Q1 2024 Lincoln Educational Services Corp Earnings Call
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Speaker Change: Good day and thank you for standing by welcome to the Lincoln Educational Services' 2024 first quarter results conference call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one on your telephone.
Speaker Change: In here, an automated message advisory your hand is race to a draw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the corporates over to your first speaker today, Michael <unk>. Please go ahead.
Michael: Thank you Marvin and good morning, everyone well the market opened today Lincoln educational services issued a news release reporting financial results for the first quarter ended March 31 2024.
Michael: The release is available on the Investor Relations portion of the company's corporate website at Www Dot Lincoln Tech got E D.
Michael: Today on the call are Scott Shaw, President and CEO, and Brian Meyers Chief Financial Officer.
Speaker Change: Today's call is being recorded and is being broadcast live on the company's website and a replay of the call will be archived also on the company's website.
Speaker Change: 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 chairman 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 it.
Speaker Change: Forward looking statements.
Speaker Change: Forward looking statements should not be read as a guarantee of future performance or results.
Speaker Change: The company cautions you that these statements reflect current expectations about the company's future performance or events and are subject to a number.
Speaker Change: Risks and other approaches many of which are beyond the company's control that may influence the accuracy of the statement.
Speaker Change: Sections on which the segment and statements are based.
Speaker Change: 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.
Speaker Change: Quarterly report on Form 10-Q filed with Securities Exchange Commission.
Speaker Change: Forward looking statements are based on information available at the time those statements are made and management's good faith belief as of the time with respect to future events.
All forward looking statements are qualified in their entirety by this cautionary statement and Lincoln undertakes no obligation to revise or update any forward looking statements whether as a result of new information.
Peter events or otherwise after the date thereof. During the Q&A portion of today's call. We ask participants to limit themselves to one question and one follow up question.
Speaker Change: Ask participants to re queue. If you have additional questions now I would like to hand, the call over to Scott Shaw, President and CEO of <unk>.
Scott M. Shaw: The uplift in educational services Scott. Please go ahead.
Scott M. Shaw: You, Michael and good morning, everyone. We've had an exceptionally strong start to 2024 and at this point, we see our momentum continuing through the remainder of the year thinking continues to invest in transformative strategies that are driving our growth at the same time, we're fully capitalizing on the distinct trend in America two questions.
The value and cost of a four year College degree, while the nation skill gap continues to stifle growth and opportunities.
Scott M. Shaw: Our focus on offering innovative efficient student curriculum is enabling a growing number of graduates to enter rewarding in demand careers is also attracting additional corporate partners and broadening our relationship with existing partners. During the first quarter of this focus led to 15, 3% student start growth.
Nearly 20% revenue growth and the doubling of adjusted net income.
Scott M. Shaw: <unk> solid performance, which is even more impressive as it is largely generated from existing programs and campuses is enabling us to increase the full year guidance for revenue adjusted EBITDA and adjusted net income.
Scott M. Shaw: As we've discussed during previous calls and during our recent Investor day, our highly scalable hybrid instructional platform, which we branded Lincoln 10.0 is a cornerstone to our success. We've discussed how Lincoln 10.0 combines hands on learning our campus facilities with a greater component of classroom work delivered through online instruction.
Scott M. Shaw: <unk> the model is enabling our students to work part time or manage other commitments, while pursuing a Lincoln education and is specifically designed to help a higher percentage of students to graduate.
Scott M. Shaw: At the same time, the platform is creating and structural efficiencies and increasing productivity during.
Scott M. Shaw: During the quarter, we began to generate material operating leverage to the expanding deployment of 10 point out we achieved more than 200 basis points of improvement in our direct instructional cost as a percent of revenue when completed by the end of this year like in 10 point of it will be used in teaching approximately 65% of our classes and we expect.
Scott M. Shaw: To generate increasing operating leverage as the year progresses and into 2025.
We believe.
