Q2 2022 Lincoln Educational Services Corp Earnings Call
You you.
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Good day, and thank you for standing by. Welcome to the second quarter of 2022, Lincoln Education Services earnings conference call. At this time, I'm off to spend certain listening mode. After the speakers presentation, there'll be a question and answer session. That's a question during this session. You'll need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michael, Olivia, you. Your line is open.
Thank you, Catherine, and good morning everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results for the second quarter and at June 30, 2022. The release is available on the Invest Relations portion of the company's corporate website at www.wikintex.edu. www.wikintex.edu.
Joining us today on the call are Scott Shaw, President and CEO and Brian Myers, CFO . Today's call is being broadcast live on the Companies website and replay the call or the archive on the Companies website.
Statements made by Lincoln's management on today's call regarding the company's business that are not historical facts may be forward-looking statements as the term is identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate, and continue, as well as similar expressions are intended to identify forward-looking statements.
For local statements should not be read as a guarantee of huge performance or results. The company caution you that these statements reflect current expectations about the company's huge performance or events, and are subject to a number of uncertainties, risk and other influences, many of which are beyond the company's control, that may influence the accuracy of the statement and the projection upon which the segment in statement 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 the quarterly report from 10-Q filed with the Securities and Exchange Commission.
So, Reluct statements are based on the information available at the time those statements are made and management's good faith believe as of the time with respect to future events. All follow-up statements are qualified in their entirety by this cautionary statement and a link can undertake no obligation to publicly revise or update our Reluct statements, whether as a result of new information, future events or otherwise after the date they're up. Now, a lectern call over Scot Shaw, President CEO .
Lincoln Educational Services. Scott, please go ahead. Thank you, Michael, and welcome everyone to our call today to review Lincoln's second quarter financial performance in recent corporate developments.
Since we last talked to you in May, our team has made significant strides implementing our five-year growth plan strategy. The team has made significant strides
Over the past three months, we've entered into three new corporate partnerships with industry leaders in the electric vehicle, automotive paints and coatings, and collision repair segments. We are especially pleased to be partnering with Tesla, the world's leading electrical vehicle manufacturer, as we help them meet their growing technician needs, as well as potentially work with them in other areas of their organization.
They like the quality of our students and the breadth of our program offerings and locations, especially our electrician program, since they view themselves as much more than just a car company.
These new agreements will help our partners fill the urgent skills gap they are experiencing in light of the nation's overall low unemployment rate and increasingly more difficult search for employee training solutions required to continue their respective corporate growth.
Lincoln has paved the way in terms of creating innovative, customized training programs with our corporate partners. In each year, a larger and larger percent of our students directly benefit from our partnerships.
Furthermore, we recently increased the size of several of our company paid partnerships as demand for skilled technicians continues to remain strong.
We also executed on our strategic initiative to identify and create new campuses in markets, prioritized by our corporate partners as well as potential partners. As well as potential partners. We also executed on our strategic initiative to identify and create new campuses as well as potential partners. partners.
On July 23rd, we announced the creation of a second campus in the Metropolitan Atlanta area, one of the fastest growing metropolitan areas in the country that strategically located an area to serve students within the city limits as well as point south.
The new campus is expected to open during the third quarter of 2023 and is designed to serve up to 700 students.
Within four years of its opening, we expect the 56,000 square foot facility to be generating approximately 20 million in annual revenue and 5 million in annual evit-dop. The campus is being designed to be more cost-efficient than our existing campuses, both in reduced square footage and personnel as we plan to benefit from our new blended curriculum as well as centralized services.
The campus will focus on providing training programs in automotive technology, electronic and electronic systems technology, welding, and heating ventilation and air conditioning technology.
Is it expected that these industries will create an estimated 84,000 new jobs in Georgia by 2028?
Combined with our existing Marietta Georgia campus, North of Atlanta, Lincoln is positioning itself to be a major resource of trained students to meet this expected demand.
The new Atlantic campus is the first result of a plan to develop a minimum of five new campuses nationally within the next five years. Each campus is designed to serve a local metropolitan market with the vast majority of the students coming from within 30 miles of the school. The curriculum will be blended and new technologies will be incorporated that enrich the learning environment and student experience while giving our highly trained faculty tools to better track and monitor student success.
all to continue to increase our strong graduation and placement rates.
Based on employer demand for skilled employees and job growth projections nationwide, we have currently identified 10 new markets where we can open new automotive and skilled trades campuses as part of our long-term strategic plan.
