Lincoln Educational Services Corporation (LINC) Q4 2019 Earnings Report, Transcript and Summary

Gentlemen thank you for standing by and welcome to the Q4 2019 Lincoln Educational Services Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today Mr. Michael Polyviou. Thank you. Please go ahead.

Thank you Jimmy and good morning everyone. Before the market opened today Lincoln Educational Services issued its release reporting financial results for the fourth quarter and full year ended December 31, 2019. The release is available on the Investor Relations portion of the company's corporate website at www.lincolntech.edu.Joining us today on the call are; Scott Shaw, President and CEO; and Brian Meyers, Chief Financial Officer. Today's call is being broadcast live on the company's website and a replay of the call will be archived on the company's website. As a result of not having campus closures during 2019, the 2019 results being discussed today by Scott and Brian are based on the combined continuing of campus operations of the company's Transportation and Skilled Trades segment and its Healthcare and Other Professions segment.To remain comparable financial information discussed will exclude the 2018 Transitional segment. The company's corporate operations will be discussed separately. Statements made by Lincoln's management on today's call regarding the company's business that are not historical facts may be forward-looking statements as the term is identified in federal securities laws.The words may, will, expect, believe, anticipate, project, plan, intend, estimate and continue as well as similar expressions are intended to identify forward-looking statements. 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-K 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 and management's good faith belief as of the time with respect to the future events.All forward-looking statements 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.Now I'd like to turn the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thank you Michael and good morning everyone. To begin, let me state that 2019 was a solid year for Lincoln Tech as we met or exceeded our previously disclosed key metrics guidance such as revenue same-school student start growth and EBITDA, while also continuing to generate increases in student graduation and placement rates. Overall our performance continues to demonstrate our consistent growth.Lincoln has achieved starts in revenue growth for nine consecutive quarters dating back to fourth quarter of 2017. I believe our efforts over the past few years to increase awareness among our various target audiences is paying-off and our message of providing career-focused education is increasingly resonating with potential students.Most importantly, we have returned to profitability and see opportunities for our earnings to grow meaningfully. Lincoln is now poised and ready for the next chapter of growth in our nearly 75-year history. Our network of 22 campuses are well positioned with in-demand programs and room for additional offerings which will further strengthen our profitability.Our marketing and sales efforts are clearly achieving the goals that we have established and we continue to find new opportunities to enhance what we are doing. We have achieved three years of improvement in graduation and placement rates and we know we can achieve even more.Our employers give us frank, honest feedback about our students and the education they're receiving and I could not be more proud of the positive response our graduates receive once they've become employed in the marketplace.Finally I know that we are just scratching the surface of what we can potentially do in helping to solve the skills gap challenge facing our nation's companies and industries. Just within the disciplines currently offered at our campuses, the need for skilled employees that is being expressed by employers continues to grow rather than being reduced.Each month new companies are coming to us for help in finding young talent and our list of industry partners continues to increase. During the past year, we also took steps to improve the company's balance sheet, which now positions us to invest in strategic growth initiatives for the first time in many years. In 2020, our objective is to add seven new programs to our existing campuses as well as to pursue other growth opportunities that are being presented to us by our corporate partners across the country. As with all new programs, there will be upfront cost in the first year but we project strong IRRs as programs grow in years two and three.2020 will be an exciting year for Lincoln as we leverage our assets and consistent performance to achieve new heights. In a few minutes, Brian will review our financials for the quarter and the year and provide our outlook for 2020, which we believe will be another year of growth for Lincoln Educational Services.However, first, I want to highlight our performance during this past year in greater detail. For 2019, same-school revenue grew 6.2% with solid growth reflected across both of our segments and EBITDA on a same-school basis grew 27.9%, reflecting strong operating leverage. As mentioned earlier, we finished the year with positive net income for the first time in eight years. Average revenue per student and average population both increased and our carry in population to 2020 is the highest, we've achieved in over a decade, which again speaks to the very favorable trajectory Lincoln is on.Also, as a reminder we have over $55 million of tax loss carryforwards to offset our growing bottom line. And so our cash tax expense will be minimal for the foreseeable future. The macroeconomic environment continues to present, a historically low unemployment cycle. The success that Lincoln has created during the strong employment period has firmly established our ability to grow profitably regardless of the economic environment and effectively positions the company to consistently grow shareholder returns, because we have fundamentally changed and strengthened our business.And as a reminder in the down economy, our population and profitability metrics all ratchet up as more and more students seek skills to reinvent themselves or launch them into higher-paying careers. I believe that, the combined effect of our increases in student graduation and placement rate has favorably shifted the market's perception of Lincoln Tech. We are now being viewed as a provider of careers for our students and not just a provider of jobs.Over the past several years, we have seen graduation rates increased from 65.4% to 67.9% and placement rates go from 74.7% to 81.7%. Our goal is to surpass – excuse me, 70% and 85% respectively for these two key metrics. Our team is focused on delivering this goal by 2023, if not sooner. As an example, we recently