Lincoln Educational Services Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2023

There are 7 speakers on the call.

Operator

Good day, and welcome to the Q2 2023 Lincoln Educational Services Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Michael Polivue.

Operator

Please go ahead.

Speaker 1

Thank you, Abigail, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its news release Recording financial results for the Q2 ended June 30, 2023. The release is available on the Investor Relations portion of company's corporate website at www.linkingtech.edu. Joining us today on the call are Scott Shaw, President and CEO and Brian Myers, Chief Financial Officer. 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 on the company's website.

Speaker 1

Statements made by Lincoln's management in 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. Forward looking statements should not be read as a guarantee of future performance or results. The company cautions you that these statements reflect current expectations about the company's future performance or events and are subject to a number of uncertainties, risks and other influences, many of which are beyond the company's control that may influence the accuracy of the statements and the projections upon which the segment and statements are based. Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the Risk Factors section of the Annual Report on Form 10 ks And the quarterly report on Form 10 Q filed with the Securities and Exchange Commission. Forward looking statements are based on the information available At the time those statements are made, the management's good faith believes as of the time with respect to future events.

Speaker 1

All forward looking statements Rick's are qualified in their entirety by this cautionary statement and Lincoln undertakes no obligation to publicly revise or update any forward looking statements, whether as a result of new information, future events or otherwise after the date thereof.

Speaker 2

Now, I would like to hand

Speaker 1

the call over to Scott Shaw, President CEO of Lincoln Educational Services. Scott, please go ahead.

Speaker 3

Thanks, Michael, and good morning, everyone. Today, we reported strong second quarter results As revenue from campus operations grew nearly 10% over last year, student starts increased approximately 18% and net income more than tripled. We also achieved a significant milestone as we completed the sale of our Nashville campus, which generated net cash proceeds of 33,000,000 At quarter end, we remained debt free and had approximately $95,000,000 in cash and short term securities. Despite continued historically low unemployment, our strategy to prepare an increasing number of students for productive, rewarding and essential careers While helping American Corporations close their skills gap is clearly working. The combination of our hybrid teaching model, marketing programs, Centralization of our financial aid process are all assisting in increased student starts, rising placement rates and enhancing returns to our shareholders.

Speaker 3

Furthermore, we continue to make good progress with replicating high in demand programs to existing campuses and expanding our footprint with our new Atlanta campus. Both of these initiatives will provide additional growth in 2024 and beyond. Our performance during the first half of twenty twenty three enables us to now revise upwards several guidance metrics, which Brian will review in a few minutes. This positions Lincoln for an even stronger performance in 2024 and positions us well for our 2025 goals. The rollout of our hybrid teaching model is progressing as planned and will help us become more scalable and efficient once fully in place in 2025.

Speaker 3

As we've discussed with you in the past, the model combines hands on learning at campus facilities while delivering a greater component of classroom work Through online instruction, it enables our students to work part time or manage other commitments while they pursue their Lincoln education and is specifically designed to help a higher percentage of students to graduate. The model also standardizes our programs across campuses With on campus time slots of morning, afternoon and evening courses and with consistent start dates that provide greater flexibility, Efficiency and overall capacity at our existing campuses. The rollout of our hybrid model at most campuses, Coupled with adding existing proven programs at select campuses, position us to drive higher campus and company profitability in the long term. Another key component to our growth strategy is the centralization of our financial aid process. During the second quarter, We believe improvements we have made with our centralization effort contributed to our student start growth rate and we just moved the last group of Schools to the new software platform several weeks ago.

Speaker 3

We've analyzed the data from schools that were transitioned earlier this year and clearly We are seeing an improvement in a number of areas. For instance, the new process has reduced the number of days it takes to package an applicant's financial aid. This improved efficiency helps the student know as quickly as possible how they can pay for their education and helps us convert a lead generated through our marketing programs Into a start. While the full rollout of this process will take through the end of the year, we do expect to see continued gradual contributions from this effort during the second half. Another key component of our growth strategy includes opening 10 new program replications across our existing campuses by the Q1 of 2025.