Two major initiatives that we have underway that will improve our students' experience and bring greater efficiencies are the rollout of our new blended curriculum and centralization and automation of our financial aid process.
Our blended curriculum provides greater flexibility for both students and faculty while lowering our operating costs.
We're on track to fully transition 40% of our programs to this new model by the end of 2022.
This new model provides our students with greater flexibility to work part time or manage other commitments while they pursue their Lincoln education which will enable a higher percentage of students to successfully graduate. The new model provides a higher percentage of students with greater flexibility to work part time or manage other commitments
When implemented, it will also reduce our complexity and allow us to reduce expenses in several key operational functions. By the end of 2023, we expect to have moved all programs that are 23 campuses to this new model and begin to fully realize all the efficient season benefits in 2024. All the efficient season benefits in 2024.
At the same time, we've continued to implement the centralization of our financial aid services, which is a key component of our growth strategy. The COVID-19 pandemic shed light on some operating inefficiencies of our previously decentralized structure for this critical function.
As a result, financial aid determination and qualification could be delayed, and this delay may have contributed to some enrolled students to push out the start of their program.
Our new centralized approach is designed to speed both the financial aid application and award process and is streamlining the realization of financial aid. It is also lowering Lincoln's cost when it is fully implemented by the end of the year.
Now let me transition and speak about our current results and what we see for the remainder of the year in the impact of these changes on our guidance.
We finished our first quarter on plan financially but with lower starts than we had expected. However, we had strong enrollments for the second quarter that were trending up meaningfully.
Based on these enrollments, if our start rate had matched last year, we would have achieved double digit start growth in the second quarter with a broader population back close to plan.
Unfortunately, a lower percentage of enrolled students decided to start in the second quarter. We believe several factors contributed to the lower than expected start rate, including the macro factors of a low unemployment economy providing students with other opportunities, concerns over taking on debt in a rising interest rate environment, and inflation's impact on transportation costs.
Drilling down a bit more with our starts, the second quarter shortfall from our double digits expectations was due to both a shortfall in adult starts and high school starts. It was due to both a shortfall in adult starts and high school starts.
High school SCARTS did increase compared to last year's second quarter, but were not as high as we expected despite the solid enrollment indicators.
We expect that these challenges will continue. And as a result, although we still are experiencing strong enrollments for the second half of the year, we believe that start rates are likely to remain depressed throughout the rest of the year.
Typically during low unemployment periods, we first see a softening of interest in enrollments rather than a decrease in start rate, which typically happens subsequently.
This year, start rate has declined first, and frankly, we have not seen a decrease in enrollment.
Specifically, as we look to the next two quarters, we expect these challenges to result in our starts being down from last year in Q3, but then ahead in Q4. The reduction in starts as compared to our original plan results in lower population and a decrease in revenues for the year.
We will experience an almost dollar for dollar decrease in our profitability during the second half of the year, given we will continue to invest across all of our initiatives.
As we have mentioned previously, we have numerous initiatives underway this year to both create future efficiencies and to increase our non-tuttle for revenue.
Additionally, with regard to our expenses, we have had an uptick in wages for new employees, especially faculty, and in our medical costs.
Our transition to the new blended learning model has higher temporary expenses as it requires additional faculty to complete the education of students that are operating under the old model while the new model has started. In addition, centralizing and adding some automation to our financial aid process has also temporarily required additional people to be added to ensure no interruption to our business.
While both initiatives are progressing very well, they are incurring additional one-time costs and some minor temporary inefficiencies to our business.
As the initiatives come to completion, the one-time cost will go away and further efficiencies should be achieved. And further efficiencies should be achieved.
Our financial aid initiative will be completed by year end and our blended curriculum rollout should be done by this time next year.
As for non-Title IV initiatives, both our Kindig rollout and exploration into shorter non-Title IV training opportunities are both progressing, but short of our plans, which has also increased investment in these initiatives prior to them making a contribution.
We are very disappointed that as the environment has changed, we have been unable to convert the strong interest in our programs and our double digit enrollment growth into corresponding growth in our starts and revenues.
At the same time, we are very encouraged by the early results that we are getting from our campuses who have transitioned over to the new FA process and blended learning programs. The student experience in our operating efficiency both improve these initiatives and link into the ability to scale more rapidly will be increased.
