Lincoln Educational Services Corporation

Good day, and welcome to the Q2 2023 Lincoln Educational Services 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, and you will then hear an automated message advising 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, Michael Poliview. Please go ahead.

Thank you, Abigail, and good morning, everyone. Before the market opened today, Lincoln Edge Commercial Services issued its news release reporting financial results for the second quarter ended June 30, 2023. The release is available in the investor relations portion of the company's corporate website at www.lincolntech.tv. Joining us today on the call are Scott Shaw, President and CEO, and Brian Myers, Chief Financial Officer. Today's call is being recorded, 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 overlooking statements. Overlooking 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 statement 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 the quarterly report on Form 10-Q filed with the Securities and Exchange Commission. Follow-up statements are based on the information available at the time those statements are made and management's good faith to leave as of the time with respect to future events. All follow-up statements are co-opted, excuse me, are qualified in their entirety by this cautionary statement, and Lincoln takes no obligation to publicly revise or update any overlooked statements, whether as a result of new information, future events, or otherwise after the date they're out. Now, I would like to hand the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thanks, Michael, and good morning, everyone. Today, we reported strong second quarter results as revenue from campus operations grew nearly 10% over last year, student starts increased approximately 18%, and net income more than tripled. We also achieved a significant milestone as we completed the sale of our Nashville campus, which generated net cash proceeds of 33 million. At quarter end, we remained debt-free and had approximately 95 million in cash and short-term securities. Despite continued historically low unemployment, Our strategy to prepare an increasing number of students for productive, rewarding, and essential careers while helping American corporations close their skills gap is clearly working. The combination of our hybrid teaching model, marketing programs, centralization of our financial aid process are all assisting in increased student starts, rising placement rates, and enhancing returns to our shareholders. Furthermore, we continue to make good progress with replicating high in-demand programs to existing campuses and expanding our footprint with our new Atlanta campus. Both of these initiatives will provide additional growth in 2024 and beyond. Our performance during the first half of 2023 enables us to now revise upwards several guidance metrics, which Brian will review in a few minutes. This positions Lincoln for an even stronger performance in 2024 and positions us well for our 2025 goals. The rollout of our hybrid teaching model is progressing as planned and will help us become more scalable and efficient once fully in place in 2025. As we've discussed with you in the past, the model combines hands-on learning at campus facilities while delivering a greater component of classroom work through online instruction. It enables our students to work part-time or manage other commitments while they pursue their Lincoln education and is specifically designed to help a higher percentage of students to graduate. The model also standardizes our programs across campuses with on-campus time slots of morning, afternoon, and evening courses and with consistent start dates that provide greater flexibility, efficiency, and overall capacity at our existing campuses. The rollout of our hybrid model at most campuses, coupled with adding existing proven programs at select campuses, position us to drive higher campus and company profitability in the long term. Another key component to our growth strategy is the centralization of our financial aid process. During the second quarter, we believe improvements we have made with our centralization effort contributed to our student start growth rate, and we just moved the last group of schools to the new software platform several weeks ago. We have analyzed the data from schools that were transitioned earlier this year, and clearly we are seeing an improvement in a number of areas. For instance, the new process has reduced the number of days it takes to package an applicant's financial aid. This improved efficiency helps the student know as quickly as possible how they can pay for their education and helps us convert a lead generated through our marketing programs into a start. While the full rollout of this process will take through the end of the year, we do expect to see continued gradual contributions from this effort during the second half. Another key component of our growth strategy includes opening 10 new program replications across our existing campuses by the first quarter of 2025. These programs are focused on preparing students for rewarding careers in electrical, HVAC, welding, automotive, and medical assisting. which are some of our most successful and in-demand programs. The replication model provides Lincoln with substantial organic growth opportunities through the fastest and highest return on investment as we leverage our existing infrastructure, campus management, and market knowledge. We continue to 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 did plan to open three replication programs by the end of the current year. However, staffing issues at local government and regulatory agencies are delaying the startup of these programs by three to five months, and we now see these additions getting underway in the first quarter of 2024, which should enhance next year's start growth. During the quarter, we actively implemented the new campus component to our growth strategy, We continue to build out the new Atlanta campus and remain on track to enroll our first students at the facility during the first quarter of next year. With the sale of our Nashville campus complete, we now are aggressively moving to secure a new site in that market and hope to have an agreement in place by the end of the year. Meanwhile, we continue to fully operate at the existing campus. In addition to the Nashville campus, our goal is to open one new campus a year over the next five years. and based on an ongoing site selection and negotiations, we are fully confident of achieving that objective. Our efforts to broaden existing corporate partnerships while adding new ones continue to make steady progress. During the quarter, we announced a new collaboration with Hunter Engineering, the leading name in the undercar service industry. Later this summer, our Denver campus will become the latest site to house a Hunter Training Center where students can train directly on patented Hunter equipment. Local repair shops will also have the opportunity to send technicians to the Lincoln campus to train on the Hunter equipment. In addition, we recently opened our second Tesla training program at our Columbia, Maryland campus, and Tesla has asked us to help with securing additional locations. We sparked the 25th graduating class from our longstanding Hussman partnership, which provides qualified Lincoln Tech HVAC graduates with free advanced level training and a career with Hussman all over the United States. Discussions are ongoing with our current OEM partners to expand to other campuses, as well as new corporate partners. We've had a strong first half of 2023, and our team is executing quite well. We achieved a 1.5% increase in our start rate during the second quarter, which we attribute to the increased number of leads being generated by our marketing programs the more efficient financial aid packaging that is emerging from the centralization effort, and the timing of starts under the hybrid teaching model. These three factors combine to positively impact both high school graduate starts as well as adult student starts during the quarter. We do expect our student start growth rate to slow during the second half of the year simply because the implementation of our hybrid model means we have fewer start dates in July compared to the prior year. In addition, with the opening of the three programs at existing campuses now moving to the first quarter of next year, we won't have those starts in the second half of this year. The net impact is that we do expect to finish the full year with 6 to 10% student start growth, and Brian will provide some more color on this metric during his remarks. Overall, we believe our strategies have put Lincoln in a position to consistently grow. The interest in our programs is quite strong, and employers continue to have a dire need for trained employees. At the same time, prospective students are looking for alternatives to four-year college. Our strong graduation and placement rates provide excellent reference points, and our balance sheet, which has never been stronger, is enabling Lincoln to expand our programs and locations, which will create long-lasting benefits to our students, our graduates, our instructors, our corporate partners, and increasing returns to our shareholders. Finally, our momentum has been gaining increased recognition in recent weeks. A particular note for today's call was our inclusion in the broad market Russell 3000 Index on June 26. The inclusion meant that Lincoln was also included in the Russell 2000 Index. Combined, these milestones have created additional demand for Lincoln shares from indexed investors and served to increase awareness of our company by institutional investors. I'm also proud to report that our Marietta, Georgia campus was named a School of Distinction by our accrediting body, ACCSC. Every three to five years, schools are re-accredited, and only a handful of them receive this recognition. I'm very pleased with our organization's performance at every level, and I continue to believe that we are poised for even greater success as we truly make a difference in helping our country address its skills gap. Now, I'd like to ask Brian to provide his review of our second quarter financial results and our updated guidance.