Speaker 3

These programs are focused on preparing students for rewarding careers In electrical, HVAC, welding, automotive and medical assisting, which are some of our most successful and in demand programs. The replication model provides Lincoln with substantial organic growth opportunities through the fastest and highest return on investment as we leverage our existing infrastructure, campus management and market knowledge. We continue to anticipate that these 10 new programs We'll reach their full run rate after approximately 3 years of operation, at which time each is expected to provide an We did plan to open 3 replication programs by the end of the current year. However, staffing issues at local government and regulatory agencies are delaying the start up of these programs by 3 to 5 months. We now see these additions getting underway in the Q1 of 2024, which should enhance next year's start growth.

Speaker 3

During the quarter, we actively implemented the new campus component to our growth strategy. We continue to build out the new Atlanta campus and remain on track to enroll our 1st students at the facility during the Q1 of next year. With the sale of our Nashville campus complete, We now are aggressively moving to secure a new site in that market and hope to have an agreement in place by the end of the year. Meanwhile, we continue to fully operate at the existing campus. In addition to the Nashville campus, our goal is to open one new campus a year Over the next 5 years and based on ongoing site selection and negotiations, we are fully confident of achieving that objective.

Speaker 3

Our efforts to broaden existing corporate partnerships while adding new ones continue to make steady progress. During the quarter, We announced a new collaboration with Hunter Engineering, the leading name in the undercar service industry. Later this summer, Our Denver campus will become the latest site to house a hunter training center where students can train directly on patented hunter equipment. Local repair shops will also have the opportunity to send technicians to the Lincoln campus to train on the Hunter equipment. In addition, we recently opened our 2nd Tesla training program at our Columbia, Maryland campus and Tesla has asked us to help with securing additional locations.

Speaker 3

We mark the 25th graduating class from our long standing Hussman partnership, which provides qualified Lincoln Tech HVAC graduates with free advanced level training and a career with Hussman all over the United States. Discussions are ongoing with our current OEM partners to expand to other campuses as well as new corporate partners. We've had a strong first half of twenty twenty three and our team is executing quite well. We achieved a 1.5% increase in our start rate during the Q2, which we attribute to the increased number of leads being generated by our marketing programs, the more efficient financial aid packaging that is emerging from the centralization effort And the timing of starts under the hybrid teaching model. These three factors combined to positively impact both high school graduate starts as well as adult student starts during the quarter.

Speaker 3

We do expect our student start growth rate to slow during the second half of the year, simply because the implementation of our hybrid model means we have fewer start dates in July compared to the prior year. In addition, with the opening of the 3 programs at existing campuses now moving to the Q1 of next year, we won't have those starts in the second half of this year. The net impact is that we do expect to finish the full year with 6% to 10% student start growth and Brian will provide some more color on this metric during his remarks. Overall, we believe our strategies have put Lincoln in a position to consistently grow. The interest in our programs is quite strong And employers continue to have a dire need for trained employees.

Speaker 3

At the same time, prospective students are looking for alternatives to 4 year college. Our strong graduation and placement rates provide excellent reference points and our balance sheet, which has never been stronger, is enabling Lincoln to expand our programs and locations, which will create long lasting benefits to our students, our graduates, our instructors, Our corporate partners and increasing returns to our shareholders. Finally, our momentum has been gaining increased recognition in recent weeks. A particular note for today's call was our inclusion in the broad market Russell 3,000 Index on June 26. The inclusion meant that Lincoln was also included in the Russell 2,000 Index.

Speaker 3

Combined, these milestones have created additional demand for Lincoln shares From indexed investors and serve to increase awareness of our company by institutional investors. I'm also proud To report that our Marietta, Georgia campus was named a school of distinction by our accrediting body ACCSC. Every 3 to 5 years, schools are reaccredited And only a handful of them received this recognition. I'm very pleased with our organization's performance at every level and I continue to believe that we are poised for even greater As we truly make a difference in helping our country address its skills gap. Now, I'd like to ask Brian to provide his review of our 2nd quarter financial results and are updated guidance.

Speaker 3

Ryan?

