Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the Q4 2019, Lincoln Educational services earnings Conference call.
This time, all participants are in listen only mode.
After the speaker presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star than zero.
I'd now like to hand, the conference over to your speaker today Mr. Michael Polyviou. Thank you. Please go ahead.
Thank you Jimmy and good morning, everyone before the market open today Lincoln educational services issued its release reporting financial results for the fourth quarter in for year ended December 31 19.
The releases are available on the Investor relations portion of the company's corporate website at Www Dot Lincoln Tech Dot either 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 in the company's website and replay of the call will be archived on the company's website as result of not having campus closures. During 2019 2019 results being discussed today by Scotton, Brian are based on the combined continue the campus operations.
I'm pleased transportation skill trade segment, and its health care and other professions segment.
To remain comparable financial information discussed will exclude the 2018 transitional segment, the company's corporate operations will be discussed separately.
Statements made by Lincoln's management on today's call regarding the company's business that are not his squirrel historical facts, maybe forward looking statement as it turns densify in federal Securities laws.
The words May we'll expect believe anticipate project plan intend estimate and continue as well or similar expressions are intended to identify forward looking statement.
It looks the same and should not be read as a guarantee of future performance or results.
Company cautions you that these statements reflect current expectations about the company's future outdoor events and are subject to a number of uncertainties risks and other influences many of which are beyond the company's control. The may influence the accuracy of the statement in 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 quarterly report on form 10-Q, Basel Securities Exchange Commission.
Forward looking statements are based on information available at the time those statements were made and management's good faith belief as at the time with respect to the 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 forward looking statements whether as a result.
The new information future events or otherwise after the date there now I'd like turn call over Scott Shaw, President and CEO of Lincoln Educational services Scott. Please.
Thank you Michael and good morning, everyone to begin let me state that 2019 was a solid year for Lincoln Tech as we met or exceeded our previously disclosed key metrics guidance such as revenue same school students start growth in EBITDA, while also continuing to generate increases in student graduation, and placement rates overall our port.
Formats continues to demonstrate our consistent growth Lincoln as achieves starts in revenue growth for nine consecutive quarters dating back to fourth quarter of 2017, I believe our efforts over the past few years to increase awareness among our various target audiences is paying off in our message of providing career focused education.
Is increasingly resonating with potential students. Most importantly, we have returned to profitability and see opportunities for earnings to grow meaningfully.
Lincoln is now poised and ready for the next chapter of growth in our nearly 75 year history Art network of 22 campuses are well positioned with in demand programs and room for additional offerings, which will further strengthen our profitability our marketing and sales efforts are clearly achieving the goals that we have established and we continue.
Due to find new opportunities to enhance what we're doing.
We've achieved three years of improvement in graduation, and placement rate and we know we can achieve even more.
Our employers give as Frank honest feedback about our students and the education, they're receiving and I could not be more proud excuse me of the positive response, our graduates receive once they become employed in the marketplace. Finally, I know that we're just scratching the surface of what we can potentially do in helping to solve the skills gap.
Alonge facing our nation's companies in industries, just within the disciplines currently offered that our campuses the need for skilled employees that is being expressed by employers continues to grow rather than being reduced each month, new companies are coming to west for help.
In finding young talent.
And our list of industry partners continues to increase.
During the past year, we also took steps to improve the company's balance sheet, which now positions us to invest in strategic growth initiatives for the first time in many years in 2020, our objective is to add seven new programs to our existing campuses as well as to pursue other growth opportunities that are being presented to us by our corporate partners across the country.
As with all new programs, there will be upfront cost in the first year, but we procure project strong ire ours as programs grow in years, two and 320 20 will be an exciting year for Lincoln as we leverage our assets and consistent performance to achieve new Heights, and a few minutes, Brian will review our financials for the quarter end the year in provider.
Outlook for 2020, which we believe will be another year of growth for Lincoln educational services. However, first I want to highlight our performance during this past year in greater detail.
For 2019 same school revenue grew 6.2% with solid growth reflected across both of our segment EBITDA on a same school basis grew 27.9%, reflecting strong operating leverage as mentioned earlier, we finished the year with positive net income for the first time in eight years average revenue.
