Ladies and gentlemen, thank you for standing by. Welcome to the second quarter Lincoln Educational Services Earnings 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. [Operator Instructions] Please be advised that today’s conference is being recorded. I would like now to turn the conference over to Michael Polyviou, Investor Relations. Please go ahead.

Thank you, Michelle. Good morning, everyone. Before the market opened today, Lincoln Educational Services issued its news release reporting financial results in recent corporate developments for the second quarter in six months ended June 30, 2024. 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 is Scott Shaw, President and CEO; and Brian Meyers, Chief Financial Officer. Today’s call is being recorded and is being broadcast live on the company’s website. 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 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. The company cautions you that these statements reflect certain expectations about the company’s future performance or event and are subject to a number of uncertainties, risks, and other influences, many of which are beyond the company’s control and may influence the accuracy of the statement and projection upon which the segmented 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 Factor section of the annual report in Form 10-K and the quarterly report in 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 they’re out. One other housekeeping matter, during the Q&A portion of our call today, we would appreciate if questioners limited themselves to two questions and then recue to ask any additional questions. In advance, we thank you for your cooperation. Now, I would like to call over Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thank you, Michael, and good morning, everyone. For several quarters, our team has been generating strong operating and financial momentum, leading to consistent revenue, student start, and profitability growth. We continued these trends during our second quarter and we are well on our way to meeting our 2024 guidance metrics. In fact, we are adjusting our guidance in a positive direction, which Brian will review in his remarks. The investments we’ve made in our transformative strategies over the past several years are driving our growth. Additionally, we continue to capitalize on America’s expanding interest in career opportunities that avoid the cost and time of a four-year college degree and help the nation close the skills gap, inhibiting corporate growth. During the second quarter, without relying on acquisitions, we grew revenue 16% over the prior year period and student starts increased 12.3%. Our student retention rate continued to be strong and we ended the quarter with an average student population increase over last year in excess of 11%. Our topline performance, coupled with increased operating efficiencies, driven by the implementation of our highly scalable hybrid instructional platform, Lincoln 10.0, led to adjusted EBITDA of $6 million. I’ll let Brian address our adjusted EBITDA performance during his remarks, but I do want to note our second quarter result was approximately 2.5 times greater than what we generated during last year’s second quarter. Furthermore, our total SG&A expenses during the second quarter fell below 56%, as compared to 57.6%, and our educational services and facilities expenses as a percentage of revenue also declined, further demonstrating the operating leverage we are beginning to realize. When we complete the rollout of Lincoln 10.0 by the end of this year, the platform will be used in teaching approximately 65% of our students. We continue to see…

Thank you, Scott. Good morning, everybody, and thank you for joining our second quarter 2024 earnings call. This morning I’m pleased to share our financial results along with some key operational highlights. Starting with the quarter’s financial performance, total revenue was nearly $103 million, representing an increase of about $14 million or 16%, mainly driven by our robust start growth over the last seven consecutive quarters. During the second quarter, student starts grew by 12.3%. This marks the third consecutive quarter of double-digit growth in both revenue and starts. As a result, we had approximately 1,500 more students as of June 30, 2024, compared to prior year, propelling revenue growth for the second half and beyond. As Scott mentioned, the new East Point campus is performing exceptionally well, exceeding enrollment goals and contributing to the company’s topline. While the East Point campus contributed to our robust start growth, we also continue to achieve solid organic start growth from existing campuses. Excluding the new East Point campus, we grew our organic campus revenue by $13 million, with the incremental revenue contributing an operating margin of over 30%. Now turn to the expenses for the quarter, which, as a reminder for comparability purposes, exclude one expenses of our new East Point campus during its opening period, two pre-opening costs associated with the new and relocating campuses, three other non-recurring expenses, and four, the transitional segment in 2023. Further details on these items are available in the non-GAAP disclosures of our Q2 earnings release. Total operating expenses were close to $99 million, which is reflective of our growing population and in line with expectations. Education, service and facility expenses, as a percentage of revenue is down to 42% from 44.4% in the prior year. The majority of the decrease relates to instructional expenses,…

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

Hi, guys. Thanks for taking my question. I want to congratulate you on the beat and raise.

Thanks, Alex. Appreciate that. We’re excited about it as well.

A couple quick questions. And both you, Scott, and Brian said at the end of the call that your targets for 2027 are $550 million and $90 million for revenue and adjusted EBITDA. Is that around anything or are you increasing it? Because I think you said it at investor day, $540 million and $88 million?

Right. It was actually increased slightly because the start of that strategic growth plan starts with the mid-range of our guidance. So, as we increase that, it increases the 2027 as well.