Scott M. Shaw: 10 point always playing a major role in a students' decision to enroll at Lincoln the platform reduces the time to complete many of our curriculum speeding our graduate graduates to begin their careers. This enhanced training productivity is also attractive to our corporate partners, who remain constrained by the lack of skilled employees the platform is.
Scott M. Shaw: Sally changed how we teach our students and has positioned the company for the future as we implement our significant expansion plans.
Scott M. Shaw: Replicating high in demand programs at our existing campuses is one of our key growth strategies.
Scott M. Shaw: We remain on schedule to add eight more of these programs by the first half of 2025, we continue to expect that each of these programs will generate approximately $1 million of profitability within three years of opening.
Scott M. Shaw: During the quarter, we welcomed the first class at our newest campus in East point GA. This.
Scott M. Shaw: This new facility is the first result of our strategy to open one new canvas per year and offers hands on training in the automotive and skilled trades fields as we showcase during our first Investor day on March 19th the campus is 56000 square feet of training space, including 15, automotive service spaces and up to 60 welding boots.
Scott M. Shaw: Labs classrooms, and work areas and we believe it is unique among trade schools by capitalizing on the best ideas from all of our campuses, while elevating the student and teaching experience with its sleek modern design the labs and shops have the latest technology with lots of opportunities for hands on learning as I noted during our last call.
Scott M. Shaw: In March the campus is the first school in the nation to incorporate best in class elect to training AIDS into our automotive program.
Scott M. Shaw: To date still.
Scott M. Shaw: Student starts and enrollment at each point have been above plan, which is boosting our confidence in our plan to add one new campus per year over the next four years late last year, we announced the second Greenfield site, which is in Houston, Texas over the past four months. We've completed the plans for this new facility and will begin to build out shortly.
Scott M. Shaw: We remain on schedule to welcome our first classes at this campus, which is our second in Texas in the second quarter of 2025. This new campus will feature training center of approximately 100000 square feet and offer career opportunities in the auto diesel welding HVAC and electrical fields. In addition to new campuses and Ed.
In Houston, we are relocating existing campuses in Nashville, and Philadelphia to new locations that facilitate existing program expansion and our replication strategy over the next two years as we layer on new campus openings as well as the program replication strategy, we consistently expand our opportunities to increase over.
Scott M. Shaw: We're all students starts while remaining focused on maintaining the impressive organic start growth at existing programs during.
Scott M. Shaw: During the quarter, we continued to fine tune, our marketing programs, which have certainly contributed to our start in revenue growth one new component of our outreach efforts involves joining forces with employers government agencies unions and community colleges to increase awareness of the opportunities available through skilled trades careers after <unk>.
Scott M. Shaw: Dissipating and the successful statewide career education fair in the state of Connecticut, We helped establish a similar event in the state of Maryland, just last week, we joined forces with several of our corporate partners, the Maryland Department of Labor and other contributors to sponsor the Maryland career Quest that featured a keynote address.
Scott M. Shaw: By Maryland, Lieutenant Governor Aruna Miller.
The event attracted over 1200 high school students veterans of the armed forces and adult career changers from the Baltimore, and Washington D C Metro areas.
Scott M. Shaw: Additionally, with the expanding interest in skilled trades, we are raising our profile by being a resource to the media for instance, I was recently interviewed by Stuart Varney on Fox news on the nation's skills gap strategies to fill it in a rewarding career opportunities available in the skilled trades.
Before I turn the call over to Brian for a review of our financial progress during the quarter I'd like to spend a few moments reviewing a new opportunity that we have secured with the container maintenance Corporation.
Brian K. Meyers: We view disagreement is strategically critical for Lincoln, given its term and value, which over the five years is expected to be approximately $6 million.
What is different about this contract is that none of our students are involved instead, we are leveraging our curriculum and training capabilities to upskill their employers and their employees at their facilities, while we have enormous opportunities with our campus focused growth strategies, we believe that we have additional growth opportunities.
Brian K. Meyers: By providing workforce training to companies across the country, whether we have a campus in their area or not.