We are fortunate that because of the growth and improvements that we have achieved over the past several years, we are able to continue to invest in our initiatives even as the environment has become more challenging. While these decisions will result in a reduction in our profitability below our original financial projections for the year, we are highly confident that these efforts will lead to higher growth and profitability in the future.
Once students do start, we've done an excellent job at retaining them and placing them in high-paying, rewarding careers. Lincoln's overall student retention rate continued to advance during the second quarter, and graduate placements also increased.
As I noted in the beginning of my remarks this morning, the demand for our highly skilled students remains extremely strong. This demand, along with our growing number of programs and corporate partnerships, continues to generate strong interest in LinkedIn training from prospective students.
our challenge during the second half of the year
will be to regain momentum from this interest in the form of student start growth.
We are cautiously optimistic that our programs and strategies will have a positive impact, but we also want to be prudent in our outlook.
Despite these short-term challenges, we are quite optimistic that our strategic growth and issues will generate consistent long-term growth over all of our stakeholders. We are all of our stakeholders. We are all of our stakeholders.
Without a doubt, industry needs us and demand from employers across the country has never been greater. In fact, we recently launched a podcast series to bring attention to career opportunities in some of America's most critical hands-on industries where according to the US Department of Labor's Bureau of Labor Statistics, jobs are projected to surpass 1.1 million across the country by 2032.
The first two episodes, computerized manufacturing and computer networking were made available, were made available in July , episodes examining the diesel technology and collision repair industries were made available. Responsed this has been overwhelmingly positive and you have not viewed these. I encourage you to visit our website to experience it for yourselves.
Furthermore, the current generation continues to seek alternatives to college that are cheaper, faster, and more assured to deliver skills and not just a job, but a rewarding career. We firmly believe that the operating environment presents Lincoln with substantial opportunity to prosper.
Our new partnerships demonstrate that we bring value to their business and these new partnerships present opportunities to expand to multiple campuses and with related industries. Before I hand the call over to Brian , I want to conclude with the board's authorization to repurchase up to 30 million of Lincoln shares.
The initiative reflects the confidence the board has in our ability to execute our growth strategy in addition to the achievements we have and will continue to make in the coming quarters.
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. I'll start with a few key operational developments followed by our second quarter financial result and conclude with our updated 2022 guidance.
As Scott mentioned, our new campus in Atlanta Georgia is expected to open in about a year. For the build out of this new campus, we plan to invest approximately 12 million in capital expenditures, net of two million allowance from the landlord. We will completely renovate the interior of the facility or offering students a modern learning environment with advanced technology, which will allow us to maximize the efficiencies of our new hybrid learning model.
Construction of the Schedulers thought this year, resulting in cat-backs of approximately 1 million in 2022, with the remaining balance incurred in the first five months of 2023. The Schedulers were in the first five months of 2023.
In terms of its impact on the 2022 financial results, we anticipate that the Atlantic Campus will incur approximately $600,000 of expense related to rent and other startup costs during the second half of the year, with the majority recognized in the fourth quarter.
At previously announced, we projected the new campus.
will contribute approximately $20 million in revenue and $5 million in EBITDA within 4 years of opening.
Another highlight during the quarter was the Board of Directors approval of the share repurchase plan of up to 30 million of our common stock.
Through June 30th, we repurchased approximately 400,000 shares for $2.5 million. The repurchase plan was authorized for 12 months and additional purchases may be made during the second half of the year and into 2023. Our strong balance sheet, solid cash flow generation enables us to undertake this repurchase plan. At the same time, we are able to fund all our growth initiatives, including new campuses.
lastly we have two real estate developments to update you on.
First, in June , we completed the sale of a former campus facility in Suffiel, Connecticut for net proceeds of $2.4 million. Beyond the liquidity benefit, the sale provides an annual savings of approximately $250,000 in facility costs.
Second, in July we agreed to an extension of the due diligence period with the purchase over of our national Tennessee property. The extension provides additional time for the purchaser to obtain the necessary zoning approvals for the redevelopment of the site. As part of the extension agreement, we will receive monthly non-refundable deposits totaling $1.1 million until the closing date, which we now estimate to be in the second quarter of 2023. For more information, visit www.fema.gov
Second, in July , we agreed to an extension of the due diligence period with the purchase with the purchase of our national Tennessee property. The extension provides additional time for the purchaser to obtain the necessary zoning approval for the redevelopment of the site. As part of the extension agreement, we will receive monthly non-refundable deposits, totally 1.1 million until the closing date, which we now estimate to be in the second quarter of 2023. Now turn into a financial result for the second quarter.
