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

I will now turn the meeting over to our CEO, Scott Shaw.

Thank you, Alex. Now that all 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 will now proceed with the reporting of the preliminary results based on the report the inspector of elections delivered this morning, which shows that: Proposal 1, the Board's slate of 8 director nominees has been approved, with each director having received no fewer than 19.2 million votes in favor or 71.3% of the votes cast. Proposal 2, the nonbinding advisory say-on-pay vote to approve the compensation of our named executive officers has been approved with 19.9 million votes in favor or 93.3% of the votes cast. And lastly, Proposal 3, the ratification of the selection of the Deloitte & Touche LLP has been approved with 25.7 million votes in favor or 95.3% of the votes cast. That concludes the report of preliminary voting results. The final results will be reported in our 8-K to be filed in the next few days. I would like now to reintroduce Scott Shaw, who will give Lincoln's management presentation with respect to the company's operation and certain recent developments.

Thank you, Brian. Please move to the next slide, which is our safe harbor statement. 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. Next slide, please. Let me first say that Lincoln Tech is the strongest it has been in over a decade. We exceeded our guidance in 2023 and ended the year with over $80 million in cash and no debt. We now also have a credit facility that can expand to $40 million, strong momentum in enrollment and a clear path for growth. In 2023, we improved both our graduation rate and our placement rates. We added new corporate partners and graduated over 1,000 more students than the previous year. All in all, 2023 was a very good year for the students, the company and the shareholders. Due to the pandemic and frankly, due to the general realization that our country needs technicians to maintain our day-to-day lives, a new category of workers has arisen, essential workers. These are employees that remain employed no matter what is happening in the world since they keep our lights and computers running assist in our health care, allow our transportation and logistics channels to operate and maintain many other basic needs of modern-day life. I'm proud to say that over 90% of our students are deemed essential workers. Next slide. The labor market at 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 you will see in later slides, while we are the leader in many markets that we serve, we still have a huge opportunity for growth. The shortfall in talent for automotive, skilled trades and health care workers has not abated. And from our conversations with hundreds of employers across the country, the gap is expected to get worse. Next slide. This is probably the most important slide. We are experiencing a renaissance of the trades, which is enabling us to grow while unemployment is near 50-year lows. A confluence of events has brought us to this new reality. First, COVID changed people's thinking in numerous ways. Many people decide to retire early, and the shortage of essential workers became magnified. Also, many people began to reevaluate their lives and jobs during COVID and decide to seek out opportunities with greater meaning, satisfaction and purpose. Not surprisingly to us, the trades often meet these needs. Another change came as many students and parents began to question the purpose and value of college as students were sent home to learn remotely without the benefits of campus life. On top of this, the constant messaging that students have been saddled with too much debt because of their decision to attend college is now causing parents and students to reevaluate next steps after college. Besides the impact of COVID, there is the need to rebuild our infrastructure, the threat that AI will eliminate many white-collar careers and a growing awareness that one can enter the workforce more rapidly with much less debt and with a more certain career outcome by going to a trade school. We have been talking about the skills gap for years. But now we have greater acceptance that a vocational path is often a better path for many people. This is great news for Lincoln Tech. Next slide. On this slide, you can see how we performed year-over-year. Last year, we grew our revenues 10.3% to $376.6 million and increased our starts by 11.4%. Our average population increased by 2.2%. We entered 2024 with over 1,000 more students than the previous year, which sets us up for the strong growth throughout this year. Next slide. On this slide, you can see our progress since 2020 as well as our projections for 2024. For 2024, where we have provided guidance with revenue growth similar to last year, but we expect our adjusted EBITDA to grow as we start to benefit from the investments that we've made in the prior 2 years in streamlining our organization and rolling out our new hybrid model. By the end of 2024, more than 75% of our students will be in our hybrid model, which provides students with greater flexibility to work or take care of their families and provides us with more efficiencies. We expect our EBITDA margin to continue to expand over the next several years as we benefit from continued operating efficiencies. Next slide. I want to assure you that your company is well positioned for growth, and we are ready to move forward. I've already touched on the tremendous need for essential workers. Also, as you know, we are a leader in the industry with over 75 years of experience and knowledge. We have demonstrated that we are able to grow in any economic cycle, whether it's a pandemic, a low unemployment environment or most certainly during a high unemployment period. We have a profitable model with strong operating leverage, and we have a strong balance sheet with more than $80 million of cash and no debt at the end of last year. Finally, we are in the midst