Q3 2019 Earnings Call
Welcome to Q3, 2019, Lincoln Educational services earnings Conference call.
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When I like to hand, the conference over to Speaker today, Michael Polyviou <unk>. Thank you. Please go ahead Sir.
Thank you Dylan and good morning, everyone, that's where the market open today Lincoln educational services issued its release reporting financial results for the third quarter ended September 32019.
Releases are available on the Investor relations portion of the company's corporate website at Www Dot Lincoln Tech Dot E. do you.
Joining us today on the call or Scott Shaw, President and CEO , and Brian Myers, Chief Financial Officer.
Today's call is being broadcast live on the company's website, a replay of the call will be archived on the website.
Statements made by Lincoln's management today during today's call regarding the company's business that are not historical facts may be forward looking statements.
Its term is identified in federal Securities laws.
The words May we'll expect to believe anticipate projected plan intend estimate in continue as well similar expressions are intended to identify forward looking statement.
We're 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, where events and are subject to a number of uncertainties risks and other influences many of which are beyond the company's controls that may influence the accuracy of the statement.
In the projections upon which.
The segment in sitting in for base.
Factors that may affect the company 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 in quarterly report on Form 10-Q filed with the Securities and Exchange Commission.
Forward looking statements are based on information available time those statements were made in our management's good faith belief as of the time with respect to the future event. All forward looking statements qualified in their entirety, but this cautionary statement in Lincoln undertakes no obligation to public you revise or update any forward looking statements whether as a result.
Information future events or otherwise after the date there up.
Now, let's turn the call over 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 today to discuss another solid quarter again, demonstrating our continued progress through improved operating and financial performance. We're on the cost of attaining our long term goal to achieve topline growth consistent sustained profitability as we continue to execute our operating plan.
We have not reported same school students start growth, increasing student graduation placement rates and improved operating leverage for the past eight quarters for the third quarter same school revenue grew 4.8% as we continue to experienced strong growth from our health care and other professions segment, which rose 9.3% our transportation.
Skilled trade segment again performed well and increased 3.2%.
Due to starts on the same school basis were up 3.4% and we continue to experience students start and revenue growth as well as profitability across both segments.
Well I don't want to sound like a broken record we're achieving results during their historically low unemployment period. These results illustrate the success of the plan, we designed and implemented counter the employment cycle. However, it also took determination commitment from everyone at Lincoln from the board of directors senior executives the entire team.
Other than reducing or advertising spending it was critical to identify invest in targeted marketing channels to attract students and our positive results to date encourage us to continue with additional investments going forward at the same time that high cost of a four year College education and the debt burden that comes with it or becoming a national discussion is now.
Going away anytime soon more and more people are asking the right questions such as this college right for me is a college degree truly going to help me what does it makes me happy so when students and their parents question the value for your college degree, they're not dismissing higher education, rather they are asking what else is.
They'll build to them what Pat do they take to achieve the success. They desire, we're working hard to give them the path by explaining what the career opportunities are for hands on trade Lincoln Tech provides positive life altering options and they are more affordable than you might think.
Since the quality of our education as the backbone of Lincoln success I wanted to share two recent events that highlight our faculty and facilities. We recently celebrated the hundredth anniversary of Lincoln's Nashville Auto diesel College, the school, which was cited by President Harry Truman for his 0.4 program phone World War II has graduated 10.
The thousands of skilled trained technicians pretty auto diesel collision repair heavy equipment and welding industries for decades employers have relied on national Auto diesel college to serve their needs in the stories from our alumni reinforce the fact that we change lives and provide opportunity. It was encouraging to see hundreds of our alumni come.
Now to commemorate centennial of one of the nation's most renowned career training campuses.
In addition last month Travis Cox of our Lincoln East Windsor campus took first place at a national student technician competition that took place in Raleigh, North Carolina. The 2019, TMC Supertex competition presented during the fall meeting at the American trucking associations technology and maintenance Council brought together more than.
80 diesel technicians and students for test a professional skills. The competition consisted of both written exams in a series of hands on demonstrations, we could not be more proud of Travis is first place finish.
We're also very proud of our strong student graduation, and placement rates. We monitor these closely in our constantly enhancing our curriculum processes and levels of student support to continually increase student success.
Keys are driving improved graduation rates involves knowing each of our students closely tracking their experience. Fortunately many of our students possess a pension for what they are learning and this keeps them focused on graduating but since life's challenges can often interrupt the students attendance in the eventual success, we've implemented enhanced reporting focused on attendance.
Raids and other metrics, which allow our faculty and staff to intervene before student drops by being proactive and creating a positive student experience I expect we'll be reporting the fourth consecutive year of rising graduation rates for 2019.
As far increasing placement rates, especially with the healthy employment market, we advocate for students and we worked with employers to fill their personnel needs. It's one of the reasons why our roster of corporate sponsors continues to swell.