Speaker 2

Thanks, Scott. Good morning and thank you for joining our Q2 earnings call. I am pleased to report our solid financial results and highlight recent developments that continue to advance our strategic growth initiatives. Before we turn to the operating results, we completed the sale of our National Tennessee Campus property for net proceeds of $33,300,000 The sale resulted in a gain of $30,900,000 and a non cash impairment charge of $4,200,000 related to the goodwill and long lived assets Of the Nashville campus. To ensure campus operations remain uninterrupted for our students, we entered into a leaseback agreement For an 18 month period to provide for the relocation to a more modern and efficient facility within the Nashville market.

Speaker 2

The initial 15 months of this lease is rent free, meaning there are no cash payments due. However, for accounting purpose, We record the fair value of the free rent as a $2,300,000 prepaid asset, which will be amortized monthly as non cash rent expense. The sale proceeds, along with our cash flow from operation, boosted our ending cash balance to $95,000,000 atquarterend, Exceeding our previously disclosed estimate of $85,000,000 our cash position is one highlight of our strong balance sheet and financial position as we're debt free and have working capital of nearly $70,000,000 Besides working capital needs, we expect to utilize the cash to fund current and future growth initiatives, Including the build out cost of the new Nashville campus, which is expected to range between $15,000,000 to $20,000,000 in CapEx. The build out includes additions of 2 of Lincoln's in demand programs, HVAC and Electrical, which will be new offerings at this campus. Our capital expenses during the quarter during the 2nd quarter were $7,600,000 which included the ongoing build out of our new Atlanta campus And the expansion and addition of new programs at existing campuses.

Speaker 2

During the quarter, we also incurred $300,000 of expenses Related to the opening of the Atlantic campus, we continue to explore additional expansions and new campus growth opportunities, which we anticipate funding with cash on hand. We have invested a significant amount of our total cash balances in low risk market securities, including treasury bills. These investments yielded $500,000 in interest income during the Q2. Now turning to our financial results. Unless otherwise noted, all comparisons exclude the Somerville campus that is being closed this year and included in our transitional segment And the pre opening expenses of our new Atlanta campus.

Speaker 2

Revenue increased 9.8 percent or 7,900,000 $88,200,000 Higher revenues were achieved due to 1.8.6 percent increase in average revenue per student And 2, our strong 17.9% increase in student starts in the quarter. Revenue per student increased in part due to tuition increases And the transition to our hybrid teaching model, which increases program efficiencies and delivers accelerated revenue recognition, particularly in our evening programs. Another contributing factor was a higher tool revenue related to increased starts in the quarter, which led us to finish the quarter with a higher population than last year, driving future revenue growth. Our robust student start growth Was aided by marketing investments, admissions initiatives and the progress we continue to make with our centralization of financial aid, We slightly increased our enrollment to start rate. Operating expenses were $88,000,000 in line with our expectations When adjusted for the national sale items and the other non recurring items detailed in our adjusted EBITDA calculation reflected in our Q2 earnings release.

Speaker 2

As we have previously communicated, while the implementation of our hybrid and learning and centralized financial aid will drive future efficiencies, We are incurring duplicate expenses this year related to both projects. Adjusted EBITDA was $2,400,000 items detailed in our Q2 earnings release. This was slightly higher than last year's $2,300,000 and ahead of our expectations going into the year. Our financial results for the 6 months were ahead of our internal plan and provide a strong foundation as we enter the second half of the year. We're excited to have the resources to enable us to continue to improve our processes and services for our students, while developing new growth opportunities.

Speaker 2

Turning to the cash flow. We generated over $10,000,000 in cash flow from operations in the quarter. We invested $7,600,000 in capital expenditures, largely related to growth initiatives. We also had some activity under our share repurchase plan. In the Q2, we repurchased 61,000 shares At an average price of $5.49 In total, since May 2022, we repurchased 1,700,000 shares or 10,300,000.

Speaker 2

Lastly, I'll provide some details on our revised outlook for the full year. Our strong stock growth in the 2nd quarter resulted in a 12.5% stock growth through the first half of the year. We anticipate stock growth in the second half of the year will be lower, but second half starts slightly above prior year. As Scott mentioned during his comments, we attribute this outlook mainly due to the timing of start date and new program rollout. Under our new hybrid teaching model, we no longer have significant start dates in July, Which we had in prior years.