Per student and average population both increased in our carrion population to 2020 is the highest we've achieved in over a decade, which again speaks to the very favorable trajectory Lincoln is on.
Also as a reminder, we have over $55 million of tax loss carry forwards to offset our growth are growing bottom line and so our cash tax expense will be minimal for the foreseeable future. The macroeconomic environment continues to present historically low unemployment cycle.
The success at Lincoln has created during the strong employment period has firmly established our ability to grow profitably regardless of the economic environment and effectively positions. The company to consistently grow shareholder returns because we have fundamentally changed and strengthened our business and as a reminder, in a down economy, our population and.
Our profitability metrics, all ratchet up as more and more students seek skills to reinvent themselves or launch them into higher paying careers.
I believe that the combined effect of our increases in student graduation, and placement rate has favour favourably shifted the market's perception of Lincoln Tech. We are now being viewed as a provider of careers for our students and not just a provider of jobs over the past several years, we have seen graduation rates increased from 65.4% to 67 per.
9% and placement rates go from 74.7%, 81.7% our goal is to surpass as excuse me, 70% and 85% respectively for these two key metrics.
Our team is focused on delivering this goal by 2023, if not sooner as an example, we recently had the pleasure of hosting the local New York Fox TV affiliate at our Mall Walk campus, which you may recall offers career training programs and electrical advanced manufacturing automotive H.B.C. one of our students Henry was quoted on.
Cameras, saying that every teacher is willing to work as needed with students. One on one he went on to say that other schools treated him as a number but at Lincoln He's seen as a student and treated as a person, which reaffirms our teaching philosophy to all the Henry's at Henrietta is out there we value.
My objective and that of the board is to leverage our constantly improving results and deploy our resources to add programs at existing campuses and explore growth opportunities that meet the demand of our corporate partners as well as our career or oriented students.
There continues to be signs of a growing number of students who feel a four year degree is not right for them for a variety of reasons, including the amount of debt they could incur and the career choices that may not fit their interest for example in their recent report published by the Institute for College access and success about two and three college seniors who graduated from public and.
Private nonprofit colleges in 2018 had an average student loan debt up $29200. We keep hearing from our elected officials at both the national and local levels about the need for real solutions to the student debt crisis, but nothing is being done and this further disenfranchises high schoolers their parents may have.
Had similar views 20, or 30 years ago and they also have been impacted personally and financially during the last recession. So their mindset is becoming more favorable to schools like Lincoln, what's more our students realize they are embarking on a career path one in which there are thousands of jobs available that need to be feel filled immediately and because of the employer demand.
They know going in that they won't be competing against 10 20 or 50 other applications for the same job. Those entry level jobs are also also represent the start of a longer career journey, where Lincoln Tech graduates will have opportunities for advancement based on the industry they choose.
Next I'd like to take a moment to talk about our successful sales and marketing efforts, while the demand from the industries. We serve is extremely robust in the career paths are varied and rich. Many students remain unaware of these opportunities which is why we need to continued to invest in robust sales and marketing efforts one has to keep in mind that we're battling decade.
Page of a notion that the only way to achieve success and had a meaningful lucrative career is by going into it is by going to a traditional for your college.
And to further that belief industrial arts wood and metal shop, Autoshop, another career and technical classes have been removed from many high schools. So now generations of students have not been given the opportunity to discover if they haven't aptitude the skills or the passion for these necessary and in demand careers Conor.
Sequentially, our marketing efforts are designed to appeal to multiple audiences. Our primary audience is prospective students either adults looking to entered a new field or those coming to us right out of high school. They know that that they want to pursue a career in one of our disciplines for these students we simply need to show them that Lincoln Tech as their best choice for career training.
The next group is made up of the students who are unaware or unsure of their career direction and so we need to educate them on why they should consider a certain discipline or particular field and communicate exactly what it will take for them to be successful. This group requires a much bigger effort on our part and this is where our admissions teams really play a key.
Role in educating students about how a Lincoln education can effectively position them for success.
The third group are the Influencers, such as parents spouses boyfriends girlfriends teachers in guidance counselors, who impact to students decision.
Our goal is should drive all of these groups to visit our website, which is full of engaging and informative content presented in written pictorial and video form.
Last year.
