Good day, everyone and thank you for standing by, and welcome to the First Quarter of 2022 Lincoln Educational Services Earnings Conference Call. I would now like to hand over the conference over to your speaker today Mr. Michael Polyviou. Thank you. You may begin.

Thank you, Delphin, 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, 2022. 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 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 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 expectation 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 and 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 they're up. Now I would like call over Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thank you, Michael, and good morning, everyone. Thank you for joining us today to review Lincoln's first quarter performance and corporate developments. Our first quarter results continued the strong momentum we built during 2021 as both top and bottom line results met our internal plan. Despite the extremely tight labor market and resulting wage inflation, we continue to generate strong interest in our programs from prospective students while our graduates remain an exceptionally high demand with corporate employers. Our student start rate compared favorably to a year ago levels during January and February but declined in March. As a result, total first quarter starts were approximately 200 students less than last year. Moreover, we had a tough comp since we grew starts almost 31% last year in the first quarter. We did increase the total number of enrolled students as of March 31 over last year's total, and we believe we will return to student start growth in the second quarter. Brian will provide a little more color on student starts later during his remarks. We are excited with our new partnership with Ford Motor Company and are proud to have been selected to kick this program off for them. This is a unique opportunity for Lincoln as we will be providing specialized manufacturer-specific automotive training at our Indianapolis, Indiana campus. This is a four week post graduate training program designed to prepare eligible technicians for careers providing mobile repair and maintenance services on for cars, trucks and SUVs. Our students will receive hands-on training specific to Ford's proprietary technologies and equipment and all the mobile repair services currently offered by Ford. They will include things such as tire rotation replacement, oil changes, battery diagnostics and replacement in all repair and maintenance services related to wipers, fluids and onboard computer…

Thanks, Scott. Good morning, everyone. This morning, I'll review our key financial results and operational highlights for the first quarter of 2022. In addition, I'll provide some color on our second quarter start trends and briefly discuss our 2022 guidance. Starting with our top line. As reported, we achieved revenue growth of 5.8% or $4.6 million to $82.6 million during the first quarter. The main driver of this growth was our higher average population, which increased by 4.4%. This was the result of our strong 2021 performance, which delivered a beginning population that was higher by 6% or 740 students over the prior year. As Scott had mentioned, during the first quarter, new student enrollments increased year-over-year, but we experienced a lower-than-expected start rate, which reduced starts. Student starts for the quarter were approximately 3,400, a decrease of nearly 200 from prior year. One of the factors that led to the slight decline was the transition of several programs to Lincoln's enhanced hybrid teaching model. Under this new model, we are aligning the academic calendar across the organization, which reduces the number of student entry points and shift some start dates when compared to prior periods. While the new model impacts the timing of starts quarter-over-quarter once fully implemented, the net effect will be neutral and the new model will deliver operating efficiencies translating to future savings. Also, as Scott highlighted, last year's first quarter start growth was the highest of the year at 30.6%, which set a high benchmark for start growth in this quarter -- in this year's first quarter. In terms of starts, as we move through the second quarter, we anticipate having a strong quarter with low double-digit growth, resulting total growth for the first half of the year in the mid-single-digits, in line with our…

Our first question is from Raj Sharma from B. Riley. Your line is open. Please go ahead.

Good morning, guys. Two sets of questions. One is on the starts. Could you give us some more color on how they were amongst high schoolers, young adults? And how do you see that going?

No problem, Raj. So basically, most of our high school student starts won't occur until June. So our high school students for the most part, start between June and maybe the first week of October. So during this period of the year, what we're basically doing is solidifying all the interest that we've had year-to-date from our high school students. So there's really no material high school starts in the first quarter. So it's really basically an adult market. And as we mentioned, we saw good progress in January and February, and we're seeing good progress as well in March, but we definitely had a downturn in our start rate in March, which was disappointing, not completely surprising. Our students are -- we're hearing more concern about prices of transportation, gasoline, things of that nature, which are maybe causing people to hesitate or as well as you know, the job market is very robust. With that said, as we look to the second quarter, we see stronger momentum than we had in the first quarter. So we're very optimistic about having growth again in the second quarter. And that growth should hopefully lead to growth, frankly, in the first six months of the year for us.

Got it. And then on the blended learning model, could you give us some color on what percentage of the coursework is online right now versus in class? And we were -- I mean, I thought that during COVID, we pushed for blended learning. And is that sort of being revisited here or added on? And could you give more color on that, please? And when do you start to see that? And also if there's any impact on contribution margins going forward?

