Q1 2022 Lincoln Educational Services Corp Earnings Call
Good day, everyone and thank you for standing by the welcome to the first quarter of 2022 Lincoln Educational Services' earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the session you will need the breadth.
Star one on your telephone if you require any part of assistance. Please press star Zero. Please be advised that today's conference is being recorded I would now like to hand, the call price Oberthur. Your speaker today, Mr. Michael All of you. Thank you you may begin.
Thank you Devin and good morning, everyone before the market opened today Lincoln educational services issued its news release reporting financial results for the first quarter ended March 31, 2022. The release is available on the Investor Relations portion of the company's corporate website at Www Dot Lincoln Tech Dot EU <unk>.
Joining us today on the call are Scott Shaw, our president and CEO , and Brian Meyers Chief Financial Officer.
Today's call is being broadcast live on the company's website and a replay of the call will be archived on the company's website.
Statements made by Lincoln's management on today's call regarding the company's business that are not historical facts may be forward looking statements as 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 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 statements and the projections upon which the segment and statements are based.
Factors that may affect the company's results include but are not limited to the risks and uncertainties discussed in the risk factors section of the annual report on Form 10-K, and quarterly report on Form 10-Q filed with 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 belief as of the time with respect to the future events.
All forward looking statements are qualified in their tardy by this cautionary statement and Lincoln undertakes no obligation to publicly revise or update any forward looking statements, whether result of new information future events or otherwise after the date thereof, now electric call over to Scott Shaw, President and CEO of Lincoln Educational services.
Scott. Please go ahead.
Thank you Michael and good morning, everyone. Thank you for joining us today to review Lincoln's first quarter performance and corporate developments.
Our first quarter results continued the strong momentum we built during 2021 as both top and bottom line results met our internal plan. Despite the extremely tight labor market and resulting wage inflation. We continued to generate strong interest in our programs from prospective students, while our graduate to remaining exceptionally high demand with corporate employ.
Here's our students start rate compared favorably to a year ago level levels during January and February but declined in March as a result total first quarter starts were approximately 200 students less than last year. Moreover, we had a tough comp since we grew starts almost 31% last year in the first quarter, we did increase.
The total number of enrolled students as of March 31 over last year's total and we believe we will return to student start growth in the second quarter, Brian will provide a little more color on students starts later during his remarks, we are excited with our new partnership with Ford Motor Company and are proud to have been selected to kick. This program off for them. This is a.
Unique opportunity for Lincoln as we will be providing specialized manufacturers specific automotive training at our Indianapolis, Indiana campus. This is a four week post graduate training program designed to prepare eligible technicians for careers, providing mobile repair and maintenance services on four cars trucks and <unk>.
Our students will receive hands on training specific to <unk> proprietary technologies and equipment and all the mobile repair services currently offered by Ford. They will includes things such as tire rotation replacement oil changes battery diagnostics and replacement and all repair and maintenance services related.
Wipers fluids and onboard computer software updates brake services will also be covered and students will receive training on performing mobile multi inspections as well as repairs or replacements related to manufacturer recalls this is an exciting and innovative opportunities.
The program is scheduled to kick off in July and will be open to automotive technology graduates from any of Lincoln's campuses. Moreover, tuition for the program will be paid for by Ford and they will also help arrange employment opportunities for successful graduates at Ford dealerships.
Currently more than 204 dealerships around the country offer mobile services to their customers, meaning many graduates may be able to explore opportunities close to home for its goal is to triple its available workforce of mobile technicians by the end of 2022.
Graduate placement rates remain high as the demand for our highly skilled students remains extremely strong in 2020 report, which takes an in depth dive into differences in lifetime earnings Roy costs, starting salaries of more it states that careers in skilled trades often yields an ROI much greater than many college degrees.
And also leads to higher lifetime savings.
Our focus has always been on providing our students with the best ROI on their educational investment while also providing industry with work right talent that will help them thrive.
According to data reported to U S News and its annual survey a college graduate from the class of 2020, who took out student loans borrowed nearly 30000 on average that's around 5000 more than borrowers from the class of 2010 had to shoulder representing a 20% increase in the amount of students borrowed 11.
Set of new graduates default in the first 12 months of repayment and student loan default effect 9 million borrowers and their families. These are staggering figures show a four year College degree once coveted needs to be reconsidered for certain students with different career goals and ambitions at Lincoln, We give these students' skills based learning.