We revamped the website to make it more robust into enable us to more easily in rapidly add or adapt content in response to the market in order to direct prospects to our website, we've expanded the scale and scope of our outreach on a daily basis, our teams are making adjustments and optimizing content on the web site to maximize our search and.
And opt is optimization results were also continually generating social media content, both paid inorganic that draws attention and interest to our brand resulting in increased website activity. In addition, we work closely with Google and our other partners and vendors to maximize our digital investments while also utilizing non.
Digital channels, such as TV radio Billboards and local events to increase awareness of our brand and all of our various programs. While we continue to enhance our marketing initiatives. We've also expanded or a high school recruiting efforts, which not only attract new students for the current year, but also serve as a marketing tool for future years by keeping the link.
And tech name top of mind with the high school population.
As Brian will mentioned in his remarks, while our sales and marketing efforts have increased our overall cost per start has actually declined over the past three years, which is a clear indication that our marketing is working and we are getting a positive return on our investment.
Finally, because I will assume that most of you are unaware of this I'd like to mentioned that February his career technical education month. The fact that so many people are unaware of this occasion indicates that we still have a very long way to go and strengthening career education training in this country, but this notwithstanding I do believe we're beginning to see a grow.
During awareness and acceptance of the fact that there's a tremendous need for more CE training in or high schools as evidenced by the statements being made on the presidential campaign trail as well as the numerous initiatives being introduced across the country at the state level to reinvest in CTG High school programs as more high schools enhance their seats.
Offerings, the pipeline of future Lincoln Tech students will continue to increase which is yet another positive trend for our company.
For those that have participated in our previous calls you've heard me quote the U.S. Department of Labor's Bureau Bureau of Labor Statistics, the gap the jobs gap is real and it's impacting the performance of industry local business and government.
Focus my previous comments on select industries, such as automotive heavy equipment welding and others. It's important to understand the gap is more broad based it's not just in economic impact.
For example, some published reports predicted that new Jersey and loan would face a shortfall of at least 40000 registered nurses by 2020 and one of the biggest shortages.
In the country and this will continue to have a significant impact on our overall health care system in New Jersey, we have three campuses that offer licensed practical nursing program and we're quite proud of our strong student graduation, and placement rates frankly, it's what sets us apart and continues to draw students to our campuses in New Jersey Board of nursing.
Recently reported that 94% of the nursing graduates at our Paramus, New Jersey campus passed a key licensing exam on their first attempt I'd like to applaud our faculty and the president of our premise campus for their excellent work in fact graduates of the premise campus have topped a 90% pass rate on the National Council licensure.
Examination for practical nurses and for the last five years. This a remarkable achievement, but it really demonstrates what we do on a daily basis. It's evident from these scores that are faculty and students are fully engaged and are seeking the same results. Moreover, our is linear moorestown campuses also new Jersey exceeded the benchmarks set by the new.
As a board of nursing.
As we disclosed previously this past summer we apply to the state of New Jersey for degree granting stat ish status.
Which we are expecting you hear back from them. This summer confirming that we have attained this status we offer degree granting and eight other states and so I know our organization is more than capable to do the same in new Jersey, but it is a political process to be approved and so nothing is guaranteed however, upon achieving degree.
Status. Our next step is to apply to the board of nursing for approval to offer a registered nurse program at the time. It occurs like we expect we will commence our RN program in 2021 with the expectation of between 20 or 40 starts which is realistic for an entirely new RN startup program. So it's really toward the latter half of two.
2022 that we would expect to see a significant pickup in arent starts and we continue to believe that potential is quite substantial so since almost all of our licensed practical nurses would like to become registered nurses over the past decade, almost 9000 Lps have graduated from our three new Jersey campuses.
And with a strong demand from others to be our end. We believe we have we will have no problems filling our classes.
I'm pleased to report that we have entered 2020 in the strongest financial position and Lincoln's recent history, and we plan to deploy our resources to strengthen our brand invest in new programs and seek opportunities to expand our footprint in new markets all with the objective to accelerate our earnings we have a solid portfolio of corporate industry partners.
And they're constantly asking us to explore new geographies. So we could serve them better to achieve this we are in the process of get exploring a number of different options, regardless of whether we expand our exit our current campuses to take advantage of the operating leverage were established new campuses. Our goal is to remain competitive and prudently deploy our resources.
