Ladies and gentlemen, thank you for standing by and welcome to the Q2 2021 Lincoln Educational Services Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Michael Polyviou. Please go ahead, sir.

Thank you, Tiffany and good morning everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results for the second quarter ended June 30, 2021. 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 webcast live on the company’s website and a replay of the call will be archived on the company’s website. Statements made by Lincoln’s management on today’s call regarding the company’s business that are not historical facts maybe 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 or 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 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 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 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 would 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. Thank you for joining our call to discuss Lincoln Educational Services recent financial and operating performance advancement. Our financial results for the second quarter came in right as we expected from all perspectives, with half the year under our belts, we remain on target to achieve our goals and objectives for the full year. We grew student starts, graduate placements and expanded our corporate partnerships. Each of our campuses generated positive EBITDA during the quarter and we stepped up investments to ensure future growth. As we discuss our second quarter results with you today, it is important to bear in mind that this period compares with the second quarter of 2020, which was positively impacted by approximately 300 student starts delayed from Q1 2020 during the early days of COVID-19. Nevertheless, we generated a healthy 8% student start growth during the quarter. Excluding the impact of moving these 300 students into Q2 last year, our start growth would have been a healthy 19%. During the quarter, as the economy continued the reopening process, demand for our graduates by employers increased as did the placement of our graduates into well-paying positions. With the rebounding economy and slowly rebuilding supply chain, there is even more pressure building within corporate America to identify new and innovative ways to recruit, train talent to its workforce to meet growing demand. Given our proven track record of helping companies find as well as retain that talent, we are experiencing increased interest from corporations in forming partnerships to help them recruit and train personnel to help them narrow their skills gap and meet the increased demand for their goods and services. During the quarter, we continued to build our vital corporate partnerships. Daimler Trucks of North America named our South…

Thanks, Scott. Good morning and thank you for joining us. As Scott has mentioned, Lincoln had a very solid second quarter. To start, I’ll share the top five financial highlights as a quick overview of the quarter. Our average population for the quarter increased 16.3% or approximately 1,700 students net of students on leave of absent due to COVID-19 which will be discussed shortly. Our stock growth was 19.1% when adjusted for the shift in some 300 student starts scheduled for last year’s first quarter to the second quarter. Our stock growth stands at 18% through the first 6 months of the year, building on the prior 3 years of stock growth that the company has achieved. Third, adjusted EBITDA improved 81% to $6.1 million. We generated cash flow from operations of $9.4 million during the quarter, which increased our available liquidity to $54 million from $32.5 million in the prior year quarter. And lastly, our revenue increased by nearly 30% to $80.5 million. All of these metrics are indicators of our solid financial position and successful operation. As a result of better than expected financial performance during the second quarter, I am pleased to report that we are refining our previously raised 2020 guidance to increase the low-end estimates for revenue, adjusted EBITDA and pretax income. I will provide more details on these – on this after my review of the second quarter. The 2020 financial results reflect the significant impact from the COVID-19 pandemic, which started in March last year. As a result, certain financial and operational comparison for the quarter compared to the year may be outsized. Beginning with our solid top line results, revenue for the quarter was $80.5 million, up $18 million or 28.8% over the prior year quarter. This was mainly driven by the…

Your first question comes from the line of Steven Frankel with Colliers.

Good morning, Scott. Thank you for letting me ask a question. Digging into the pipeline around adult starts, I know you have made these comments on the high school population, but what are the – what is the adult side of the equation look like? And when does the pipeline out to Q4?

Sure. Well, we continue to get more interest than we’ve had in the prior year. And so the adult is definitely performing obviously, given where we’re coming out with high schools much more strongly. Adult starts for Q3, though, I would say, would probably be around flat to low digits. And then as we look out to Q4, as I mentioned, we see growth again given the pipeline.

And do you think that’s just a timing issue that has them only up flattish to single digits year-on-year? What do you think contributes to that?