With solid job opportunities and significantly less debt than a college degree.
Our topline for the quarter grew nearly 6% and is in line with expectations as of March 31, our cash position was up significantly over the same period a year ago. As it includes the net proceeds from the sale leaseback transaction for the Denver in Grand Prairie campuses, which closed on Q in Q4 of 2021.
Our balance sheet will get stronger by another approximately $34 million when the sale of Nashville closes, which we now expect will occur in Q3, we will build a new Nashville campus, which will be funded from the sale of the existing campus, which we have previously said will cost approximately $15 million to $20 million, while the campus will be physically smaller than the <unk>.
Campus is currently under contract to sell it will be more efficient and drive and drive profitability plus it will give us flexibility to add programs that will enable us to attract and better serve students and the local businesses with the same mindset, we will be adding programs at existing campuses, which will help us deliver greater operating leverage.
This year alone we plan to expand five programs and skilled trades in health care.
One of these is the 12 month dental assisting career training program. We recently launched at our is Lin New Jersey campus. It support health care education option at this campus, which also has medical assisting practical nursing and patient care technician training. The program is designed to address the projected gap of more than 14000 dental assistant.
Job openings in New Jersey alone. We're pleased with the response to date and easily and is now the third campus in the Lincoln system to offer dental assistant career training.
Along with the new purpose built Nashville campus, we believe a bigger footprint remains critical to achieving our objective of broadening our business aspirations. We have demonstrated throughout our 75 year history that we had successfully serve the national needs of the fortune 500, as well as the local needs of your neighborhood automotive dealer hospital.
Our electrical contractor working with our existing and potential corporate partners. We have identified several markets that are currently underserved from a skills training perspective.
A lot of planning goes into selecting new markets. We also evaluate student and employer demand along with competition since our goal is to be the market leader.
Our current strategy is to open a new campus each year for the next several years and as I stated earlier, we plan to announce the newest campus later this year.
We are examining and continue to evaluate opportunities to expand Lincoln through the acquisition model almost all of our efforts to date have focused on opportunities that are not currently for sale and we believe could strategically enhance our network of schools. However at convincing the owners to sell can take some time should we find the evaluation is expected by sellers to.
<unk> suitable shareholders' return opportunities for Lincoln, our strong balance sheet and access to resources enables us to quickly respond as developments merit.
In addition to these initiatives. We're also looking inward to achieve greater efficiencies at the campus and corporate level as such we have already commenced the process to reduce the number of course start date suggest 15 by the end of 2023. We're also building out our hybrid learning model, which we feel will streamline the learning experience at.
The curriculum and campus level, while nothing envisioned will replace the classroom and hands on learning experience, which we believe will account for 70% of the curriculum. We are planning to implement an online element to achieve the remaining curriculum. The implementation of this new hybrid learning model has already begun at several campuses and is enabling Lincoln to.
<unk> enhanced its program quality with new efficiencies that benefit both our facility and our students.
We are always focused on maximizing our students return on their investment.
We constantly strive to help a greater percentage graduate and find employment with the company of choice and I'm Happy to report we made good progress with both of these objectives, both our retention rate and our placement rates improved in the quarter once again, demonstrating that our caring and supportive learning environment is making the difference in our students' lives.
Our close collaboration with industry demonstrates and confirms our importance to our partners, while emphasizing the value of developing innovative strategies to attract and train personnel to help their businesses grow we firmly believe aligning our interest with that of our corporate partners gives us additional name recognition and a jumpstart on gain.
A foothold in a new market.
Do you have a strong partnership fresh off the success of the first class we enrolled and recently started our second class and Republic services 76000 square foot trading facility in Dallas for which we are the training provider as a reminder, the classes are staffed with instructors from our Grand Prairie, Texas campus, New curriculum was developed in part by Lincoln's DS.
So technology Advisory Committee and designed to meet republics needs for qualified diesel technicians. Additionally, our collaboration with the food processing suppliers Association or F. PSA continues to go well graduates of our food industry technician or fit program continue to find success in new careers with food processing.
Employers across the country with an average starting salary of $50000 in fact, a year ago, we announced that nearly all graduate to the initial program offered exclusively at Lincoln text Indianapolis campus were employed and I'm pleased to say that we are expanding this program and doubling the number of graduates to meet the growing needs of the industry.