Yes, no problem. So I'll start with the last part. So there will be some maybe impact in the near term on margins as we transition. We've kind of already highlighted at the beginning of the year that we could have about $2 million worth of additional costs due to this transition as well as some other one-off activities that we're doing. To your question on what percent is blended, yes, during COVID, we had to go 100% online to then a blended model. But now that our campuses have reopened, we're more or less almost 100% doing things on ground where we haven't switched the program over to the new model. And when I say the new model, I mean during COVID is a reaction to the circumstance that we had to go blended. Obviously, we were able to deliver on that very well and give the students the education, and we ended up with more students enrolling and more students graduating, which is great. But it wasn't the level of blended learning that we want as an organization, and we knew we could do better. So now that we are in this world and understand that our students enjoy the blended opportunity, we figured out, okay, how do we create from scratch the best blended opportunity possible for our students. And so when we're talking about the blended opportunity today, that's what we're talking about. So we launched our first program, which was medical assisting, all of our campuses that have medical assisting have moved over to the new blended version of this, and we've gotten really positive reviews from that. And we'll be rolling out more programs this year. Just to give you kind of an idea, we would expect about 40% of our students by the end of 2022 will be moved over to our new fully engaging blended model with the remaining students being moved over next year. I hope that helps.

Yes. And then just lastly, on the interest in the programs currently that you're seeing to your advertising pipeline. And also, you commented that your show rates were better than last year. Could you comment on that, please? How do you see those interest initially?

Sure. So the interest is there's nothing, I'd say, standing out extremely stronger than anything else. We continue to see strong interest kind of across the board as people are looking for, I believe, shorter, faster, cheaper ways to get into the workforce. As we commented earlier, the start rate, certainly in the latter part of March, kind of declined because of this circumstance of, I believe, there are higher cost students are rethinking maybe if they're going to go back to school now and there are great job opportunities. And maybe in part of your question you were asking me last year, in our first quarter, we grew an astounding 31%. So that was certainly a big number to overcome this year, and we're only down a couple of hundred. So given all those circumstances, frankly, I'm quite pleased with how we did.

Thank you. Our next question is from Alex Paris of Barrington Research. Your line is open. Please go ahead.

Thank you. Thanks for taking my questions. Just got a couple. I wanted to dive into starts again. We did expect them to be up low single-digits. They were down low single-digits. The -- it looked like the decline versus my expectation was greater in transportation and skilled trades. Do you have any color there?

Yes. I mean, I don't -- I think that part of that is just maybe timing of when the starts occurred in the quarter. Again, we were seeing good momentum in January and February, and it's really towards the end of -- after the first week of March that we were seeing the softening of the start rate. But I don't see anything materially too different, Alex, between the two lines of business.

Okay. Fair enough. And then -- yes. And then while you had a shortfall in the first quarter, you expect low double-digit growth in starts in the second quarter and then for the first half, mid-single-digits as a result, which would be in line with expectations. Given that you saw some slowdown in the start rate in March, I was wondering if you could give us any color on your experience in the month of April.

Sure. Well, we're seeing good inflow coming in and the way it's trending, things are looking positive. Things change and can change. But as of right now things are looking positive.

Okay. New campus is going to be in early 2023, that's still the expectation. It's a new state, but the market has been selected, but just not announced, right?

That is correct. I mean it won't be early 2023, though, it'll probably be later in 2023. We had -- unfortunately, we had a location that we were very optimistic about. But at the end of the day, when pen came to paper, the landlord desire or belief that he could get, in this case, like a HOA to approve the transaction was incorrect. So it kind of set us back about maybe four or five weeks in our process. But we have another location that we've identified, and we're negotiating the lease. So hopefully, we'll be able to announce that sooner rather than later.

And when you say later...

But then it would take about 12 months.

Okay, I got you. So if you're able to announce it in the next couple of months, you'd expect maybe a new campus mid-2023. And if it does --

Yes, correct.

-- you're seeing later in '23. You're saying later in 2023.

Yes. That's correct.

Five new programs. You mentioned dental assisting this year. What are the others?

A couple of welding and a couple of medical assisting. I'm sorry, one welding, two medical assisting and one electrical.

And one dental assistant.

Yes.

Got you. And then just a bookkeeping thing here. $150,000 in severance in the quarter, what is that attributable to?

An executive that moved on. So it is onetime cost.

With that, I would like to turn the call over to Mr. Scott Shaw for some closing remarks.

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 employees for their dedication and commitment to serve our students. Last week, we were finally able to celebrate our 75th anniversary, and the energy and emotion in the room were electrifying. In attendance were graduates from as far back as 1955 and from states across the country. We also had keynote speeches from students, graduates, employers, business partners and politicians. Those who could not attend sent video greetings, including one from our most accomplished graduate, Mr. Pat Gelsinger, the CEO of Intel. It was clear that the evening, just as it's clear today, that while Lincoln's past is rich with success and accomplishment, our present and future have never been better in my estimation. The industry is desperate for solution to their workforce needs, and we are that solution. Today, there are more job openings than ever before, and we have the talent, desire, capability and capacity to help America close its skills gap and put people's potential to work. Our performance in Q1, along with the continued interest and demand from students and employers gives us the confidence that we can achieve our 2022 goals both operationally and financially. We will be attending the Sidoti Virtual Conference later this week and the B. Riley Conference being held in Beverly Hills on May 25 and 26. Brian and I look forward to sharing our 2022 second quarter results with you in August. Until then, please stay safe. Bye-bye.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.