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8-K - CURRENT REPORT - LINCOLN EDUCATIONAL SERVICES CORP | ss104501_8k.htm |
Exhibit
99.1
LINCOLN
EDUCATIONAL SERVICES CORPORATION
REPORTS
THIRD QUARTER RESULTS
Lincoln
Generates Strong Third Quarter Revenue, Operating Income
and
EPS and Declares Dividend
West
Orange, NJ, (November 3, 2010) — Lincoln Educational Services Corporation
(NASDAQ: LINC) (Lincoln), a leading provider of diversified career-oriented
post-secondary education, today reported third quarter results.
Third Quarter 2010
Highlights
|
·
|
Revenue
grew 12.7 percent to $167.2 million from $148.4 million in the prior-year
quarter.
|
|
·
|
Operating
income rose 34.1 percent; operating profit margin improved to 19.4 percent
from 16.3 percent in the prior-year
quarter.
|
|
·
|
Diluted
earnings per share grew 52.0 percent to $0.76. Diluted earnings
per share included $0.05 from stock repurchases during the
quarter.
|
|
·
|
Average
student population rose 10.6
percent.
|
|
·
|
Student
starts were down 8.8 percent in part impacted by actions to raise
outcomes.
|
Comment
“We are
very pleased with our third quarter performance which produced record revenues,
margins and earnings per share,” said Shaun McAlmont, Lincoln’s President and
Chief Executive Officer. “During the third quarter, we repurchased
approximately $47 million of our common stock as we continue to evaluate ways to
increase shareholder value. In recognition of the strong cash flows
Lincoln generates and due to the confidence we have in our business, our Board
of Directors has authorized a new annual dividend of $1 per share, to be paid
quarterly. Both actions reflect our continued commitment to deliver
value to our shareholders.”
“Lincoln
remains steadfast in fulfilling its mission of ensuring that each and every
student has the opportunity to receive the highest possible return on his or her
educational investment. We are managing the company based on the
assumption that some version of the Department of Education’s proposed
regulations will be enacted in 2011. While we believe that these rules will have
an impact on our profitability, at this time, we do not believe that their
enactment will pose a significant threat to our overall educational model, as
the majority of our campuses offer programs that are short in length, incur
manageable debt levels and lead to viable technical careers. Based on what we
know today, our analysis of the potential impact of these regulations on our
model has led us to take the following actions:
|
·
|
We
are managing the business in order to reduce the number of Ability to
Benefit students (“ATB”), so that they account for no more than 10 percent
of our overall population in order to improve overall graduation, default
and repayment rates.
|
|
·
|
We
are making adjustments to some of our programs in order to reduce student
debt and improve related debt to income
ratios.
|
|
·
|
We
will be implementing programs designed to improve student graduation rates
over the coming quarters. In addition, overall company goals
and accountability for all layers of management will be further tied
directly to our students’ outcomes.
|
|
·
|
We
will continue to pursue our growth initiatives, including online programs,
program expansions, new campuses, and attractive acquisition
opportunities.
|
We
continue to monitor the Department of Education’s proposed rulemaking as well as
the Congressional review of our industry. While it is difficult to
predict their precise impact on our students and our company, we believe that our strategies and initiatives will
position us well for the future.”
Outlook
“We are revising our previously issued guidance to
incorporate our third quarter results and to include our share repurchases
during the third quarter. As a result, we now believe that student starts will
be essentially flat to slightly negative for all of 2010,” said Mr.
McAlmont. “For the full year 2010, we now expect revenue to range
from $635 to $640 million and diluted earnings per share to range from $2.65 to
$2.70, which would be an increase of 45 to 48 percent from the $1.82 we earned
in 2009. Looking forward, we expect that our previous actions will cause
our student population and revenues to decrease modestly in 2011 from 2010
levels before gradually recovering in 2012. We expect that these
decreases will create downward pressure on our margins over the next 18 to 24
months as we implement the aforementioned actions. Consistent
with past practice, we will provide 2011 guidance when we report our year end
2010 results next March.”
Annual
Dividend
Lincoln is pleased to announce that our Board of
Directors has authorized an annual cash dividend of $1.00 per share to be paid
at $0.25 per share per quarter, reflecting the Board’s confidence in the
Company’s financial strength and cash generation capabilities of our business.
