Lincoln Educational Services Corporation (LINC) Earnings Call Transcript & Summary

Good morning, and welcome to the 2021 Annual Meeting of the shareholders of Lincoln Educational Services Corporation. I'm Barry Morrow, Chairman of the Board, and I'd like to officially call the meeting to order. Before we begin, we would like to note that due to the public health impact of the coronavirus outbreak and to support the health and wellbeing of our employees, shareholders and community, Lincoln has decided to conduct its annual meeting virtually this year. Now I would like to take a moment to acknowledge the members of the company's Board, who are also in attendance remotely. Scott Shaw, our CEO; Jim Burke, Chairman of the Compensation Committee and Member of the Governance Committee; Peter Burgess, former Chairman of the Audit Committee; Kevin Carney, Chairman of the Audit Committee; Celia Currin, Chairman of the Nominating and Corporate Governance Committees and Member of the Audit Committee; Ron Harbour, a member of the Compensation and Nominating and Corporate Governance Committees; Don Bartholdson, a Member of the Audit, Compensation and Nominating and Governance Committee; Carlton Rose, a Member of the Compensation Committee; and Dr. Michael Plater, Member of the Nominating and Corporate Governance Committee. I would also like to acknowledge the presence of Jeff Minick, Audit Partner from Deloitte & Touche, the company's certified public accounting firm, in-charge of our account, who is also in attendance remotely. And now I will turn the media with our CEO, Scott Shaw.

Thank you, Barry. I'd like to outline the format for today's meeting. First, I'd like to begin by calling your attention to the agenda for the annual meeting, which is available on this webcast screen under meeting information. The business of this annual meeting will follow the order set forth in the agenda. Alexandra Luster, our General Counsel and Corporate Secretary, will describe and then present for a vote each of the 3 proposals set forth in the proxy statement. The polls will be open for voting for anyone who wishes to vote electronically with respect to the matters presented. If you have not already voted your shares or wish to change your vote, you may do so by clicking on the "click here to vote" button available on this webcast screen. The polls will remain open until all of the proposals have been presented, and I declare the polls to be closed. Second, I'd like to point out that shareholders may submit questions electronically during the meeting by typing a question in the submit question box on this webcast screen. Questions received will be answered following the meeting via e-mail to the shareholders submitting the question. Third, I will present management's report regarding operations and recent developments at Lincoln Educational Services Corporation. And now I will turn the meeting over to Alexandra Luster, Lincoln's General Counsel and Corporate secretary.

Thank you, Scott. At this time, I'd like to address several procedural formalities. Notice of the date and time of this meeting was mailed to shareholders on March 26, 2021. An affidavit to that effect will be filed with the records of the meeting. We wish to remind everyone that only shareholders are entitled to attend the annual meeting or submit questions. As this is a virtual meeting, we would ask that only shareholders be given access to the webcast. Isaac Kagan of Continental Stock Transfer & Trust Company has been appointed inspector of elections for this meeting. And our CFO, Brian Meyers, will be reporting the preliminary results of the voting at this annual meeting, which results will be finalized by Continental Stock Transfer & Trust Company subsequent to the meeting. Isaac Kagan has signed an oath of office to faithfully execute the duties of inspector with strict impartiality and according to the best of his ability. We have available during the course of the annual meeting, a list of the shareholders of record for the company as of March 8, 2021, the record date for this annual meeting, as certified by Continental Stock Transfer & Trust Company, the transfer agent for the company's stock. The certified list may be found in the meeting documents of this webcast screen. Only shareholders on this list are entitled to vote at this annual meeting. I have received from the inspector of election, his report as to quorum. The report indicates that according to the certified shareholder list and the number of shares eligible to vote, the number of shares voted constitutes a quorum for the purpose of transacting business at this annual meeting. Accordingly, the annual meeting is legally convened. For those who would like to vote or change their vote at this time, the polls are open. The polls will remain open until all items of business have been presented. At this time, I will now present the 3 proposals to be voted on at this annual meeting, all of which were described in the proxy statement furnished to the shareholders. We will now proceed with the first item of business, which is the election of directors. In accordance with the bylaws of Lincoln Educational Services Corporation, the number of directors to be elected at this meeting is 9. The Board's nominees for director for the ensuing year or until their successors are duly elected and qualified are listed in the proxy statement provided to all shareholders. They are John Bartholdson, James Burke, Kevin Carney, Celia Currin, Ronald Harbour, J. Barry Morrow. Dr. Michael Plater, Carlton Rose and Scott Shaw. Biographies of the nominees were included in the proxy statement. The Board's slate of nominees for Director is now formally placed before this annual meeting. If you have not already done so, please vote on this proposal or if you have already voted, but wish to change your vote, please do so. The next item is a proposal to provide shareholders with an advisory nonbinding say-on-pay vote to approve the compensation of our named executive officers as disclosed in the company's proxy statement. The advisory say-on-pay proposal is now formally placed before this annual meeting. If you have not already done so, please vote on this proposal or if you have already voted, but wish to change your vote, please do so. The final item is a proposal to ratify the appointment of Deloitte & Touche LLP as Lincoln's independent registered public accounting firm for our fiscal year ending December 31, 2021. The Audit Committee of the Board of Directors has approved the selection of Deloitte & Touche LLP as independent auditors of Lincoln Educational Services Corporation for the fiscal year ending December 31, 2021. The selection of Deloitte & Touche is now formally submitted for shareholder ratification. If you have not already done so, please vote on this proposal or if you have already voted, but wish to change your vote, please do so. I will now turn the meeting over to our CEO, Scott Shaw.