In summary, we remain poised to achieve our 2022 objectives without a doubt industry needs us and demand from employers across the country has never been greater and on top of this desire by the current generation to find alternatives to college that are cheaper faster and more short to.
Her skills in a job and it is clear that the landscape for Lincoln to Prosper is rich with opportunity our partnerships, including a new agreement with four demonstrate that we bring value to their businesses and we continue to develop new relationships with employers and industry organizations, having just celebrate our 75th year I.
Believe we are positioning Lincoln to achieve success for another 75 years as we graduate more students into high paying fulfilling careers that are helping American industries closed the immense skills gap.
Now I'd like to turn the call over to Brian for a review of our first quarter financial highlights and outlook Brian .
Thanks, Scott Good morning, everyone. This morning, I'll review, our key financial results and operational highlights for the first quarter of 2022 and additional I'll provide some color on our second quarter start trends and briefly discuss our 2022 guidance starting with our top line as reported we achieved revenue growth of five 8%.
Or $4 6 million to $82 6 million during the first quarter. The main driver of this growth was our higher average population, which increased by four 4%. This was the result of our strong 2021 performance, which delivered at beginning population that was higher by 6% or 740.
Students over the prior year.
As Scott mentioned, Scott had mentioned during the first quarter, new student enrollments increase year over year, but we experienced a lower than expected start re which reduced starts student thoughts for the quarter were approximately 3400, a decrease of nearly 200 from prior year. What are the factors that led to the slight decline was the transition of.
Several programs to Lincoln's enhanced hybrid teaching model under this new model, we are aligning the academic calendar across the organization, which reduces the number of student and entry points interest and shifts some star start dates when compared to prior periods, while the new model impacts the timing of Scott's quarter over quarter.
Once fully implemented the net effect will be neutral in the new model will deliver operating efficiencies translating into future savings.
Also as Scott highlighted last year's first quarter stock growth was the highest of the year at 36%, which set a high benchmark for stock growth in this quarter and this year's first quarter in.
In terms of starts as we move through the second quarter, we anticipate having a strong quarter with low double digit growth.
<unk> total growth for the first half of the year in the mid single digits in line with our internal plans.
Now turning to our consolidated operating expenses total operating expenses for the first quarter were $82 9 million, representing an increase of 15, 1% over prior year. This increase is in line with our expectations and our outlook for 2022, which we shared in February .
The first quarter has the largest planned increases in expenses part, partially resulting from the one time 3 million benefit to bad debt expense in 2021 from the forgiveness of student accounts receivable for students that were impacted by COVID-19.
This was enabled through the funding provided by last year's Federal Cares Act.
Our adjusted EBITDA was $2 4 million compared to $5 4 million after adding back noncash stock compensation in both periods and the bad debt benefit mentioned in 2021 for more detail. Please refer to the non-GAAP the schedules in our Q1 earnings release.
Adjusted EBITDA of $2 4 million includes the impact of additional expenses above our normal operations, which should translate to higher growth rates in the future.
Specifically during the quarter, we invested approximately 850000 related to the development of a direct paid non title for shorter term programs and initiatives to further streamline operations, creating long term efficient efficiencies and savings.
We anticipate realizing the benefits of both of these expenditures in 2023 and beyond and additional onetime items in this year's first quarter was 150000 of severance expense.
When compared to the prior year. Adjusted EBITDA also included 800 thousands of additional rent expense associated with the sale leaseback transaction entered into during the fourth quarter of 2021.
As a reminder, our briefly revisit the sale leaseback transaction, which closed last year, providing over $45 million of net cash further strengthening our balance sheet prior to the sale we own the two related properties in there and therefore had no rent expense, but did record depreciation which did not have an EBITDA impact.
Now we account.
For the properties under the operating leases and recognize rent expense of $3 2 million for the full year.
Our real estate monetization plan continues with the pending sale of our Nashville, Tennessee campus as Scott outlined in his remarks ill add that during the quarter, we received a nonrefundable deposit and granted an extension on the due diligence period through July .
Also on a smaller scale, we are working to complete the sale of our Suffield, Connecticut property, which was a former campus. The net proceeds from this transaction is expected to be approximately $2 million and is also expected to close during the third quarter.
In addition to generating net proceeds of sale of <unk> will also allow <unk>.
Now at the table save approximately 250000, our facility costs annually.
Now a brief overview of our balance sheet, our balance sheet remains very strong our net working capital is nearly $58 million as we finished the quarter with $65 6 million in cash and remain debt free.
