Hello, everyone, and thank you for joining us here at the 2025 Lytham Partners Fall Investor Conference. My name is Joe Diaz. I'm a Managing Partner at Lytham Partners. Today I'll be moderating a Q& A discussion with Scott Shaw, CEO of Lincoln Educational Services Corporation, which trades on the NASDAQ under the ticker LINC. Lincoln Educational Services has been in business for more than 75 years. Scott, thanks for joining us today. Let's get started.
Great.
I'm happy to be here.
Joe, thank you for carving out some time. Scott, for the benefit of those in the audience not familiar with Lincoln Educational Services Corporation, please give us a brief introduction into the history of the company, the services that you provide, and the markets in which you operate.
Sure.
Glad to do so. Actually, next year will be our 80th year. Our founder came back from World War II and saw the need to give his fellow vets skills and some emerging technologies. Those skills back in 1946 were for automatic transmissions and for air conditioning units that were now starting to be installed into homes across America. Since that time, our company went from being a family owned business to being privately owned by private equity. In 2005, 20 years ago, we went public on NASDAQ. We've always been very much focused on the skilled trades. Today we have about 25%- 30% of our students learning to be automotive or diesel mechanics. We have about 20% - 25% that are in healthcare, that's becoming either a Licensed Practical Nurse or medical assistant.
The bulk, around 45% or so of our students, are in the skilled trades, with the most popular ones being electrical, HVAC, and welding. Our company started in New Jersey, so we have a strong concentration in the Northeast, from basically Washington up to Boston. We're also in the Midwest, in the West, we're in 12 different states. We get as far west as Denver, down into Dallas, in Atlanta. We have about 17,000 students as we speak today.
Okay, can you talk to us about the strategic plan for the business, let's say in the next 3-5 years? What's your vision for the company going forward?
Sure.
I have been at the company, by the way, for 24 years. I have seen some ups and downs of our company. In those 24 years, this is the most exciting time for us. It is exciting because there is this huge transformation going on where people are realizing that college is not for everyone, and the trades are very much needed. That really got accentuated during COVID. We are really going to capitalize on our 80-year history and the fact that the trades are in such big demand. We are going to capitalize on it by continuing to reinvest in our existing campuses and make sure that we have as many programs in those campuses that meet the local needs of both the employment needs as well as demand from students. We are also opening up new campuses.
We opened up our first new campus last March in Atlanta, Georgia, and we just opened last week our second new campus in 18 years in the Houston market. Besides obviously opening up campuses as well as replicating programs, we do look at making acquisitions, but we have not made any to date. What we are also doing is enhancing our marketing. A couple of years ago we moved from being 100% on ground to now having blended learning. While we are very much a hands-on training organization, there is always theory that needs to be taught. It could be theory about refrigeration, theory about Ohm's law and electricity, or about local building codes and things of that nature. Our students today do about 30% of their work 100% online, and then they come to our campuses to do about 70% of the learning.
When they come to the campuses, they come into our labs and shops, which have all been designed with professional equipment to give them the exact same type of experience that they would experience out in the field so that our students are very comfortable and can transition in. Long story short, the strategy is to continue to focus on those programs that I mentioned earlier, to become the industry leader in those programs. Frankly, east of the Mississippi, we are the number one provider in automotive and skilled trades of people graduating from a post-secondary school. Our eventual goal is to be across the United States. That enables us to build these stronger partnerships with industry.
A large employer, a Fortune 500 or frankly a Fortune 1000 type of company today, when they are trying to partner with a local institution, let's say it is a community college, it is very challenging for them if they have a broad need across the United States. With Lincoln, they can deal with one Lincoln Tech and have students in 10, 12, eventually 20 different markets with the same program, and they will know exactly what the skill set will be for those students. That is also one of our competitive advantages, we believe.
You mentioned that you have a high concentration in the Northeast part of the country. You're moving past the Mississippi River down toward Denver. What is your strategy for the West Coast? The population base certainly does not match what you have on the East Coast. How many other campuses would make sense, and what markets make sense for you out west in the future?
Sure.
We've partnered well. First of all, we did a whole research, hired a third party to help us frankly canvas the United States to look at both industry demand, Google searches, who's graduating from where, and other demographic information that we had already. We've identified over 20, I'll say, markets to go into, and now we've prioritized which ones we want to. Some of them are in the west, some of them are still in the east. We've gone out to partner with Cushman & Wakefield. They're looking, as we speak, in about a dozen different markets. It's a little bit challenging for us to find campuses right now. We're focused very much on our skilled trades and transportation segment of our business.