Speaker 2

As a result, we benefit as some students elected to accelerate their start dates to Q2 from Q3. In addition, we are experiencing delays in the rollout of certain new programs at existing campuses that will lead to a shift of approximately 150 starts we originally expected in 2023 to 2024. Despite the shift of some starts and program delays, We still anticipate start growth for the balance of the year. In total, our strong performance in the first half Allows us to refine our outlook for full year starts. We're making an upward revision to our financial guidance, Which we previously updated after Q1, our full year guidance is now the following: revenue in the range of $360,000,000 to 370,000,000 Adjusted EBITDA in the range of $22,000,000 to $26,000,000 adjusted net income in the range of $10,000,000 to 13,000,000 Student starts growth of 6% to 10%.

Speaker 2

As our investments in the Atlantic campus and other growth initiatives We'll accelerate in the second half of the year. Our projection for capital expenditures remains unchanged at $35,000,000 to 40,000,000 In terms of stock based compensation, we now forecast it to be $5,000,000 for the full year based on our improved performance and outlook. Accordingly, we anticipate $1,600,000 of expense recognized evenly in the second half of the year. In conclusion, our results and outlook for the balance of 2023 reflect the growing demand of our programs and continued progress on our key initiatives for the year. I'd like to thank our entire team for their efforts and contribution in delivering another strong performance this past quarter, while continuing to position Lincoln for growth in the second half of the year and beyond.

Speaker 2

We look forward to communicating our progress following the Q3. And now I'll turn the call back over to the operator, so we can take your questions. Operator?

Operator

Thank you. Our first question comes from Alex Paris with Barrington Research. Your line is open.

Speaker 4

Hi. Thank you for taking my questions. Congratulations on the quarter and getting the Nashville campus sale closed.

Speaker 5

Thanks, Alex. Thanks, Alex.

Speaker 4

Point of clarification before my question. I missed it, Scott, when you were talking about the replication model, what were we expecting in terms of new Sorry, new program replications this year and what will we have as a result of the delays in Personnel in the regulatory offices?

Speaker 3

Sure. As Brian mentioned in his, there are about 150 starts that are moving to next year, Which were 3 programs really at our Lincoln, Rhode Island campus that are being delayed simply because of timing of getting Building permits and things of that nature executed. So it's still on track. It will fall. It's still going to open just about a quarter later than we had anticipated.

Speaker 3

So that's kind of as far as program replications, that's kind of the major change going forward.

Speaker 4

I think you launched 2 in the Q1, medical assisting and electrical. Did you launch any in the Q2? And then how many in the second half Do we anticipate given this change at Lincoln Road Island?

Speaker 3

Sure. Yes, Brian has a listen only mode.

Speaker 2

Yes. So we're launching The timing I'll have to get back to you on. So there's, I would say there's 5 that we're launching, but some are program Expansions like

Speaker 3

we have 2 welding programs that we're expanding, but there will be about 5 that we're launching this year that will have starts. So to be clear, we're expanding, which we don't normally we don't count these, but we did expand 2 of our welding programs Simply because we have such good demand for those two markets. And then we have a medical assisting program Columbia, Maryland that is about to open and we have an opportunity potentially for electrical program Possibly could open in the Q4, which would actually be ahead of schedule. Right. So in summary, I guess there's 4, there's 2 medical assisting and possibly 2 welding expansion.

Speaker 3

So as we said, 150 are moving

Speaker 2

into 2024. So there's about 300 that was budgeted, about 150 we're projecting to take place during 2023 and another 150 moving to 100 on to 2024.

Speaker 4

Great. And then you expect a number of replications next year as well, right?

Speaker 3

Correct. Yes, we should have A good lineup of activity then to get us to the 10th number.

Speaker 4

Yes. Then my last question before hopping in the queue would be starts SART's growth was very impressive, again, and driven by in terms of Programs driven by Transportation and Skilled Trades, up 18.6% in the quarter and then the Healthcare and Other Professions, up 6.5%. What's driving transportation and skilled trades over healthcare and other professions year to date?