had the pleasure of hosting the local New York FOX TV affiliate at our Mahwah campus, which you may recall offers career training programs in electrical advanced manufacturing, automotive and HVAC.One of our students Henry was quoted on camera saying that, every teacher is willing to work as needed with students one-on-one. He went on to say that, other schools treated him as a number, but at Lincoln he's seen as a student and treated as a person which reaffirms our teaching philosophy. To all the Henrys and Henriettas out there, we value you.My objective and that of the Board is to leverage our constantly improving results and deploy our resources to add programs at existing campuses and explore growth opportunities that meet the demand of our corporate partners as well as our career-oriented students. There continued to be signs of a growing number of students who feel a four-year degree is not right for them for a variety of reasons, including the amount of debt they could incur and the career choices that may not fit their interest.For example, in a recent report published by The Institute for College Access & Success about two in three college seniors, who graduate from public and private non-profit colleges in 2018, had an average student loan debt of $29,200. We keep hearing from our elected officials at both the national and local levels about the need for real solutions to the student debt crisis, but nothing is being done. And this further disenfranchises high-schoolers. Their parents may have had similar views 20 or 30 years ago, and may also have been impacted personally and financially during the last recession.So their mindset is becoming more favorable to schools like Lincoln. What's more our students realize they are embarking on a career path one in which there are thousands of jobs available that need to be filled immediately. And because of the employer demand, they know going in that, they won't be competing against 10, 20 or 50 other applicants for the same job. Those entry-level jobs are also – also represent the start of a longer career journey where Lincoln Tech graduates will have opportunities for advancement based on the industry they choose.Next, I'd like to take a moment to talk about our successful sales and marketing efforts. While the demand from the industries we serve is extremely robust and the career paths are varied and rich, many students remain unaware of these opportunities, which is why we need to continue to invest in robust sales and marketing efforts.One has to keep in mind that we are battling decades of a notion that the only way to achieve success and have a meaningful lucrative career is by going to a traditional four-year college. And to further that belief, industrial arts, wood and metal shop, auto shop and other career and technical classes have been removed from many high schools. So now generations of students have not been given the opportunity to discover if they have an aptitude, the skills or the passion for these necessary and in-demand careers.Consequently, our marketing efforts are designed to appeal to multiple audiences. Our primary audience is prospective students either adults looking to enter a new field or those coming to us right out of high school. They know that they want to pursue a career in one of our disciplines. For these students, we simply need to show them that Lincoln Tech is their best choice for career training.The next group is made up of students who are unaware or unsure of their career direction, and so we need to educate them on why they should consider a certain discipline or a particular field and communicate exactly what it will take for them to be successful. This group requires a much bigger effort on our part, and this is where our admissions teams really play a key role in educating students about how a Lincoln Education can effectively position them for success.The third group are the influencers, such as parents, spouses, boyfriends, girlfriends, teachers and guidance counselors who impact the student's decision. Our goal is to drive all of these groups to visit our website, which is full of engaging and informative content presented in written pictorial and video form.Last year, we revamped the website to make it more robust and to enable us to more easily and rapidly add or adapt content in response to the market. In order to direct prospects to our website, we have expanded the scale and scope of our outreach. On a daily basis, our teams are making adjustments and optimizing content on the website to maximize our search engine optimization results. We are also continually generating social media content both paid and organic that draws attention and interest to our brand resulting in increased website activity.In addition, we work closely with Google and our other partners and vendors to maximize our digital investments, while also utilizing non-digital channels such as TV, radio, billboards and local events to increase awareness of our brand in all of our various programs. While we continue to enhance our marketing initiatives, we've also expanded our high school recruiting efforts, which not only attract new students for the current year, but also serve as a marketing tool for future years by keeping the Lincoln Tech name top of mind with a high school population.As Brian will mention in his remarks, while our sales and marketing efforts have increased, our overall cost per start has actually declined over the past three years, which is a clear indication that our marketing is working, and we are getting a positive return on our investment.Finally, because I will assume that most of you are unaware of this, I'd like to mention that February is career technical education month. The fact that so many people are unaware of this occasion indicate that we still have a very long way to go in strengthening career education training in this country. But this notwithstanding, I do believe we are beginning to see a growing awareness and acceptance of the fact that there's a tremendous need for more CTE training in our high schools as evidenced by the statements being made on the presidential campaign trail as well as the numerous initiatives being introduced across the country at the state level to reinvest in CTE high school programs.As more high schools enhance their CTE offerings, the pipeline of future Lincoln Tech students will continue to increase, which is yet another positive trend for our company. For those that have participated in our previous calls, you've heard me quote the U.S. Department of Labor's Bureau of Labor Statistics; the jobs gap is real and it's impacting the performance of industry local business and governments. While I focus my previous comments on select industries such as automotive, heavy equipment, welding and others, it's important to understand that gap is