What we need is a warehouse space, usually has high ceilings, which lends itself to be able to lift up trucks and cars as well as put in welding equipment and things of that nature. We also need a lot of parking, a lot of density, and typically warehouse space is not designed with a lot of parking. Fortunately, Amazon's out there and they seem to build warehouse spaces with a lot of parking. We've just taken over two facilities that used to be former Amazon facilities, which does very well. To your question, we are looking west again. It's a little bit what pops up in the market that makes sense for us. We just don't know what order these things will come in.
It could be a campus that pops up, I'll say, east of the Mississippi next or it could be one that pops up west of the Mississippi. I can assure you that we're looking in all top 25 MSAs for properties.
You'll be opportunistic in terms of what turns up and what makes sense for you.
Correct.
Okay. As it relates to real estate, what's your strategy? Are you owners? Do you lease? How do you operate in that regard?
Yeah, we used to own some of our properties, but now we lease everything. We went through a number of sale leasebacks about four years ago, which helped us build up, frankly, a nice war chest of cash. We've now been redeploying that cash. We've used that cash to, as I said, open up the new school in Atlanta. We also just relocated our Nashville campus that was a 105 or 106 year old institution. It kind of looked like it was 150 years old. Needed to move to a new location. The new location is one building versus multiple buildings. The new location has more capacity even though it's fewer square feet because it's much more efficient. It's enabling us to give a superior education for the programs that we have there already. It also gives us space to add electrical and HVAC training, which will start next month.
We also just moved our Philadelphia campus, had been in Philadelphia for 60 years. We moved it about 8- 9 miles northeast, right outside the city into Levittown. What this is enabling us to do, it's a larger campus as well. Philadelphia has historically been just an automotive school. Now it'll have automotive, electrical, HVAC, and welding, just like our other campuses that we're building. We think that having had 60 years of, say, brand recognition in that marketplace and given the strong demand for the trades, that campus should do very well as well. As we look at new places going forward, we're more on the leasing. We will buy if that helps facilitate the transaction happening and then go into a sale leaseback afterwards.
As it relates to your capital allocation plans, the costs related to building a new campus, refreshing an existing campus, what's the profile of the company going to look like in the next maybe 3-5 years now?
Sure.
The good news is our business, when it's going well, which we are, generates good cash flow. Our facilities are expensive. For example, a new facility that's going to offer the four programs I just mentioned, automotive, electrical, HVAC, and welding, we're spending somewhere between $20 million- $25 million. That's for the training aids and the facility. That's not owning the facility, that's leasing the facility, but that property should generate between $7 million- $9 million of EBITDA. As an example, we opened, as I said, the Atlanta campus just last March of 2024. We expect that for the 12 months ending December of 2025. Basically, about 18 months later, that property should generate between $6 million- $7 million of EBITDA for us. We're seeing a really strong return on those investments, even though they're large amounts.
From a capital standpoint, we've said that we anticipate opening one to two new campuses a year. That could be $40 million- $50 million of CapEx going out, and then our maintenance CapEx is anywhere between probably 2%- 3% of our revenue to help maintain the quality instruction that we're known for. We will be generating more and more cash with all these new investments. Today, we are using up some cash. Next year, given the announcements of what we've planned open to date, we should be cash flow neutral, and then we would anticipate, depending on if we make some more announcements, that we start becoming in 2027 cash flow positive. Today we had, I should say at the end of the second quarter, we had about $13 million worth of debt outstanding.
Our expectation is that at year end we'll have zero debt outstanding because we generate a lot of cash in the second half of the year. We have a $60 million credit facility with a $20 million accordion for an acquisition if that were to come around. We have lots of liquidity to execute on the plan, the plans that we've laid out.
Early on here, you mentioned that there is a belief that the return on investment in terms of a traditional four-year college education experience is starting to wane. Your business is growing very consistently. Clearly, demand is on the uptick. What's the profile of the typical student that's entering the Lincoln environment?
Sure.
We have typically served an adult learner, so the average age of our student is 25. With that said, 20% of our students come right out of high school and 50% are 21 or younger. You can see that with that statistic. The fact that we have an average age of 25 overall, we also have a number of people 26 - 34 year olds. These are individuals that have been out in the workforce. Either they've lost their job and want to find something new or they just realize the job that they have, typically many of them are in retail or hospitality, is just not going to earn them the wage that they need to support themselves and their families. They come back to do something that either they've always had a great passion for or they know has great demand and interest out there.
