Good day and thank you for standing by. Welcome to the Q1 2023 Lincoln Educational Services Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised, that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Michael Polyviou. Please go ahead.

Thank you, Latonia, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results for the first quarter ended March 31, 2023. 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 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 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 in 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'll hand the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thank you, Michael, and welcome everyone. We had a great start to 2023 with revenue growing nearly 7% starts from ongoing campuses growing 6.4% and adjusted EBITDA from those campuses growing more than 15%. We continue to make good progress on our key growth initiatives, including implementing our hybrid teaching model, centralizing our financial aid application process, launching 10 new programs at our existing campuses and developing our newest campus in the Atlanta area. The progress we made with starts in the first quarter follows the 4.7% student start growth we generated in the fourth quarter. Moreover, our momentum continues in the second quarter and has increased our confidence. And with this greater visibility, we are increasing our revenue and earnings outlook for the full year, while still forecast a solid year-over-year student start growth. Brian will review our guidance specifics during his remarks. A few weeks ago, I read an article on Time Magazine titled how America has started to fall out of love with college degrees. I encourage you all to read this article. It's quite fascinating and I believe supports the view that college isn't for everyone. We have discussed some of the dynamics mentioned in the article on prior calls. However, in 2019, Americans ranked preparing for college tenth on a survey conducted by Populus, a nonpartisan think tank, which asks respondents every year to rank answers to the question, what is the purpose of education? In 2022, respondents ranked it 47 out of 57 items. We have seen both in terms of the financial meltdown in 2008 and the COVID-19 pandemic, students are continuing to question the value of a college degree. And even more so, we are experiencing conversations at the high school level that were not happening five, 10 and 15 years ago.…

Thanks, Scott. Good morning. I'll review a few operational developments before turning to our first quarter financial results and outlook for 2023. First, during the first quarter the company repurchased 104,000 shares at an average price of $5.34 under the share repurchase plan that was extended and expanded by our Board of Directors earlier this year. Since May 2022, we've repurchased 10 million shares of stock buying back 1.7 million shares. Lincoln has $30 million remaining under its current share repurchase authorization available through May 2024. Second, we continue to make progress towards the opening of our new Atlanta campus, which will welcome students in early 2024. During the first quarter, we incurred approximately $250,000 of start-up costs and $1.5 million of capital expenditures. Turning to our financial results. First, effective this quarter, we updated our segment reporting structure, we now have a simplified structure with one segment containing all our active campuses, our Transitional segment and corporate. The Campus Operations segment includes all of our campus except the single campus reported under the Transitional segment. The Transitional segment includes any campus approved for closure. It includes our Summerville, Massachusetts campus, which will close this year. I'll note that we have no plans to close any additional campuses. Corporate, which includes unallocated expenses incurred on behalf of the entire company. Future changes in student demand, more and more of our campuses already or in the near future will offer a combination of automotive, skilled trade and nursing programs. As a result, our historical segment reporting in which each campus was placed in either the transportation, skilled trades or health care and other professional segment, no longer reflects the way in which we operate the business. The new simplify reporting represents our current operations. I will note that our press release…

[Operator Instruction] And our first question will come from Alex Paris of Barrington Research. Your line is open.

Hi, guys. Thanks for taking my questions and congratulations on the beat and race.

Yes. Thanks, Alex, and good morning.

Couple of questions. First off, looks like starts were strong in, both programs, meaning, Transportation and skilled Trades, healthcare and other professions up 6.2% and up 6.7%, respectively. Is there anything you want to call out about that strong result? It was obviously better than I had forecast. I think you said in the prepared comments that headwinds are tapering with regard to this full employment economy. Have you gotten any lift from rising unemployment? I don't know if that rising unemployment really hit your target market yet at this point.

Yes. I would say that we've gotten nothing from rising unemployment. We are certainly the ones that I've heard that have been unemployed or high-tech individuals. And as far as I know, no one of them have come to us to get a good solid career, but maybe they should. But I think that what we're seeing is maybe some of the comments I referred to just to this greater awareness that I think that people are looking for alternatives. And there is certainly a lot of discussion out there in the public domain about the shortage for electricians and other such people that I think that, that is making people more receptive and aware that they should look at these careers. And as a leader, that -- someone that's been doing it for so many years, we're a natural place for people to turn to. So we're seeing that. We are spending more in our marketing initiatives, but they're proving fruitful. The unemployment rate is still very, very low, yet we're seeing much greater success, frankly, than I would have anticipated. And as we alluded to second quarter, it all seems to be continuing quite nicely.