Speaker 3

Well, I think that actually both are doing quite well and some of it's just timing when starts occur. But overall, what is so encouraging It is the fact that we have this low unemployment rate and yet we're seeing strong demand, which to me is just I think people, I guess, read the papers more than I thought. People are understanding that there are great opportunities out there for the trades. You can get an education without spending 4 years and accumulating a lot of debt. And I think that that message is resonating with more people.

Speaker 3

And the programs that we're offering are ones that are just the opportunities. We just have more employers coming to us than we have graduates. And that Maybe is also getting out there in the marketplace that these are good long term opportunities and they're real careers that can give you a solid opportunity. So we are doing well with our marketing. I can't take that away from my marketing team.

Speaker 3

We seem to be attracting and getting stronger Acceptance and stronger lead flow than we had counted on to be honest. So, part of it has to be market, part of it has to be What our team is doing to access the market.

Speaker 2

Right. And as Scott mentioned, we are having a slight pickup because not Many programs now do not have a start in July, so some of those students elected to come in June, so there was a slight pickup from that as well.

Speaker 4

Great. Thank you, guys. And I'll get back in the queue. Great.

Speaker 3

Thanks, Alex.

Operator

One moment for our next question. Our next question comes from Steven Frankel with Rosenblatt Securities, your line is open.

Speaker 1

Good morning. I'm wondering if you could maybe give us Some help on how much was the streamlining of financial aid factor In starts, maybe how many points you'd say the start growth was contributed from that?

Speaker 3

Yes. I wish I could do that scientifically for you. I can't break it out as to what percent is. All I can tell you, Stephen, is with the process that we've put in place, we've refined it. And I'll say it this way, we have a process that we're calling Financial Aid Packaging on Demand, which is the metric I can tell you is that the number of days to get someone packaged At those campuses that are implementing that approach is much less than what it was.

Speaker 3

And the reason why we implemented the approach As we know that the sooner students know how they can pay for their education, the more likely it is that they're going to start. So Parsing it out and determining exactly what how many basis points of improvement is due to that, I don't know, but that's why we went after that strategy And we're getting results. So I can definitely attribute some of that improvement to that, but there could be obviously other factors as well.

Speaker 1

How much room is there for further improvement in revenue per head in the back half?

Speaker 2

So as I mentioned for our what we call our hybrid learning model, We did launch it in the second half of last year. So, where most of that pickup is in the Knight program where we shrunk it from 24 months down 12 months. So since we did have some starts last year in the second half of the year from that, it would be It

Speaker 3

will start tapering a little bit some of it going forward. But the good news is we

Speaker 2

finished the quarter with more students, so that's That's also going to contribute to our future revenue growth.

Speaker 1

And then I'll sneak in one more here. What's the trend in cost Per lead, are you seeing a friendlier advertising fire after the year?

Speaker 3

We are. I mean, our when you look at our total cost per start in marketing, we're actually down for the 1st 6 months compared to last year. Now part of that is because of improved performance with the start rate, but we're not seeing or experiencing as much price inflation on our leads As we were last year, that's for sure.

Speaker 1

Great. Thank you.

Operator

One moment for our next question. Our next question comes from Eric Martinuzzi with Lake Street Capital Markets. Your line is open.

Speaker 5

Yes. I wanted to dive in on The revenue growth versus the growth in your educational services and facilities expense, we had revenue up 10% and The educational services and facilities expense was up 11%. Wondering if are there one time items in there? Just Looking for points of leverage here going forward.

Speaker 2

Right. So there are one time items in both our two Key initiatives, one is our hybrid model that we're still teaching out the old program while we're teaching the new program. So there's some associated with that as well. As well as there was in financial aid as we're still transitioning, we still have many Students, many students, many advisers at the school as well as corporate right now, we're still transitioning what we call, I'll say reentries to be centralized and a few other areas. So as we're doing that, there's some additional cost And financial aid as well.

Speaker 2

But the one thing I would look at, there were some one time items as well in our earnings release that we talked about That contributed to the that overage.

Speaker 5

Okay. And then, I know you talked about the end of 2025 For the full transition to hybrid, remind me again when is the financial aid consolidation and consolidation?

