Ladies and gentlemen, thank you for standing by, and welcome to the Lincoln Educational Services' 2020 Fourth Quarter and Full-Year Results Conference Call. At this time, all participants are in a listen-only mode. After the speaker's 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 for today, Michael Polyviou with EVC. You may begin.

Thank you, , and good morning everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results for the fourth quarter and full-year ended December 30, 2020. The release is available on the Investor Relations portion of the company's corporate Web site at www.lincolntech.edu.

Thank you, Michael, and good morning, everyone. Thank you for joining our call to discuss Lincoln Educational Services' exceptionally strong finish to 2020, as well as our outlook for 2021. We continue to hope that you and your families have been impacted as little as possible by the ongoing COVID-19 pandemic, especially from a health and wellbeing perspective. I also want to thank the entire Lincoln organization for their dedication, determination, and absolute commitment to serving our students through the most challenging period that any of us have ever faced.

Thanks, Scott. Good morning and thank you for joining us. Today I am please to share our fourth quarter and full-year 2020 financial results, but first, let me provide a perspective on the significance of our successful year. Lincoln entered 2020 with a great deal of momentum and optimism. Our new student starts have been growing for nine consecutive quarters. We entered the year with a starting population 7.2% higher than the year before. We have returned the company net income profitability after several challenging years. And we have completed a financial transaction that has significantly improved our liquidity and provided growth capital. Then as we are finishing a successful first quarter, the unthinkable occurred when the COVID-19 pandemic hit and completely altered our operations for the rest of the year. Our team rose to the occasion, and again demonstrated resilience, innovation, and adaptability. The result, 2020 was a remarkable successful inspiring year. The challenge testes resolve. And I am pleased to say we have emerged an even stronger organization. Despite a difficult operating environment, we significantly increased our profitability in 2020 with pretax income of $13.5 million. This gives us a very strong financial footing as we enter 2021. Now I'll begin my financial remarks with the fourth quarter results. Revenue was $81.8 million, up $7.9 million or 10.7% over the prior year quarter. This increase was driven by a 9.4% increase in our average population. I want to point that this percentage is net of about 100 students on leave of absence of LoA mainly due to the lack of access to externship sites available to some of our LPN students. As such, we expect the majority of students to complete their programs during the first-half of 2021. Student starts for the quarter grew 5% over the prior…

Thank you. Our first question comes from the line of Alex Paris with Barrington Research. Your line is open. Check to see if you are on mute.

Alex?

I'm sorry, guys, I had it on mute. Congrats on the Q4 beats, and restoring guidance which was ahead of consensus expectations. I got a few questions, of which you've addressed some of things. So you talked about strong student starts growth of 15%, that's three consecutive quarters of 15% or greater growth. Your guidance for the coming year is less than that; I think you addressed that to some extent. But what about leading indicators, like enquiry flow, conversion in show rates, how do we look into early 2021 here?

Thanks, Alex. We look good, to be honest with you. We're having good results. There's still strong interest. As we indicate, the first quarter will be very strong. And the conversion rates continue to be as good, if not better, than the year before. And our leads are certainly exceeding what our internal plans are. As you know though, we just tend to be more conservative on the longer-term. As you also know our third and fourth quarter tend to be very robust. And we would anticipate that as we get closer to that period of time we'll certainly update you on where we are. You are correct; the last three quarters have been stronger than what our overall guidance is. But overall, I feel very good about where we stand right now.

Okay, great. And then I had a question about leaves of absence. It was about the same level as the end of the third quarter, roughly a hundred students or so. Now, while this is down from the Q2 peak of 700 or more, is this a more normal level? I mean there's always students in LOAs, right?

Well, these are students that were in LOAs because of COVID, and it's really just that two campuses here in Northern New Jersey, where the clinical sites haven't opened up to our students so they can complete their education. However, with that said, just within the last week, there are signs that they may be reopening some of the nursing homes and things of that nature to our students so they can complete their clinical work. But, literally, 88 of those 100 are these clinical students that were just waiting for the sites to open up. So with the vaccine and everything else, we're anticipating that will happen. And then we really shouldn't have any more of these SPNs, unless something spikes up again.