As Scott walked you through previously, how new student starts came in below the double-digit growth that we had originally anticipated due to the reduction in start rates.
Despite the lower stock conversion rate, we still saw the approximately 3,900 students in the quarter, which represented a growth of 4% over the prior year. The lower stock conversion rate was the higher stock conversion rate, which was the higher stock conversion rate. The lower stock conversion rate was the higher stock conversion rate, which was the higher stock conversion rate.
Turning to revenue, we had revenue growth of 2.1%, or 1.6 million to 82.1 million. The growth was mainly driven by the higher beginning population of 230 students at the start of the second quarter, with our stock growth during the quarter also contributing.
Although revenues were higher than last year, our growth was lower than our plan as a result of flat starts for the first six months of the year versus our growth expectations.
Our consolidated expenses.
where 81.7 million up to 6.1% over the prior year. This increase is in line with our projections and was driven by three main areas. and was driven by three main areas.
One, instructional costs, which increase largely due to higher salary expenses, resulted from market adjustments and expanding staff levels. In addition, training consumables were higher due to the rising inflation and supply chain shortages. In addition, no changes involving low forces
Higher facility expenses due to additional rent expense of $800,000 in connection with the sale-leaseback transaction completed in 2021.
and administrative expenses, which increase mainly due to bad debt expense as a result of the lower stock or repayment rates and employee benefits impacted by higher medical claims.
In addition to the above being heard, one-time expenses of 700,000 related to initiatives to advance our growth and operation efficiencies. We have an operation efficiency. We have an operation efficiency.
that Scott discussed earlier.
I would just say that EBITDA was $2.4 million compared to $6.1 million after adding back non-cash stock compensation in both periods. For more details, please refer to the non-GAAP schedules in our Q2 earnings release.
Lastly, our balance sheet remains very strong as we ended the quarter with $67 million of cash, $53 million of working capital, and debt-free.
We generated cash from operating activities of $4.4 million during the quarter.
We anticipate cash from operations will increase significantly in the second half of the year in line with our seasonality, which will result in our cash balance returning to approximately the same, 83 million level we began the year.
As Scott mentioned, our strong cash flow and the operating improvements we have achieved over the past several years allows us to take the necessary steps to fund our growth and efficiency efforts from a strong financial position.
There are no changes to our credit facility. However, we are negotiating a new credit facility which we anticipate announcing during the third quarter.
Finally, to conclude my remarks, we are updating our 2022 guidance based on the current macroeconomic environment that we're navigating through in our recent experience. Through Explanic
Given the reduction in our revenue growth, we are focused on the operational measures within our control, including right-sized and certain expenses in the second half to count the balance the pressure on starts. At the same time, we are continuing with a high-level investments in our existing operations continue to drive higher student outcomes and in our special initiatives to drive growth inefficiencies in the future.
While continuing this level of investment when our expected revenue will fall short will certainly impact our profitability, we can see the substantial benefit for future periods.
and also are updated.
And so our updated 22 guidance is revenue between 340 million and 350 million adjusted EBITDA between 25 million and 30 million. Net income ranging from 10 to 15 million. Flat student starts in the range of minus 3% to positive 3% and lastly capital expenditures between 8 to 11 million.
As additional color, we anticipate our third quarter revenue to remain essentially flat compared to prior year. Students starts our expected decrease in the third quarter compared to 2021 and returns growth in the fourth quarter.
In terms of adjusted EBITDA, we now expect the addback of non-cash.compensation expense to be 3 million for the year. The EBITDA is a 3 million for the year. The EBITDA is a 3 million for the year.
The expense for the six months was 1.6 million and the remaining balance should be recognized evenly in the second half of the year. The expense for the six months was 1.6 million and the remaining balance should be recognized evenly in the second half of the year. The expense for the six months was 1.6 million and the remaining balance should be recognized evenly in the second half of the year. The expense for the six months was 1.6 million and the remaining balance should be recognized
And with that, I want to thank our entire team for their continued effort and support. Now I'll turn the call back over to the operator so we can take your questions. Operator.
Thank you. As a reminder, to ask a question, you'll need to press star 1 1 on your telephone.
Please stand by while we compile the Q&A roster.
Our first question comes from Alex Perris with Mayor Varington. Your line is open.
