Good afternoon, everyone. Thank you for being here today. Our next presentation is Lincoln Educational Services. Lincoln is a provider of diversified, career-oriented post-secondary educational services, headquartered in Parsippany, New Jersey. It trades on the NASDAQ under the symbol LINC. With us from management today is President Scott Shaw. Scott, it's all you.
Thank you very much, and glad you're all here today. I just started my 26th year with Lincoln, so I have a good history of the company, and I look forward to sharing our story. Quick safe harbor. I'm sure you've all read that. You're speed readers. Investment opportunity. First of all, I think everyone's probably aware, if you read the paper and watch any news, every other day, there's an announcement out there about the skills gap that exists in our country. It's a real thing. People cannot find enough technicians, and that's holding back growth and opportunities. Even now, when you hear all the AI people building out their data centers, you'll hear the CEOs of those companies even re-emphasizing the fact that the country has a shortage of electricians, HVAC techs, welders, and things of that nature, and that could slow down some of their growth.
They're trying to find ways to get people into it. This is Lincoln's 80th year. We are a leader in skilled trades training. We started in 1946, training people in the new technologies of that day, which were automatic transmissions and air conditioners that were being placed into people's homes after the war. We've grown and expanded beyond that. Today about 60% of our students are in the skilled trades, which would be electrical, HVAC, and welding, 20% are either automotive or diesel technicians, and 20% would be either medical assistants or licensed practical nurses. Typically, in trade schools, we grow during recessionary times when there's high unemployment. Good news is that model has changed, and we're growing while even unemployment remains still at very low levels that it is today, at 4.3% or so, which is great. It helps us grow our business.
It does mean if there is a recession, we'll grow even better, but given the changes that are out there, which I'll share more about, we're having good double-digit growth in a very strong economy. Our business model is very simple. We just need to fill up more seats, and every seat that we fill up, those revenues, more and more of them, drop toward the bottom line. We have great operating leverage, and we've been experiencing that over the last couple of years. We had an Investor Day, March 16th or 19th, where we shared some projections going out to 2030, where we anticipate having about $850 million in revenue and $150 million of EBITDA, with an 18% margin. Today, our margin is around 12%, but it should go up a few hundred basis points a year as we continue to grow.
We have a good, healthy balance sheet. That's all mainly due to the leases. We finished last year with no debt outstanding on our credit facility, which we recently doubled in size. We have about $125 million of availability under that credit facility. We have some money drawn on that today. Our business is seasonal. Hopefully by the year-end, we'll be able to pay back almost all of it, if not all of that current bank debt based off of the CapEx plans that we've announced to date. We have become increasingly efficient. Prior to COVID, we did everything on ground at our campuses. During COVID, like everyone else, we were forced to send everyone home. We were 100% online for three months.
As soon as we could open our campuses, we reopened them. We learned that our students could do some of the work online, and it builds in a lot of flexibility for them because the average age of our student is 25. The average age of our nurses is 29. A lot of people with families or other jobs, they need flexibility in their lives in order to attend school. By going to a blended model, we're able to create that. Students basically come four hours a day, four days a week. That's 16 hours. They do eight hours of work on their own sometime during that week, which just helps more students fit education into their life, which is one of the reasons why we're growing.
It also creates more efficiency and more capacity for us to continue to grow at our existing campuses. This is a summary. We did start off the year exceedingly strong in our first quarter. We did raise our guidance. Revenues grew 22%. Starts were almost 20% up. EBITDA increased 85%. We also grew EPS. Everything really exceeded our expectations. Lots of people talk about the perfect storm with things going poorly. The first quarter for us was a perfect storm with everything going correct for us. You can see here how we've adjusted guidance for the year. As the year progresses, we'll continue to reevaluate that. As I mentioned, we did put out a longer-term growth plan. This is just kind of sharing summaries of that.
Our plan is to continue to grow our campuses organically, which we've been able to do. We do that through increased marketing, greater efficiency. We're investing more in a high school recruiting market simply because high school students, parents, guidance counselors are all far more receptive to the trades. We're going to lean into that and hire more reps to get the message out and go into that channel. Long story short, as long as we continue to grow our population and grow our top line, that will help drive profitability. When we've been able to drive our profitability increase, it grows basically at twice the rate of our top line. That's what creates this good performance that's here. We will open up or plan to open up two new campuses a year.
