Lincoln Educational Services Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the second quarter 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 would need to press star 11 on your telephone. 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 like now to turn the conference over to Michael Polibiu, Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results in recent corporate developments for the second quarter in six months ended June 30, 2024. 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 is Scott Shaw, President and CEO, and Brian Myers, Chief Financial Officer. Today's call has been recorded and is being broadcast live on the company's website. A replay of the call will be archived. Statements made by Lincoln Management on today's call regarding the company's business that are not historical facts may be forward-looking statements as a 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. The company cautions you that these statements reflect certain 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 and may influence the accuracy of the statement and projection 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 in Form 10-K, and the quarterly report on Form 10Q filed with the Securities and Exchange Commission. Follow-up statements are based on the information available at the time those statements are made and managed with good faith and belief as of the time with respect to future events. All follow-up statements are qualified in their entirety by this cautionary statement, and Lincoln undertakes no obligation to publicly revise or update any follow-up statements, whether as a result of new information, future events, or otherwise, after the date thereof. One other housekeeping matter. During the Q&A portion of our call today, we would appreciate if questioners limited themselves to two questions and then re-queued to ask any additional questions. In advance, we thank you for your cooperation. Now, I'll welcome the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thank you, Michael, and good morning, everyone. For several quarters, our team has been generating strong operating and financial momentum, leading to consistent revenue, student start, and profitability growth. We continued these trends during our second quarter, and we are well on our way to meeting our 2024 guidance metrics. In fact, we are adjusting our guidance in a positive direction, which Brian will review in his remarks. The investments we've made in our transformative strategies over the past several years are driving our growth. Additionally, we continue to capitalize on America's expanding interest in career opportunities that avoid the cost and time of a four-year college degree and help the nation close the skills gap, inhibiting corporate growth. During the second quarter, without relying on acquisitions, we grew revenue 16% over the prior year period and student starts increased 12.3%. Our student retention rate continued to be strong, and we ended the quarter with an average student population increase over last year in excess of 11%. Our top line performance, coupled with increased operating efficiencies driven by the implementation of our highly scalable hybrid instructional platform, Lincoln 10.0, led to adjusted EBITDA of 6 million. I'll let Brian address our adjusted EBITDA performance during his remarks, But I do want to note our second quarter result was approximately two and a half times greater than what we generated during last year's second quarter. Furthermore, our total SG&A expenses during the second quarter fell below 56% as compared to 57.6%, and our educational services and facilities expenses as a percentage of revenue also declined, further demonstrating the operating leverage we are beginning to realize. When we complete the rollout of Lincoln 10.0 by the end of this year, the platform will be used in teaching approximately 65% of our students. We continue to see numerous indications that the platform improves our operating efficiencies while also playing a major factor in a student's decision to enroll at Lincoln. The platform reduces the time to complete many of our programs, speeding up graduates to begin their careers. This enhanced training productivity is also attractive to our corporate partners who remain constrained by the lack of skilled employees. While I've mentioned before how Lincoln 10.0 has fundamentally changed how we teach our students and position the company for the future, its transformational impact on our company bears repeating. The platform is serving as the foundation for our focused growth strategies of opening new campuses and replicating successful programs and existing campuses. For example, the East Point Georgia campus is our first new Greenfield campus developed in some 18 years. This brand new state of the art facility features 56,000 square feet of training space and includes 15 automotive service spaces and up to 60 welding booths, labs, classrooms and work areas. We welcomed the first class during the first quarter, and by the end of June, we had already enrolled more students at East Point than we had initially budgeted for for the entire year. The campus's strong results proved the success of our site selection process and bodes well for our future new campuses and relocations. We designed East Point to be unique among trade schools, and for those who have visited the campus, it is apparent when you first enter the campus. We sought to create a setting that was both sleek and modern, elevating the student and teaching experience. Everything about the campus has been thoughtfully designed to deliver exceptional hands-on education and training with robust labs and shops. Moreover, we are utilizing the best-in-class curriculum and training aids. For example, in our automotive program, we're the only school group in the United States utilizing Electude curriculum and their integrated trainers. Electude is the global leader in automotive training in high schools and colleges. Electude's cloud-based e-learning platform allows our instructors access to interactive and engaging foundational lessons, gamified formative and summative assessments, teaching resources, tools to build their own curriculum, analytical tools to identify learners' needs, and coursework in multiple languages. Moreover, their proprietary trainers seamlessly integrate with the curriculum and provide students with a clear understanding of all the major systems in a car. At the heart of the program is the principle of discovery learning, which is how younger generations have become so adept in mastering today's technology. Again, based on the robust response generated today in the form of leads, applications, and starts, we are off to an excellent start with East Point, and the early results have increased our confidence in our new campus strategy. Our future Nashville and Levittown campuses are scheduled to open during the first half of 2025. As a reminder, both campuses are totally new from the ground up and replace existing operations in those markets and include additional programs at both campuses. Our fourth new campus in Houston is meeting its construction and build-out schedule, but local regulatory timelines are causing our