Lincoln Educational Services Corporation

Good day, and thank you for standing by. Welcome to the Lincoln Educational Services third quarter 2023 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 1 when your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press star 1 1 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, Crystal.

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, 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 recorded and is being broadcast live on the company's website, and a replay of the call will be archived also 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 statement and the projections upon which the segment's 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 in Form 10-K and the quarterly report in 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 believed as of the time with respect to future 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 further Lincoln statements, whether as a result of new information, future events, or otherwise after the date thereof. 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. Our transformative growth strategy continued to generate exceptional results during the third quarter as revenue increased 10.5%. After realizing 18% student start growth during our second quarter, student start growth during the third quarter surpassed 7%. These top-line results exceeded our expectations, and as Brian will review during his prepared remarks, we are increasing our guidance for the full year. Our top-line growth was achieved through student growth, a 3% increase in average student population, and a 6.8% increase in average revenue per student. The continued rollout of our hybrid instructional platform, which we call Lincoln 10.0, also contributed to increasing our average revenue per student growth. As we've discussed with you in the past, the hybrid 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 hybrid 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 positions us to drive higher campus and company profitability in the long term once we complete our transition in the model, excuse me, our transition to the model in 2025. During the third quarter, our exceptional student start growth was driven by the increased number of leads generated by our marketing programs. This lead generation is occurring across the board, both geographically as well as from a curriculum perspective, and is accompanied by a healthy conversion rate of those leads. What we find particularly encouraging is that this lead generation student start growth is nearly all organic. There's little if any contribution from recently started programs since their launch dates were delayed due to later than expected regulatory approval. Once our recent initiatives start to contribute to student starts, we are very well positioned to continue student start growth. During the third quarter, we saw a shift in the marketplace beginning to take hold. From both a geographic and curriculum perspective, we are experiencing increased demand for Lincoln's programs, and this increased demand is occurring despite a continued very low unemployment rate and exceptional GDP growth. It appears that more and more people are interested in acquiring real hands-on skills that lead to solid careers. There are a number of factors driving this increased interest. First, many people are questioning the value of a four-year degree and the accompanying debt. Many students that eventually do graduate with a four-year degree don't have the marketable or applicable skills that today's employers demand. At Lincoln, we strive to provide strong ROI programs that lead to solid in-demand careers, and we deliver these programs in a supportive environment that focuses on graduating and placing students. Also, the careers we offer will most likely not be replaced by artificial intelligence or be offshore, adding security to a student's career decision. With our country's growing need for middle skills tradespeople, we feel good about our positioning and long-term growth opportunities. We also believe that being aligned with industry also drives interest in our programs. For example, in the past year, we have launched two Tesla programs, one in Denver and the second in Columbia, Maryland. And in Nashville, we launched our first specialized training program for truck OEM Peterbilt. Both companies approached Lincoln since we are known for quality graduates and our ability to be a strong partner focused on helping our students while supporting each company's specific needs. During the second quarter of 2024, we will start to layer on starts at our new Atlanta campus, as well as the first programs developed under our replication strategy. Further out, our new lease in Nashville gives us twice the space that we have at the new Atlanta facility, and when we open the new Nashville facility in the first half of 2025, It will include two new programs in addition to the current Nashville market offerings. During this quarter, we purchased a new facility in Levittown, Pennsylvania, which went open during the first half of 2025, will house our program serving the Philadelphia market. This new facility gives us the space to expand our offerings in Philadelphia beyond automotive to include HVAC, welding, and electrical. And the facility has space to add additional programs or partnerships. Brian will review our strategy regarding the purchase of this facility and our near-term plans during his comments. We remain on track to achieve our objective to develop 10 new programs under the replication strategy. Many of these programs are already in some stage of development and will begin enrolling during 2024. The remainder are planned to be open during the first half of 2025. They all deploy the Lincoln 10.0 platform, and we remain on target to realize our three-year profitability goals for each of these 10 programs. At the same time, we continue to pursue our strategy of opening one new campus per year. Atlanta will welcome our first classes during the second quarter of next year, and last Friday, we announced our plans to expand into the Houston, Texas market. Our first campus in Houston will be located in the heart of one of Houston's busiest commercial corridors and strategically located for both student convenience and maximum graduate exposure to area hiring managers. The new Houston campus will represent our second campus in Texas and will allow us to take advantage of the country's fourth largest employment market. The new campus will feature an approximately 100,000 square foot training center offering career opportunities in the auto, diesel, welding, HVAC, and electrical fields. Of the 2.4 million jobs that are expected to become available nationwide in these industries by 2032, over 290,000 of those jobs are projected to be in Texas. Over the next two years, as we layer on new campus openings and the program replication strategy, we consistently expand our opportunities to increase overall student starts while we remain focused on continuing the impressive organic start growth at existing programs. Our strategy and its successful execution fuels our long-term optimism for Lincoln to prepare increasing number of students for good paying, rewarding, and essential careers while helping American corporations close their skills gap. Our new campus' program replication strategy, the Lincoln 10.0 platform, and improving the efficiencies and effectiveness of our financial aid programs are requiring, as we have said in the past, increased investments during 2023. Some of these initiatives require us temporarily to double up on processes so that we maintain our high level of service. During the third quarter, these investments were primarily recognized in SG&A expenses and supported our strong student start growth and higher lead generation. Brian will provide more details as well as the progress we have made on bringing these increases down during his remarks. Recently, the Department of Ed issued its long-awaited updated rule on gainful employment. The rule establishes specific debt-to-income percentages that educational programs must achieve. The data used to establish the percentages won't be available until July 1st of next year. We have some small programs that might be impacted by the rule's implementation, which wouldn't come until two years after the July 1st, 2024 data setting date. We expect that others with a larger presence in the curriculums most likely to be impacted by the rule setting will challenge the rule, which has been successfully done in the past. The bottom line is that if we are required to take some action, we don't expect the action to have much impact on our EBITDA growth, and the programs potentially impacted aren't part of our replication strategy or new campus development plan. 2023 is shaping up to be a very strong year for Lincoln, and we are positioned to continue our growth in 2024 and beyond. We should start to see improvement in our operating efficiency by the second half of next year, but we expect to continue to make investments in replicating programs and opening up new campuses for the foreseeable future. The interest in our programs and the new hybrid teaching model is quite strong, and employers continue to face increasing challenges when it comes to finding trained employees. At the same time, I noted earlier in my remarks how we are seeing an increased number of prospective students 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. I also want to announce that we will be hosting a virtual investor day from our new Atlantic campus sometime in the first half of next year. More information on this event will be made available at the beginning of the new year. Now I'd like to turn the call over to Brian so he can review some of our financial highlights during the quarter as well as our increased guidance. Brian?