We will open our next new campus in Hicksville, Long Island, this November. After that, the next campus to open up will be in Rowlett, Texas, which is basically Northeast Dallas. We haven't announced the next two campuses to open up. We should be announcing one, maybe even by the end of today. We're at the final strokes with the lawyers. Hopefully by the next earnings call, we'll be able to announce the next new campus. As it's planned now, the next campus that we open up will be in an existing market. The second one after that will be in a new state, in a new market. We just look for opportunities kind of across the board and have lots of white space, which you'll see when I show you our map for new opportunities.
We also do look at acquisitions. We haven't made an acquisition in over 15 years. We've really narrowed our model to be much more streamlined. The acquisition really has to fit into that. Most companies don't. We still look. We like to see what the opportunities are, what the competition is doing, looking for ways to grow our business, learn new things. We always do that by looking at these potential acquisitions. We are growing by opening up new campuses. This is the model that we're using, that we lay out there for our new campus openings. It basically takes us, by the time we announce to the world that we're going to open a campus, 18-24 months to get it open.
We anticipate within those first 12 months that the campus should be running at a break-even level. Within 36-48 months of opening, they should be generating about $8 million-$10 million worth of EBITDA. It costs us about $20 million-$25 million, though, to build a campus. We don't own the facilities. These are all leased. That's just the build-out and the putting in all the equipment for the programs that we offer. During COVID, all of our students and employees became known as essential workers because while lots of the world was shut down, our nurses remained in the hospitals, our mechanics remained keeping all the trucks and delivery vehicles working, electricians remained employed, HVAC techs remained employed.
That helped raise the stature of the trades and is one of the things that has led to this transformation post-COVID of more and more people looking to go into the trades. As I said, we have a lot of growth opportunities. Our company started in Newark, New Jersey, so we have a strong presence in the New Jersey-New York market and also in the Northeast, basically from Washington, D.C. up to Boston, in that area. We're not in Boston, but close to Boston. We have other campuses in major markets like Indianapolis, Chicago, Nashville, Atlanta, Dallas, Houston, and Denver. We're looking to open up more new campuses in some of those top 25 MSAs. You can see we're not in Florida yet. We're actually just scratching the surface in Texas.
Lots of opportunity in the existing markets where we are, plus Austin, San Antonio, other areas within Texas. We'll eventually move out to the West Coast, probably California will be last on our list, just from a regulatory perspective. It's not the easiest state to operate in. We engaged a firm four years ago to help us pick locations for us. We gave them a lot of statistics on what's the demand from employers, what's the demand from students, how many graduates are there today, how many people are searching for careers in the trades, our demographics, and is the market growing, is it shrinking? They gave us a nice list of about 35 MSAs to go after, and we recently just asked them to update that list to refresh it since it's four years old. So far so good.
The ones that we've hit on that have hit the mark, we know they do good work. The segment that we serve is the middle skills. Middle skills are everything post-high school but before a bachelor's degree. Lower skills are those that don't graduate from high school. These are jobs that typically are being replaced today through automation. Think of people, let's say, at the supermarket or a checkout, where now you're doing it yourself in many places by a machine. High skills were the area that everyone thought was safe until a couple of years ago, and these are bachelor's degrees and above, and these are mainly the types of jobs, many of them, that AI seems to be impacting today.
AI will probably impact, obviously, also some of the middle skills, but that's the biggest segment of the American workforce, and that's what we serve, that area. The skills gap has come about through decades of policies pushing, encouraging, not mandating almost, but really seems like that, sending people to college. To do that, they've taken the trades out of a lot of the high schools so that students had more time to do greater academics, to do better to get into college. I think that everyone realizes while the college education can benefit people greatly, it doesn't necessarily mean that everyone is suited for college, everyone's ready for college, or everyone should go to college. I think we all know plenty of people who've gone to college who've graduated and can't find a job or are doing a job that didn't require them to go to college.
Certainly, the debt numbers that are out there certainly prove that students aren't able to pay back the debt that they've incurred to go to college. People are becoming much more sensitive and aware of this. People are looking more and more at education as a return on investment, and the government is frankly looking at going to school as a return on investment, and will start limiting how much debt students can incur to take certain programs if those programs cannot repay the debt. Anyway, we've starved the pipeline of new students coming into the trades, and now we have a situation where people like myself, baby boomers or others, are retiring. A lot of skills are leaving, the silver tsunami that people talk about.