startup of this campus to be pushed out. We now see starting our first class in Houston during the fourth quarter of 2025. A fifth new campus is in the initial stages of development, and our plan is to announce its location by our third quarter results conference call. This campus would open in 2026. In addition to the new campuses, replicating and expanding successful programs at our existing campuses remains a key growth strategy. Currently, we have related initiatives which Brian will provide more detail on. However, we continue to expect that each of these programs will generate approximately $1 million of profitability within three years of opening, if not sooner. Our focus on offering innovative, efficient student curriculums is enabling a growing number of graduates to enter rewarding, in-demand careers. This focus is also attracting additional corporate partners and broadening our relationship with existing partners. Our corporate partnership development activity remained quite robust during the second quarter, and we expanded our relationship with Peterbilt Corporation to our Denver campus after successfully starting up that partnership at the Nashville campus a year ago. On our last call, we reviewed the five-year workforce development agreement signed with Container Maintenance Corporation. In June, we began the curriculum development for this program at CMC's Charleston, South Carolina facility. Over five years, the agreement is expected to generate approximately $6 million in revenue to Lincoln. While our company has successfully executed workforce development programs for organizations in the past, the CMC agreement represents a new scale and level for Lincoln. Rather than bringing employees to one of our campuses, we are leveraging our curriculum and training resources to upskill CMC employees at its facilities. This approach is an emerging opportunity for Lincoln and one we believe that has the potential to become a significant contributor to our business. We expect to be able to announce additional contracts before year end. Meanwhile, we continue to have enormous opportunities with our campus-focused growth strategies. Through the end of 2026, we expect to layer on three Greenfield campuses while relocating and expanding two others and have 10 program replications fully up and running. As each of these campuses and replications comes online, we consistently expand our opportunities to increase overall student starts. In addition, we remain focused on maintaining the solid organic start growth at existing programs. Our marketing programs continue to generate a high return on investment as leads continue to increase at a strong double-digit level. Additionally, our expansion of outreach efforts in the states of Connecticut and Maryland in which we join forces with employers, government agencies, unions, and community colleges to increase awareness of the opportunities available through skilled trades careers, has been a resounding success. In the case of Maryland, we've been engaged to coordinate a similar program next year with increased funding from the state. As you can see, we are achieving strong growth in revenues and profitability and remain on track to achieve our long-term goals of $550 million of revenue and $90 million of adjusted EBITDA in 2027. Our opportunities have never been better. From 1980 until 2020, our country pushed the need to go to a four-year school, no matter the cost or the outcome. During this time, the value of career education was pushed to the side, despite the growing need for more highly trained middle-skill workers. The discussion around the skills gap grew during the first two decades of the 21st century as employers began to struggle to find technicians, electricians, welders, and healthcare workers. Then COVID hit, and the shortage of middle skills workers became abundantly clear to everyone, which is why, for the most part, our students remained employed during the pandemic since we needed food and medical supplies to be delivered, which requires trucks and vans to remain operational. Electricians and HVAC technicians were needed to keep our homes, hospitals, supermarkets, and other facilities up and running. Our healthcare system was stretched to almost the breaking point as the demand for nurses and healthcare workers skyrocketed. In short, Lincoln Tech trains the essential workers that allow us to live our lives in the manner to which we are accustomed. We see the need for what we are doing, we see the need for what we do growing despite the economic environment. There are unrefutable changes happening that are driving increased need for our students. For example, our population is aging and the need for healthcare and healthcare workers will only grow. Society's demand for the internet, AI, connectivity, and communication will only grow as will demand for electricians, HVAC techs, and other workers to maintain server farms, install networks, and rebuild our power grid. The demand for cleaner energy will continue to increase, whether mandated by government or by citizens who see an opportunity to make a positive change for society. On this last point, I want to highlight a partnership that we have with Fujitsu, a world leader in HVAC systems, and in particular, split unit systems utilizing inverter technology. These new systems are extremely efficient and can now be used in colder climates to very cost-effectively heat and cool homes and offices. Across the country, we are seeing mandates proposed that are discouraging installing heating and cooling systems that emit greenhouse gases and switch to mini split systems. Our partnership with Fujitsu will help ensure that our students are acquiring the skills that can be used today and into the future. Part of our very successful company is a skilled and experienced board of directors. At Lincoln, we have consistently excelled at attracting excellent board members and recently continued this tradition with the appointments of marketing executive Marta Newhart and former treasurer of the United States, Ana Cabral. Marta is a highly recognized marketing expert, and her professional experience will help broaden our board's perspective and enhance our ability to achieve our long-term strategy. Ana's exemplary background in public service will be an enormous asset to our organization and diverse community of students. Her work in government, building coalitions from diverse points of view, will be a great benefit to Lincoln as we navigate through the highly regulated environment in which we operate. In summary, we are on our way to achieving our full-year guidance and are well positioned for growth in 2025 and beyond. We are transforming our company into an exceptional provider of educational services that meets the needs of America's corporations as well as America's workforce. Finally, I'd like to note I'll be in Chicago on August 28th for the annual Midwest Ideas Conference. as well as partaking in Barrington's virtual fall investment conference on September 12th to educate investors about the enhanced valuation potential offered through our shares. Now, I'll turn the call over to Brian Myers so he can review some of our recent financial highlights and guidance. Brian?