Good morning. At this time, I would like to welcome everyone to the Q1 2019 Lincoln Educational Services Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn today's conference over to Mr. Doug Sherk. Please go ahead.

Thank you, Shalon, and good morning, everyone. Before the market opened today, Lincoln Educational Services issued its release reporting financial results for the first quarter ended March 31, 2019. The release is available on the Investor Relations portion of the company's corporate website, at www.lincolntech.edu. Today's call is being broadcast live on the company's website and a replay of this call will be archived on the company's website. Statements made by Lincoln's management today, during 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, planned, 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 in the projections upon which the segments are based. Factors that may affect the company's results include, but are not limited to the risks and uncertainties discussed in the Risk - excuse me - 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 information available at the time those statements are made and/or 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, Chief Executive Officer of Lincoln Educational Services.

Thank you, Doug, and good morning, everyone. Thank you for joining our call today to discuss our solid start to 2019. With me is Brian Meyers, our Chief Financial Officer. When we last talked with you approximately two months ago, we talked about several favorable operating trends generated by our company over the course of 2018, including consistent same school student start growth, consistent student graduation rate and placement growth, consistent operating leverage and cost containment, consistent corporate partnership expansion and consistent progress towards profitability. These consistent achievements led Lincoln to meet or exceed our full-year guidance metrics for 2018 and they position the company for further growth, as well as the achievement of GAAP profitability in 2019. Today, we reported results for the first quarter that can best be characterized with an increasingly familiar turnaround here, consistent progress. Our student starts continue to grow. We generated revenue growth, our student graduation rate and placement rate growth continued to increase. We continue to execute to our operating budget. We continue to move towards profitability. We've expanded our corporate partnerships. And once again, we are reaffirming our full year guidance for 2019, which Brian will review in a few moments. Our ability to consistently grow the company's student starts over the past two years has been achieved despite the unprecedented period of high employment, and perhaps the most challenging operating environment in the history that the industry has ever seen. Unemployment is now at a 50-year-low and employers anxiety over finding new talent to rebuild their workforce as baby-boomers retire increases. Consequently, we continue to have more requests from employers than we have graduates to meet those requests. In addition, as more employers reach out to us to help them find talent, we are seeing new related markets emerging for Lincoln,…

Thanks, Scott, and good morning everyone. I'd like to begin my comments with highlights from our first quarter performance followed by our operating results for the individual segments and finally conclude with our 2019 guidance. To begin, revenue for the quarter improved by $1.4 million or 2.2% over the prior year and our same school basis, revenue was higher by $3.8 million or 6.3%. In addition, total student starts on a same school basis were up 5.6% over the prior year. This increase is directly related to improved processes and marketing and admissions as the enhancements made in these areas have resulted in Lincoln starting 2019 with approximately 760 more students on a same school basis. In addition, the costs to retain these students were down slightly when compared to the last 18 months, indicating that we are rolling more students per dollar invested. Now turning to our segment performance for the first quarter of 2019. Our Transportation and Skilled Trades segment revenue increased by $1.6 million or 3.7% to $44.3 million for the three months ended March 31, 2019. The increase in revenue is due to a 6.3% increase in average student population, which is attributed to our consistent start growth over the last year and a half. Operating income increased by $1.1 million to $1.8 million for the three months ended March 31, 2019. The operating income improvement was driven by increased efficiencies, expense controls, which have kept total operating costs in this segment relatively flat. With a high amount of fixed costs combined with increased revenue, we are experiencing operating leverage of approximately 70%. Typically, we would expect to achieve operating leverage of approximately 40%. Now turning to our Healthcare and Other Professions segment. Revenue increased by $2.2 million or 13.1% to $18.9 million from $16.7 million…

This is Chris Howe sitting in for Alex Paris. Good morning, Scott and Brian.

Good morning, Chris.

Good morning, Chris.

First off, starting with cost per start, can you talk about the progress made in this metric and your goals for further improvement in cost per start or further maintenance of where it is currently? And, I guess, any room for improvement here through better utilization of your marketing spend?

Yeah, let me - I'll take that one. So, as we said from the onset, with the low unemployment rate, we feel that we have to constantly get out into the community and invest more in our marketing dollars to get the word out to attract more people. And with the way we monitor the success of that is by looking at the overall cost per start. And so, when we look at that we are constantly looking and making sure that that cost per start is not increasing, frankly, at a significant rate. And the good news is that for the quarter, our cost per start was very steady. And so that gives us - I guess, reassures us to continue to invest in our marketing spend to help drive more growth. So, we don't have a specific target that we're working towards, Chris. But what we're doing is looking to monitor that cost per start to make sure it's not going to get out of whack and it frankly become negative as far as hurting our margins.

The one thing I'll add, Chris - this is Brian - is that for the quarter cost per start was slightly down. But some quarters during the year it could be up depending on the timing of our marketing spend. For instance, we spend a lot in June. Our second quarter could be slightly higher because we'll get that benefit in the future quarter. But over the year, we're expecting it to be relatively flat.

And also just to be clear, it includes both the marketing as well as our admissions teams. So it's the dollar spent to attract the students and then it's the dollar spent to enroll the student. So it's a complete cost of acquisition.

Got it. That's very helpful. And following up on marketing, as we look at program versus channel versus market, you mentioned and highlighted the 5 million jobs in this country that remain unfilled, that Lincoln is helping to be the solution here. Are there any new geographies that could be in the future or is the current footprint going to remain constant? And how should we look at this opportunity of 5 million jobs as far as available potential, and what's realistic and what's out there? Thanks.