There's increased now local need for more people in the trades, especially since COVID, that we're bringing more manufacturing back, we're bringing more resourcing back. Our country, the infrastructure is old at this point. So much of it was built in the 1950s, 1960s, early 1970s, needs to be replaced. We have a housing shortage out there. The military wants to rebuild their submarines and ships. We frankly just don't have people to do all this work. That's why there's all this attention and focus on it. Luckily for us, we've been doing this for 80 years. We have leading market share in the places where we are, and we're taking advantage of that and trying to solve the skills gap as much as we can.
While there's a huge shortage and while we are either the number one, two, or three player in the whole country providing electricians, auto techs, diesel techs, mechanics, and welders, we still have very tiny market share. This is looking at how many jobs the BLS says are needed each year in the fields for which we provide training, and then looking at the number of graduates we have, and it just shows you that we have less than a 2.5% market share, lots of opportunity for growth. To get that growth, you have to have a superior product, and we think we do have a superior product at Lincoln. We've been focused on it. We've narrowed our focus of programs down to basically seven programs. Everything that we do is designed to be aligned with industry.
We want to know what skills our students need to be employed. We design curriculum with employers. Every six months, we invite employers to come in and critique our curriculum and our students, the ones that they hire, tell us what works, tell us what doesn't work, tell us where the industry's going, so that we can make sure that our students are well-trained. All of our faculty come from industry. They're not academics. They've actually done the job, and now they're sharing their techniques and their skills to the next generation of students. We provide a lot of student support. Our students, as I said, on average, are about 25 years old. They're also usually first-generation individuals coming to schools. They're usually in the lower socioeconomic level of education and economics, they need more support.
They don't have the financial support or emotional support always at their homes. Wherever we can lend a hand, we do. We help find carpools for people whose car might break down. We have food banks at our schools. We help students find jobs while they're in school, so they get work. It's pretty important to us to ensure that as many students graduate as possible. It makes us look better. It's a better product. Frankly, we make more money. Hate to say it that way. It's in our self-interest to do so why not create the best product out there? That's what we strive to do. We want our students to be successful, so we build very robust labs.
One reason why it costs $20 million-$25 million to open up our school, we have the same state-of-the-art industry equipment that you would have if you went into a Mercedes dealership. You'll see the same stuff in our classrooms. If you were to work for any high-end electrical company, we have all the same tools, all the same equipment that they would have. We want to have as a professional environment as possible, get our students comfortable and ready for work. As a result of all this, we do have superior outcomes. Our graduation rate is around 67%. To put that in perspective, community colleges have a 33% graduation rate over six years. Ours is over 18 months. Just to give you some information, in the U.S., for college, it's a 63% graduation rate over six years for traditional colleges.
Probably many of you went to colleges that it's much higher, but if you were to dig the whole country, it's only 63%. For a placement standpoint, we're around 82.5%. This year, we're gearing up for 84%. This is being trained and placed in the field of study. If a mechanic comes out and were to get a job at the Amazon warehouse, that doesn't count. It's for being trained into your field of study. Even though we have more job opportunities for students, people always ask, "Why aren't you have 100%?" Well, unfortunately, we are dealing with individuals. I can't help it, unfortunately, when someone doesn't pass a drug test or someone has lost their license because they did something, or someone doesn't want to travel 45 minutes for a job and only wants to go 30 minutes for a job.
I'm very confident that the students all have the skills to get a job. It's really up to them to ensure that they have the rest of the package to get a job. We also do help our students. We have career fairs where we literally have over 100 employers show up at a campus to interview students, and they take place multiple times throughout the year.
There's lots of opportunities for our students, and again, we want as many students to graduate as well as as many students to be placed as possible. Given that we are the number one provider of skilled trades and automotive in the eastern part of the U.S., and as we just add another campus here in Texas, and another campus that will be opening up also in that western region in the next two years, we eventually want to be a national provider. We think this provides a unique opportunity, especially for larger employers. Now they can work with one Lincoln Tech, let's say in 15 different markets, and they know that the electrician that they're going to get, or the welder that they're going to get, or the mechanic that they're going to get, has all been trained at the same level.