Yeah. So, we did make an adjustment up since the investor meeting.

Is this the first time you’ve said it or did you say it previously? I don’t recall.

No. I think this is the first time and it will be out on our website later today.

Great. Well, congratulations on that. Here are my two questions. First of all, I wanted to focus on starts. Starts were up more than we had expected. We expected 4,600 starts. You came in closer to 5,000 starts at 12%. What do you attribute that to? I’m assuming the increase in marketing. And then, has that momentum continued into the third quarter? What’s your experience in July and August?

Sure. Well, definitely, we achieved greater success than we were thinking. However, to support that, we are seeing continued success moving forward. There definitely is increased demand at a double-digit level for our programs across the Board. And it really comes down to a lot of execution to achieve those, as well as just timing of when some of the starts take place within the quarter. But the basic trend or the basic fact is we see strong demand continuing. That’s why we raised the midpoint of our guidance is 10%, 11%, I guess, closer to 11%, and that’s where we anticipate we’ll come out for the year.

Above and beyond the renaissance in skilled trades, the appeal of these blue-collar jobs that can’t be outsourced or replaced by AI, you’ve increased marketing year-over-year. I think you said in the press release it was up $2 million year-over-year.

Yes.

Yeah. There is enhanced -- I’m sorry, Alex, you didn’t finish.

I was just going to say, and has that had any impact on the cost per lead or cost per start?

The good news is -- yeah, cost per start. The good news is we follow that very closely and the cost per start is relatively flat. It might be up a percentage or two, but nothing significant and it kind of changes quarter by quarter. Again, it’s kind of just timing of when we spend the money and when the students start. I think at the end of the day, though, there is this increased demand. Some people, though, think that people just naturally come to you just as people talk about it. We still have to be out there in front of people. But as long as we continue to maintain our cost per start, which we have over the last five years, we’re going to continue to make those investments and drive greater growth.

Makes sense. And here’s my last one. I know we’re limited to two. By program -- population by program, starts by program. The starts -- overall starts number of up 12% was really driven by the transportation and skilled trade side of the business, up 21%. Healthcare and other professions were down 6% in the quarter. What do you would -- and it was up 9% in the first quarter. So it was definitely declining in the second quarter. What do you attribute that to?

A lot of it, again, is timing of when starts occur. In certain times, we can have two nursing starts in the quarter, sometimes only one. So in a couple of the campuses, they’re switching of when those starts were taking place year over year. At the end of the day, I’m still expecting growth in the healthcare sector for the full year. I’m not worried about growing that area.

Our biggest decline was in LPN and it was due to the timing of the starts.

Gotcha. Do you still, though, think that auto and skilled trades will increase at a greater rate than healthcare and other professions for the full year?

Yes. Simply because that’s where we’re replicating our programs as of now. We have future opportunity…

Okay.

… we believe, to replicate the healthcare programs. But right now, we’re focused on the skilled trades and auto programs. So the answer is definitely yes.

Makes sense, guys. Thank you very much.

Thanks, Alex.

Thanks, Alex.

And the next question comes from Steven Frankel with Rosenblatt Securities. Your line is now open.

Good morning. Alex stole my thunder, but maybe we’ll dig into healthcare a little bit more. What’s the size of the funnel there relative to the prospect funnel on the skilled trade side? Is there still a very good funnel there or are you finding that people are less interested in this area post-COVID? I know there’s plenty of job openings, but what’s the interest level like?

Yeah. Interest still remains strong in healthcare. It’s definitely growing. It’s up over last year. As I said, I’m very comfortable that our full year healthcare numbers will be meaningfully up. Again, our skilled trades and auto are going to be up more because that is where we’re having more replications and expansions take place. But overall, demand is strong across the Board. I’m not worried, frankly, about any demand indicators shifting negatively or maybe they’ll shift more positively, but they’re definitely robust, I’d say, Steven, across the Board for us.

I appreciate the update on the cash pay programs in skilled trades and auto. Are there any prospects for replicating that kind of success on the healthcare side?

Absolutely. And the healthcare side of the house is an area that we’re putting increased focus on. We recently hired a new individual, a VP of Healthcare, frankly, to help us drive that business going forward. So I would anticipate certainly as we get into 2025, sharing more of what those new opportunities will be for us.

Great. Thank you.

And our next question comes from Eric Martinuzzi with Lake Street Capital Markets. Your line is now open. Eric, your line is now open. [Operator Instructions] And the next question comes from Raj Sharma with B. Riley. Your line is now open.