We serve a broad range of students. As you mentioned, the exciting point for us is again, I've been at Lincoln for 24 years. Traditionally as a trade school, we are countercyclical, doing very well during recessions when there's high unemployment and not doing as well when there's low unemployment like we have today and like it's been frankly for the last eight years. The good news is, if you've looked at our numbers, we're growing in double digits. That's because there is this whole shift of people realizing that college isn't for everyone. There are other ways to get into the workforce. The trades are becoming much more acceptable. There's a lot more knowledge about what the wages can be because the wages have certainly gone up since COVID. This generation wants to do something that is impactful. All of our jobs are impactful.
They get to help people, they get to build things, they get to help people. They're in the healthcare sector, they're fixing their cars, they're making their homes more comfortable. They're doing things that they can see very tangibly that they're making a difference. That seems to be appealing to people. This whole push after COVID, or not push, but acknowledgment that there's so much student debt out there. There are all these students that have gone to college and either haven't completed college and cannot repay their debt or they have completed college but they don't have a skill set that makes them employable and they're still trapped by debt. What we're giving people are very concrete hands-on skills that are in demand. We have more job openings than we have students. It's been that way frankly for the last 10- 15 years.
The expectations are it's only going to get worse, meaning that the shortage of people because baby boomers such as myself are retiring, companies haven't really replaced them, and the demand is just increasing. Our government needs to replace, or is planning to replace, our submarine fleet starting in 2027. They hope to build three submarines a year for the next decade. They anticipate that's going to take a 250,000 tradespeople. Obviously, our electric grid is being strained by all the need for electricity, whether it's for electric cars or other things that are becoming electrified. You add on top of that the huge demand that AI is now requiring. The electric grid needs to be redone.
That requires electricians, and AI requires building of huge data centers with huge HVAC needs and electrical needs, which means that there are going to be more HVAC techs and more electricians needed for that. The government wants more manufacturing to take place domestically. That's going to drive more interest in building more factories and more people with ability to work with their hands. There is just so much that's working in our favor. As I said at the beginning, we are a leader in this field. We've been doing it for 80 years, and in most markets we're either number one or number two. Even in the whole nation, even though we're in 12 states, we're either number one or number two in providing people with the skills, skills that we're focused on from a post-secondary perspective.
How do you market these great opportunities to students across the country? I mean, there's a lot of obvious potential in terms of career advancement. How do you market that to potential students?
Sure.
When I started 24 years ago, it was something called the Yellow Pages that probably a lot of people don't know. TV today, most, it is frankly all digital with more and more coming through social media. We have a large digital presence. We're getting more and more exposure on the social media side, that's how we reach out and get people. As I also mentioned, we do get about 20% of our new students right from high school. We have about 100 reps that are going around the country going into high schools, educating people on what these opportunities are. Even if they don't come to us that senior year after graduating, we often find that they come to us later on in life because they've heard about us while they've been in high school. Those are the main areas of ways that we get students.
Focusing back on the students and your programs, what are the metrics that you strive to accomplish with your student body to assess your company's success in making them successful for other employment opportunities? What kind of metrics are you striving to accomplish?
Sure.
We're very much focused on outcomes. We want to be the best out there. We want to ensure that as many students can be as successful as possible. Our graduation rate is obviously one key metric that we focus on. We have about a 70% graduation rate. Let me just put that in context for everyone because people probably don't know this. At a traditional college in the United States, the graduation rate is 63% over a six-year period. A lot of people are surprised that it's that low. At a community college, the graduation rate is around 30% in about six years. That's even half of what we are. When we compare ourselves, we're normally compared to a community college, and our graduation rate is more than twice as high as theirs. The next important metric is placement into a job.
Our placement rate is around 80%, 80% - 82%, which means those people that have graduated, 80%- 82% get placed in the field of study. If one of our students completes, let's say, the automotive program but gets hired by Amazon and works in their warehouse, that doesn't count as a placement for us. It only counts to the extent that they've gotten a job in the field for which they've studied. Both of those metrics that I just shared with you are definitely top of class in our industry.
Just from listening to your comments here, it doesn't seem that AI is going to have an impact in replacing these people in the jobs in which they get put into. How do you see that?
Yeah, I'd agree with that. I mean, we think that there's frankly increased demand for what we do because of what we do. What I'm talking about is AI, which is a tool we're using as an organization, is designed to replace your mind. It doesn't replace your hands. Everything that we're focused on today and everything we'll be focused on in the future are careers that require brain work, but more importantly, require you to be doing something with your hands. You're going to fix a car, you're going to install new compressors, you're going to put in outlets and switches. You're going to serve someone as a nurse with your hand, making sure that they're safe and comfortable or healthy. Everything that we're focused on is not going to be replaced by AI and robots.