Hi guys, thanks for taking my questions. I just have a couple of follow-ups related to things that you had put in the press release and said in your prepared comments.
with retention up graduation and student placement rates improved.
the issue is starts conversion, and I think you were clear there, and it's not unlike your peers in the space.
It looked though that the greater impact was on transportation and skilled trades versus the healthcare and other professions segment.
transportation and skilled trades were up 3% I think in starts where hops was up 6%.
and I think in starts where hops was up 6%.
I was wondering if you can give us a little bit of color there by program or by segment by program by geography by channel and I know you touched on some of this but maybe just go over it again for me please.
Sure, thanks Alex for the question. So transportation has a much more of an impact from our high school marketplace. And while the high school was up, we were anticipating that would be frankly up even more, given some of the indications that we saw. We didn't see particular softness at our Nashville campus, which is really very much dependent more so on high school than our other campuses. Otherwise, there really isn't any kind of consistent trend.
that I would highlight that points anyone campus or program as far as being weaker than anything else.
And then just a reminder, what percentage of your transportation and skill trades students come from, directly from high school as a percentage of the total.
Yeah, about 30%.
About 30 percent, okay.
All right, and then...
Guidance midpoint to midpoint I think you you noted this in the prepared comments But the reduction in revenue is nearly the same as the reduction and adjusted even down on a dollar for dollar basis and I think that you attributed that to additional expenses like rent for example and And things like that just a little bit more color there, please
Yep, no problem. So definitely with the short fall in revenue, there's definitely a lot of profitability that is lost there with that incremental revenue, but we're also seeing some increased costs beyond what we anticipated, especially let's say around faculty costs, our whole intention is to ensure that the quality of our education remains as high as possible and in order to get the faculty that we need in the timeliness that we need, we did have to pay more than anticipated.
And then we also were experiencing, I think, like a lot of maybe companies, more employees going back to get their health care than they did pre-COVID. I guess they're catching up and we're kind of self-insured. So we're seeing an impact in those costs. And then while we budgeted for increase in costs, due to the number of the initiatives we have underway, we are seeing some increases in those areas as well. But those will be one-time costs that will go away.
once we complete the centralization of financial aid and the completion of the rollout of the blended learning. So those are kind of the biggest buckets. Right, and Alex, if you remember in the beginning of the year we mentioned that those quality efficiencies initiatives would be approximately $2 million. It looks like we're running at almost double that now.
And as Scott mentioned, it is all one time.
Yeah, I got you. It's just a bad timing, of course, the slowdown and starts conversion at the same time you have increased investments in the future, right? I think I believe the state of empress has a lot of existing investments in the future, right? Thank you.
Good degree maor.
And then based on the color commentary that Brian provided, third quarter starts up to get us to the full year target number.
what gives you the confidence that fourth quarter starts would be up?
when you're expecting third quarter starts to be done.
Sure. Well, we had frankly planned for the third quarter to be basically flat to maybe slightly down, just given the way the starts were falling. And we have a number of our new programs that will be coming online by the third quarter. So we're hoping that those will help us with the fourth quarter growth that we're anticipating.
And just remind me, what are the new programs coming online in the fourth quarter?
Sure, well, we have a medical assisting at a campus and we have an electrical program, which is frankly one of our strongest programs coming out of another campus. And we rolled out two other programs earlier in the year that we'll have more momentum and we're increasing the capacity of our welding program at two campuses, which should all help us in the fourth quarter. We have two campuses, which should all help us in the fourth quarter.
Great. And then I'll just finish with a question on a very positive note. I was very impressed and excited to see in early August the announcement of the Tesla agreement.
very exciting to be teaming up with such a high-profile EV manufacturer. I think you mentioned in your prepared comments that the fact that you offer electrician programs...
were an attractive component to Tesla making that decision. And I think, correct me if I'm wrong, is Lincoln the first for-profit post-secondary education school to do a formal agreement like this with Tesla?
Yeah, well, I'll enter the last part first. Yes, we are the first. And so we're very excited by that. And while still electric cars remain such a small percentage of the car's sold, we all know the expectations that are out there for that to increase dramatically. And when we were touring the Tesla folks through our facilities, it really was amazing to see how the students would see the Tesla logo on their shirts. And immediately you start gravitating towards them. So.