Got you, okay, that's helpful. I think you mentioned that you're going to transplant four programs in 2021. First of all, do I have that right? And then second -- okay, again, these are welding programs, I assume or is that a combination?

Well, one is a welding program, one is a medical assisting program, one is a dental assisting program. So it's a mix of programs.

Got you. Any new programs planned? And one question I had very specifically in terms of new programs would be the opportunity within electric vehicles. Do you have courses on this topic right now? Are there a lot of technician opportunities? And then taking that a step forward, how about other interesting burgeoning areas, like solar or wind, things like that. Are there opportunities for Lincoln technician training in any of those areas?

Well, first of all, our students already are being hired by Tesla, and all the manufacturers of electric vehicles, because we cover all the basics of that training in our program. So there isn't a dedicated specialized program for that. But I would anticipate, certainly, we'll be making our electrical aspects of our auto program and diesel programs more robust, simply because that is where the attention is at the dealerships for a lot of the repairs that are needed going forward. But also, remember; only about 4% of the vehicles sold worldwide are electric today. Obviously that's going to ramp up. And as the fleet gets larger our there we'll certainly make sure that our curriculum is addressing that need. With regards to other programs, we already incorporate into our electrical program components of solar. Some of our schools have solar panels, and so the -- our students are taught how to install those and manage those. But to your point, are there new opportunities, we view that as continuing to grow. We view that there are greater efficiencies around energy efficiency, in particular, to help our HVAC students. As we talk to different employers in different markets, they are asking us to tweak our programs to help address what they're seeing up in the field. And so we continue to do that. And then we always are looking at overall new programs that we can launch. One that we kicked around for a long period of time, and hopefully we'll launch it soon, would probably be a plumbing program, simply because it parallels very well with our HVAC students. A lot of the employers for -- the HVAC students also needs plumbers as well.

Yes, that sounds like a complementary add-on. Just a couple left. Since it's year-end, I thought I would ask about 90/10, I'm sure that'll be part of the 10-K. But where did you finish 2020, if you know, for your 90/10?

Yes, we finished at 77% overall for the company, 77%. So it was a very -- position.

Yes, and then, that was down actually a 100 basis points from 2019.

Correct.

And then what percent of your revenue is active military or veterans?

We're still -- we're -- if we add it back, we'll still be under the 90/10. We're still working towards that. It's not as easy as the revenue, but yes, we'll still be comfortably, we believe, under 90%.

Okay, so then under 12% would be TA in VA?

Correct.

Okay. And then, lastly, just a couple of cats and dogs. You said CapEx would be $7.5 million in 2021. That's higher year-over-year. Where are you going to be spending the incremental dollars?

Mostly about half of it is, as Scott was saying, with the new programs that we're rolling out. And it's some future initiatives, so that number could come down if we don't -- if certain things don't materialize going forward. So I would say half -- a little more than half of it is based on growth.

Okay. And then, since you gave guidance on adjusted EBITDA, which includes -- which adds back stock comp expense. What's your expectation for stock comp expense in 2021?

Wait, can we -- I do…

You could do that as a follow-up.

Yes, I will have to give that to you as a follow-up. You know what, I think might have it here. Give me one more second. I do have it. I have a lot of papers in front of me, I'm sorry.

Yes, sure, no problem. And then while you're looking for that, the tax rate, you just gave guidance of what, was that 27% for 2021? I know you're not paying any actual taxes, but as far as model is concerned?

Correct.

As far as the GAAP presentation…

Correct. Actually our tax rate is approximately the 27%, correct.

Okay, thanks.

And just back on your 90/10. Last time that I'd seen numbers, if you add back military, we're at 85% to 86%.

And stock compensation for 2021 is going to be about $3.5 million.

Good. All right, that takes care of me for now. And I'll follow-up offline. Thank you.

Great, thanks, Alex.

Thanks, Alex.

Thank you. Our next question comes from the line of Steven Frankel with Colliers. Your line is open.

Good morning. So you talked about lower cost per student start. Maybe give us some insight in how you are achieving that? You altered the messaging or the channels, or is this the scale, what's driving it and how much lower can you take that metric?