Brian K. Meyers: Currently pursuing additional contracts with other employers.
Brian K. Meyers: Meanwhile, we continue to expand our existing corporate partnerships. Most notable is our relationship with Hyundai Genesis, which now is available at all of our auto technician training campuses and we are in active discussions with several other potential corporate partners in a variety of.
Brian K. Meyers: Industries. Finally, we have several events scheduled over the coming months to educate potential investors about the enhanced valuation potential offered through our shares while we will be issuing news releases for each conference appearance, including the B Riley Lytham partners and Sidoti conferences. We also have a campus tour on may 20th in Dallas.
Brian K. Meyers: And we also have non deal Roadshows scheduled with Lake Street in Minneapolis on June 18th and with Barrington on June 'twenty, and 'twenty, one in Milwaukee and Chicago.
Brian K. Meyers: By all measures Lincoln is on track to have an excellent year, we have transformed our company into an exceptional provider of educational services that meet the needs of Americas corporations as well as America's workforce. Our focus is leading to impressive growth. While we have set in place several initiatives to expand our company.
Brian K. Meyers: As a result, we are positioned to build on the solid first quarter performance, both next quarter and for the foreseeable future and importantly, our balance sheet remains strong. So we can achieve our growth without diluting shareholders now I would like to turn the call over to Brian Meyers. So he can review some of our recent financial highlights as well as provide our updated and increased guy.
Brian K. Meyers: Since Brian.
Brian K. Meyers: Thank you Scott and good morning, everyone. Thank you for joining us today I'm pleased to provide an overview of our first quarter 2024 financial results and to discuss our updated outlook for the remainder of the year as Scott mentioned our performance in Q1 was strong surpassing our internal expectations, we experienced impressive growth in <unk>.
Brian K. Meyers: Revenue and student starts with revenue, increasing nearly 20% and soon in starts 15%.
Brian K. Meyers: This illustrates the momentum we are generating from our core campuses.
To further fuel our growth we are actively working on the build out of seven new programs with six are expected to be rolled out by year end. In addition, we have identified two additional programs that route too.
Brian K. Meyers: To be replicated next year.
We're also making progress with the build out of our of our two campus relocations and Nashville, and labor talent as well as our new campus in Houston by year end, we expect to invest approximately $50 million in Capex for these three locations as part of our estimated total capex capital spending of $65 million to $70 million this year.
Brian K. Meyers: <unk>.
Our investments in new campuses and campus relocation that stay VR facilities position us well for significant growth over the next five years.
Brian K. Meyers: As we have outlined in our Investor day presentation in March upon successful completion of our announced growth initiatives.
Brian K. Meyers: Project, we project to achieve revenue of approximately 50 $550 million and adjusted EBITDA of about $90 million by 2027.
Brian K. Meyers: In terms of Q1 financial performance revenue grew 20% to $103 4 million, primarily driven by an increase of 12% in average student population.
Brian K. Meyers: Growth.
Brian K. Meyers: Bolted from higher beginning population as we started 2024 with approximately 1100 more students than in the prior year, coupled with our 15% stock growth.
Brian K. Meyers: Thanks to the strong performance, we finished March with almost 1400 additional students positioning us for continued growth this year.
Brian K. Meyers: Our east point, GA campus, which is having its grand opening event. This Thursday commenced as first class in March while these points contribution of 29 students starts and revenue of 90000 was negligible for the quarter.
Brian K. Meyers: The campus is generating strong student interest enrollments and starts that is currently trending above our internal and external expectations.
Brian K. Meyers: Before we dive into operating expenses I wanted to know for comparability purposes. This discussion will exclude one east point campus to preopening costs of new and relocating campuses three other nonrecurring expenses and for the transitional segment.
Brian K. Meyers: Further details of these items are available on our non-GAAP disclosures of our Q1 earnings release.
Brian K. Meyers: After adjusting for these items total operating expenses amount to approximately $100 million in line with our expectation upon factoring the additional expenses tied directly to our highest student population.