There is definitely a lot of interest in demand in electric vehicles. And we were surprised frankly, as they were showing them around the campus and showing them HVAC and welding and other things. How you could see their minds starting to spin about how else we might be able to partner with them in the future because I guess we learned along the way that they view themselves as much more than just an automotive company. They're looking to build these very large batteries to help.
solar and wind farms store the energy and they're looking at other initiatives that Some of our programs peak their interest So we look forward to getting back to the discussions with them on that But yeah, it's it will be very exciting for us and also we already have a in enhanced Electrical curriculum in our new automotive Curriculum that we've started rolling out through a lectured, but we anticipate and Tesla's you know said that you know They will work with us
on refining our overall electrical vehicle program, hopefully to make it as robust as possible. So yes, it's a very exciting initiative for us.
Well, congratulations on that win, and I'll get back into the kids. Thanks.
Thanks, Alex. Appreciate your questions.
Our next question comes from Eric Martinuzzi with Lake Street. Your line is open.
Curious to know if you've made any changes in your marketing outreach as you've parsed through the enrollments to STARTS conversion data, if there's lessons learned here about the students you're going after.
Yeah, it's a good question. There's certainly something that we're focused on, try to understand what is it we can alter to help drive that start rate back up. There are certain areas that we are looking at scaling back where the start rate per student is definitely not as attractive in some of our third party leads, which we've been scaling back anyway. Looking for other ways and channels to frankly get more interest out there as well.
to drive more into the front channel, knowing that may start right will be lower. But also we think that operationally, Eric, there are things that we can do to on the margin make things more efficient. We certainly have a switch taking place with financial aid and have more bodies in financial aid today than we did a year ago. But as we're switching from operating at the campus level and at the corporate level, always there's some, you know.
I'll say challenges in getting that executed. We definitely got more students through financial aid this year than last year, but as a percentage of the opportunity, we got a little bit less. So I'm looking to get that project behind us and make sure that we can be as efficient as possible, which should also help us marginally on that start rate.
What about adult versus high school learner? If I look at your student body wide, what is the, I know you just answered the question and transportation and skilled trades.
30% high school, but what is high school?
Yeah, overall it's about 20% of our students.
And again, we were seeing some high school enrollments that were greater than what we had last year, but the start rate wasn't nearly as strong as it was last year. And we're seeing a somewhat similar trend. We also have students that come to us that are not high school students, but adults who relocate to go to our campuses. And we definitely saw a downturn in those students, probably because of either transportation costs or other economic factors.
driving them not to want to relocate to get an education. Okay. And then on the financial aid centralization effort, this, you know, we have a lessons learned here, or is it just, you know, it probably wouldn't have even been, you know, that it was just a marginal issue with the consolidation effort that got exposed with the production and, you know, with the improved unemployment figures.
or is it something that an operational issue that we the opportunity to do it over again, or would have changed as time we did it?
No, I think that your discussion of the fact that unfortunately, without the growth of the top line, you know, we're just looking at every item of impact to our business and that kind of highlighted that more. Otherwise, the transition from what we anticipate to where we are, it's not exactly where we want to be, but it's also not a huge negative, but it's something that we know will get better.
and it will be executed on over the next quarter. So by the end of the year, we should start moving in a much more positive direction with it.
Okay. And then last question on the, just as you looked at the figures month by month, start by start, did you notice things worsening in kind of a June July versus April and May? April and May.
Or was it pretty challenged throughout last four months?
Yeah, no, so that's, it hasn't been a steady state. It was obviously when we spoke with you all back in May, we were seeing some positive momentum. Then throughout the quarter, while there was some softening in the intake of leads, we still had a nice pool of candidates that were gonna help us achieve our results. We did see some softening in the month of June .
But to confuse matters more, we're 10% up for the last four weeks in our enrollments. So it's up and down. But given that we've been, I guess, negatively surprised for two quarters, we think it's prudent to factor all that in for the rest of the year.
And also one of the things that led to it was for the quarter, I guess the starts were weighted a lot more towards June . That added to the little bit of the surprise and the reduction in starry. The end of the video was a little bit of the surprise and the reduction in starry.
Yeah.
Understand. Thanks for taking my questions.
Sure, thank you very much.
Thank you and as a reminder to ask a question press star 11 on your telephone.
We have a question from Raj Sharma with Be Riley. Your line is open.
Hi, good morning. Thank you for taking the questions.
I just wanted to follow up on the starts and understand, just try to understand getting more color on the third quarter, fourth quarter, if you expect starts any different, you know, starts growth or decline any differently amongst the transportation healthcare.
