Lincoln Educational Services Corporation

Good day, and thank you for standing by. Welcome to the Q1 2023 Lincoln Educational Service Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Michael Polivio. Please go ahead.

Thank you, Latonia, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results for the first quarter ended March 31, 2023. 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 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 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 that may influence the accuracy of the statements and the projections upon which the segments 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 the quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Overlooking statements are based on the information available at the time those statements are made in management's good faith belief as of the time with respect to the future event. All forward-looking statements are qualified in their entirety by this cautionary statement, and Lincoln takes 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'll hand the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thank you, Michael, and welcome, everyone. We had a great start to 2023 with revenue growing nearly 7%, starts from ongoing campuses growing 6.4%, and adjusted EBITDA from those campuses growing more than 15%. We continue to make good progress on our key growth initiatives, including implementing our hybrid teaching model, centralizing our financial aid application process, launching 10 new programs at our existing campuses, and developing our newest campus in the Atlanta area. The progress we made with starts in the first quarter follows the 4.7% student start growth we generated in the fourth quarter. Moreover, our momentum continues in the second quarter and has increased our confidence. And with this greater visibility, we are increasing our revenue and earnings outlook for the full year while still forecasting solid year-over-year student start growth. Brian will review our guidance specifics during his remarks. A few weeks ago, I read an article on Time Magazine titled, How America Started to Fall Out of Love with College Degrees. I encourage you all to read this article. It's quite fascinating and I believe supports the view that college isn't for everyone. We have discussed some of the dynamics mentioned in the article on prior calls. However, in 2019, Americans ranked preparing for college 10th on a survey conducted by Populous, a nonpartisan think tank, which asks respondents every year to rank answers to the question, excuse me, What is the purpose of education? In 2022, respondents ranked it 47 out of 57 items. We've seen both in terms of the financial meltdown in 2008 and the COVID-19 pandemic, students are continuing to question the value of a college degree, and even more so, we are experiencing conversations at the high school level that were not happening 5, 10, and 15 years ago. This is good news for organizations such as Lincoln Tech, that are an alternative to college and provide a faster, more affordable way to start a career. Key to leveraging this shift in growing our company and building returns to our stock shareholders is our new hybrid teaching model, which we began to implement at our campuses in 2022. This model delivers our programs with hands-on learning on campus, combined with a greater component of classwork delivered through online instruction. It enables our students to work part-time or manage other commitments while they pursue their Lincoln education, which will enable a higher percentage of students to graduate. The model provides greater flexibility, efficiency, and overall capacity at our existing campuses and was a major factor behind our growing first quarter revenue from campus operations by more than $5 million. Transitioning to our hybrid teaching model is going well, and as we forecasted, has resulted in increased instructional costs in the near term. We will be transitioning campuses and programs to this new model for the next 24 months. And as more and more programs complete their transition from being 100% on ground into the hybrid model, we will increasingly gain leverage from the model, starting with significant savings coming in the latter half of 2024. Our second major growth initiative is centralizing our financial aid process. Once fully operational, we believe centralizing this critical function will accelerate financial aid applications and assist in our effort to build student starts. As with the hybrid model, we are making investments during 2023, but we'll see improvements faster than with the hybrid transition. We expect to see stronger start rates later this year, followed by cost savings in 2024. The expansion of our corporate partnerships is a major factor behind the continued demand for Lincoln graduates. When we last talked with you in March, we told you about the launch of the Johnson Controls Academy at our Columbia, Maryland campus. The creation of the academy evolved from a successful five-year partnership between our two companies and aims to onboard approximately 130 or more new technicians each year for Johnson Controls. Meanwhile, the new Tesla partnership, which enrolled its first class at our Denver campus back in December, is expanding to our Columbia, Maryland campus with classes starting later this year. We also established an advanced training program for Peterbilt for our diesel graduates, and Hunter Engineering established a training center at our Denver campus with their most sophisticated alignment equipment, which our students will use as well as Hunter Engineering customers and professionals. As I've said any number of times before, our partnerships give our students greater career opportunities and help us enrich the education and training a Lincoln Tech student receives. We are currently in discussions with some of our other corporate partners to expand their relationships. Our company blazed the trail in terms of creating innovative, customized training programs for many corporations needing to add skilled talent to their workforce to meet growth objectives. and our students are directly benefiting from the expanded lucrative career opportunities created through these partnerships. In recent months, an additional potential driver of demand for our style of training and for our graduates is emerging at some of our campuses. Local governments, traditional nonprofit colleges, and industry associations have begun approaching Lincoln to explore ways we can provide training solutions to help meet the continued demand for a skilled workforce. The realization that our country and our employers need more skilled, hands-on talent is growing. And as it grows, Lincoln's position as a leader with quality programs and graduates continues to attract interest. We will explore these opportunities and move forward with those that provide the greatest benefits. As we mentioned back in March, our objective is to add 10 programs at existing campuses by the first quarter of 2025. This organic growth generates the fastest and highest return on investment as we leverage our existing infrastructure, campus management, and market knowledge. We anticipate that these 10 new programs will reach their full run rate after approximately three years of operation, at which time each is expected to provide an average of $1 million in added profitability annually. We made solid progress on this initiative during the quarter through the launch of a new medical assistant program at our East Windsor campus and electrical program at our Allentown, Pennsylvania campus. We are targeting one additional launch by the year end, with the remainder opening in 2024. In addition to the electrical and medical assisting programs I just mentioned, we are focused on adding HVAC, welding, and automotive. Combined, these five programs are some of our most successful and in-demand curriculums. Our fourth growth initiative is to develop one new campus per year for the next five years. The first such results from the initiative is our second campus location in Atlanta. The build out of this campus continues as we work through local regulatory approvals and are aiming for our first classes at this facility to begin by the first quarter of next year. We continue to expect that within four years of its opening, the 56,000 square foot facility will be generating approximately $20 million in annual revenue and $5 million in annual EBITDA. Even with the investments in our growth initiatives, our debt-free balance sheet remains strong. We continue to support our stock buyback initiative and will increase our cash balances by the end of the second quarter with the expected sale of our Nashville property. With the success we have generated from our hybrid teaching model, centralized financial aid, and program expansion, we are building a more scalable and higher return business. Continued strong demand for our programs, combined with the efficiency and growth from the investment in our operations, which includes the early contribution from our new Atlanta, Georgia campus, enable us to forecast that our adjusted EBITDA will approximately double from 2022 levels by 2025. I should note that our initiatives are predicated on the current environment of moderate economic growth high employment rates, and no recession. With that said, we are benefiting from a positive trend of individuals considering hands-on careers. Our leads are increasing as are our enrollments. And once all the changes with our centralized financial aid processes are completed, we should be better able to capitalize on this increased demand with even more new starts despite the challenging environment. Should economic growth deteriorate and historic trends from such a condition repeat, we are poised to benefit even more and with our new hybrid model can efficiently scale up to meet higher levels of demand. Looking ahead to the remainder of 2023, the headwinds of a low employment economy are tempering somewhat, although the demand for highly skilled students remains strong. As I mentioned earlier, we are well positioned to achieve all guidance metrics for the full year, which would position us to generate long-term growth for all of our stakeholders in the years ahead. Now I'll turn the call over to Brian for a review of our first quarter financial results and 2023 outlook. Brian?