Dr will be announcing another automotive partnership next quarter with a foreign luxury brands once we finalize the documents.
We continue to find strong career opportunities for more of our students and employers continue to offer more and more incentives to our graduates to attract them through their companies from signing bonuses to tuition reimbursement plans. These additional benefits further improved the return on investment Lincoln Tech student receives a perfect example of this is the program will.
Launched with Monster Queens, New York campus, becoming one of only two schools to have this distinct honor with Mazda. This is a win win for all constituents Lincoln Mazda and our students Masa has and will donate more vehicles and training equipment to our campus as part of the agreement will have the opportunity to recruit students at or near complete.
One of their training students hired by Mazda on the other hand will be eligible for several attractive benefits such as student loan repayment guaranteed living wage.
One on one mentorship with senior Masa technicians, and we're in discussions of expanding this program with Mazda.
That's a valuable contributor to the communities in which we operate we're constantly reaffirming our positive impact with potential students faculty business in community community leaders following up on our recent skills gap. Some that we held in Merrill Lynch. We recently held one in New Jersey at Lincoln Tech, South Plainfield campus and focused on solutions to the choice.
Which is hiring managers phase when filling open positions on their teams in attendance, where educators politicians employers business organizations and students topics ranged from how do we attract more students to rewarding hands on careers to on boarding programs and other initiatives to retain newly hired employees the skills.
GAAP is very real I'm sure selling participating on today's call has had a recent experience where you had to wait to have something repaired. It's not just you, it's becoming more common place everywhere and it's going to cost this time and money as a reminder of the U.S. is lucky enough qualified personnel to fill the skills gap estimate would be well over 2 million jobs.
Possibly costing us economy up to 2.5 trillion over the next decade.
I also want to highlight there or south Plainfield campus recently earned accreditation by the associated equipment distributors Foundation, where E D for heavy equipment and truck technology program, but those not familiar with the AG. It is an international organization, which represents companies across a wide range of industries that rely on heavy equipment. According to the.
Yes Department of Labor's Bureau of Labor Statistics, there are 135000 openings projected in heavy equipment maintenance industry by 2026, BLS also such new Jersey as offering one of the nation's top 10 average pay rates for technicians in this field.
In summary, we have a solid business plan is delivering positive results. We're building our brand our reputation and our bottom line or opportunities are increasing employers continue to seek us out as a struggle to find solutions for their talent needs and students and parents are increasingly including a Lincoln Tech education.
In their future.
We anticipate further improvements in our key performance indicators, such as student starts graduation placement rates and company profitability and we are pleased once again to reiterate that we remain on plan to achieve GAAP profitability for the full year 2019.
Now I'd like to turn the call over to Brian for a review of our third quarter results Brian .
Thanks, Scott and good morning, everyone I'd like to begin my comments today with a review of our topline performance during the third quarter, followed by highlights from our segments and lastly, I'll I'll conclude by reiterating our 2019 guidance first total revenue for the quarter improved 2.5 million or 3.6% over.
The prior year and all the same school basis revenue was higher by 3.3 million or 4.8%.
We continue to experience growth in both student starts in average student population, achieving 3.4% and 4.5% respectively over the prior year on the same school basis. We're proud to report the that's a third quarter <unk> represents the eighth consecutive quarter of start growth during a challenging operating environment.
How consecutive stock growth reflects the successful execution of marketing initiatives that continue to yield positive results.
Our cost per slot for the nine months is down demonstrating both marketing effectiveness and greater returns on our marketing investment.
Now focusing on our segment performance revenue for our transportation skill trade segment increased by 1.6 million worth 3.2% to 52.7 million for the third quarter increase in revenue was due to our continue start growth, which drove a 2.4% increase in average student population quarter over.
Quarter.
Operating income increased by 400000 to 6.8 million from the prior year quarter.
This increase.
Increased profitability was driven by higher revenue and reduce rent expense as a result of US successfully successful leasing negotiating at two of our campuses during the during the year as a result, we anticipate achieving roughly 1 million an annualized rent savings.
We experienced an increase in educational expenses as a direct result of our growing student population selling general administrative expenses increased due to higher bad debt expense, mainly resulting from revenue growth along with a slight deterioration of our historical repayment rates.
Turning to our I'll hop segment performance revenue increased by 1.7 million or 9.3% to 19.9 million from 18.3 million in the prior year.
Similar to our transportation skilled trade segment. The increase in revenue was mainly driven by 9.1% increase in average new population, which is attributed to our continued stock rose.
Operating income increased by 600000 to 1.4 million from 800000 from the prior year.
This increase was primarily driven by higher revenue, which was partially offset by an increase of approximately 600000 in our education facilities expenses and a 500000, an increase in selling and administrative expense.
The increase in educational expenses was a direct result of our growing student population, while the selling general administrative expenses increase was due to additional bad debt expense as mentioned previously.
Corporate and other costs were 6 million for the quarter compared to 5.2 million in the prior year.