Sure. I think there are a number of issues. Some of our operational issues on our side, just making sure that we have all the faculty for all the classes that we want to operate. Some of it is timing of class starts. But as I said, the interest is still there. We’re still seeing good, strong interest at a higher level than last year. So again, I’m just – I would expect that it is a lot of timing that’s affecting our starts.

Okay. And what is the spike in the delta variant doing to starts and externships on the healthcare side, specifically?

Yes. I mean the changes that keep happening are frustrating at times. And certainly, since we’re in 14 different states, we have to look at 14 different ways of how we address the situation. And every day, new rules and regs come out. And so to date, I mean, since this is all relatively new, I mean, as Brian mentioned, our LOAs have dropped almost down to nothing. So we’ve been able to get the students back into the externships. But recent rules have just come down where maybe our students may be required to be vaccinated in order to go into those externships. That’s just something I saw, for example, in Rhode Island just last week. So to date, it hasn’t affected it, but I’m guessing there will be more restrictions, which could lead to some delay in those externships, but as of today, I don’t see it happening.

Okay. And then on the cost side, Brian, what’s normalized year-over-year expense growth for the back half that’s baked into your guidance here?

Right. So – for over prior year, I would say for Q3, it will be slightly up due to some of our initiatives. In Q4, we will be similar to our Q4 of last year.

Okay. And then lastly, Scott, maybe a little more color around this new campus and what you might offer there? Would you be offering any new programs or anything slightly different as you build it?

Sorry, Steve, when I think slightly up, for Q3, we will be up based on our population. So we are projected to be up almost over prior year, several million dollars, but a lot of it is due to our continued growth in our population and some as far as instructional. What I was mentioning was more of a normalization so we are looking to be up approximately $5 million over last year, and some of it is that corporate $1 million due to our – some of our initiatives that you’ll be hearing but it will be up. And in Q4, it starts getting a little bit normalized it will be slightly up in Q4 and mostly on the educational facility side.

Thank you for the clarification.

So answering your question on the new campus, so the new campus is basically going to be most likely with an automotive and skilled trades and then we will probably have one, if not two healthcare programs in that campus. That way we attract the full range of potential people within a local market. And we’re seeing great success with having healthcare programs, frankly, also in our automotive schools. And given the fact that we’re moving to a blended format going forward, we are looking at being able to build a campus that’s more efficient, better utilization of space. And so it will have a smaller footprint than what our typical campus would have today with those same number of programs.

Great. Thank you.

No problem, Steve. Thanks for your questions.

Your next question comes from the line of Austin Moldow with Canaccord.

Hi, thanks for taking my questions. In regards to your corporate partnerships. Are these partnerships like with Mazda and Kindig, are they incremental class starts?

Yes. Well, the Kindig thing won’t be counted as a start because the program is so short, most likely. I mean it’s only a 6-week program. We’re still working on the how that will roll out. But what’s exciting about the Kindig program is a number of things. One, it will bring greater visibility to our overall collision program. Two, it is a cash program. And so whatever we can do to diversify away from Title 4 is incrementally better for us. And three, we think that working with Dave, he’s a very creative individual, this could lead to other opportunities down the road. As far as Mazda, the attraction there is it’s like all of our OEM relationships. We do think it helps build the brand. We do believe it helps attract students. And however, the reality is that a lot of these students really understand the value proposition of these partnerships once they are with us. And so it really adds – gives them a greater job prospect at the end of the day, to be honest with you, these partnerships. So it’s all positive. It’s all incremental. It all helps the bottom line. And we’re very pleased and honored that these companies come to us because it does provide great career opportunities for the students.

Got it. And can you talk about the remaining capacity at your existing campuses to add programs? Like I’m kind of curious how many that have the automotive programs might you be open to your adding the healthcare programs to and then vice-versa?