The first dividend will be payable on December 31,
2010, to shareholders of record on December 15, 2010. Lincoln
anticipates paying a cash dividend in each quarter of 2011, with expected
dividend payment dates in March, June, September and December. The
establishment of future record and payment dates are subject to the final
determination of our Board of Directors.
2
Third Quarter 2010 Operating
Performance
Revenue
increased 12.7 percent to $167.2 million in the third quarter from $148.4
million in the prior-year quarter. This increase was primarily due to a 10.6
percent increase in average student population. Average revenue per
student rose 1.9 percent in the third quarter primarily from tuition increases
which range from 3 to 5 percent annually offset by shifts in program
mix.
Operating
income increased 34.1 percent to $32.4 million in the third quarter from $24.2
million in the prior-year quarter. This strong operating performance reflects
improved capacity utilization as the Company served a larger student population.
Capacity utilization increased to 66 percent in the third quarter from 63
percent in the prior-year quarter. Operating income margin improved to 19.4
percent in the third quarter from 16.3 percent in the prior-year
quarter.
Educational
services and facilities expenses increased 9.8 percent to $63.3 million in the
third quarter from $57.7 million in the prior-year quarter. This increase was
primarily due to higher instructional expenses necessary to serve a larger
student population. The Company began the third quarter of 2010 with
approximately 3,900 more students than at the start of the third quarter of
2009. The increase in educational services and facilities expenses also reflects
higher facilities expenses mainly due to facility expansions and related rent
and property taxes. The remainder of this increase was due to an increase in
depreciation expense due to higher capital expenditures for the quarter ended
September 30, 2010 compared to the quarter ended September 30,
2009. As a percentage of revenue, educational services and facilities
expense improved to 37.9 percent in the third quarter from 38.9 percent in the
prior-year quarter.
Selling,
general and administrative expenses increased 7.5 percent to $71.5 million in
the third quarter from $66.6 million in the prior-year quarter. This increase
was primarily due to increases in sales and marketing attributable to annual
compensation increases for admissions personnel and an increased number of
admissions personnel compared with the prior-year quarter, as well as higher
marketing expenses to enhance our growth. The increase in selling, general and
administrative expenses also reflects an increased number of employees within
the career services, financial aid and default management departments as
compared with the prior-year quarter.
Administrative
expenses also increased due to an increase in bad debt expense and an increase
in software maintenance costs in connection with our student management system
as well as the costs associated with a new financial accounting
system.
Bad debt expense increased to $12.8 million, or 7.7% of
revenue, in the third quarter from $10.1 million, or 6.8% of revenue, in the
prior-year quarter. During the quarter, we experienced
an increase in defaults, which we attribute to the prolonged economic climate
which has produced higher levels of unemployment. The number of days
sales outstanding at September 30, 2010 increased to 24.7 days, compared to 24.4
days at September 30, 2009. As of September 30, 2010, we had
outstanding loan commitments to our students of $18.6 million as compared to
$20.5 million at June 30, 2010. Loan commitments, net of interest
that would be due on the loans through maturity, were $15.8 million at September
30, 2010 as compared to $16.3 million at June 30, 2010.
3
As a
percentage of revenue, selling, general and administrative expenses improved to
42.8 percent in the third quarter from 44.8 percent in the prior-year
quarter.
Net
income increased 38.3 percent to $18.9 million in the third quarter from $13.7
million in the prior-year quarter. Diluted earnings per share grew 52.0 percent
to $0.76 in the third quarter of 2010 from $0.50 in the third quarter of
2009.
Cash flow
from operations was $68.1 million in the first nine months of 2010 compared with
$42.9 million in the first nine months of 2009. This increase primarily resulted
from an increase in net income of approximately $19.6 million.
Balance
Sheet
The
Company had $14.4 million of cash and cash equivalents at September 30, 2010
compared with $46.1 million at December 31, 2009. Total debt and
capital lease obligations declined to $37.0 million at September 30, 2010 from
$57.3 million at December 31, 2009. Stockholders’ equity increased to
$221.2 million at September 30, 2010 from $218.6 million at December 31,
2009.
Share
Repurchases
In June
2010, our Board of Directors authorized the repurchase of up to $50 million of
the Company’s outstanding common stock during the period of one
year. During the third quarter we repurchased 3,889,438 shares of our
common stock at an average price of $12.05 per share. As of September
30, 2010, we had repurchased 4,040,234 shares of our common stock at an average
price of $12.38 per share and had fully utilized our authorization to purchase
up to $50 million of our common stock.