Versus going to, let's say, 15 different community colleges that might have an electrical program or automotive program, but the curriculum is going to be different. We think it's a real big advantage, and the partners that we work with would agree with us. It's one reason why, frankly, Tesla came to us. They used to be going just to community colleges, but they couldn't get enough students, as well as they just couldn't get enough attention from them. We now have three of Tesla's training centers at our locations. Speaking of which, these are some of the other partners that we have. We do try to partner with industry as much as possible. Some of these partners make donations to us. Some of these partners give us curriculum so that our students can get advanced-level training.
Some of these partners, we train our students in a mini graduate program, like at Johnson Controls or Hussmann or Republic Services, where we are training them to that company's specific needs, and then they go work for that company directly thereafter. New partnerships are something down there called CMC, which is Container Maintenance Corporation. That's an area that we're looking to grow, and that's where we're training existing employees at a company at their facilities. That's a great opportunity, we think, for us to grow even more going forward. I recently just frankly hired someone to help push that initiative. We are a highly regulated industry, we always have to be extremely mindful of all the various rules and regulations that are out there. These are the basic ones that any proprietary school is faced with.
90/10 just means we can't get more than 90% of our cash from the federal government. We're currently at around 84%, still below the threshold, comfortably below, but we're working on ways to make sure that we stay even lower than that. Basically, the way we'll do that is by partnering with more companies and having them contribute more to the students' tuition. CDRs are Cohort Default Rates. They're zero because our federal government deemed during COVID that no one had to repay their student loans for five years, so it's zero for everyone. Next year, these rates will start coming back out. You don't want to be over 30%. If you're over 30% multiple years, you'll be shut down. If you're over 40% one year, you'll be shut down.
Needless to say, a lot of people's, including ours, default rates are much higher today because students have been told for five years you don't need to repay their loans. I know that we're below the 30%, and prior to COVID, we were below 10%. I'm anticipating once people get back in the habit and we encourage them more, we'll get back down there as well. A composite score is a financial metric that the government has. You just don't want to be below 1.5, and we're safely above that. I mentioned our graduation rates and our placement rates. A little bit different here because our accreditor uses a different timeframe. I'm using a calendar year to just give you more current information. Our accreditor kind of looks back two years, so it's a little more historical information.
In summary, we had a really strong first quarter. As I said, starts were up 19.5%, revenue was up over 20%, profitability went up 85%. We have a strong balance sheet, plenty of capital and availability. We feel really good about where we sit, and this is just giving you some of the financials quarterly and on an annual basis. You can see everything is moving in the right direction with growth rates increasing, profitability increasing, margins increasing. Again, it's a pretty simple model. Just like this room here, if we filled it up more, if everyone was paying me the same amount of money, it'd be that much more profitable for me to give this presentation. This is just looking at it again. Starts are critical. These are new people that come into our schools, and obviously average population is what's driving revenue for us.
Again, everything's moving in a very nice pattern. We are seasonal, though, which is important, especially as people look from quarter to quarter. This is showing you adjusted EBITDA and starts. We make 80% of our EBITDA in the last five, six months of the year. That's simply because that's when we have our peak population. We basically have programs that last about a year to 13 months. With 20% of our students coming right out of high school, they all start basically June, August, September. Those that have started in August and September are still lingering when the next group of August and September people come in. We have peak population in October and November, same fixed costs, higher revenue, so greater profitability. Then as far as the seasonality goes, the third quarter is always the largest.
Again, high school students starting, then usually January, people want to start a new career, a new life. It is very common. Then it's smaller in the second and fourth quarter. In summary, we are a national leader in the trades. We've been growing our business very nicely organically. We're also adding on new campuses that'll continue to help grow the company overall. The country is faced with a severe skills gap, which seems to be getting worse, not better as time goes on. Which is all good for us, drives demand, bad for our country, but we'll try to fight that and make sure that we can get enough trained people in there. As I mentioned, if there is a downturn, whenever that next recession is, we will do even better than what we're doing now.