Sure. We’ve been adding about four to five programs a year over the last couple of years, and I would anticipate we’d be able to do that over the next 2 years with programs. And then as we move to our blended program, which will be fully rolled out in 24 months that should enable us to maybe have the additional capacity at some of these campuses. I mean certainly, an automotive program isn’t something we’d be looking to expand at other campuses simply because of the footprint is too great, but adding healthcare programs are of certain skilled trades programs at additional campuses is very much – is more doable, I should say.

Okay, thanks very much.

No problem, Austin. Look forward to chatting with you later in the week.

Your next question comes from the line of Raj Sharma with B. Riley.

Hi, good morning guys. Great quarter. I wanted to get a little bit more color on the starts and understand that better. What is – or could you talk about the makeup of your starts in terms of high school – the high schoolers and adults and any other sort of class? And if you could talk about how the marketing sort of was prevented in high schoolers? But then I don’t quite understand the process for the adults, if there is any digital marketing by the starts are being guided to flat 2% or 3% in Q2?

Yes. No problem. So in total – so in total, high school represents about 20% of our starts and about 60% of those high school starts come in the third quarter. And so what we do is we have our guidance counselors going out to the high schools, speaking to classes, so they actually have started that process, frankly, this month for next year’s class, they go around and get the leads and then we know what kind of level of interest we are having for that program. And so we knew that there was some softness in that program, frankly, 6 months ago, which is why we provided the guidance that we did. And we just weren’t quite sure how it all would play out given COVID in all the various states. As it’s playing out, we will be down in our high school marketplace this year, but again, that’s really a function of the fact that we couldn’t get into as many high schools as we had in the past, and therefore get in front of us many students. And once that turns around, which we anticipate it will, in 2022 as well as some additional initiatives, we would anticipate being able to grow the high school market again. On the adult side, it’s basically about a 60-day window from the – by the time an adult typically reaches out to us and then starts with us. And as I said, enrollments or leads from these adults have been increasing year-over-year, quarter-over-quarter and some of the timing issues of when the classes are starting as well as some of the challenges we’ve had in just making sure we have the faculty for each of these classes is slowing down our growth slightly in Q3. But again, as we look to Q4, given what we’re seeing, we expect to be back to the growth mode again.

Great, thanks. And then on the new campus, you already talked about the courses that have been offered. Any sort of indication on the region or – and also the class size? And what kind of CapEx are you targeting?

Sure. All I can say is that it’s not in the state that we serve today. So it will be our 15th state that we’re entering. And then as far as the CapEx size, it somewhat depends on what we’re able to get the landlord to fund. But I would say it’d be somewhere around, would you say, Brian, $10 million of expense for a campus that should be able to generate for us $15 million to $20 million in revenue.

Got it. And then you also mentioned the real estate transaction. Could you give some color around that?

Sure. I don’t want to jinx that, but all I can say is that there is lots of interest in real estate financings these days. We have properties that we’ve talked about before that we own and we’ve been very pleased with the potential opportunity to, I’ll say, monetize those properties in a very productive way for us.

Right. I just wanted to get a sense of the market value of these properties that we might be sort of consider it?

Well, as we’ve shown and said that they are on the books for $30 million and they were appraised at $60 million. So I can tell you that it’s – to give you more than enough information.

Yes. Something should be coming out during Q3 that will be publicly coming out, we’re anticipating it very shortly.

Got it. And then lastly, any sort of non-matching number of starts for 3Q or is it apples-to-apples comparison for – in terms of start dates?

It’s pretty comparable. Nothing – I would say nothing too material a few here or there.

Got it. Thank you for answering my questions again. Congratulations on a good quarter. I will take this offline.

Thank you. Appreciate that very much.

And your next question comes from the line of Justyn Putnam with Talanta Investment Group.

Hi, good morning.

Good morning, Justyn.

Good morning, Justyn.

Hey, I was just curious if we could get maybe a little more clarity or perspective on the high school start dynamic? I mean, first of all, can you kind of quantify maybe the shortfall in 3Q, either in percentage or number of students as compared to maybe what you see as the more normal year?