Student
Metrics
Starts
and Population
|
||||||||||||
Three
Months Ended
|
||||||||||||
September
30,
|
||||||||||||
2010
|
2009
|
Change
|
||||||||||
Student
starts
|
13,016 | 14,272 | (8.8 | %) | ||||||||
Average
student population
|
31,952 | 28,898 | 10.6 | % | ||||||||
Period-end
population
|
33,157 | 31,509 | 5.2 | % |
Population
Mix by Vertical
|
||||||||
September
30,
|
||||||||
2010
|
2009
|
|||||||
Health
sciences
|
38.6 | % | 36.9 | % | ||||
Automotive
|
31.1 | % | 32.4 | % | ||||
Skilled
trades
|
11.1 | % | 12.4 | % | ||||
Hospitality
services
|
10.0 | % | 9.4 | % | ||||
Business
& IT
|
9.2 | % | 8.9 | % | ||||
100.0 | % | 100.0 | % |
4
Conference
Call
Lincoln
will host a conference call today at 11:00 a.m. Eastern Time. The
conference call can be accessed by going to the Investor Relations section of
its website at www.lincolnedu.com. Participants
can also listen to the conference call by dialing 1-866-362-4666 (domestic) or
617-597-5313 (international) and using code 72695898. Please log-in
or dial-in at least 10 minutes prior to the start time to ensure a
connection. An archived version of the webcast will be accessible for
90 days at www.lincolnedu.com. A
replay of the call will also be available for seven days by calling
1-888-286-8010 (domestic) or 617-801-6888 (international) and using code
39626113.
About Lincoln Educational
Services Corporation
Lincoln
Educational Services Corporation is a leading provider of diversified
career-oriented post-secondary education. Lincoln offers recent high school
graduates and working adults degree and diploma programs in five principal areas
of study: health sciences, automotive technology, skilled trades, hospitality
services and business and information technology. Lincoln has provided the
workforce with skilled technicians since its inception in 1946. Lincoln
currently operates 43 campuses in 17 states under 6 brands: Lincoln College of
Technology, Lincoln Technical Institute, Nashville Auto-Diesel College,
Southwestern College, Euphoria Institute of Beauty Arts and Sciences, and
Lincoln College of New England. Lincoln had an average enrollment of
approximately 32,000 students for the quarter ended September 30,
2010.
Safe
Harbor
This
press release contains “forward-looking statements” within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements, which are not historical facts, contain information
regarding our current beliefs and plans and expectations and involve significant
risks and uncertainties that could cause actual results to differ from those
contained in the forward-looking statements. Included among such
statements is our Board’s intention to announce regular quarterly cash dividends
and its expectations regarding the dividend level. For a discussion
of such risks and uncertainties that could cause actual results to differ from
those contained in the forward-looking statements and that could affect payment
by the Company of cash dividends is included in Lincoln’s Annual Report on Form
10-K for the year ended December 31, 2009 and certain of Lincoln’s other SEC
filings. All forward-looking statements are qualified in their entirety by this
cautionary statement, and Lincoln undertakes no obligation to revise or update
this news release to reflect events or circumstances after the date
hereof.