more broad-based, and it's not just an economic impact.For example, some published reports predicted that New Jersey alone would face a shortfall of at least 40,000 registered nurses by 2020 and one of the biggest shortages in the country and this will continue to have a significant impact on our overall health care system. In New Jersey, we have three campuses that offer a licensed practical nursing program and we're quite proud of our strong student graduation and placement rates. Frankly, it's what sets us apart and continue to draw students to our campuses.The New Jersey Board of Nursing recently reported that 94% of the nursing graduates at our Paramus New Jersey campus passed a key licensing exam on their first attempt. I'd like to applaud our faculty and the President of our Paramus campus for their excellent work.In fact, graduates of the Paramus campus have topped a 90% pass rate on the National Council Licensure Examination for practical nurses in four of the last five years. This is a remarkable achievement, but it really demonstrates what we do on a daily basis. It's evident from these scores that our faculty and students are fully engaged and are seeking the same results.Moreover, our Iselin and Moorestown campuses also in New Jersey exceeded the benchmarks set by the New Jersey Board of Nursing. As we disclosed previously, this past summer we applied to the state of New Jersey for degree-granting status, which we are expecting to hear back from them this summer confirming that we have attained this status. We offer degree granting in eight other states. And so I know our organization is more than capable to do the same in New Jersey but it is a political process to be approved and so nothing is guaranteed.However, upon achieving degree status, our next step is to apply to the board of nursing for approval to offer a registered nurse program. If the timing occurs like we expect, we will commence our RN program in 2021 with the expectation of between 20 or 40 starts, which is realistic for an entirely new RN startup program. So it's really toward the latter half of 2022 that we would expect to see a significant pickup in RN starts and we continue to believe the potential is quite substantial since almost all of our licensed practical nurses would like to become registered nurses.Over the past decade almost 9000 LPNs have graduated from our three New Jersey campuses and with the strong demand from others to be RNs, we believe we have – we will have no problems filling our classes.I'm pleased to report that we have entered 2020 in the strongest financial position in Lincoln's recent history and we plan to deploy our resources to strengthen our brand, invest in new programs and seek opportunities to expand our footprint in new markets, all with the objective to accelerate our earnings.We have a solid portfolio of corporate and industry partners and they are constantly asking us to explore new geographies so we could serve them better. To achieve this we are in the process of exploring a number of different options. Regardless of whether we expand our current campuses to take advantage of the operating leverage or establish new campuses, our goal is to remain competitive and prudently deploy our resources.The skills gap which is currently estimated to represent well over 2 million jobs is not going away anytime soon, so we will diligently explore all of our options. But the bottom line is we are committed to providing value to career-oriented students and that will require Lincoln to attract high-caliber faculty staff and corporate partners.In any case, I believe our brand value has increased significantly over the past few years and it will allow us to successfully open new campuses. While we've established and expect to maintain a strong presence on the automotive side, we also explore opportunities in other skilled trades, leveraging our electrical, HVAC, welding programs and possibly phasing in plumbing courses. I believe this broad diversification is a competitive differentiator for Lincoln and explains why we receive a tremendous amount of interest from varied industries from manufacturing, to maintenance, to trade organizations, such as the initiative with the food processing association.Speaking of this group, I'm happy to share that our first class of graduates from our new FIT program is currently interviewing for jobs and they are receiving offers starting at $50,000 per year. Let me remind you that our FIT program is an add-on to our electrical program. So within a relatively short period of time of 15 months and a relatively low-cost $26,000 students are able to graduate and start their careers at a salary that is above the average starting wage of a typical liberal arts college graduate.The FIT program clearly fits our profile of offering high demand, highly skilled strong ROI programs. We are also currently working closely with Johnson Controls, primarily with our electrical program but there may also be an opportunity to work with them in connection with our HVAC program that would provide our students with career opportunities with commercial applications, which would complement our residential business.Meanwhile on the automotive side, Volvo has recently become a partner at five of our campuses and Mazda and Fiat Chrysler are looking to expand to additional Lincoln campuses.Besides growing our industry partnerships, I'm pleased to announce that Chad Nyce will join our leadership team as our Chief Innovation Officer. Chad is the former COO of Strayer, where he was instrumental in leading several initiatives that reduced costs and improved service through the use of technology across the entire student experience from admissions through education. Chad's proven experience, high energy and team-focused work ethic will serve Lincoln well, as we move into our next phase of growth and seek to capitalize on the vast array of EdTech to strengthen and enhance the Lincoln student experience.In summary, we had an incredibly solid 2019 and the momentum we are experiencing in the first quarter gives us increased confidence that we will achieve our 2020 growth in operating metrics, which Brian will highlight in his prepared remarks.With the success of the Lincoln Tech story and the opportunities to build on that success in 2020 and beyond, we are increasing our efforts to attract additional investors. Over the next 45 days, we will be meeting with investors on 12 days at conferences, investor lunches and one-on-one meetings in New York, Boston, Chicago, Dallas, Atlanta, Denver and several other locations. If we have not mentioned a location near you please reach out to Brian Meyers and we'd be happy to set something up. We look forward to sharing our success story.I'd like to turn the call over to Brian for a review of our fourth quarter and full year results. Brian?