Due to our seasonality we generate the majority of our cash from operations in the second half of the year during the first quarter as expected we utilized cash for operation activities, but we continue to expect to generate positive cash flow from operations for the full year.
There were no changes to our credit facility during the quarter, we continue to explore and pursue new financing opportunities to further increase liquidity and financial flexibility as we pursue future organic and inorganic growth initiatives, we're making progress and anticipate providing more color during our next call.
Finally to conclude on our first quarter results and our current trends we remain confident in our financial outlook and are reiterating our previously communicated full year 2022 guidance as follows revenue between 350 and $365 million adjusted EBITDA between 35 and 40.
Net income ranging from 17 to 22 million student start growth of 5% to 10% and lastly capital expenditures between $7 million to $9 million.
Thank you to our entire team for their outstanding efforts, we look forward to commuting off further communicating our further progress following the second quarter and now I will turn the call back over to the operator, So we can take your questions operator.
Thank you Ryan.
Ladies and gentlemen, we will now conduct the question and answer portion of our call. So we'd like to remind everyone to ask a question you will need to press star one on your telephone again simply press star one to be on the Q, but if you wish to withdraw your question, yes rushed about D. Now just please hold while we compile the questions on queue.
And our next Oh, sorry, our first question is from Raj Sharma from B Riley. Your line is open. Please go ahead.
Hi, good morning, guys.
Morning.
Two quick questions.
One on the starch could you.
Could you give us some more color on how the war amongst high schoolers young adults.
Sure, So, yes and yes.
How do you see that going.
Yes, no problem rush, so basically most of our high school students starts won't occur till June so our high school students for the most part start between June and maybe the first week of October . So during this period of the year. What we're basically doing is solidifying all the interests that we've had year to date from our high school students.
So there's really no material high school starts.
In the first quarter. So it's really basically an adult market and as we mentioned we saw good progress in January and February and we're seeing good progress as well in March, but we definitely had a downturn in our start rate in March.
Which was disappointing not completely.
Surprising our students were hearing more concern about prices.
Transportation gasoline things of that nature, which are maybe causing people to hesitate or as well as you know the job market is very robust with that said as we look to the second quarter.
We see stronger momentum than we had in the first quarter. So we're very optimistic about having growth again in second quarter and that growth should hopefully lead to a growth frankly in the first six months of the year for us.
Got it got it and then on.
The blended learning model could you give us some color on what percentage of the course work is online right now versus in class and.
And.
We were.
During <unk>, we pushed for blended learning.
Is that sort of being revisited year or added on and could you give more color on that please.
I didn't see that and also if there's any impact on contribution margins going forward.
Yeah, no problem, so I'll start with the last part so there will be some maybe impact in the near term on margins as we transition we've kind of already highlighted at the beginning of the year that we couldnt have about $2 million worth of additional costs due to this transition and while some other one off activities that.
We're doing.
To your question on what percent is blended yes. During COVID-19, we had to go 100% online to then a blended model, but now that our campuses have reopened we're more or less almost 100% doing things on ground, where we haven't switched the program over to the new model and when I say the new model.
I mean during Covid is a reaction to the circumstance that we had to go blended obviously, we were able to deliver on that very well and give the students the education and we ended up with more students enrolling in more students, graduating which is great but it wasn't a level of blended learning that we want as an organization and we knew we could do better.
Now that we're in this world and understand that our students enjoy the blended opportunity we figured out okay. How do we create from scratch the best blended opportunity possible for our students and so when we talk about the blended opportunity today, that's what we're talking about so we launched our first program, which was medical assisting all.
All of our campuses that have medical assisting have moved over to the new blended.
Version of this and we've gotten really positive reviews from that and we'll be rolling out more programs. This year just to give you a kind of an idea we'd expect about 40% of our students by the end of 2022 will be moved over to our new fully engaging blended model with the remaining students being moved over.
For next year.
That helps.
Yeah got it. Thank you. Thank you so much and then just lastly on.
The interest in the programs currently that you're seeing.
Your.
Advertising.
Pipeline and ultimately.
You commented that you show rates for banking last year could you comment on biopsies, obviously those interest sure. So so the interest is there is nothing I would say is standing out extremely stronger than anything else. We continue to see strong interest kind of across the board as people are looking for I believe shorter faster cheap.
For ways to get into the workforce.