Contacts:
Cesar
Ribeiro, Chief Financial Officer, 973-736-9340
5
LINCOLN EDUCATIONAL SERVICES
CORPORATION AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(In
thousands, except per share amounts)
Three
Months Ended September 30,
(Unaudited)
|
Nine
Months Ended September 30,
(Unaudited)
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
REVENUE
|
$ | 167,211 | $ | 148,368 | $ | 472,471 | $ | 395,077 | ||||||||
COSTS
AND EXPENSES:
|
||||||||||||||||
Educational
services
and facilities
|
63,304 | 57,651 | 180,292 | 157,069 | ||||||||||||
Selling,
general and administrative
|
71,532 | 66,562 | 211,506 | 189,748 | ||||||||||||
(Gain)
loss on sale of assets
|
(1 | ) | 4 | (8 | ) | (10 | ) | |||||||||
Total
costs and expenses
|
134,835 | 124,217 | 391,790 | 346,807 | ||||||||||||
OPERATING
INCOME
|
32,376 | 24,151 | 80,681 | 48,270 | ||||||||||||
OTHER:
|
||||||||||||||||
Interest
income
|
5 | 16 | 26 | 25 | ||||||||||||
Interest
expense
|
(1,088 | ) | (1,129 | ) | (3,385 | ) | (3,232 | ) | ||||||||
Other
(loss) income
|
(7 | ) | 11 | 41 | 27 | |||||||||||
INCOME
BEFORE INCOME TAXES
|
31,286 | 23,049 | 77,363 | 45,090 | ||||||||||||
PROVISION
FOR INCOME TAXES
|
12,405 | 9,393 | 30,826 | 18,184 | ||||||||||||
NET
INCOME
|
$ | 18,881 | $ | 13,656 | $ | 46,537 | $ | 26,906 | ||||||||
Earnings
per share – Basic -
|
$ | 0.77 | $ | 0.51 | $ | 1.84 | $ | 1.02 | ||||||||
Earnings
per share – Diluted -
|
$ | 0.76 | $ | 0.50 | $ | 1.80 | $ | 1.00 | ||||||||
Weighted
average number of common shares outstanding:
|
||||||||||||||||
Basic
|
24,492 | 26,590 | 25,273 | 26,261 | ||||||||||||
Diluted
|
24,984 | 27,371 | 25,920 | 27,013 | ||||||||||||
Other
data:
|
||||||||||||||||
EBITDA
(1)
|
$ | 38,816 | $ | 30,364 | $ | 100,389 | $ | 65,873 | ||||||||
Depreciation
and amortization
|
6,447 | 6,202 | 19,667 | 17,576 | ||||||||||||
Number
of campuses
|
43 | 43 | 43 | 43 | ||||||||||||
Average
enrollment
|
31,952 | 28,898 | 31,263 | 26,637 | ||||||||||||
Stock
based compensation
|
612 | 464 | 1,859 | 1,528 | ||||||||||||
Net
cash provided by operating activities
|
43,142 | 33,033 | 68,077 | 42,865 | ||||||||||||
Net
cash used in investing activities
|
(9,982 | ) | (3,125 | ) | (33,617 | ) | (36,038 | ) | ||||||||
Net
cash (used in) provided by financing activities
|
$ | (46,920 | ) | $ | (4,490 | ) | $ | (66,106 | ) | $ | 15,995 |
6
Selected
Consolidated Balance Sheet Data:
(In
thousands, Unaudited)
|
September
30,
2010
|
|||
Cash
and cash equivalents
|
$ | 14,430 | ||
Current
assets
|
71,750 | |||
Working
capital (deficit)
|
(28,922 | ) | ||
Total
assets
|
370,692 | |||
Current
liabilities
|
100,672 | |||
Long-term
debt and capital lease
Obligations, including current portion |
37,040 | |||
Total
stockholders’
equity
|
$ | 221,214 |
(1)
Reconciliation of Non-GAAP Financial Measures
EBITDA
is a measurement not recognized in financial statements presented in accordance
with accounting principles generally accepted in the United States of America
(“GAAP”). We define EBITDA as income from continuing operations
before interest expense (net of interest income), provision for income taxes and
depreciation and amortization. EBITDA is presented because we believe
it is a useful indicator of our performance and our ability to make strategic
acquisitions and meet capital expenditure and debt service
requirements. It is not, however, intended to represent cash flows
from operations as defined by GAAP and should not be used as an alternative to
net income (loss) as an indicator of operating performance or to cash flow as a
measure of liquidity. EBITDA is not necessarily comparable to
similarly titled measures used by other companies. Following is a
reconciliation of income from continuing operations to EBITDA:
Three
Months Ended September 30,
(Unaudited) |
Nine
Months Ended September 30,
(Unaudited) |
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
Income
|
$ | 18,881 | $ | 13,656 | $ | 46,537 | $ | 26,906 | ||||||||
Interest
expense, net
|
1,083 | 1,113 | 3,359 | 3,207 | ||||||||||||
Provision
for income taxes
|
12,405 | 9,393 | 30,826 | 18,184 | ||||||||||||
Depreciation
and amortization
|
6,447 | 6,202 | 19,667 | 17,576 | ||||||||||||
EBITDA
|
$ | 38,816 | $ | 30,364 | $ | 100,389 | $ | 65,873 |
7