Thanks, Scott, and good morning, everyone. I'd like to begin my comments by repeating a point Scott made during his comments. We achieved or exceeded all of our 2019 operating and financial targets.From a financial perspective, the year was an exceptional one for our company as we consistently achieved our goals and milestones resulting in our return to profitability. In prior years we faced a challenging environment, in which we had to consistently manage our cash operations to find the appropriate balance between growth initiatives, enhancements to the student experience and employee retention.Our strategic initiatives over the past several years including exiting underperforming campuses while adding high-demand programs positioned us to achieve our solid performance in 2019 and we'll continue to -- continue the positive operating and financial trends going forward. We will continuously evaluate and execute on strategic opportunities to enhance our future growth and achieve an even stronger 2020.I'll now review some of our fourth quarter and full year financial highlights. First in mid-November, we entered into a new $60 million credit facility with our prior lender, of which $50 million is cash collateralized. In addition, we raised $12.7 million in proceeds through a private placement of convertible preferred stock. These two actions strengthened our balance sheet and we ended the year with cash and cash equivalents of $23.5 million, as well as availability under our credit facility of over $20 million.Together the new credit facility and private placement increased our liquidity by more than $30 million and it's projected to yield at approximately $1 million in annual interest savings. The additional liquidity we generated will be used to accelerate our growth and increase shareholder value through the expansion of existing high-demand programs into additional campuses, the introduction of new program offerings and the potential expansion of our footprint through either adding a new campus or strategic acquisition.Secondly, in 2019, we operated 22 campuses and I am pleased to report that all but two campuses ended the year with positive EBITDA. The other two campuses are projected to improve their performance in 2020. As a result of our improved operations, there were no campus closures in 2019 and we have no plans for any future campus closures at this time.Third, we are focused on maximizing the value of our assets for our shareholders and towards that objective we have signed a letter of intent for the sale of an unutilized real estate asset to a private investor. Should this transaction close, we have generated -- we would generate net proceeds of approximately $2.5 million and reduce operating costs currently impacting EBITDA by an estimated $300,000 annually.In addition, during the year we realized facility cost savings of approximately $600,000 by successfully negotiating more favorable lease terms at two of our campuses. We'll continue to focus on our real estate footprint in order to reduce facility costs and rightsize wherever possible.Now, I'd like to focus on some of our highlights of our combined operation performance in the fourth quarter and full year. To begin, operating income in the fourth quarter increased $1.7 million or 13.2%, primarily driven by revenue growth, which was up $4.9 million or 7.1% over the prior year period.Revenue increase achieved for the quarter either are a direct result of two years of consistent quarterly stock growth, in addition to a slight increase in revenue per student for the quarter and for the full year.Student starts were up 9.7% for the quarter. The biggest contributor was our Transportation and Skilled Trades segment, which was up 4.3% while our Healthcare and Other Professions segment was up 4.4%.These increases and start growth throughout 2019 drove our average student population, which is up 6.2% over the prior year, 11.6% for the Healthcare and Other Professions segment, and 3.6% for the Transportation and Skilled Trades segment.The growth in student population is mainly attributable to our investment in marketing and our approved sales process. For the quarter, marketing spend was approximately $700,000 over the prior year to capitalize on a cost-effective lead-generating opportunities in high-converting channels while also investing to drive greater brand awareness.Despite the increased investment in marketing, our cost per start in the fourth quarter and the