Speaker 3

Yes. Financially, it will be wrapped up by the end of this year as far as the fact that everyone will be on the new platform and will be Staffed accordingly for delivering on this new platform, so by the end of this year.

Speaker 5

Got you. All right. And the cash balance looks terrific. I know we're setting aside $15,000,000 to $20,000,000 of that, dollars 90,000,000 what was the number, $96,000,000 or so. What else uses of cash?

Speaker 5

It looks like you bought a little bit of stock, but just curious to know if there's If it's pointed more towards acquisition opportunities, program investments or share repurchases?

Speaker 2

Well, hopefully, depending on the stock price, we'll still support the stock, but a lot of it is due to Our guidance is $35,000,000 to $40,000,000 in capital expenditures and for the 1st 6 months of the year, we only spent $11,000,000 So So it is going to ramp up. Our Atlanta campus is going to be spending in the neighborhood of about maybe another $9,000,000 From now until the end of the year, as well as new programs is probably going to be another $10,000,000 as well. So a lot of that is, I'll call our initiatives, our growth initiatives we'll be spending a lot of it on.

Speaker 5

Got it. Thanks for taking my questions.

Speaker 3

No problem. Thank you. Thanks.

Operator

One moment for our next question. Our next question comes from Raj Sharma with B. Riley. Your line is open.

Speaker 6

Yes. Thank you for taking my question. Congratulations on really good results for Q2. Could you Just explain a little bit more on the composition of the starts and the starts, they are higher year on year significantly across Nationally, sort of the same trend and also young adults, high schoolers kind of composition?

Speaker 3

Yes. Sure. Thanks, Raj. Yes, so we're seeing growth, as you just mentioned, kind of across the board In every state that we operate in, there's a little bit stronger growth on programs around skilled trades in automotive Then in healthcare, but as you know that can fluctuate quarter to quarter. As far as the growth as far as the makeup, I would say that for us, high schools for the 1st 6 months are about flat frankly with last year.

Speaker 3

But it's really in the adult market, which is somewhat counterintuitive again, given the low unemployment rate, But it's really on the adult side that we're seeing stronger growth than we had forecasted.

Speaker 6

And nationally too, you have the same sort of increased trends or is there some areas that are better?

Speaker 3

No, there really isn't any geography that tends to be better than the other. I mean, it seems to be really very, very broad.

Speaker 2

And the good news is for Q2, all but 2 schools did have stock growth. So majority of our schools did have a nice stock growth.

Speaker 6

Right. And so you expect this interest despite Like you pointed out, despite inflation still being somewhat elevated and Higher costs, do you expect the interest in programs from the adults, young adults? And despite tight labor markets, You're expecting and seeing that to continue, I mean, other than the 150 starts that you say got pushed out to Q1?

Speaker 3

Yes. I can tell you that our activity in the month of July from a lead perspective has not waned From what was happening before. So yes, we do expect it to continue. Again, I do believe That there is probably a shift out there that, certainly you can look at the numbers of enrollments at community college and others. People are making decisions and it just takes a few people in any market to decide to go to our school versus go to community college For us to get a bit of a lift, we're not changing the world here drastically, but we're getting really strong results because of it.

Speaker 6

And the tuition increases, were they across the board as well or certain programs more so? And do you see that sort of being taken really well or do you see more increases Possibly.

Speaker 3

Yes, sure. We never like to raise tuitions. Obviously, it does make it more challenging for students, but at the same time, We can make sure that we're being prudent with our expenses. And certainly last year, we saw the greatest increase that we've seen in a long time in Many cost items, so we did raise tuition starting in January slightly higher. We typically were, let's say, 2% to 3%.

Speaker 3

This year, we're closer to 5%, and some of that was targeted more towards our nursing programs where we So higher amounts of certainly salary increases for nurses. So, we don't anticipate that that It's going to continue going forward, but where it makes sense and where we frankly need Given the cost of delivering the education, we do well, I should say, we will raise the tuition as modestly as possible.

Speaker 6

Great. And if I can just sneak in one more. On I think an earlier caller I had mentioned on tuck in. Do you see possibility potential of tuck in opportunities? I mean I apologize.