The skills gap, which is currently estimated to represent well over 2 million jobs is not going away anytime soon so we will diligently explore all of our options.
But the bottom line is we're committed to providing value to career oriented students and that will will require link into attract high caliber faculty staff in corporate partners in any case I believe our brand value has increased significantly over the past few years and it will allow us to successfully opened new campuses, while we've established in it.
Aspect to maintain a strong presence on the automotive side, we also explore opportunities and other skilled trades, leveraging our electrical HVAC welding programs and possibly phasing in plumbing courses I believe this broad diversification is a competitive differ differentiator for Lincoln and explains why we why we receive a tremendous amount of interest from varied industries.
For manufacturing to maintenance to trade organizations, such as the initiative with the food processing Association.
Speaking of this group I'm happy to share that our first class of graduates from our new fit program is currently interviewing for jobs and they are receiving offer starting at $50000 per year. Let me remind you that our fit program is an add on to our electrical program. So within a relatively short period of time of 15 months and a relatively low.
Cost $26000 students are able to graduate and start their careers at a salary that is above the average starting wage of a typical Liberal Arts College graduate to fit program clearly fits our profile of offering high demand highly skilled strong ROI programs. We're also currently working closely with Johnson.
Strolls, primarily with our electrical program, but there may also be an opportunity to work with them in connection with our HPC program that would provide our students with career opportunities with commercial applications, which would complement our residential business.
Meanwhile, on the automotive side Valvo has recently become a partner at five of our campuses and Mazda and Fiat Chrysler are looking to expand to additional Lincoln campuses.
Besides growing our industry partnerships I'm pleased to announce that Chad nice will join our leadership team as our Chief Innovation Officer chat is the former COO of Strayer, where he was instrumental in leading several initiatives that reduce cost and improve service through the use of technology across the entire student experience from admissions through education Chad.
Proven experience high energy and team focus where work ethic will serve Lincoln well as we move into our next phase of growth and seek to capitalize on the vast array of Ed Tech to strengthen enhanced the Lincoln student experience.
In summary, we had an incredibly solid 2019 and the momentum we are experiencing in the first quarter. It gives us increased confidence that we will achieve our 2020 growth in operating metrics, which Brian will highlight in his prepared remarks with the success of the Lincoln Tech story and the opportunities to build on that success in 2020 and beyond we're increasing.
Our efforts to attract additional investors over the next 45 days, we will be meeting with investors on 12 days at conferences Investor lunches and one on one meetings in New York, Boston, Chicago, Dallas, Atlanta, Denver, and several other locations. If we have not mentioned at location near you. Please reach out to Brian Myers and we'd.
Be happy to set something up we look forward to sharing our success story I'd like to turn the call over to Brian for a review of our fourth quarter and four year results, Brian. Thanks, Scott and good morning, everyone I'd like to begin my comments by repeating a point Scott made during his comments, we achieved or exceeded all of our 2019 operating.
Actual targets from a financial perspective, the year was an exceptional one for our company as we consistently achieved our goals and milestones, resulting in our returned to profitability.
In prior years, we face a challenging environments in which we had to consistently manage our cash operations to find the appropriate balance between growth initiatives enhancements to the student experience and employee retention, our strategic initiatives over the past several years, including exiting underperforming campuses, while adding high.
Hi demand programs positioned us to achieve our was solid performance in 2019, and we'll continue to continue the positive operating and financial trends going forward will continuously.
Valuate and execute on strategic opportunities to enhance our future growth and achieve an even stronger 2020.
I'll now review some of our fourth quarter full year financial highlights first in mid November we entered into a new 60 million dollar credit facility with with our prior lender of which $50 million is cash collateralized. In addition, we released we raised 12.7 million in proceeds through a private placement of convert.
Double preferred stock these two x. and strengthen our balance sheet and we ended the year with cash and cash equivalents of 23.5 billion as well as availability under our credit facility of over $20 million.
Together to new credit facility and private placement increase our liquidity by more than 30 million and is projected to yielded approximately 1 million in annual interest savings.
The additional liquidity, we generated will be used to accelerate our growth and increase shareholder value through the expansion of exists existing high demand programs into additional campuses. The introduction of new program offerings and the potential expansion of our footprint through either adding a new campus or strategic acquisition.