Great. And then I appreciate the shift towards the more streamlined reporting given the changes as a result of rolling out programs to the campuses and so on. I did appreciate the starts average population and end-of-period population by program within campus operations. Is that something that you'll be giving on a go-forward basis as well? Or is that just a transitional thing that you're giving us?

Yes. Go ahead.

No, we plan on doing that in each quarter going forward as well.

Okay. Good. Thanks.

It's a pure read too, Alex, because we are kind of grouping like programs, whereas as we were starting to make this transition and start blending more and more of the programs, even though we said automotive and skilled trades, there was some health care in that and vice versa. There were some skilled trades in our hops before. So now you'll have a much clearer picture, at least from a population standpoint of where the demand is.

Great. And then moving on the 10 new programs that you're going to launch over the next 21 months that included two programs launched in Q1, Medical Assisting in electrical and then the balance, you only have one more before year-end and then the remainder in 2024. Is it already changing? Is there -- has there been any change to that rollout schedule at all?

Well, it is a little bit delayed. We're -- to be honest, hoping to have more this year, but what we're finding is regulatory bodies, the state agency, everyone seems to be understaffed and things that should take three months, take four, five, six months to get approvals. So it has delayed some of our rollouts, but just delayed it by a quarter to be more in the first quarter of 2024. Otherwise, things are certainly on track to get the 10 new programs up and running.

Okay. And same question on the Atlanta campus. You expect your first class in the first quarter of 2024. Just remind me, is that the same as the most recent guidance? Or has that been delayed?

It's been delayed a little bit. Again, we were anticipating at the fourth quarter of this year. There's still an opportunity potentially to have it open in the fourth quarter of this year, but it's just taken us much longer to get a sewer permit than one ever thought possible. And that's what's delayed that opening. Otherwise, construction is moving well. We've purchased equipment in advance. So we don't have those delays. Again, it's at these local levels in different communities and advisory boards that seem to be slowing things down. So it could be -- we safely say it will be the first quarter of next year.

Right. And we did communicate that as well at year-end that was going to be in the first quarter of 2024.

Okay. Great. That's what I thought. Last question as to timing. You still expect the Nashville sale to close here in Q2.

Yes, we do.

Okay. Great. Thank you very much for answering my questions. I'll get back in the queue.

One moment for our next question. And our next question will come from Steven Frankel of Rosenblatt Securities. Your line is open.

Hi. Good morning. Thank you. Scott, could you give us some color on your incoming high school class, especially given the comments you're making about still feeling like everybody doesn't have to go to college.

Sure. Well, we definitely are seeing more receptivity. Obviously, high schools are open again. So we're out into more high schools this year than we were last year. And we're seeing certainly anticipating strong high school starts in the second quarter, and we continue to see strong interest in the third quarter. So we anticipate that our high school program will certainly be greater this year than it was last year, which is positive.

And just remind me, in a normal year like pull out COVID, but in a normal year, kind of what percentage of students come directly from high school and given the dynamics you're seeing today, what do you expect it to be this year?

It's still around 20% of our population is from the high school marketplace. So I'm not anticipating, frankly, dramatic increases there. Oddly enough, we're seeing stronger increases in our adult market, even though unemployment is so low, but we're seeing good, solid interest from our high school market.

Okay. That's great. And as you look at that pipeline for the rest of the year, any color on how that breaks down between health care and skilled trades?

Yes. I mean our -- we don't get it nearly as many students going into health care from the high school market. I don't have it in front of me, but I would guess it's probably easily 75% or 80% in the transportation skilled trades is where a high school students come from. And there are some that go into health care, but not nearly as many.

I'm sorry. I was talking about in general. So if you step back and look at your full pipeline…

The full pipeline model...

And those working through it.

Yes. We're continuing to see growth on both sides, just like we did this quarter without any discipline really taking the lead over the other. We continue to see stronger lead growth and enrollment growth, frankly, in the second quarter than in the first quarter. So beyond that, it's still too early for me to predict our adult market going into the third and fourth quarter.

Great. Thank you.

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

Yes. When did the tuition increase go into effect? And did that have any impact on the conversions?

I don't think it had any impact on conversions, Eric. We usually put it in the beginning of the year. So last year's tuition increases, they went in towards the second quarter. That's why in the first quarter of 2023, we're seeing the 2022 increases in that quarter. Similar that this year's increases, we'll start seeing that as well in the second quarter, but the second quarter should start having the prior year tuition increases in that.

Okay. And then the centralized financial aid effort, I think you said you have seven of the 22 campuses. How are we doing on bringing on board the rest of them?

Yes. We anticipate bringing them on board before the end of the second quarter, so that they'll be in before the financially, I'll say, year completes, in June 30.