Speaker 6

Could you repeat that? Yes. I just I'm saying, do you see potential tuck in acquisitions? Are you looking at them as the environment sort of Conducive?

Speaker 3

Yes. So we continue to look at acquisitions, frankly of all sizes, Tuck in or even larger, a lot of it all comes down to valuation. A, I've seen that it seems like Lots of the values still remain, I'll say, higher than I would like. But at the same time, there's always something new that's coming out onto the marketplace. And we'll just continue to evaluate and make the best judgment at the time when there's the right opportunity for us.

Speaker 2

Great. Thank you for answering my questions again. Congratulations.

Speaker 3

No problem, Raj. Thank you. Thank you.

Operator

One moment for our next question. Our next question comes from Bob Puopolo with EPIC Partners. Your line is open.

Speaker 1

Good morning, gentlemen.

Speaker 3

Good morning. Good morning.

Speaker 1

With the move to more the hybrid The educational delivery, are you at all concerned and what steps Are you taking as it relates to outcomes? Distance Education sort of Reasonably demonstrated during the pandemic to be suboptimal and are you concerned about graduation rates and placement rates and What are you doing to enhance those?

Speaker 3

Yes. No, it's a good question. Well, first of all, we're always concerned about our graduation placement rates. And just to reiterate, we have a goal of getting to 70% graduation rate and 85% placement rate, And we're about 1 or 2 percentage points from that target. We are implementing a lot of change with regards to our delivery of our education As well as making enhancements to our programs and just to remind you, when we say blended, it's about 25 Maybe 30% of the program that's online.

Speaker 3

And we are a hands on institution. That's what we specialize in and that's what our students like And none of that's been cut back at all. But there are theories and things that you do need to learn. So always our programs were about 50% Didactic and 50% hands on. And what we've done is taken about half of that, the theory part and put that online Where we believe, frankly, we can create, I'll say, a better unified experience with videos and more consistent delivery of those theories, But we're not in any way cutting back at all.

Speaker 3

In fact, we are looking at enhancing with New teaching techniques and new teaching models and new teaching equipment as it comes out, so that when the students do come to our campuses, It's going to be hopefully even more engaging for them than it was previously. And to date, As we've looked at comparing our retention of students in the new model versus the old model, we are not seeing a degradation. So that's reassuring to me. But with that said, we are constantly monitoring that.

Speaker 1

Thank you. Sure.

Operator

That concludes the question and answer session. At this time, I would like to turn it back to Scott Shaw for closing remarks.

Speaker 3

Great. Thank you all for joining us today. And as you can see from our performance, we are making Great progress and remain very excited by our numerous opportunities for continued growth. I'd be remiss for not thanking and acknowledging all of our employees For their dedication and commitment to our students, we change people's lives and everyone at our campuses takes this responsibility very seriously. Students come to Lincoln Tech to put their potential to work and we look forward to helping each and everyone strive for that goal.

Speaker 3

Thank you again, and we look forward to updating you on our progress this fall. I hope you all have a wonderful rest of your summer. Stay long for now. Bye bye.

Operator

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

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Key Takeaways

  • Q2 financial results outperformed expectations: Revenue grew nearly 10% year-over-year, student starts rose 18%, net income more than tripled, and the company ended the quarter debt-free with $95 million in cash and short-term securities after the $33 million net proceeds sale of the Nashville campus.
  • Hybrid teaching model rollout on track: The blended on-campus and online instruction approach is being implemented across most campuses, standardizing start dates and time slots to boost scalability, efficiency and graduation rates by 2025.
  • Centralized financial aid process driving faster starts: New software and packaging-on-demand reduced the days to finalize aid awards, improving lead conversion to student starts with continued gains expected through year-end.
  • Program replication delays impact near-term starts: Staffing and regulatory hold-ups shifted three planned replication programs by 3–5 months into Q1 2024, delaying about 150 student starts originally slated for 2023.
  • Full-year guidance raised: Revenue is now projected at $360 million–$370 million, adjusted EBITDA at $22 million–$26 million and student start growth at 6%–10%, reflecting stronger first-half performance.
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Earnings Conference Call
Lincoln Educational Services Q2 2023
00:00 / 00:00