ways. First, on October 29th, we repaid the entire outstanding balance of our bank debt, which stood at nearly $17 million. Second, we increased our free and available cash by approximately $28.5 million. Our vastly enhanced balance sheet now provides ample resources to fund our strategies to prudently expand Lincoln's ability to help American employers attract trained employees, while at the same time helping American workers gain the skills needed to fill high-paying, stable career opportunities. The balance sheet also provides additional financial strength to weather any potential interruptions to our operations like we experienced in March of 2020 due to COVID-19. A second transaction to unlock the unrecognized value of our real estate assets and capitalize on the strong commercial real estate market involves an agreement to sell our Nashville facility, which we also announced in September. This transaction is expected to close during the first quarter of 2022 and should increase our cash position by approximately $34 million. It is part of a long-term effort on Lincoln's part to build on our tremendous success in Nashville as we execute a plan to develop a more efficient facility to support our long-term growth initiatives in this dynamic market. After the Nashville property sale closes, we will continue to occupy our present facility until we complete the development of the new campus. Some of the proceeds from the real estate transactions will fund our internal growth strategies. For example, by the time we open the doors of the new Nashville campus, we expect to invest about $15 million, In addition, we have selected a market for our first de novo campus in over a decade and remain on target to open this new campus by the end of 2022 or about a year from now. We also have identified five additional markets where our corporate partners have expressed an interest in our entering and we have determined that there are good growth prospects. Our balance sheet now puts us in the position to thoroughly evaluate these opportunities as well as execute on those we believe can generate a suitable return on our investment. We also continue to invest in our existing programs and curriculums to ensure we are using the latest training tools to educate our students on the latest technologies and skills. For instance, the October launch of our new core automotive curriculum I mentioned earlier provides even more hands-on skill training and introduces highly engaging video, animation, and gamification of exercises. In addition to the new electronic resources, we have also added more hands-on exercises that will increase the skills of our graduates, thus making them even more valuable to their employer. Further, we've incorporated more training for electric vehicles with even more to come as our nation's fleet of cars and trucks increasingly becomes electric. Our philosophy is to provide our students with the best training and opportunities that we can. Over six years ago, we saw the benefit of requiring all automotive students to have a laptop on the first day of class since they were using them in the dealerships on a daily basis, and since new and engaging curriculum could be delivered on these laptops. We are now moving to the next level that further leverages advances in technology. This new curriculum should be fully rolled out to all the automotive campuses by the end of next year. Demand for our graduates by employers and the placement of our graduates into well-paying positions continues to improve as the economy rebounds. More than ever, the pressure builds within corporate America to identify new and innovative ways to recruit trained talent to its workforce to meet growing demand as well as fill each company's skills gap. Given our proven track record of helping companies find as well as retain that talent, interest from corporations to form 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 continues to grow. During the quarter, we launched our innovative program with Republic Services with Lincoln providing training to Republic's employees at their state-of-the-art Dallas facility, rather than at a Lincoln campus. The 12-week, 100% employee-paid medium-to-heavy truck training program assists Lincoln Tech graduates with the transition into the Republic Services organization, as well as serves to upskill existing Republic employees. This is another example how we seek to help our corporate partners develop the skills needed to meet their growing demand while providing our graduates and others with exciting, stable career opportunities. The Republic Partnership also illustrates the creativity and customization Lincoln is uniquely positioned to provide corporate partners. We also continue to enhance our relationships with OEMs. We opened a second VW program at our Indianapolis campus And we expanded our Mazda program to New Jersey and hosted a Mazda leadership team meeting in New York to discuss the challenges in finding talent and how we can work together to assist Mazda in building their technician pool as they continue to experience growth. I would be remiss in my remarks if I did not address the challenges that we, like so many other companies, are facing with rising costs from our vendors and challenges in hiring new faculty. On top of this, we have the added stress of vaccine mandates in various states and now for our entire organization possibly starting in the new year. Given the shortages of supplies and workers, anything, no matter how small, can negatively impact our operations. With that said, though, we are aggressively managing the situation and taking steps to find and hire the talent we need to continue to offer the superior education for which Lincoln is known. Our countdown continues to our 75th anniversary on November 11th. This is appropriate given it's also Veterans Day, and Lincoln was originally founded to provide new skill sets to veterans returning home from World War II. For the past 75 years, we have provided the training required for students seeking essential and high-in-demand careers. We previously noted that as part of our celebration of our 75th anniversary, we have increased the scholarship opportunities at Lincoln to $75 million over the next five years. We think it's a fitting way to celebrate our 75 years of putting students first as well as being prudent stewards of our shareholders' investment. This 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. And we are in an excellent position to meet the training and skills development needs of our corporate partners and our students for another 75 years. These are my prepared remarks for this morning. I'd like to now turn the call over to Brian for a review of our third quarter financial highlights and specific updated guidance. Brian?