As we commented earlier the start rate certainly in the latter part of March kind of declined because of the circumstance of I believe there are higher cost students are we thinking maybe that theyre going to go back to school now and Theyre a great job opportunities.
And maybe in part of your question you were asking me last year, our first quarter. We grew by an astounding, 31%. So that was certainly a big number to overcome this year and we were only down a couple of hundreds so giving all those circumstances frankly I'm quite pleased with how we did.
Great. Thank you.
My questions offline.
Thanks Mark.
Thank you. Our next question is from Alex Paris Barrington Research. Your line is open answer go ahead.
Hi, Thank you thanks for taking my questions.
Just got a couple I wanted to dive into starts again, yes.
We did expect them to be up low single digits, they were down low single digits.
The.
It looks like the decline versus my expectation was greater in transportation and skilled trades do you have any color there.
Yes.
I think that.
As part of that just maybe timing of when that starts occurred in the quarter.
Again, we are seeing good momentum.
Excuse me in January and February and it was really towards the end of.
After the first week of March that we were seeing this soft softening of the start rate.
But I don't see anything materially to different Alex between the two two lines of business.
Okay Fair enough and then.
And then.
In a while you had a shortfall in the first quarter you expect low double digit growth in starts in the second quarter and then for the first half mid single digits as a result, which would be in line with expectations.
Given that you you saw some slowdown in the start rate in March I was wondering if you could give us any color on your experience in the month of April .
Sure.
We're seeing good good inflow coming in and the way it's trending.
Things are looking positive.
If things change and can change, but as of right now things are looking positive.
Okay.
New campus is going to be in early 2023, that's still the expectation, it's a new state, but the market's been selected but just not an outright.
That is correct I mean, it won't be early 2023 dose will probably be later 2023.
We had it.
Unfortunately, we had a location.
That we were very optimistic about but at the end of the day when 10 came to paper.
Landlords.
Desire or belief that he could get it in this case like in HOA to approve the transaction was incorrect. So it kind of set us back about may.
Maybe four or five weeks in our process, but we have another location that we've identified and we're negotiating the lease so hopefully we'll be able to announce that sooner rather than later.
And then when you say later 12 months.
Okay I got you so.
So if you were able to announce it in the next couple of months you would expect maybe a new campus mid 2023, and if it does it's unrelated okay.
Yes, youre not saying late 'twenty three you're saying later in 'twenty two 'twenty three got you.
Five new programs, you mentioned dental assisting this year what are the others.
A couple of welding and met a couple of medical assisting I'm, sorry, one welding to medical assisting and one electrical.
And one dental assistant yes got.
Got you and then just a bookkeeping thing here of $150000 in severance in the corner what is that attributable to.
Executive that moved on so one time cost.
Got you.
Hey, Thanks, I'll take the rest of my questions offline. Okay. Thanks, Alex Thanks. Thank you.
Thank you once again I'd like to remind everyone. If you would like to ask a question just simply press star one again, if you'd like to ask a question just please press star one.
Yeah.
And I'm not showing any further questions on the queue with that I would like to turn the call over to Scott.
So Scott Shaw for some closing remarks.
Thank you operator as always I want to thank our shareholders for your continued interest and support I also want to thank all of our employees for their dedication and commitment to serve our students last week, we were finally able to celebrate our 70 <unk> anniversary.
The energy and emotion in the room, we're electrifying in attendance or graduates excuse me from as far back as $19 55 and from states across the country. We also had keynote speeches from students graduates employers business partners and politicians, those who could not attend send video greetings, including one from our most accomplished.
<unk>, Mr. Pat Gelsinger, the CEO of Intel It was clear that that evening just as it is clear today that while Lincoln's past is rich with success and accomplishment our present and future has never been better in my estimation industry is desperate for a solution to their workforce needs and we are that solution today.
There are more job openings than ever before and we have the talent desire capability and capacity to help America close it skills gap and put people's potential to work.
Our performance in Q1, along with the continued interest and demand from students employers gives us the confidence that we can achieve our 2022 goals both operationally and financially we will be attending the Sidoti Virtual conference later this week and the B Riley conference being held in Beverly Hills on May 25th and 26%, Brian and I look forward to sharing our two.
<unk> thousand 20 to second quarter results with you in August until then please stay safe Bye bye.
Yes.
And this concludes today's conference call. Thank you for your participation you may now disconnect.
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