full year decreased compared to the prior year, demonstrating that we are achieving a strong return on our investment.The benefits from the higher marketing investment in the fourth quarter is evident in the early results we are seeing in the first quarter of 2020, as we're currently on pace to exceed prior year start totals in Q1.Moreover, we entered 2020 with over 750 more students than at the start of last year due to the initiatives we implemented and the efforts of our entire team. The higher beginning population as of January 1, 2020 along with the early student start results we are experiencing provides a solid foundation and the confidence in achieving our 2020 guidance, which I'll discuss shortly.In the meantime, operating expenses for the quarter grew $3.2 million or 5.8%, primarily due to an increase in marketing and bad debt expense. Bad debt, as a percentage of revenue, increased approximately 1%.Certain contributing factors include tuition increases along with a slight increase in reserve rates due to lower historical repayment rates. In addition, we instituted modifications to our institutional loan program to address student affordability barriers, both at the time of enrollment and while in school.While we believe such student friendly changes positively impacted student thoughts and retention, it may have resulted in lower repayment rates. It is important to clarify that less than a third of our students rely on our institutional loan program to fill the funding gap. We believe this impact will be mitigated in the future by our improving graduation rates since graduating students have a significantly higher repayment rate.Marketing costs, as I already mentioned, were up for the quarter as were sales expense. The increase in sales expense during the quarter is tied in part to the additional marketing investment, which are generating more leads, and therefore requiring additional resources. Other areas, which we experienced increase include books, tools, instructional expenses.The increase in these areas are primarily tied to a continuously growing student population as well as increased instructional salaries and benefits necessary to remain competitive with the current market conditions. Partially offsetting these increased, costs are facility savings generated from two of our campuses, as I mentioned previously.Now I'd like to turn briefly to our corporate performance. Corporate and other costs for the quarter were $4.2 million, up $400,000 over the prior year. This increase was primarily driven by salary and benefit expenses.Net interest expense increased $150,000 to $800,000 in the quarter. This increase was primarily the result of a non-cash write-off of previously capitalized costs related to our prior credit facility. Going forward, as I mentioned previously, we anticipate a reduction of approximately $1 million of interest expense.Now turning to the 2019 full year results. In summary, we achieved 6.2% revenue growth, comfortably exceeding our guidance of 3% to 5%. We increased student starts by 5%, hitting the top end of our guidance of 3% to 5%.Second, we generated $2 million of net income, meeting our target of returning the company to profitability for the first time in eight years, which was a significant accomplishment.And lastly, we reported EBITDA of $13.4 million, which surpassed our guidance of approximately $12 million, all in all a very strong year for Lincoln Tech.Now, I would like to introduce our 2020 guidance. As a reminder, our business incurs seasonality. And typically, the second half of the year – second half of our operating cycle performs much stronger than the first half. Certain expenses such as the timing of marketing investments, as well as the timing of slots could cause some quarters to show growth while others may not.First for 2020, we anticipate both revenue and student starts to increase by 3% to 5% over 2019 levels. Second, we expect 2020 EBITDA to be between $15 million to $17 million which would be a 12% to 27% increase over 2019 EBITDA. Third, we expect to achieve operating income of between $7 million and $9 million, which will represent 34% to 70% -- 72% increase over 2019 operating income. And fourth, we expect to invest between $6.5 million to $7.5 million in capital expenditures. We are very much looking forward to a successful 2020.Thank you for your time today. And with that, I'll turn the call back over to the operator so we can take your questions. Operator?