Yes.
Secondly in 2019, we operated 22 campuses and I'm pleased to report that all but two campuses ended the year with positive EBITDA. The other two campuses are projected to improve their performance in two in 2020.
As a result, our of our improved operations there were no campus closures in 2019, and we had no plans for any future campus closures at this time.
Third we are focused on maximizing the value of our assets for our share shareholders and towards that objective. We have signed there of letter of intent for the sale of an underutilized real estate assets to a private investor should this transaction close we have generated we would generate net proceeds are approximately 2.5 million.
And reduce operating course currently impacting EBITDA by an estimated 300000 annually. In addition during the year, we realize facility cost savings of approximately 600000 by successfully negotiating more favorable term lease terms at two of our campuses. We will continue to focus on our real estate footprint in order to.
Juice facility costs and right size wherever possible.
Now I'd like to focus on several of our highlights of our combined operation performance in the fourth quarter and full year.
To begin operate operating income in the fourth quarter increase 1.7 million or 13.2%, primarily driven by revenue growth, which was up 4.9 million or 7.1% over the prior year period.
Revenue increased achieved for the quarter are there are a direct result of two years of consistent quarterly start growth. In addition to a slight increase in revenue per student for the quarter and for the full year students starts were up 9.7% for the quarter. The biggest contributor was our transportation and skilled trade segment, which was up.
4.3%, while a healthcare and other professional segment was up 4.4%.
These increases and start growth throughout 2019 drove our average student population, which is up 6.2 present over the prior year.
11.6% for the healthcare and other professional segment and 3.6% for the transportation and skilled trade segments.
The growth in student population is mainly attributable to our investment in marketing and our proved sales process.
For the quarter marketing spend was approximately 700000 over the prior year to capitalize on a cost effective lead generating opportunities in high converting channels, while also investing to drive greater brand awareness.
Despite the increase investment in marketing our course for starting the fourth quarter and the full year decrease compared to the prior year demonstrated that we are achieving a strong return our investment.
The benefits from the higher marketing investment in the fourth quarter is evidenced in the early results. We are seeing in the first quarter of 2020.
As as we are currently on pace to exceed prior year star totals in Q1.
Moreover, we entered 2020 with.
With over 750 more students than at the start of last year due to the initiatives, we implemented and the efforts of our entire team the higher beginning population as of January Onest 2020, along with the early students start results. We are experiencing provides a solid foundation and the confidence in achieving.
Our 2020 guidance, well, which I'll discuss shortly.
In the meantime, operating expenses for the quarter grew 3.2 million zero or 5.8%, primarily due to an increase in marketing and bad debt expense.
Bad debt as a percentage of revenue increased approximately 1%.
Certain contributing factors, including tuition increases along with the start with a slight increase in reserve rates due to lower historical repayment rates.
In addition, we instituted modifications to our internal institutional loan program to address student affordability. Barry is both at the time of enrollment and wall in school, while we believe such student friendly changes positively impacted students thoughts and retention.
It may have resulted in a lower repayment rates.
It is important to clarify that less than a third of our students rely on our.
Institutional loan program to fill the funding gap.
We believe this impact will be mitigate into future buyer and improving graduation rates since graduating students have us a significantly higher repayment rates.
Marketing costs as I already mentioned is were up for the quarter as with sales expense. The increase in sales expense during the quarter is tied in parts of the additional marketing investments, which are generating more leads and therefore requiring additional resources.
Other areas, which were which we experienced increase include books tools instructional expenses.
The increase in these areas our primary tied to a continuously growing student population as well as increase instructional salaries and benefits necessary to remain competitive with the current market conditions.
Actually offsetting these increase of course.
Our facilities savings generated from two of our campus as I mentioned previously.
Now I'd like to turn briefly to our corporate performance corporate and other costs for the quarter.
Quarter were 4.2 million up 400000 over the prior year. This increase was primarily driven by salary and benefit expenses.
Net interest expense increased 150000 to 800000 in the quarter. This increase was primarily the result of a noncash write off of previously capitalized costs related to our prior credit facility going forward as I mentioned previously we anticipate a reduction of approximately $1 million at interest expense.