Sure, Steven. Well, there are a number of things driving it; one, better execution by our admissions folks able to better communicate the value proposition. We are changing our mix of where we're getting students. We're certainly decreasing the number of, I'll say, third-party leads that come to us, so we're achieving and finding better quality leads with the students that are more interested in our programs. We're, obviously, continuing to expand our efforts in social media. I mean, basically it comes down to where the best places to go, looking for students to find ones that are most interested in our programs. And so that constantly evolves and our team has lots of good statistics and information around what is working and what's not working. And we constantly tweak it to ensure that we're getting the best estimates from our dollars as possible. So it's better marketing, reaching our students. It's also better execution with our admissions folks and communicating the value proposition that we give our students. And so, we do anticipate that that will hopefully continue to decline in the future. How well it can go? I don't know, but that's certainly something that we constantly are monitoring to achieve lower cost per start.

Okay. And what's your today between high school grads and adults?

Last year we had about 22% of our starts were high school students.

In terms of show rate can you share what that metric was in 2020 and how that improved year-on-year?

Yes, we typically don't share that number, but the number again that I look at is our lead to start just overall. And we don't share that number as well, but I can tell you it's been declining, because as we've become more efficient with our marketing initiatives, it does get better. I don't get too locked into show rates, because it seems to fluctuate quarter-by-quarter. Again I'm looking to drive cost down overall, and I achieved that by monitoring our lead to start rate. So again, it can be a fluctuation of greater conversion and start rate may decline or go up or vice versa.

Okay, great. Thank you so much.

Thank you, Steve.

Thanks, Steve.

Thank you. Our next question comes from the line of Austin Moldow with Canaccord. Your line is open.

Hi, thanks for taking my questions. Can you talk a little more about your employer partnership programs like with Republic? How many of those do you have in total? What does the pipeline look like some more and how exactly does pricing and payment work in these programs?

Sure, Austin. So, there are different models out there, let's say for the Republic model as an example, there Republic would be paying us Lincoln to run this program on their facility. And the students as I mentioned, pay nothing for that program. Then there are other programs whereby students might be paying the cost for getting the specialized industry training. As I mentioned, we have about a dozen of these different types of programs of the different types. And we have probably have another six or seven that we're working on currently. They take a long time to bring to fruition, but again, what we like about them so much is they are great career opportunities for students. These employers are really strong need for the students with this skill set and they provide good compensation to our students and also flexibility for students, because a lot of these employers are more national in presence and therefore with so many students with, I'll say dual income households, if one gets transferred to another area, the students are able to move to that other area and stay employed with that employer. So there are a lot of benefits by working with some of these national and large regional companies.

Does the growth in this channel bring cost per start down across the company, because employers are funneling the students to you, or what impact does it have on cost per start?

Yes. No, I mean, I wish more employers were sending us students. I can't say that employers are sending us students. I think it does help our value proposition by students knowing that they had these opportunities with name brand companies. So I think it does eventually translate into a better cost per start, but there's really no way to determine how impactful it is. At the end of the day, again, the biggest driver for me is ensuring that our students are getting good well-paying jobs and that's what these partnerships definitely do bring.

Got it. So, you're acquiring the students for these partner programs?

Yes. And frankly, it's one of the value propositions we bring to these employers. They seem to struggle to find people that have an interest in working with their hands? And that's certainly who we're attracting both at our high school initiatives and through our marketing initiatives. I mean that that is probably one of the biggest challenges that these employers have is just trying to find the pool of interested candidates. So as we look to expand our footprint over the years and going to more states and really build out our presence, we should become even that much more valuable to these larger employers. Again, a number of them just want us to help them locate students that that will be highly motivated to work with their hands.

Got it. And last question here. Are you able to say what your total advertising expense was in Q4 and 2020 and maybe if you could talk about the outlook for how you'll be growing, spending or not over time?

Well, I can tell you, we don't share that information first of all. And I can tell you that we are looking at more modest increases going forward at this time, because we're seeing good strong results, but we also respond to the marketplace and where we see opportunity and need to invest more we will. But as Brian said, and as I guess I've said, we constantly are looking at what the cost per start is. So far so good the last three years we've constantly been able to grow our business and lower that cost per start. And right now we see all the same trends continuing in 2021.