Yeah, no, between the two, I can't say that, yeah, sorry, that we're forecasting anything materially different in one segment versus the other. We're seeing a softness in the start rate kind of across both segments. So we factor that into our assumptions. As I mentioned, we kind of forecasted or anticipate the third quarter to be relatively flat with last year, given.
kind of just where the starts are falling and what we anticipate to happen with our high school in the second quarter. And then in the fourth quarter, we do expect growth to return mainly because of all the benefit that we're going to receive from the new programs that will be up and running by then.
And we are forecasting for the, you know, growth for the second half of the year in total.
Right, that's it?
So high schoolers are mostly in the auto segment and the young adults are the ones who are impacting the healthcare. And the reason for this significant drop you said was the conversion rate essentially. And that is because what you attribute that to is just the tight labor conditions, the supermarket lot and the crime management Mike your standard.
standard reasons. What are you hearing from the students that are showing interest but...
not finally closing.
And that's what they enroll. The code means that...
Right, so as we've said, we've seen good, strong indications of interest. And we're staffed to handle the increased inquiries. And so we're getting those enrollments. And then the next stage for those students is to go through the financial aid process and then start when the classes begin. Those throughout that process, certainly as they're talking to financial aid advisors, you can hear.
when there might be issues of certain doubt coming into a student's mind, the issues that when we kind of canvas the group, our group and try to understand what is happening out there, the issues are kind of around the typical things that people talk about, oh, my gas bill is so high, it's gonna cost me so much to commute. I still know this is the right thing at this time for me to do, or where people are concerned about taking on debt, or they're saying that there's other opportunities for them.
So those are kind of the basic ones that we hear for why the start rate has softened. As I said, I think there are things that we can do both from the standpoint of ensuring we get as many enrollments as possible, but also get the students through the financial aid system. More quickly, we are certainly eliminating one's concern over how they pay for their education and would it lay any kind of fears in that area.
But, you know, it's not unusual to have lower growth during periods of low unemployment, although we do expect to still have growth.
So, just, you know, how long do you think this lasts? Is this largely a function of unemployment rising or are there initiatives that you put in place that you think could, I mean, other than the financial aid system be more efficient? Yes. And I have a question on that later, how do you think this turns?
Well, I think that we found the one rush. We have. We have.
So, yeah, I think that certainly in the near term, given where unemployment is, as we've said prior pre-COVID, we would anticipate our top line to be growing in the low single digits during periods of low unemployment without additional growth vehicles, those being either opening new campuses and or acquisitions. So I certainly would forecast over the next, say, six to 12 months.
that we've been in that environment of the past. We've been in that environment for a long time. We've been in that environment for a long time. That's right. That's right.
without these additional opportunities for growth.
Right.
Thank you. And then on the national, I have a question on the national clothes. So that's been extended because they need more rezoning. There is a purchase price through the original purchase, the original.
Yeah, the original sale price of $34.5 million, is that right?
Yeah, $34.5 million and we should generate a large amount of proceeds, about $34 million.
And you are getting an additional 1.1 million a month.
for not additional deposits. Yeah, not a month we're getting up till, the alcohol to do diligence, but they're really just going through their zoning right now. So each month they add to their deposit, like you know, in the month of August , with 75,000 interactions up from there, you know, to 1.1 million, you know, towards, you know, by March 2023. Right, so by the end of the 12 months, they would have paid you an additional 13.
0.2 million of the 34.5 million purchase price.
No, no, no, no rush. It's only 75,000 for this month. In aggregate, it's going to be a 1,000,001 in total non-refundable deposit over the next 12 months.
But it's not a million a month. Correct. Okay, just to add a few extra planners. And it takes us a moment.
Yeah, no problem. That pushes it out. Did I have a question on the financial aid system?
You know, was this something that was already initiated prior to a quarter or two or whenever ago, how did this sort of come about? Is this the idea that you commented that in the process of looking, in a process of lower or starts, you started looking at things that could make it more efficient. And what is this financial aid system that you're wanting to be centralized?
So it's something that's been underway. And frankly, it's something that's moving forward at a good pace. The comments about it is just as our start rate is softer than we would like. And as we look for every kind of opportunity to correct that, we see that there's an opportunity to be had with our financially processing in that we didn't process more students this year than last year, but as a percentage of the...
potential students to process it down slightly. So that's how we can hopefully leverage that opportunity more to help improve starts going forward. But the way it works, or the way it has worked at Lincoln is that traditionally all the campuses had a full financial aid staff and they processed and handled financial aid locally at the campus level. We believe that we can better serve students and be more scalable by centralizing the financial aid system.