Thank you, Alex. Now that all of the proposals have been presented and shareholders have had an opportunity to vote, I declare the polls are closed. And now I will turn the annual meeting over to Brian Meyers, Lincoln's Chief Financial Officer, who will provide a preliminary report on the voting.

Thank you, Scott. We'll now proceed with the reporting of the preliminary results based on the report of the inspector of elections delivered this morning, which shows that: Proposal 1, the Board slate of 9 directed nominees has been approved with each director having received no fewer than 23.8 million votes in favor or 97.4% of the votes cast; Proposal 2, the nonbinding advisory say-on-pay vote to approve the compensation of our named executive officers have been approved with 23.8 million votes in favor or 97.2% of the votes cast; and lastly, Proposal 3, the ratification of the selection of Deloitte & Touche LLP has been approved with 27.9 million votes in favor or 99.3% of the votes cast. That concludes the report of preliminary voting results. The final results will be reported in our current Form 8-K to be filed in the next few days. I would like to reintroduce Scott Shaw, who will give Lincoln's management presentation with respect to the company's operations and certain recent developments.

Thank you, Brian. Before I begin my remarks, I'd like to remind everyone to read the disclosure at the bottom of today's agenda that addresses any forward-looking statements that I may make during this presentation. Now if we could go to the first slide entitled Stronger and Better, please. With that, I'm happy and proud to report that Lincoln Educational Services is stronger and better today than we were before the shutdown caused by the COVID-19 pandemic. Lincoln entered 2020 with great momentum and success, and we ended the year stronger financially and better prepared to reach our potential. Next slide, please. As a reminder of some of Lincoln's potential, we are the largest provider of entry-level automotive and diesel technicians and skilled trades craftsman coming from post secondary schools in the eastern half of the United States, and our students nationwide represent less than 1.5% of the employees hired every year in these fields. The industry is highly fragmented, and we have tremendous opportunity for growth. Next slide. Another opportunity for growth arises from the huge skills gap that exists in our country as a result of 4 decades of societal pressure to go to college at the expense of vocational technical training. Today, students do not know if they want to pursue a technical career or even if they have an aptitude for such work simply because they've never been exposed to them. This shortage in supply is coming during a time that baby boomers are retiring in growing numbers, the economy is rebounding, and due to technical advances, the majority of jobs require some form of training. To add to the imbalance, the huge infrastructure bill that has been proposed will exacerbate this shortage. Lincoln is working every day to help employers find and develop their entry-level workforce needs. Next slide. The labor market that Lincoln supports is the largest segment of our workforce, the middle skills. These are careers that require more than a high school education but less than a 4-year degree. As student debt loads dramatically rise, more and more individuals are seeking shorter, cheaper and faster means to enter the workforce. And this is why Lincoln Tech was growing pre pandemic, even as the unemployment rate reached a 50-year low. Now that the pandemic -- now with the pandemic, our careers are finally viewed more positively. 90% of the careers we offer create essential workers, essential in that they are needed even during a pandemic. Next slide. As a reminder to those of you who are new to our story, we went through a restructuring phase through 2017 when we closed schools in response to regulatory and economic conditions. We then made several management changes and took several strategic actions, which started our 3 consecutive years of growth. We have now survived a pandemic and are achieving an acceleration in our growth as we seek new opportunities to better serve industry workforce needs. Next slide, please. Given the dramatic changes that have taken place as a result of the pandemic, it's important for me to remind you of how we manage through it and how the pandemic has changed how we will operate into the future for the betterment of our students and our company. First, 14 months ago, we were forced to shut down our hands on in-person education model and move rapidly to our 100% training -- online training model. We successfully made this transition because we were already providing most of our students with laptops, we had experienced delivering online education, but most importantly, our faculty and staff went above and beyond to continue to serve their students and to keep our company alive. Without their creativity, dedication and tireless efforts, we would not have achieved our strong 2020 results. And they are: revenue up 7.2%, new students up 10.7%, EBITDA grew more than 65% to $22.2 million, our cash balances increased, our debts declined, and we ended the