Sure. No problem. We expect to be down around 400 students or so as a round number.

So as you move through this kind of really unusual period here, you look maybe in 2022 and beyond, do you feel like – you said you feel like you can grow the high school population, but I just want to clarify that above of this low base? Or is this kind of growth you can pick up in addition to kind of this unusual year here with the 400 shortfall?

No, I think that was in addition to that, I think that we have definitely more opportunities in the high schools. And I think as more and more high schoolers and their parents look at the value proposition of college that should bode well for us that more people are going to consider alternative ways to get into the workforce at a cheaper, faster pace, and we certainly offer that. So I see definitely growth opportunities for us in the high school market in 2022 and beyond.

Okay. Then the other side of the equation is back to your adult operation. I know you’ve talked a little bit about this, but that too was also impacted by a very unusual period, unusual year, 1.5 years. And you talked about how you see that come evolving through the course of this year? But how does that look as you look further in 2022 and beyond with that kind of normalizes? Historically the company has obviously benefited from these higher unemployment periods, and now that’s kind of come down a little bit, not quite as much of a tailwind, but there is a lot of underlying dynamics that go with that, such as this employers have not been able to meet their employee demand and so forth. So I was just curious how you see that playing out over more normalized periods, 2022 and beyond?

Sure. Well, I’m very confident in our ability to grow going forward simply because of some of the dynamics that you highlighted. I mean again, we were pre pandemic when unemployment was at a 50-year low, we were able to grow. And I don’t anticipate that that changes post-pandemic. The employers that could – are coming to us are really just faced by this massive challenge of finding people. We obviously have spoken about before, how there is fewer people in the high schools learning about tech programs. I think that during the Great Recession, a lot of companies eliminated their training programs and got frankly, too far away from that. I mean, the solution for industry going forward is definitely going to be a partnership, I believe, with people like us, where we help, retain and bring in students given the skills and then work with companies to get them placed. And I think that’s also true for the adult market. So I really see, frankly, with each passing week, more and more opportunities for Lincoln going forward than less. And yes, sure, there might be some variability quarter-to-quarter, but things remain extremely positive in my mind for what our opportunities are going forward.

Okay. I asked that question also, it’s been an unusual year, but also for us longer term investors in the industry. We’ve seen the countercyclical nature of this industry, and I know every economic period is different, but I was just curious to your thoughts on how that is evolving in this currently?

Yes. And I think that’s what is different going forward is there is so much more talk today about infrastructure, the need for infrastructure. And as I mentioned before, people just questioning the value of college that every cycle is a little bit different. And the good news, I believe, for us is that so many of those differences are pointing to ways for Lincoln to capture more opportunity rather than less going forward.

Okay, great. Well, thanks for that perspective.

No problem. Thanks, Justyn.

At this time, I’m currently showing no further questions in queue. I will now hand the conference back over to Mr. Scott Shaw.

Thank you, operator. As always, I want to thank our shareholders for your continued interest and support. I also want to thank all of our faculty and staff for their unrelenting dedication to our students, many of whom have faced great adversity due to the pandemic. I am very proud of the Lincoln Tech family. I am always uplifted by their stories of changing lives no matter the challenges or adversity our students face. We had an excellent first half of the year and remain on track to achieve our goals. We are excited about the future and its potential as we continue to implement growth strategies and make the investments needed to expand opportunities for both our students and our shareholders in the years ahead. I believe we have a unique story to tell, and as such, we will be participating at several conferences in the next few weeks, including the Canaccord Annual Growth Conference being held this week as well as the Barrington Fall Investor Conference and Colliers Institutional Investor Conference, which are being held on September 9. Brian and I look forward to sharing our 2021 third quarter results with you in November. Until then, please stay safe. Bye-bye.

Ladies and gentlemen, thank you for participating. This concludes today’s conference call. You may now disconnect.