Yeah. Thank you. Good morning. Thanks for taking my question. I wanted to understand the starts color a little bit better. So, if I heard it correctly, the healthcare starts were down 6% and that’s largely explainable from timing. Is that right?

Yeah.

And my follow-on -- right? My follow-on question is the ex of Atlanta, the East Point, Georgia campus, what was the starts growth rate and was Atlanta almost all transportation, right?

Well, Atlanta is definitely all transportation skilled trades. Again, automotive, electrical, HVAC and welding. And the growth without it was about 5.5%. There’s a slide in our invest -- up on the website that shows you that. So we had good solid…

Yeah.

… growth without that new campus.

Right. And what are the -- what is the enrollment you’re expecting at the East Point campus?

Well, I’ll just tell you what, we modeled the campus at getting to enrollment around 700, 750 students. At the end of this year, we originally thought there might be 300 students and we’re exceeding that.

Right. And that makes sense. And the healthcare starts you expect for the year to be positive growth, any sort of target on that?

I can’t, to be honest with you, I haven’t looked at it in that way. All I know is that there is positive growth. I know, Brian, if you have any more information.

Yeah. We’re flat for the six months and we’re expecting the second half to be positive. And again, for our two big programs, there is MA, which was up for this quarter, the second quarter over 30%. As Scott described, LPN was down, but that was all due to the number of slots we have, because it fluctuates from quarter-to-quarter there. So hopefully that’ll catch up in Q3. So we are anticipating to be positive. I don’t have the number there.

Got it. Well, that’s very helpful. And just my last question on Lincoln 10.0, I see that you have covered 65%. You said, if I heard that correctly, 65% of the students would be under Lincoln 10.0. And I understand that there are cost efficiencies to be seen. Are there cost efficiencies…

Yeah.

… to be seen? And where would you see them in the metrics next year versus this year? That’d be great, some color on that.

Yeah. You’d see them in the educational line, it’s because of the increased efficiency that we’ll have with faculty. We’re starting to see it now, but to your point, we’ll definitely see more of it in 2025 as we see the benefits of blended learning coming to fruition. It does provide some better student to teacher ratios and better utilization of the classroom, which all adds to the efficiency. But it’s basically in the instructional line that you’ll see the savings.

Got it. Thank you for taking my questions. Again, congratulations, solid results.

Thanks, Raj.

Thanks, Raj.

[Operator Instructions] The next question comes from Eric Martinuzzi with Lake Street Capital Markets. Your line is open.

Okay. We’ll try this again. Can you hear me?

We can hear you, Eric. Glad to hear you.

Okay. I promise I was not on mute. Not sure what happened, but let’s dive in here. So the 2027 plan, is that based on the existing campus footprint that we have, as well as that new location that’s planned for 2026 or is there build out beyond the 2026 campus location that’s...?

No. It’s still the same thing we talked about on the Investor Day. So it’s the two relocating campuses and the one campus -- new Atlantic campus. So it’s just those campuses. Anything additional will be added to that and the new programs that we discussed.

And that -- and so Houston is...

Yeah. It includes, I’m sorry, Houston as well. I’m sorry. The Atlantic campus, Houston, and the two relocating, but not the one that Scott described that we’ll be announcing shortly.

Yeah. So just to be clear, everything we’ve announced to-date, except for the new one that we anticipate we’ll be announcing in the next quarter, it drives us to those results.

Gotcha. And then a follow-up on that, Houston, what specifically is the regulatory or the barrier to roll out there? Why did we have to kick the can on Houston?

Building permits. Everyone thinks of Texas as being very open and free with a lot of things, but for whatever reason, took us longer to get some building permits approved.

Okay. And you said, so new students by the end of 2025, is that Q4 of 2025, Q3 or?

Yeah.

Okay.

Yes. At some point within the fourth quarter of 2025, we’ll have our first starts at that campus.

Okay. Thanks for taking my question.

No problem. Glad you were able to connect with us.

[Operator Instructions] I show no further questions at this time. I would now like to turn the call back to Scott for closing remarks.

Thanks, Operator. And we just want to thank everyone for joining our call. As you can see, Lincoln has a lot of positive momentum and we really see that continuing into next year and I believe even the year after. There’s so much that’s happening that we serve and the need for what we do, we see increasing given the demand we hear from employers and given the trends we’re seeing in society, waking up to the fact that there are other opportunities for people to start their careers in a shorter, faster, more economical way, and that’s certainly what we’re all about at Lincoln Tech. We like to, as we say, we help students put their potential to work and we look forward to doing that with more and more students. We look forward to updating you at our next earnings call and we hope you all have a wonderful day. Thank you.

This does conclude today’s conference call. Thank you for participating. You may now disconnect.