Brian K. Meyers: During the quarter, we saw a notable efficiencies and instructional expenses and marketing investments.
Brian K. Meyers: Construction expenses decrease as a percentage of revenue to our transition to a hybrid learning model.
Brian K. Meyers: Which has begun to deliver efficiencies by year end, we expect about 65% of our population would be toward under the hybrid model marketing investments increased how's.
Brian K. Meyers: However, we are seeing a solid return as evidenced by our 15% stock growth, while keeping our cost per start flat.
Brian K. Meyers: Our first quarter adjusted EBITDA results exceed our internal plan at approximately $6 5 million almost tripling the previous year's $2 2 million results were above our plan as a result, we are raising our outlook for the remainder of the year.
Brian K. Meyers: Our balance sheet remains robust during the quarter, we strengthened our liquidity to $100 million through the execution of a new $40 million credit facility with fifth third bank.
Brian K. Meyers: While we do not anticipate to draw on the credit facility in the near term the facility further enhances our financial strength and stability, providing us with the additional flexibility to produce to pursue growth opportunities, including additional new campuses.
Brian K. Meyers: We finished the quarter with almost $70 million in cash and continue to be debt free resulting in working capital of nearly $60 million.
Brian K. Meyers: Looking ahead to the remainder of 2024 based on our strong Q1 results and current trends we are addressing our outlook.
Brian K. Meyers: Upward for revenue adjusted EBITDA and adjusted net income is as follows.
Brian K. Meyers: Revenue ranging between $418 million to a $428 million adjusted EBITDA in the range of 37 to 42 million adjusted net income ranging between 12 million to $17 million.
Brian K. Meyers: The outlook for student start growth of 7%, 12% and capital expenditures in the range of $65 million to $70 million remain unchanged.
Brian K. Meyers: As a reminder, our full year financial guidance for adjusted EBITDA and adjusted net income excludes the impact of the East point campus preopening costs related to new and relocated campuses.
Brian K. Meyers: <unk> expansions and noncash stock based compensation.
Speaker Change: In conclusion, I want to I want to express our gratitude to our entire team, including faculty and students for their exceptional contributions.
Speaker Change: Remain committed to delivering value to our stakeholders and look forward to updating you on our progress throughout 2020 for now.
Now I'll turn the call back over to the operator for any questions operator.
Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please stand by while we compile the Q&A roster.
Speaker Change: Our.
Speaker Change: First question comes from the line of Alex Paris Barrington Research. Your line is now open.
Speaker Change: Good morning, everybody.
Alexander Peter Paris: Good morning, Alex.
Just wanted to say congratulates congratulations on the strong start to the year and the higher guidance.
I'm going to focus my one question on Lincoln 10 point, though and its effect on starts.
Alexander Peter Paris: The Lincoln Paulino hybrid initiative is beginning to yield.
Alexander Peter Paris: Not just starts but also operating leverage I think the contribution margin to adjusted EBITDA was about 28, 27% in the quarter. If my math is right.
Alexander Peter Paris: But in addition, you spent additional dollars on marketing spend although your cost per start was flat.
Speaker Change: I guess my question is two parts.
Speaker Change: Maybe a little additional color on Lincoln 10.0, and its effect on Q1 and the rest of the year and then what should we expect in terms of marketing expense over the balance of the year. Thanks.
Speaker Change: Sure Yes.
Speaker Change: I appreciate the question so we're definitely seeing strong growth.
Speaker Change: Across our programs and.
Speaker Change: It's probably due to many things not just Lincoln 10 point, no, but certainly we know that students want greater flexibility everyone's used to doing something online. These days and we know that the Lincoln 10 point program in its format is being well received and is helpful. But I also have to imagine we're being.
Speaker Change: It just from so much of the discussion that's taking place out there of what is the value of college and should my child now go to college, just having more people have that conversation and think about the skilled trades I believe is also benefiting us so.
A number of factors out there and then as far as <unk>.