Still probably have a body at the campus to deal with students in certain questions, but have the bulk of the assets at a centralized location where you can make it more flexible to reallocate resources amongst campuses, depending on their growth. And we think it's a much more efficient model and we know a lot of other larger organizations like us that have adopted this model. In addition, as we centralize it, we're also adopting some software that we'll be able to utilize that also.
Any sort of indication on approximate revenues?
for a program like that.
Yep, in this case, there are no revenues to us. What the benefits are, our students will become Tesla employees as they're going through the program. And then they get to be hired by Tesla. And it will help us, we believe, greatly in our marketing initiatives, as well as we think that based off of the conversations we've had, we'll be able to further enhance our overall electrical curriculum.
Plus, eventually, hopefully down the road maybe have some other opportunities with Tesla.
As well as Tesla will be donating a few of their cars to us each year. Yeah, we'll get two cars a year per location if we have more than one location. Yeah, we'll get two cars a year per location if we have more than one location.
What do you expect ongoing enrollment to be for a program like this?
of for the Tesla program.
Yes, yeah, it's gonna it's gonna as you know start off small like all programs like 50 to 75 students and then we'll be able to ramp it up from there.
Got it. Thank you so much for taking my questions out. I'll take this off, Mark. Thank you.
No problem, thank you. Thank you.
Thank you. We have time for one more question. And that question comes from Justin Putman.
button them with
with Tlanta Investment Group. Your line is open.
Thank you. Scott and Brian , your first line in your press release is you know, you continue to execute on your five-year growth strategy. I'm curious if you could give us a little more details about that five-year growth strategy. You mentioned opening. Sure.
five new campuses but there's anything else specific to go with that.
Sure, well, part of these initiatives that we have underway moving to the blended learning and centralized FBA are part of the plan as well because both of those address two important initiatives. One is improving the student experience and making it more attractive for students. And second is creating greater efficiencies for us to frankly become more scalable by having uniform processes and programs. By having uniform processes and programs.
across our campuses. So that's kind of a foundational aspect of the program. Then the next aspect is to open up new campuses and markets that our partners have highlighted would be very attractive to them for us to be operating in as well as markets that, based off our own research and third-party analysis, would suggest there's good demand. And then there is continued operational opportunities, well not operational, but opportunities to make acquisitions.
And so that is also something that's being contemplated. As Brian said, we still have a good strong cash position. We obviously will be prudently being evaluating whether or not we use some of that cash to buy back stock over the next nine months or so. But we definitely have enough where with all to both look at tuck-in acquisitions as well as opening up new campuses with the resources that we have available to us. Any other thing I'll add is that, you know, for degree granting, we're hoping.
the high teens in the next four years and revenue close to north of $500 million.
If you open five new campuses and assuming they're the same general size as that Atlanta one that's about 100 million from that. Correct.
Okay, so what kind of organic growth rate are you kind of looking at?
What kind of organic growth rate are you looking at? I'm looking at low single digits.
for the core business.
And within five years, it's definitely 100 million for the five new campus because the ratchet's off, you know. the comparison.
Within five years it's definitely 100 million for the five new campus because it ratchets off you know the first year zero.
But on the runway basis. Yeah, runway. Absolutely. Yeah.
Okay, okay, great. Thank you for that discussion.
Yep, no problem for Jason.
Thanks, Your Honor.
Thank you and there are no other questions in the queue. I'd like to turn the call back to Scott for closing comments.
Thank you all for joining our call. As mentioned already, while we are disappointed in how the environment has changed for us and the impact that is had up to our guidance, we are very pleased with the progress that we are making with our various initiatives to improve the student experience while driving future cost efficiencies across our campuses.
Our balance sheet is strong as we remain debt-free with plenty of cash on hand. We have secured a lease for a new campus that will open by a third quarter of next year and are actively searching in several other markets for additional new campuses. For additional new campuses. For additional new campuses.
Most importantly, we continue to improve upon our already strong outcomes and this enhances our students' ROI as well as attracts additional partners. I want to thank our faculty and staff for their unwavering commitment to our students and their dedication to making Lincoln Tech the best educational opportunity possible. Thank you again and we look forward to updating you on our progress this fall. Enjoy the rest of your summer. This concludes today's conference call. Thank you for participating. You may now disconnect.
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