And lastly, since our third quarter results were in line with our expectations. We are reiterating our previously disclosed 2019 guidance.
First we anticipate revenue was student starts increased 3% to 5% excluding the transitional segment in the prior year second we expect to achieve approximately 2 million and net income and finally, we expect 2019 EBITDA to be approximately 12 million.
With that I'll now turn the call back over to the operated so we can take your questions operator.
Thank you Sir as a reminder to ask a question you would need to press star one on your telephone.
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I sure first question comes from Alex Paris from Barrington Research. Please go ahead.
Good morning, everyone. This is Chris how sitting in for Alex Paris.
Hi, Chris.
Congrats on the quarter.
And those specific order you had mentioned in the past.
Degree granting application in New Jersey as I look at this opportunity.
That you have within your existing base of LPN, how should we characterize or put boundaries around the potential.
You have in converting these lpms.
To the program.
Sure. So first of all there's a lot of timing issues here. So we've applied to the state New Jersey for degree granting we did that in the summer and we're hoping in the next three months or so to hear back from them that we've attained that status. Then we'll have to go and apply to the board of nursing for the RN program. So the Earth.
At least that it would maybe happening is at the end of next year and with a lot of our end programs. You are first year is limited. So would maybe have 20 or 40 starts for that program. So it's really not going to start impacting us dramatically until latter part of 2021, but the huge potential is just what your.
Turning to.
Basically 99% of our LP and would like to become our it so that has a rich pool of people for us to tap into canal continue their education become our end <unk> literally have had thousands of Lpms graduate in New Jersey as well as you are just a strong demand by itself for our end.
And so it really will open up a great opportunity for us at our three healthcare schools in New Jersey, but it will be it. This is we're investing for the future here.
That's great. Thank you for the color and.
I guess moving on that you're seeing the demand for R&D.
Transitioning to the skills gap.
That's ever prevalent in this country.
As we look at that and related to different geographic opportunities in other words, where the skills gap is wider.
How should we think about that opportunity as it pertains to optimizing your footprint.
With that this yet campus.
And increasing that awareness in these pockets of growth.
We could see a narrowing of the skills gap and further potential for income opportunities.
For these prospective students.
Sure well I would say certainly from employers perspective, I see no difference in any part of the country from the demand that employers are coming to us where all of our schools are today.
Definitely have more job openings and we have students.
However, we also as we continue to partner with industry have or industry partners asking for us to go into new geographies to better serve them.
The one that jumps to mind that they all want us in which I'm not quite sure we're going to jumping right away is California, just from a regulatory standpoint, it's a little bit challenging out there so until that maybe settles down or the with the right opportunity comes around.
We wouldn't be going into that market, but there clearly are other markets for us to be looking at we only have one school in Texas, We have no schools in Florida.
Other schools in the south that could benefit from having a school like ours in our employers would benefit from that so there definitely is an opportunity to expand our footprint into I'd say more the south in the west.
As potential areas, but but with that said, we also have pockets of opportunity in and around some of our existing campuses and so whats so exciting frankly is that.
The opportunities are increasing for us.
As far as the band and the need for what we're doing and from that number of people coming to us seeking some way to help them solve their problems.
Right.
And.
My last question.
Corporate partnerships continues to do well.
As you look at the mix of your corporate partnerships as of right now that seems to be there is more of a weight towards automotive, but how should we look at the diversification of this mix.
Across your different skills based training into 2020 and beyond and how you see this as being more material.
Revenue in related enrollments.
Yeah, well I definitely youre correct that we have strong presence on the automotive side.
Obviously, that's long heritage of ours, and it's our largest program, but I really see more opportunities arising from our skilled trade side, using a like our electrical or h. back or welding.
If we end up rolling out plumbing those fields those are.
Aspects that we are seeing interest from come a broad range of the industries from manufacturers to maintenance organizations and we've mentioned before our initiative.
Good processing Association.
Ignition program.
Working closely with Johnson controls right now it's more on the electrical side.
Have you work strong demand HPC side, they're more commercial today were more residential so we're having conversations with them about how can we enhance our program to broaden our offering to have more of a industrial commercial aspect or a track program. So again these opportunities are there for.
US and we're going to continue to explore them and put the resources needed in order to unlock these opportunities for us.
Thank you Scott that's all I have for right now I'll hop back into queue. Okay.
Thanks, Chris Thanks.
Thank you as a reminder to ask a question you need to press star one on your telephone so which are your question press the pound key.
Okay.
I'm showing no further questions in the queue at this time I'd like to turn the call over to Scott Shaw CEO for closing remarks. Please go ahead.
Great. Thank you all for joining US today, we remain committed to our students into the long term success of our company I. Thank all the employees at Lincoln for their hard work and we look forward to sharing our continued success with you all in the new year have a great day.
Ladies and gentlemen, this concludes todays conference call. Thank you for participating you may now disconnect.