Thank you. [Operator Instructions] Our first question comes from Alex Paris with Barrington Research. Your line is now open.

Good morning, guys. Congratulations on the strong finish to the year.

Thanks Alex. Appreciate it.

I have a – just a clarification question. If you look at your net income in the fourth quarter and you look at the diluted shares outstanding in the fourth quarter it might not suggest EPS were $0.37 yet – the press release says $0.33. What am I missing there?

Right. Hey, Alex, we're probably going to need a follow-up call on this. Now with our preferred shares, we have to do that on a converted basis and we have to allocate percentages of income on a weighted average shares, outstanding between preferred and our common. So, some of the income gets moved between the common and the preferred shares. So that's why it can't be calculated right on the face of our income statement any longer.

I see. So – however with that said, for the full year the $0.08 the math works. So what I'm assuming from what you're saying is there's two ways to calculate this. One on an as-converted basis and one pre-converted. Pre-conversion would have been non-dilutive to dilutive earnings per share. So you use the other method as if it were converted right something along those lines?

That is correct. Due to some provisions in our preferred agreement, we have to – due to a two-class method. So we do have to allocate income, but what you said was correct.

Okay. Good. And we'll have a follow-up call anyway. But, thank you for that. I just wanted to make sure it wasn't a typo. Second, thank you for the 2020 guidance. It's in line with our expectations which are the consensus I guess. However, given that revenues and starts were up 5% and 10% respectively in the fourth quarter and average enrollment topped our expectations. It seems to me your revenue and starts guidance at 3% to 5% for 2020 is conservative. Do you have any additional color there? Is that what it is conservative? Or this is...

You could be very correct.

I got you.

Yeah. So yeah, we view – we're entering 2020 in a much stronger position. We see good things ahead of us. But we just want to remain prudent in our assumptions. And as things evolve we will gladly evolve with them.

But you are right. With our strong carry in population of 750 more students along with what we're seeing in January and February, yes it could be a little bit on the conservative side.

Okay. That's better than the alternative. Speaking of your guidance, your guidance at the midpoint suggests the contribution margin of about 24% to EBITDA, 26% to operating income. I know, we've talked before given your capacity utilization at 35% or something like that. Your incremental contribution margin target would be higher than that say 40%. So what's the disconnect there? I'm assuming these seven new programs have something to do with it.

Right. So it is like when we roll-out new programs in the year we roll it out. It's not really hurting our bottom-line but it hurts our margins a little bit. But going forward like for instance in 2020 rolling out several new programs. It's not really going to help our margins for 2020, but 2021 it really will see a significant growth in our operating margins. As well as -- as I mentioned our bad debt expense --we think did help increase some of our revenue but did hurt our margins slightly.

Got you. And what were those -- what are those seven programs? Are they all welding? Or is any of them new?

It's a mix. They're not new programs they're replications of programs. So we have two welding programs that are rolling out. We have two of our IT programs which are rolling out. We have an electrical program. We have a dental assisting program and then at our cosmetology school we have a makeup program.