Now turning to the 2019 full year results in summary, we achieved 6.2% revenue growth comfortably exceeding our guidance of 3% to 5%. We increased students starts by 5% hitting the top end of our guidance of 3% to 5% second we generated two.
Millions of net income, meaning our targeted returning the company into profitability for the first time in eight years, which was a significant accomplishment.
And lastly, we reported EBITDA of 3.4 million, which surpassed our guidance of approximately 12 million all in all at very strong year for Lincoln Tech.
Now I'd like to introduce our 2000 2020 guidance as a reminder, our business incurs seasonality and so clearly the second half of the.
Second half of our operating cycle performs much stronger than the first half.
Certain expenses, such as the timing of marketing investments as well as the timing of slots crew costs, some quarters to show growth, while others may not.
First for 2020, we anticipate both revenue and students starts to increase by 3% to 5% over 2019 levels.
Second we expect 2020 EBITDA to be between $15 million to $17 million, which would be a 12% to 27% increase over 2019 EBITDA.
Third we we expect to achieve operating income.
Between 7 million in 9 billion, which we represent 34% to 70%, 72% increase over 2019 operating income.
And fourth we expect to invest between 6.5 billion to 7.5 million in capital expenditure expenditures.
Wherever we are very much looking forward to two successful twentytwenty.
Thank you for your time today and with that I'll turn the call back over to the operated so we can take your questions operator.
Thank you as a reminder to ask a question you'll need to press Star then one on your Touchtone telephone to withdraw your question press the pound key.
Please standby will become other culinary roster.
Our first question comes from Alex Paris, with Barrington Research. Your line is now open.
Morning, guys. Congratulations on the strong finish to the year.
Thanks, Alex appreciate it.
They are just a clarification question.
If you look at your net income in the fourth quarter and we'll look at the diluted shares a hole in the fourth quarter.
My math suggests EPS were 37 cents.
Yes.
The press release as 33 cents, what am I missing.
Hey, Alex.
We're probably going to need a follow up call on this now with our preferred preferred shares we have to do that on a converted basis and we have to allocate a percentage of income on a weighted average shares outstanding between preferred and our comment so some of the.
The income gets where you know.
Move between the the common and preferred shares so thats why it can be calculated right on the face of our income statement any longer I say so.
However, with that said for the full year.
The eight cents the math works allies so.
What I, what I'm, assuming from what you're saying is.
Theres two ways to calculate this one has converted basis in one pre converted.
Pre conversion would have been non dilutive to dilutive earnings per share. So you use the other method as if it were converted right something along those lines.
That is correct you know all due to some provisions in our preferred agreement we have to do to two Polaris method. So we do have to allocate income, but when you said was correct. Okay got it will have a follow up going away, but thank you for that I just wanted to make sure was on the type of.
[music].
Second Scott. Thank you for the 2020 guidance, it's in line with our expectations, which are the consensus I guess.
However.
Yeah them that revenues and starts.
Were up five and 10% respectively in the fourth quarter and average enrollment topped our expectation. It seems to me your revenue and Stokes guidance at 3% to 5% for 2020 is conservative.
You have any additional color, though is that what it is conservative or yeah.
You could be very correct.
Oh I got yet so.
Yeah, we view, where any entering 2020 in a much stronger position.
We see good things ahead of us.
But we just want to remain prudent in our assumptions and as things evolve we will gladly evolve with them, but you are right with a strong carrion population of 750 more students along with what we're seeing in January and February yes, it could be a little bit on the conservative side.
Okay.
It's better than than the alternative.
Sneaking up your guidance your guidance at the midpoint.
Suggests the contribution margin of about 24% to EBITDA, 26% operating income I know, we've talked before given your capacity utilization at 35% or something like that you're increment.
No contribution mortgage margin target would be higher than that okay, 40%.
So what's the disconnect there I'm, assuming these southern new programs have something to do it.
Right. So so it is like when we roll out new programs in the year, we roll it out you know all.
It's not really hurting our bottom line, but it hurts our margins a little bit but going forward like for instance into in 2020 rolling out several new programs, it's not really going to help our margins for 2020, but 2021. It will really we'll see significant growth in our operating margins as well as you know.
As I mentioned in our bad debt expense, we think did help increase some of our revenue, but did hurt our margins slightly.