As I shared with you, there are many markets that are in need of skilled trades people where we are not today, we will continue to look for those opportunities to expand. As we increase the population at each of our campuses and get better utilization, that just drives greater and greater margins. Always, we're going to be focused on ensuring that we have the best product out there, which is reflective of our graduation rates and placement rates. That's what I have, so I have more time than for questions, like 10 minutes. Yes, ma'am.
Outside of the Tesla example that you gave?
Yeah
in terms of you versus a community college, what are the other reasons that someone would choose whether in the nursing program or in the technical program to go to a Lincoln?
Yeah
rather than a community college?
Yeah.
For you. Just on the second part of this question, you showed the chart where you were less than 2.5% in terms of your market share.
Yes.
If you were to take market share, whether it be from community colleges or otherwise, let's say if you took a 50 basis points market share.
Yeah
from a community college, with your cost structure and your operation, how does that translate to the bottom line in terms of your ability to increase EPS or margins going forward?
Sure. I'll take the last part first. I won't look at it from taking market share from someone, because frankly, what we've seen so far is the market just growing overall as more people become aware of the opportunity. Community colleges aren't necessarily losing people, we're just bringing more people in. As we grow our population and increase our capacity utilization, that's where we get this great operating leverage, where we assume, and have been experiencing about 35% of the additional revenue that we earn is dropping to that bottom line. Which is why our top line, let's say, is growing at 15%. In that projection I shared with you, going to 2030, revenue goes from basically $600 to $850. EBITDA doubles, oops, sorry, from $75 to $150, and net income triples from basically $20 to $60.
We kind of get more and more operating leverage down the line. Why students choose us over the community college, certainly community colleges are cheaper. I sometimes say you get what you pay for, though. They have a different mindset. In your example of nursing, the reason why they'll come to us is because, frankly, we'll provide capacity. Lots of community colleges cap out, and they turn people away because they don't have any more room. Why they don't create more room, I don't know, but they don't. We serve those students that aren't being served there, as well as just in general, we provide more services. We're a business. These are our customers. We want to treat them well. As an example, during COVID, community colleges shrank by 20%. We grew by 20%. Why is that? We kept our doors open.
We figured out how to keep people safe and spread them out throughout the day. Our students want to get a job. They want to get employed, and they want to provide for their family. We didn't want to delay that process. Many community colleges shut their doors and kind of hid, I'll say that, like a lot of schools did for a while. We have a different mindset when it comes to that. Also, all of our faculty members are from the trades. They're not academics. Usually, if you go to a community college, they'll first put you into the gen eds to see if you're academically capable. Our students hate the gen eds. That's one reason why they're coming to us. They don't want the academics. They want to work with their hands. They want to do something.
If you go look at their facilities, meaning the community college is there to serve the community, it's like a department store, has a broad array of programs. We're a specialty retailer. We're focused on just a few things. It's a much richer, deeper experience that you're going to get if you come to us. Yes, sir.
It's a great presentation, great answers.
Thanks.
Two unrelated questions. One, you said you lease your facilities.
Yes,
you don't own them.
Correct.
On average, how long the leases are. Second question, are there any sectors or jobs that you're looking to get into that you're not pitching people on that?
Good question. Since we do spend so much, we get long-term leases as we want to get a return on it.
We typically get a 15-year base lease with two five-year extensions, if not more, or maybe three five-year extensions. We can stay there for a long period of time, and we have a number of leases that we've gone through all those extensions, and we're extending them again, as long as the market's the right market for us. Now I forget what your other question was. The sectors we want to go. Examples, well, first of all, we're going to continue to be focused on things that involve your hands. We're not going to go into, especially now, we're not going to go into coding or something of that nature. But we would like to maybe go into aviation. We fix cars, fix trucks. Why not fix planes? There are things around mechatronics, repairing things, fixing things that we are looking at.
There are things around the power generation business because we need more electricity, there's going to be more needs there. We'll already be serving that with electricians and welders, and even some of our diesel technicians and things have skills that these construction companies need. We're looking at things that involve hands-on, but we won't do, I'll say, bricklaying or carpentry or things that are much more tied to the construction market. I prefer to have the students doing things that are more in the maintenance repair, because that's nonstop. Construction just kind of adds on top of it. Obviously, construction goes through more cycles than the service business does. Anything else? Great. Like, if this is a class, you have some free time now to do what you want. Thank you.