Okay. Thanks very much and congrats on the quarter.

Great. Thanks. I appreciate your interest.

Thank you. Our next question comes from the line of Raj Sharma with the B. Riley. Your line is open.

Hi, good morning guys. Congrats on your solid results. And, and yes, they've been such great questions prior to me that that, but I do have a few more left. So could you talk a little bit about the graduation rate? How your graduation rates have been affected you in COVID? Have the drop-off rates gone up, or I don't know if you can give some numbers on that, but just trying to understand any change in the pace of coursework completion outside of the other ways that you just said 88 out of 100 were clinical students waiting and can you give the revenues on that front?

Yes, differed revenue is pretty minuscule. I think it's less than $60,000.

But with regards to the graduation rate, again, happy to talk about that, because we're certainly very much focused on that number. So kind of like our placement rate, it did dip a little bit in 2020. So we typically say that we're in the mid-60%, so 65%, 66% or so, and that's where it's still hanging out for a graduation rate. It did dip simply because a lot of students weren't expecting to go online and a lot of our faculty members weren't expecting to teach online. So I think that given that transition, we did quite well, but again, our objective is to get up to a 70% graduation rate overall for our company. And so what we've done to address this is, we've hired an individual to help us with training of all of our educators on how to be more effective delivering their curriculum via online. And we've already gone through one level of training with our instructors and level two and three are in the works and will be rolled out. I have all the confidence in the world that we'll be able to get back on to that improvement curve with our retention. But it is a transition for everybody, but I'm very confident again, that we will get back to be in a more positive position.

Right. So, it's dipped a little, but it will come back and sort of the pace of coursework completion, are you finding reticence among students too, or any of reluctance in sort of pacing along, and any sort of changes in revenue recognition that you could do?

Yes, well, again, we have very few students as it. We only have these about 89 students in our two campuses in Paramus that are kind of on hold that it would be impacting our revenue. They're the ones waiting to go back into the clinical sites. Otherwise, frankly, our campus are open and the students are quite anxious and frankly enjoy coming onto campus to do their hands-on work. So, they are not slowing down on their progression and all of our students have been called up. So they're going to the program at a normal pace right now.

That's great. So, and just sort of moving on, on the inquiries and the enrollments, I know that the start showed up 15% year-on-year, have the show rates, I don't know if you can talk about it, but the show rates gone up, gone down, any sort of change in that, you mentioned higher unemployment is kind of helping you get a lot more inquiries. Are they sort of trending at the same rate or much higher in the show rates? Can you talk about just the trends on the show rates and the interest?

Yes, absolutely. Yes, so what we're seeing is really strong up tick in our leads, in our interest. And as that volume has increased, our show rate has frankly has gone down a little bit. But again at the end of the day, as long as our lead to start rate goes up, which it has, I'm happy with that. But I think that there's more opportunity for us. I think that when we centralize our financial aid process, I think will become more efficient. And that should hopefully drive a better show rate. Time will tell, but again, as long as overall, we continue to improve our lead to start rate, I'm quite pleased with that progression, very pleased with how the team is operating.

Great. And then just on any particular geographical areas that are slower than others in their curriculum progression, or -- …

No, no geographical differences, Brian?

No, as Scott said earlier, just the two schools in North of New Jersey, those are the only ones with the 88 students that were waiting for externship sites. And they were optimistic that they're going to open up but other than that, nothing.

Right, okay. And then, I still have got two more, I hope I have the time. On the starts and sort of breaking down the starts, NOL up 15%, any particular segment, I know that's not doing what you mentioned, the high-schoolers, and then you think that that's going to continue to impact your starts for the rest of the year? Could you talk a little bit about that, why should that continue?