Got you.
And what were those what are those seven program. So they are welding or is any of them move.
The whether it's a mix the they're not new programs at the replications of program. So we have to welding programs. They're rolling out we have two of our IP programs, which are rolling out we have an electrical program. We have a dental assisting program and then at our Cosmetology School, we have a makeup program.
That's helpful.
So.
Yes, the previous peak.
You know.
Two years after the recession began perhaps.
Early.
2010, 2011, thank Brian obviously at much higher capacity utilization you had an EBITDA margin of 20 over 20%.
Currently EBITDA margin weakness.
Based on your guidance is 5.6% up from 4.1%.
What's a reasonable target and the time for him to get.
To significantly higher.
Margins.
Well I think that will definitely you must be reading some of my closing comments, but.
We are definitely going to continue to move forward within getting a ratcheting up of our margin as Brian said in 2021 as we get the benefit of these new programs that we're rolling out you'll see a more.
I guess impactful increase we would hope in our margin just kind of put it in perspective, we expect to be spending Lisa on the Capex at about 4 million Bucks for these new programs and we would expect.
That those program should generate $4 million to $5 million of EBITDA.
In 24 to 30 months.
So all that will help again continue to leverage our existing fixed costs to drive up those margins.
All right, let me transition to that then that $4 million and new programs is that in.
2020 or over the next couple of years, Okay. It's in 2020 in our Capex budget.
So all good 7 million.
<unk> million 4 billion is on new program.
Correct correct.
And the new programs, the overcurrent generate $4 million to $5 million annually in revenue.
No in EBITDA bulk our EBITDA.
Okay, Good and then.
Disclose what those new programs were.
This is ones I, just mentioned that the two welding the two I T programs, the dental assisting electrical and the makeup okay. The replicated about program for 4 million relative to step up.
Correct and build out associated with them and things like that for the campuses or equipment that needs to be purchase.
Absolutely, yes, that's correct.
Alright.
Just Oh and then.
You mentioned graduation and placement rate let.
Okay and have nine and 81 seven for 19. The other numbers you mentioned were those 18.
Isn't that making 55.4 and 74 point they were up three years prior three year square.
And your target 70, an 80% by 2023, if not sooner.
70, and 85%, 70% graduation, 85% placement for the whole company. We obviously have schools that performed much higher than that.
As well.
Right.
And then.
Huh.
Just one last question your commentary with regard to the department of Education, and your composite score, which was less than 1.5 in 17 and 18.
Not surprisingly.
So your own heightened cash monitoring 2020 until at least the department of Education has a chance to review your 19 numbers, which are above 1.5.
Correct, yes, okay. Good so thats really a non issue how does that you bet on heightened catch monitoring before how does that affect cash flows are margins are I realize it's not going to be material, but what should we know about that.
It won't affect any of our margins you know under the new HCM what is slightly different from last how we're in there we were audit. So there is a little more administratively those.
Items that we have to do so it will slow down our cash but only by a couple of days. So it's not going to really have a major impact.
Great and.
Okay. That's very helpful. Thank you very much and I'll talk to you said.
Thanks, Alex Thanks so.
Thank you. Our next question comes from Bill Nasgovitz with Heartland Advisors. Your line is now open.
Well good morning, guys.
Good morning, Bill Good morning, Bill Congratulations, thank you and strong finish and and year.
Terrific to see.
So I just just a question in terms of and thanks for Flushing out that.
Where we're going to spend roughly $7 million.
That's a that's good to hear.
So new programs can you say that again, new programs are going invested $4 million.
And what correct return you expect and time, we alluded to you know basically I would expect those programs to generate about 500 students, which should translate to $10 million to $11 million in revenue, which should translate to $4 million to $5 million of EBITDA.
And that would be in the 24 to 30 month period.
Well, that's sounds like a pretty good return on investment.
We think so.
So do I.
Happy happy execution.
So.
Here, we have a market cap I guess with the preferred or something around call. It 70 million.
And.
There's a huge disparity between Lincoln and just just about every other publicly traded every other gazulis, we traded company why why do you think that is.
It Frustrates me and the team for sure is we feel like we're making great progress and I think that the reason is to be honest I just haven't been out they're telling our story enough to people, which is why over the next 45 days.