Speaker Change: Spend on marketing, but we do expect to spend more on marketing similar to what we spent in the first quarter, probably a little bit less but we do see great opportunity out there and as long as as you mentioned our cost per start is not increasing we know that we're getting a good return on those additional dollars.
Speaker Change: Thank you one more for next question.
Speaker Change: Our next question comes from the line of Steven Frankel of Rosenblatt Securities. Your line is now open.
Good morning.
Steven Bruce Frankel: Scott could you give us some insight into how quickly we'll see thinking 10 point now drive off graduation.
Steven Bruce Frankel: Right got it.
Steven Bruce Frankel: Something that would be material to this year or more likely to have an impact, but the full year rollout in 2020.
Scott M. Shaw: Well, we've been benefiting from it since we started rolling it out frankly about 15 months ago. So we have been gradually seeing our retention and graduation rates improve I don't know.
Scott M. Shaw: Anticipate them frankly, improving dramatically more than where we are today, we're hovering based.
Scott M. Shaw: Based off of our internal tracking at close to 70%, which is the target we set out for ourselves, but what we are seeing is slight improvement, especially in our evening program because the link and 10 point no curriculum is delivered in a more accelerated fashion and so therefore, we're getting more graduates in our.
Scott M. Shaw: Evening program that we had before so I expect to see incremental increases, but I don't see anything dramatic happening, but we're very pleased with the 70% level and we will continue to move that forward.
Speaker Change: Great. Thank you.
Yes.
Speaker Change: Thank you one moment for our next question again as a reminder to ask a question you will need to press star one on your telephone.
Speaker Change: Our next question comes from the line of Eric <unk> of Lake Street Capital markets. Your line is now open.
Eric: Yes, I know you didn't give explicit guidance.
Q2 revenue outlook, you just commented on the year, but seasonality wise.
<unk> Q2 to be roughly flat with Q1, given the outperformance in Q1 is that still a safe assumption.
Eric: Yes, yes, it could be slightly.
Eric: If you look at seasonality it'll flow about the same so it will be roughly flat with Q1.
Eric: Okay.
Eric: Alright, and then new.
Eric: <unk> for me here of the demand that you guys announced with new corporate partner.
Eric: Yes.
Eric: Container meds.
Container maintenance Corporation, just curious to know what the impetus here.
Eric: Did they approach you did you approach them and the fact that it's not going to be done at your campuses.
Eric: What.
Eric: How are we pulling this off us.
Eric: Are they investing in training facilities themselves or is this still TBD.
Speaker Change: Sure so.
Speaker Change: Interesting and exciting opportunity and frankly, we've been looking for opportunities like this for years I mean, we interact with a lot of employers both at the local and national level, and we had been frankly working with a number of people in the shipping area, particularly around trailers.
Speaker Change: <unk> pulled by tractor trailers for repair programs and we've been working frankly with another group and develop the program for them, but never materialized and then in those conversations and being part of the industry and reaching out to others within it within the industry. We then secured this opportunity and so as I mentioned.
Of our opportunities are in connection with our students are enhancing the curriculum that we have in this case, we're basically able to take a form of curriculum that we created and then bring it to the employer to upskill their their employees and so what we'll be doing is basically established.
Speaker Change: <unk> training sites at four or five locations that they've asked us to provide for them hire the staff train them and then use our curriculum to upskill their employees and obviously that gives us a lot more operating leverage because now we are open to doing I guess training beyond let's say the <unk>.
Speaker Change: 14000 students that we have today and we are actively talking with frankly, a number of other organizations involved in logistics and shipping to provide similar type of training.
Speaker Change: Thank you I'm showing no further questions at this time I would now like to turn it back to Scott Shaw for closing remarks.
Scott M. Shaw: Thank you thanks, everyone for attending today's call, we hope to see you at one of our many investor conferences and non deal roadshow events over the next few months and I. Appreciate your continued interest in our company. We look forward to updating you on our progress in August and wish you all a good day. Thanks, everyone.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
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