Sure, yes, so actually in the fourth quarter, we had a good number of high school students start with a challenge that we have today with our high school students is more for the upcoming summer start, needless to say depending on where the geography is, some high schools just are not allowing people whether any schools to go in and talk to their students. So, it's all being done virtually, which can be done, and we're doing it as robustly as possible. But with that said, it's not quite the same experience as being able to meet people face to face and interact with them. So as we look at where we stand today, we think that our high school market for the summertime could be down 100 to 300 students from what we had last year. I was hoping, in the normal course of business to have a couple 100 more. But, as I also mentioned, our adult market is very strong, and leading to very strong growth rates. So as we get closer to that summer period, and see where the results come out, we'll share any updates, but overall, demand remains as we say, the first quarter is going to be as strong as the quarter we just finished. And as we get closer into the second quarter, we'll have a better window into how that's performing. But I have no indications right now to say that it should be anything less. The only thing that is a little bit less is our high school market.

Got it, thank you. And then, I know you just mentioned the Title IV the Veterans with numbers, and could you please touch upon that again so if 9010 goes to including the veteran as is the talk is where would you guys stand on that?

Yes, as we mentioned today, we're at 77%. And if Title IV goes back into a numerator, we would still be under 90%. We're still evaluating it, but we're very confident that it'll be under 90%.

Right, so comfortably under 90%?

We think so, we're still working through that, but yes.

Okay. Great, thank you. So again, I think great results, I think thank you and congratulations and thank you for answering my questions. I'll take it off.

Sure. Thank you. Thanks for your interest. Thank you.

Thank you. Our next question comes from the line of Justin Putnam with Talanta Investment. Your line is open.

Thank you. Scott and Brian, good morning. Congratulations on navigating very incredible year. I would just have a couple of quick questions for you -- kind of big picture type questions. I mean first of all, based on your guidance in last couple years is that you are growing your EBITDA on average about 50% a year which is pretty incredible. But your valuation stock price looks like it's a third to a half of kind of what you are seeing for multiples in the stock market as a whole. Relating to the comment on that, if you want, but I guess big picture what I like to know is in the summer, the story was a little bit different with your industry. We were -- there was a lot of about talk of recession and a lot of people getting laid off. And we know historically how your company has performed in recessions and with higher unemployment levels. You had some data on that in some of your presentations. But then, of course, you can't have so many people laid off that they don't have jobs to go to, because I think that that would push against your ability to continue to enroll students at some point. Now as we sit here now today, the talk is more about -- although unemployment is still, there is talk about economy recovery now in every job and it's becoming more clinical. I am just curious to know what your thoughts are about where that balance sits right now.

Yes, it's a good question. It's certainly that we think about. But I think that overall we sit in a very improved position. Again prior to the unemployment rate spiking, we were growing for two consecutive years when we had the lowest unemployment in 50 years. And I think that that trend will continue even if unemployment drops simply because I think more people are questioning the value of just jumping into a four-year education. I think more people are getting attuned to the fact that there are faster quicker ways to get into the workforce, especially getting into the workforce with meaningful job that have in themselves good long-term career prospects. So, I don't think that that dynamic is going to change. I think that lot of the dynamics that are current right now again really play to give us greater opportunity because the people that remain unemployed tend to be the ones that are in let's say lots of areas that would normally come to us because they are, I'll say, in the non-essential career today, and as I mentioned, 90% of the programs that we offer going into essential careers. And these are essential because there is a good demand and need in good times and bad for these careers. So, the fact that there are more people unemployed in the non-essential careers should help us going forward. So, again if we didn't have the strong success that we had prior to COVID in the lowest employment period in the last 50 years, as I said, I guess I wouldn't be maybe as bullish as I am. But so many things that have even happened over the 12 months that seem to still indicate that the younger generation or current 20 to 25 years old are really having a different thought process when it comes to going to college or how to achieve the success that they want to achieve.

Okay, great. I have got few more questions. I will take them offline as they are kind of housekeeping questions. So, thank you.

Sure.

Sure.

Thank you. I am not showing any further questions in the queue. I will like to turn the call back to Scott Shaw for closing remarks.

Great. Thank you, Operator. As always, I want to thank our employees for their continued dedication to serving our students, and shareholders for your continued interest and support. We remain excited about Lincoln's growth prospects. We entered 2021 stronger than we have been in a decade. And expect our first quarter enrollments to be as least as strong as last quarter, which should position for a strong 2021. Brian and I look forward to sharing our 2021 first quarter results in May. And until then, I hope you will all stay safe. Thank you for your time.

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