That's all going to change.
There's so much positive what we've accomplished over the last couple of years and so much more for us to achieve and everything is working very well for US right now so I am hoping in anticipating that once people truly understand the potential of what we offer and where we're headed.
That will change.
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You are the Investor can you give me more guidance I'd love to take it because.
We want to you want to move the needle here for sure yeah.
Well that's good to hear that in your tenure conservative in terms of your forecasts, but could you just walk through if we achieve if you achieve a 10% EBITDA margin.
I'm.
What could that mean on in terms of.
Profitability of the company and when might that be.
Reached.
Well I mean, you can do the right you can kind of do the math on what that would mean for the bottom line. I mean today were around 270 million in revenue I would anticipate that if once we get up to.
I haven't done the math on that bill, but I imagine once we get up into 325 to 330, so we could maybe be at that level that you're talking about.
Within the same school yes.
And when might that be.
I would say that would be.
But in.
In three years or less.
It all depends on how quickly we are able to ramp these other programs up.
Okay.
Alright, Thank you very much.
Thanks. Good luck. Thanks, Bill Thank you.
Thank you. Our next question comes from Justyn Putnam with Talanta investment Group. Your line is now open.
Hey, good morning, and congratulations on a good year in quarter.
I've got a quick follow what's gone on on the cash monitoring situation I just want to be clear that the.
Is that does not having any impact on your operations very strategic.
Initiatives such as opening programs.
And stuff like that right.
I think our programs are all in process of the approvals right now so it has no impact on those on programs that we mentioned and going forward. We're hoping by the ended the year you know as was mentioned.
We were hoping that when the department gets a review our financials on before year end, hopefully will be removed from eight from heightened cash manner.
And you mentioned, possibly using some of your new equity purchase.
Maybe new campuses or something like that possibly does that impact that strategic.
Goal.
I don't think so because as of right now there is nothing identified.
No. So again were not anticipating to be on HCM, one for any length of time.
Okay.
And then my final question you have a.
Consolidated balance sheet here and this question will be answered in the U.S vital, but I don't believe it's been filed yet right. So.
Due to be filed yet.
While we just curious if there was a.
Restricted cash balance that you might you break out for us.
Sure the restricted cash balance was $15 million. It was not included in that in my prepared remarks of the 23.6. So that did not include the restricted cash was $15 million and it was paid back in the first week of January.
So your cash balance at year end, including restricted cash would be the 23.6 plus the 15.
Correct.
And we still had another availability to borrow if needed to be over another $20 million.
Right right right right right, so, including the cash you raised the preferred issuance looks like your net debt did they will creep up.
You know what that by $7 million that sounds about right.
Year over year, our net.
Yes, yes, because we were in a cash deficit prior to that correct of much greater.
What do you mean.
We were allowed to where we did it yes, we improved our net debt position, but year over year. When you look at it from December December is slight got slightly worse. So I think were that debt of.
Last year of negative two and now we increased slightly.
Okay, just okay great questions.
Appreciate it thanks Justin.
Thank you and as a reminder to ask your question you want me to press Star then one on your touched on telephone to withdraw your question press. The pound key please stop by will be Kampala final Q and anywhere Sir.
Speakers I'm showing no questions in the queue at this time I'd like to turn the call back to Scott Shaw for any closing remarks.
Thank you all for joining us today I hope that you can clearly see that Lincoln is extremely well positioned to capitalize on numerous industry trends in opportunities as well as better serve our increasing population of talented skilled students who eagerly seek to enter the workforce, our solid balance sheet ability to consistently grow our population in extremely low.
<unk> unemployment environment, increasing profitability in our industry recognized brand for high quality hands on and carrying students sets us up for an exciting 2020 and long term success in closing I will remind you that R 22 existing campuses generated 85 million of EBITDA back in 2010, and my entire management team is.
Focused on bringing linking back to that level as quickly as possible. Thank you again for your time in interest and look forward to seeing you out on the road have a great day and I'm sorry, I was just like the correct myself the answer Justin's.
Question actually we have positive cash we our net debt was approximately $32 million and including the $15 million a restricted cash cash or 38. So were slightly positive were probably year was slightly negative.
Sorry about that no problem good news.
Thank you all for listening have a great day.
Oh.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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