year with the net cash position. Finally, we started 2021 with more than 1,000 students more than the prior year, which positions us well in 2021. Our guidance for 2021 assumes that we will continue to operate with the current social distancing rules in place. We expect new student starts to remain strong given the high unemployment rate, and we will continue to make progress in enhancing our online capabilities and delivery to enhance the student experience. And we will add one new program at 4 different campuses to better serve local hiring needs in those markets. As we look to the future, we are designing all of our programs to be blended since students enjoy the flexibility afforded by online education while they highly value their hands-on training are professionally trained instructors provide. At the same time, we will be streamlining our processes and educational delivery to become more efficient, all while we continue to improve our graduation and placement rates. In short, we seek to grow our outcomes, better serve our students and increase our profitability through operational efficiencies. Next slide, please. With so much recent attention given to the potential dramatic increase in funding to make community colleges free, I want to remind you of why students select us today, even though community colleges are cheaper or cheaper alternative. First, you'll often get what you pay for, and our graduation and placement rates are clearly 2 to 3x better than the average community college. Second, our programs are developed with input from local employers, and we seek their advice and guidance every 6 months to ensure that our programs are as current and relevant as possible. Third, we strive to offer industry licensure certifications so that employers know the true capabilities of our students. Fourth, and maybe most importantly, from the employer's perspective, we teach hard skills and soft skills. Employers value the fact that we take attendance and post attendance on our students' transcripts, I'm unaware of any community college who does this. Demonstrating one's commitment to their education through strong attendance gives our students a clear advantage in the hiring process. Fifth, we build our shops, labs and classrooms with industry equipment so the students have a rich learning environment and are able to develop the skills needed for their first day on the job. Sixth and seventh, we incorporate cutting-edge education technology to make learning active and engaging. And with our accelerated program starting monthly, students can enter quickly and graduate quickly. Finally, our culture and people are fully dedicated to serving our students that was clearly demonstrated in how we responded and performed during the pandemic, and it continues to stay. Suffice it to say, but the majority of our students do not have a strong support structure, both financially or emotionally, and we view it as our obligation to assist them in graduating and finding a career. Next slide, please. Given our almost 75-year history of strong outcomes, coupled with a high level of client service, we are constantly growing our list of industry partners who support our efforts with donations and provide our students with excellent employment opportunities. Strengthening and increasing our partnerships is a key goal for our company going forward. Next slide. I'm fortunate to have a strong and experienced management team, and next slide, along with the talented and committed Board of Directors. I will note that after this meeting, Peter Burgess is retiring, and so our Board will have 9 members. And 4 of these members have recently joined the Board over the past 18 months, bringing fresh ideas and perspectives. Next slide. I now would like to highlight our financial performance. Next slide. As you can see, we have had 3 consecutive years of strong growth. Furthermore, both segments of our business have experienced this growth. Next slide. A key attribute of our business model is our high operating leverage. So as our top line grows by mid-single digits, our EBITDA profitability has been growing at 3 to 9x our top line growth rate. Next slide. Looking now specifically at our Transportation and Skilled Trades segment, which is our largest segment. In 2022, our revenues grew 7.1%, the EBITDA grew 40.1% and the margin increased to 19.7%. Next slide. Our Healthcare and Other Professions segment, which represents about 1/3 of our students performed similarly well. Revenue increased 7.6%, EBITDA grew by 44.2% and the margin increased to 13.5%. Next slide. This strong performance translated into strong earnings per share, which also benefited from a onetime release of our tax valuation allowance. Without this tax adjustment, EPS was $0.36, which represents a 350% increase from the prior year. Next slide. Our balance sheet is strong. We ended the year in a net cash position of $20.8 million, which is a $16.2 million improvement from last year, and we were free cash flow positive for the year and expect to be again this year. Next slide. And with that, I conclude my remarks, and I declare that the 2021 Annual Meeting of Shareholders is concluded and hereby, adjourned. Thank you all for joining us this morning.