Okay. I'm not sure if [Multiple Speakers]

It will be done by the end of Q2.

Okay. All right.

They’ll also be on the new software. I think the exact date might be July, but they all should be in the new software by July [indiscernible].

All right. And then the outlook for the full year, I appreciate the raise. It’s always good to see a beaten guide up. But I was surprised it wasn't a little bit more incremental adjusted EBITDA on the $7.5 million of revenue bump up. Is there an expense category that is turning out to be a little bit more stubborn than you originally thought?

Yes. Some of it is -- was in instructional as well as books and tools, some increases higher than our budget, but as well as when you have the better performance [indiscernible] get increased as well.

Say that last part again?

So pay incentives as we make -- as EBITDA increases and revenue increases, pain sense does increase as well.

Got you. Okay. Thanks for taking my questions.

[Operator Instructions] And our next question will come from Rajiv Sharma of B. Riley. Your line is open.

Hi. Thank you for taking my question. I have a couple of just sort of clarifications. A, so you still expect Nashville to close in May, any additional color there? Do you still expect that to the same terms as you agreed on? Any change there?

Well, we expect to be very similar. We're still, frankly, having some, I'll say, final discussions with them. But yes, it should be closing in the next 30 days or so more or less around the same terms, if not the same terms.

Got it. Great. And then you just mentioned -- you talked about these local government programs in addition to the Tesla, the Johnson Controls. Can you talk about the magnitude or just a little bit more color on what kind of programs this would be? Are they entirely corporate paid and not involving Title IV.

Yes, actually, a good question. It definitely is not involving Title IV, but frankly some local high schools coming to us, looking for building their skilled trades programs for their students, because they realize that not everyone is going to go to college. And so now they want to increase the opportunities for those students, so it's a totally different market than what we serve today. And if we're successful in landing one of these, it also becomes a great feeder for our programs. So what's most exciting to me is just this greater realization that we need more skilled trades people and people at all levels of education are starting to realize that more. And the more people that do realize that, that will certainly benefit Lincoln, both in the short term and the long term.

Got it. Just sensing from the commentary, it seems like there's incrementally positive results sort of expected. You've obviously changed the guidance. Expenses are a little higher, too. But the starts, what do you attribute the 5% to 10% rise in starts in a still very low record low unemployment environment.

Well, [indiscernible] Yes. Well, I mean, I think that, again, since we did raise guidance, certainly holding in, if not getting a little more robust. I think we are getting our message out. I think that our admissions folks are effective in conveying that message as we look to become more streamlined and efficient. Hopefully, that's adding to our ability to communicate to our students as well. And again, I think there is this general greater awareness that skilled trades in these hands-on careers are an alternative to go into college. Again, it doesn't have to be everyone that thinks this way nor should everyone think this way. But incrementally, I think more people are realizing that there's a faster, cheaper way to get a job and Lincoln certainly helps provide that. And that's a message we're trying to convey to the public. We're trying to convey to the people that reach out to us. We have strong results and good outcomes. We have more companies coming to us because of their dire need for people. So everything is really moving in our direction, which is a positive change.

Yes. I mean even on the high school fronts, this seems to be a really positive development, right? High schools coming and asking you to have a program for skilled trades, when was the last time a high school did that?

Never.

Right. So is it fair to say that this 5% to 10% growth in starts actually improves if unemployment rises from here or things get a little worse in the economy?

Given history, I would say, yes, should get better.

Right. And also, I know in the last call you had talked a lot about the results in fiscal 2024 being impacted -- showing the real run rate of the business. This rise, is it fair to say it flows through into fiscal 2024 as well?

Well, certainly, as we continue to build momentum and have a larger carry into population that will only help us and accelerate our progress and that will bode well for us.

Great. Great. Thank you for taking my questions. I'll take it offline.

Thanks, Raj. I look forward to being at your conference later this month.

Yes. Thank you. Yes, same here. Bye-bye.

[Operator Instructions] And I'm showing no further questions. I would now like to turn the call back to Scott Shaw for closing remarks.

Great. Thank you all for joining us today. I also would like to thank the hundreds of men and women of Lincoln Tech who strive each day to better serve our students. Our motto has put your potential to work, and it is the care and support that our employees provide that brings this motto to reality for thousands of graduates every year. 2023 is an exciting year for Lincoln Tech as we transition our company for the future and as our strong results in the first quarter demonstrate we are on our way. Thank you again, and we look forward to sharing our continued progress later in the summer. Have a great day.

This concludes today's conference call. Thank you for participating. You may now disconnect.