of transforming our operations to drive greater profitability, scalability and efficiency for our students. Next slide. To give you a sense of the scale of our opportunity, here is our current market share. Just for those programs that we offer today, our market share of new graduates is only 2.6% for transportation skilled trades and less than 0.5% for health care and other professions. Next slide. While we have a small overall market share, we are the largest provider of automotive and skilled trade graduates in the eastern half of the United States. Our industry is highly fragmented, which provides us with a tremendous opportunity for growth. Next slide. We are focused on 3 key growth drivers over the next 24 months. The first is creating a more efficient business model by standardizing our campus operations, centralizing certain administrative functions and converting to hybrid programs that give students greater flexibility and opportunities to work. The second driver is replicating existing successful programs into existing schools to drive greater campus profitability. Third, we will open new campuses like our new East Point Georgia campus that opened this past March. Our goal is to open at least one new campus each year for the next 5 years. Our fourth driver of growth is acquisitions. Acquisitions, though, need to be strategic and that they would either accelerate our entrance into a market or expand our offerings into a related industry. Next slide. For those of you who are more visual learners, here's the map of the United States showing where our campuses are today. As you can see, we have lots of opportunity in the south and west where the populations are growing the fastest, but we also see opportunity in markets near some of our existing campuses. Next slide. We believe that with all the initiatives that we have outlined to date, we can generate $88 million of adjusted EBITDA by 2027, which is 2x greater than where we expect to finish this year. By building our base, adding new programs and opening new campuses, we will serve many more students and employers, while driving strong returns for our shareholders. Next slide. With so much recent attention given to the potential dramatic increase in funding to make community colleges better or even free, I want to remind you of why students select us today even though community colleges are a cheaper alternative. First, you 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. 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 life insurance 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 that 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 that students have a rich learning environment to develop the skills needed to be productive on the first day at their job. Sixth and seventh, we incorporate cutting-edge education technology to make learning active and engaging in 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 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. Given our 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 these partnerships is a key goal for our company going forward. Our partners help us in many ways, including supporting our programs with equipment, providing our students with scholarships or tuition reimbursement programs and offering our students secure rewarding career opportunities. Next slide. I'm equally proud of Lincoln Tech's strong regulatory record. We understand the importance of maintaining excellence in compliance at all times. We are safely below the 90% threshold at 81% for the 90-10 ratio. Our cohort default rate is better than the industry average and safely below any thresholds. Our strong financials enable us to have a very impressive 3.0 composite score, which is the highest score that a school can attain. As I mentioned earlier, our graduation rate at 65% is more than twice the level of the typical community college, and our placement rate for last year was 82%. Our goal is to achieve a 70% graduation rate and 85% placement rate in the next few years. Next slide. I'm also fortunate to have a strong and experienced management team with an average tenure with the company of almost 19 years. Next slide. We also have a talented and committed Board of Directors. Five of the members have recently joined the Board over the past 4 years, bringing fresh ideas and perspectives. At this time, I'd like to thank and acknowledge our Chairman, Barry Morrow, who is retiring from our Board as of the end of the shareholders' meeting. Barry served on our Board for 18 years and as our Chairman since July 2015. He led our organization during challenging times, and our current strength and opportunity is a direct result of this steadfast leadership. Thank you, Barry, for all that you've done for Lincoln. John Bartholdson has been selected by the Board as our new Chairman, and I know that John is ready and able to build on the strong foundation created by Barry. We currently have a search underway for a new board member, and we expect to conclude that search within the next 60 days. Next slide. In conclusion, Lincoln is ready to benefit from the opportunities in front of us. Strong demand for trained technicians appears to be growing. We have programs that are clearly in demand. We are making changes to our operations that will make us more profitable and scalable. We will utilize our strong balance sheet to foster our growth and continue to maximize shareholder value. Finally, we will continuously improve our student experience and outcomes to ensure that we maintain a strong ROI for our students. All of us at Lincoln Tech are excited to find more ways to help our country solve the skills gap to allow our economy to reach its potential just as we strive to unlock the potential in each and every Lincoln Tech student. Next slide. Thank you for attending. And with that, I conclude my remarks, and I declare that the 2024 Annual Meeting of Shareholders is concluded and hereby adjourned. Thank you for joining us this morning.