Okay. Good. That's helpful. So at the previous peak two years after the recession began perhaps in the early 2010-2011 time frame, obviously, you had much higher capacity utilization. You had an EBITDA margin of over 20%...

Correct.

And the EBITDA margin in this -- based on your guidance is 5.6% up from 4.9%. What's a reasonable target and time frame to get to significantly higher margins?

Well, I think, that -- well definitely you must be reading some of my closing comments, but we are definitely going to continue to move forward with getting a ratcheting up of our margin as Brian said in 2021 as we get the benefit of these new programs that we're rolling out. You'll see a more, I guess, impactful increase we would hope in our margin. Just to kind of put it in perspective, we expect to be spending at least on the CapEx side about $4 million for these new programs and we would expect that those programs should generate $4 million to $5 million of EBITDA in 24 months to 30 months. So all that will help again continue to leverage our existing fixed costs to drive up those margins.

All right. Let me transition to that then $4 million in new programs is that in 2020 or over the next couple of years?

Yes.

Okay.

It's in 2020 in our CapEx budget.

So of the $7 million -- $6.5 million to $7.5 million $4 million is on new programs?

Correct.

Correct.

And the new programs should over time generate $4 million to $5 million annually in revenue?

No, in EBITDA.

I'm sorry EBITDA. Okay. Good. And then Scott, did you disclose what those new programs were?

It's -- once I just mentioned the two welding the two IT programs the dental assisting, electrical and the makeup.

Okay. The replication of those programs yes for $4 million of CapEx. Is there some build out associated with them and things like that for the campuses or equipment that needs to be purchased?

Absolutely. Yes.

Okay. All right. Just to follow-up -- and then you mentioned graduation and placement rates of 67.9% and 81.7% for 2019. The other numbers you mentioned were those 2018 – 2018, 65.4% and 74-point?

No, they were three years prior.

About three years prior. And your targets are 70% and 80% by 2023 if not sooner?

70% and 85%. So it's 70% graduation 85% placement for the whole company. We obviously have schools that perform much higher than that as well.

Great. And then -- just one last question. It's your commentary with regard to the Department of Education in your composite score which was less about 1.5 in 2017 and 2018 not surprisingly. So you're on Heightened Cash Monitoring in 2020 until at least the Department of Education has a chance to review your 2019 numbers which are above 1.5.

Correct.

Yes. Okay. Good. So that's really a nonissue. How does that -- you've been on Heightened Cash Monitoring before. How does that affect cash flows or margins or -- I realize it's not going to be material, but what should we know about that?

Right. It won't affect any of our margins. Under the new HCM 1, it's slightly different from last time we're in there. We were on it. So, there's a little more administratively items that we have to do. So, it will slow down our cash but only by a couple of days. So it's not going to really have a major impact.

Great. And -- okay that’s very helpful. Thank you, very much and I'll talk to you soon.

Thanks, Alex

Thanks, Alex

Our next question comes from Bill Nasgovitz with Heartland Advisors. Your line is now open.

Well, good morning guys.

Good morning, Bill.

Good morning, Bill.

Congratulations on the strong finish and year. It's terrific to see. So just a question in terms of -- and thanks for fleshing out that where we're going to spend roughly $7 million. That's good to hear. So, new programs -- can you say that again, new programs you're going to invest $4 million and what sort of return do you expect and time?

We would -- basically, I would expect those programs to generate about 500 students which should translate to $10 million to $11 million in revenue, which should translate to $4 million to $5 million of EBITDA. And that would be in the 24- to 30-month period.

Well that sounds like a pretty good return on investment.

We think so.

So do I. Happy execution. So, here we have a market cap I guess with the preferred of something around call it $70 million. And there's a huge disparity between Lincoln and just about every other publicly traded company. Why do you think that is?

Yes. It frustrates me and the team for sure. We feel like we're making great progress. And I think that the reason is to be honest, I just haven't been out there telling our story enough to people, which is why over the next 45 days, that's all going to change. There's so much positive in what we've accomplished over the last couple of years and so much more for us to achieve and everything is working very well for us right now. So, I am hoping and anticipating that once people truly understand the potential of what we offer and where we're headed that will change. You're the investor if you can give me more guidance I'd love to take it because we want to move the needle here for sure.