Sure. Well, definitely in the future, we do anticipate opening up new campuses, but certainly nothing is planned for the next 12 months. We certainly hear from our employer partners about needs in other states, frankly, where we don't have a presence. But as of right now, there are no plans in place to open up any more campuses, as we still have good capacity to fill up in our existing campuses. But to your, the point of the 5 million, this is where we constantly are reaching out to employers and new people that are coming to us. And we are seeing opportunities, I'll say, that involve a lot of the skill-sets that we teach. And then, we need to figure out how we package those skill-sets into a - I'll say, into a career that's defined by the government, since obviously as a proprietary school, we had to train people for specific jobs. So I kind of referenced one that we started to kind of touch on the edge with, and that's working with the Food Processing Association, whereby there just is a big need for technicians in every kind of distribution and manufacturing facility to take care of the equipment. And we're seeing additional opportunities for us to blend some of our mechanical or electrical, hydraulic, other skills together into programs that could better serve, frankly, new customers in existing markets, where we are today. And we're going to continue to invest and figure out how best to tap into that opportunity.

That's interesting. And I'm assuming that opportunity would be a combination of existing skills that you train for that, that wouldn't involve new programs.

Correct.

And as far as new programs, you had mentioned entry level IT in the past and a small entrée into massage therapy. In regard to entry level IT, how many enrollments would that represent if it was at full capacity? And is there any desire to move beyond entry level and how should we think about new programs beyond this year?

Sure. On entry level, we only have the IT program. I don't have it in front of me, but I want to say, it's maybe in four campuses, so I would imagine, there would be programs of the scale of around 60 to 70 students, Chris. For beyond that from our research, you really need to be more into a degree granting status and while we do have degree granting in several states, what we are seeing is more growth in the IT area frankly at a higher level than associates degree, where we are. So at this time, I don't see us expanding the IT opportunity dramatically. Obviously, we're constantly reevaluating these things and testing the markets in trying to see where the careers are. As of right now, I don't see that as a major driver for us going forward. The massage is something that's popped up literally in just a handful of markets, whereby employers have come to us and there's more, I'd say national chains and people of that nature that makes it more attractive to us, because in the past massage was something whereby by lot of people went to work for themselves and with gainful employment you can never really track their performance. But as other chains have risen over the last decade, we feel much more comfortable training students to go work for them and making sure that they have solid earnings. And again, that is probably we have that at three campuses and that's not going to be widely rolled out into other campuses. I would say that the areas that we're looking to for growth are frankly looking to rollout more with regards to skilled trades. I mentioned, we have our next welding program opening up. I could see maybe another one or two more welding programs in the future, and we're looking to figure out how we can combine the electrical skills. As I said in our mechanical skills to basically come out with a new program, but it's really kind of just assembling existing curriculum to create that new program.

Great. And my last question, you mentioned the improved retention rates. As we look at conversion rates, retention rates in the overall student quality of the current population as well as new incoming students, can you provide some additional granularity into the investments today, you're making to drive these metrics, and more specifically, are there any investments being made around analytics and technology to further enhance your efficiencies here?

Yeah. So I would say that is to say, we're always looking to increase our efficiency. We are looking to take advantage of the massive amounts of data that we do have on our students. I'd say that we really are just at the very, very beginning stage of capturing and utilizing all the data that we have on our students to help us become more predictive of their success to help drive retention. But that is a future opportunity for us. I'd say that what we're doing today is a lot of the basic of blocking and tackling. As we probably have said on other calls in one of our basic avenues of ensuring that we're on top of our students is we call them when they're absent from school to see where they are or what's the reason and try to solve issues for them. So right now, it's really more of a collective effort on behalf of everyone on the campus to really understand, who their students are and what their issues are as a way of ensuring that we can deliver the quality program and help them achieve their goal of graduating. I do anticipate, though, as frankly we could become more sophisticated and maybe some technologies become more available to us and we'll be better able to utilize. As I said, the massive amount of information that we have on students that have both enrolled and not matriculated to students, who have enrolled and not graduated to better help us in the future.

That was very insightful. That's all the questions I had for right now. Thanks, Scott and Brian.

Sure, Chris.

Thanks for your interest.

Your next question comes from the line of Justyn Putnam.

Hi, Justyn.

Hey, Scott, I apologize if you already addressed this, but I was curious to know, it looks like a fairly sizable investment in valuation of the strategic initiative and to increase shareholder value. I was just curious to know what - maybe the range of possible initiatives you might be mentioning there?

Sure. As of right now, I'd like to be a little more cryptic on it frankly from a competitive standpoint. We're constantly looking at opportunities to create greater shareholder value and serve new markets and right now, I'd rather not say more than that, Justyn.

You didn't hire McKinsey though, did you?

No, no, we didn't do that.

Okay. All right. That's all my questions at this morning. Thank you.

There are no further questions at this time. Do you have any closing remarks?

Yes. Thank you, operator. So thank you all for joining us for our call and we look forward to updating you on our progress. We're very proud of what we are achieving here at Lincoln. And we are optimistic and very positive about the future. So thank you all for the call and we look forward to updating you in August. Have a great day. Bye-bye.

This concludes today's conference call. You may now disconnect.