While some of them might come around in the next 5- 10 years that are very sophisticated, I don't think they're going to be robots that are going to be climbing up into your attic to install a new HVAC system or going into your basement to fix circuitry or things of that nature. AI will probably help our technicians diagnose problems with cars, help the people in the HVAC industry diagnose where the airflow isn't the best and needs to be improved to make people more comfortable. You're still going to need a person to actually install the system, replace the part, or do what's required.
Are there any other trades, specialties outside of your traditional trades that you would perhaps like to add to your program?
Yeah, we're always looking. One that I've mentioned a number of times, which is very related to what we do, would maybe be aircraft maintenance. We teach people how to fix cars and maintain them, how to fix trucks and maintain them, how to fix an airplane. Airplane is different, but very similar. We go into something like that. We wouldn't go into, let's say, cybersecurity. We wouldn't go into teaching someone business or something generic like that. As I said, it's going to have to be something that works with your hands. We're also focused on, I'll say, trades where it's not as much dependent on new construction as well as hopefully more dependent on maintenance because obviously there are construction ups and downs. Most of the trades that we're focused on involve a lot of maintenance type of work to ensure that our students will remain employed.
We're also looking at having an RN program. Today we just offered a Licensed Practical Nurse program, which is kind of the first rung in the nursing world. All of our LPNs, or I should say at least 90%, all want to become RNs. We're working towards launching an RN program. The beauty of an RN program is it's more or less a two-year program compared to a one-year program for LPNs. The cost of acquisition of a student is the same. That should be a good complement to what we have and will help drive greater profitability as well, I believe, just because frankly the RN world, it's the largest part of the healthcare segment. There are 4 million RNs in the United States and we still don't have enough. Almost every state has a shortage of.
RNs and they're not going away.
No, they are not.
Who are your main competitors and what differentiates you or what gives you a competitive advantage over some of these competitors?
Sure.
Our biggest competitor usually in every market is the community college. We just are a very different, I'll say, animal compared to the community college. I like to describe it this way. The community college is there to serve the community, so they have a very broad offering. To me it's like a department store. You can get a little bit of everything. We are more like a specialty store. We just have a few programs that we're offering, so we go much deeper into what we're offering. As an example, the typical community college, if they have an automotive program, might have 25- 40 students. If you go to our campus, you're going to see a minimum of 180 students, up to about 400 students. Therefore, we have a lot more equipment, a lot more things to do for students to work on.
We have a greater depth of knowledge and experience in our faculty, and it's a much richer experience. Moreover, we have classes that start basically every five weeks. If you want to change your life, you don't have to wait till September or January. Also, community colleges typically have you take the gen ed courses first before you get into the fun stuff. We don't do that. We don't offer gen ed courses unless you want to get a degree, but we offer the gen ed courses at the end of the program, not at the beginning of the program. There are many advantages that we believe we offer compared to the community college. There are also some other organizations, more, I'll say, mom and pop type operations that we might compete against. Some of them are good. Again, we have much more scale, much more capabilities.
We have a larger brand presence. It seems to work quite well for us. There is another publicly traded company called UTI I'll mention that's out there that we compete against. They have very similar types of programs. In the markets that we're in and they're in, we both seem to do quite well just because there's such a demand. What I've found is that if we go into one of their markets or they come into one of our markets, we each increase the size of the market because we spend resources on educating students through marketing, making more people aware of these trades. To date we've been able to compete very well with them. I think we're better, naturally. I think we're friendlier. Anyway, that's kind of the landscape.
Got it. What companies? If you can give me a handful of names of companies that you send a steady stream of qualified candidates to fill positions, who are some of the companies that are accepting your graduates?
Sure.
We have people at the national level and then we obviously serve a lot of people at the local level. Some of the larger companies that people might know would obviously be Johnson Controls, BMW, Penske, UPS, Pep Boys, Firestone, Mercedes-Benz, you know, different OEMs that we serve with our students. We're the largest trainer of Tesla technicians. We have three Tesla START programs at three of our different campuses. There's a broad range of different companies in industries that we support.
Again, sounds like a lot of opportunities for your student body. With that, that's our allotted time for the day. We didn't even get into your financials. We'll do that next time. Scott, thank you for carving out some time for us today. Thank you, everyone watching. If you have any questions or would like to schedule a meeting, please send me a meeting request at my email address, which is dndiaz@lythampartners.com. If you'd like to learn more about Lytham Partners, you can visit our website at lythampartners.com or follow us on LinkedIn to stay connected about future events. We hope you all have a great day and enjoy the rest of the conference. Scott, thank you again for your time.
Thank you, Joe.
Have a great one.