Yes. Well that's good to hear that -- and you're conservative in terms of your forecast. But could you just walk through -- if we achieve -- if you achieve a 10% EBITDA margin on -- what could that mean in terms of the profitability of the company? And when might that be reached?

Well I mean you can do the -- yes you can kind of do the math on what that would mean for the bottom line. I mean today we're around $270 million in revenue. I would anticipate that if -- once we get up to -- I haven't done the math on that Bill. But I'd imagine once we get up into $325 million to $330 million, we could maybe be at that level that you're talking about.

And within the same schools.

Yes.

And when might that be?

I would say that would be by in three years or less. It all depends on how quickly we're able to ramp these other programs up.

Okay. All right. Thank you, very much and good luck.

Thanks Bill.

Thank you

Thank you. Our next question comes from Justyn Putnam with Talanta Investment Group. Your line is now open.

Hey good morning. Congratulations on a good year and quarter. I just had a quick follow-up on the cash monitoring situation. I just want to be clear that that's not having any impact on your operations or strategic initiatives such as opening programs and stuff like that, right?

Right. I think our programs are all in process of the approvals right now, so it has no impact on those programs that we mentioned. And going forward, we're hoping by the end of the year -- as was mentioned, we're hoping that, when the department gets to review our financials, before year-end. Hopefully, we'll be removed from Heightened Cash Monitoring.

And you mentioned possibly, using some of your new whether it be purchase, I guess new campuses or something like that, possibly. Does that impact that strategic goal?

I don't think. So, because as of right now, there is nothing identified. So, again, we're not anticipating to, be on, HCM1 for, any length of time.

Okay. And then, Brian final question for you. You have a consolidated balance sheet here. And this question will be answered in the Qs filed. But I don't believe it's been filed yet, right? So,...

It is soon to be filed. Yeah.

Well, I was just curious if there was a restricted cash balance that you might break out for us.

So the restricted cash balance was $15 million. It was not included in that -- in my prepared remarks of the $23.6 million. So that did not include the restricted cash. It was $15 million. And it was paid back in the first week of January.

So your cash balance, at the year-end, including the restricted cash, would be the $23.6 million plus, the $15 million?

Correct. And we still had another availability to borrow if needed to be over another $20 million.

Right, right, right, so including the cash you raised from the preferred issuance, it looks like your net debt did still creep up, what it was at $5 million $7 million? Does that sound about right, year-over-year?

Our net -- yes, yes, because we were in a cash deficit prior to that correct a much greater.

What do you mean?

We were -- before we did it -- yes it improved our net debt position. But year-over-year when you look at it from December-to-December, it got slightly worse. So I think we're in a net debt of last year of negative 2%. And now we increased slightly.

Okay. Got it, okay right, that's my questions. I appreciate that.

Thanks, Justyn.

Thank you. [Operator Instructions] Speakers, I'm showing, no questions in the queue, at this time. I'd like to turn the call back to Scott Shaw, for any closing remarks.

Thank you all for joining us today. I hope that you can clearly see that Lincoln is extremely well positioned to capitalize on numerous industry trends and opportunities, as well as better serve our increasing population of talented skilled students, who eagerly seek to enter the workforce.Our solid balance sheet ability to consistently grow our population in an extremely low unemployment environment, increasing profitability, in our industry-recognized brand for high-quality hands on and caring students, sets us up for an exciting 2020 and long-term success.In closing, I will remind you that our 22 existing campuses generated $85 million of EBITDA back in 2010. And my entire management team is focused, on bringing linking back to that level as quickly as possible.Thank you again for your time and interest. And I look forward to seeing you, out on the road. Have a great day.

And I'm sorry, I would just like to correct myself to answer, Justyn's question, actually we have positive cash. Our net debt was approximately $32 million. And including the $15 million of restricted cash we had cash of $38 million. So we're slightly positive, where prior year we were slightly negative. Sorry about that.

No problem. Good news. Thank you all for listening. Have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.