UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): November 9, 2006
Lincoln Educational Services Corporation
(Exact Name of Registrant as Specified in Charter)
New Jersey 000-51371 57-1150621
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
200 Executive Drive, Suite 340
West Orange, New Jersey 07052 07052
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (973) 736-9340
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
|_| Written communications pursuant to Rule 425 under the Securities
Act (17 CFR 230.425)
|_| Soliciting material pursuant to Rule 14a-12 under the Exchange
Act (17 CFR 240.14a-12)
|_| Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
|_| Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition
---------------------------------------------
On November 9, 2006, Lincoln Educational Services Corporation (the
"Company") issued a press release announcing, among other things, its results of
operations for the third quarter and nine months ended September 30, 2006. A
copy of the press release is furnished herewith as Exhibit 99.1 and attached
hereto. The information contained under this Item 2.02 in this Current Report on
Form 8-K, including the exhibit attached hereto, is being furnished and shall
not be deemed to be "filed" for the purposes of Section 18 of the Securities
Exchange Act of 1934, as amended, or otherwise subject to the liabilities of
that Section. Furthermore, the information contained under this Item 2.02 in
this Current Report on Form 8-K shall not be deemed to be incorporated by
reference into any registration statement or other document filed pursuant to
the Securities Act of 1933, as amended.
Item 9.01 Financial Statements and Exhibits
---------------------------------
(c) Exhibits
99.1 Press release of Lincoln Educational Services Corporation dated
November 9, 2006.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
LINCOLN EDUCATIONAL SERVICES CORPORATION
Date: November 9, 2006
By: /s/ Cesar Ribeiro
-----------------------------------
Name: Cesar Ribeiro
Title: Senior Vice President, Chief Financial
Officer and Treasurer
Exhibit 99.1
FOR IMMEDIATE RELEASE
Lincoln Educational Services Corporation Reports
Third Quarter 2006 Results
West Orange, New Jersey, November 9, 2006 - Lincoln Educational Services
Corporation (Nasdaq: LINC) ("Lincoln") today reported third quarter results for
2006.
Third Quarter Highlights:
o Revenue growth of 7.9% to $84.5 million from $78.4 million in the
third quarter of 2005.
o Diluted EPS of $0.09 decreased from $0.21 in the third quarter of
2005. Excluding a charge of $0.01 per share of stock based
compensation expense in accordance with SFAS No. 123R "Share-Based
Payment," earnings per diluted share would have been $0.10.
o Operating income margin decreased to 5.5% of revenues or $4.6 million
from 10.1% or $7.9 million in the third quarter of 2005 as a result of
a $2.1 million increase in advertising expenses and a $1.2 million
negative impact from our growth initiatives.
o Opened our new 101,000 square feet Grand Prairie, Texas campus on July
24, 2006.
Nine Month Highlights:
o Revenue growth of 8.2% to $235.4 million from $217.5 million for the
nine months ended September 30, 2005.
o Diluted EPS of $0.23 decreased from $0.26 for the nine months ended
September 30, 2005. Excluding a charge of $0.02 per share of stock
based compensation expense in accordance with SFAS No. 123R
"Share-Based Payment," earnings per diluted share would have been
$0.25.
o Operating income margin decreased to 4.7% of revenues from 5.2% for
the nine months ended September 30, 2005.
o Opened our new Queens, New York campus on March 27, 2006.
o Completed our acquisition of New England Institute of Technology at
Palm Beach, Inc. on May 22, 2006.
Comment and Outlook
"While both demand from employers and interest among our students across our
five major product groups remained strong, the environment in the third quarter
remained extremely challenging. We believe our enrollments during the period
were adversely affected by the tight labor market as a significant number of
prospective students chose immediate employment, rather than pursuing an
education in the near term," said David F. Carney, Lincoln's Chairman and CEO.
"Based on first half trends, we entered the second half of the year expecting
continued improvement in year-over-year student starts both from our high school
recruiting program as well as from media advertising. Instead we experienced
erosion in our starts as the quarter progressed. Accordingly, in order to
mitigate for the effect of the strong employment market we increased our
advertising during the quarter. In addition to the increase in advertising, our
third quarter results were negatively impacted by the effect this challenging
environment has had on our major initiatives. Our Queens start-up, our Grand
Prairie expansion, our Florida acquisition and our Online initiatives have been
slower to reach target populations and break-even than anticipated.
"Going forward, we will continue to take a long-term view of our business and
will support our sales and marketing organization at prudent levels. At the same
time, we will continue to invest in our schools and programs for the future,"
added Mr. Carney. "While the investments we are making in our business have
impacted our results, we believe we are taking the right steps to position our
company to benefit when the environment begins to improve. We are replicating a
number of fast-growing programs at schools where there is ample room to increase
enrollment, while expanding capacity at facilities where we have maximized our
space and demand for selected programs is strong. Combined with our re-branding
and expansion of our Associate Degree programs, we believe these initiatives
will lead to enhanced returns for our shareholders over the long-term."
Finally, while we have provided broad parameters of our long term goal of annual
revenue and EPS growth in the 15% range, in light of the shortfall this year in
third quarter starts it would be unrealistic for investors to expect us to reach
those targets in 2006. We expect revenue for the balance of the year to
approximate our first nine months increase versus prior year. Also, while we
expect fourth quarter net income to be strong, it will be down from last year,
mainly due to the shortfall we experienced in the third quarter as well as the
effect of our initiatives, all of which we expect to have a positive effect on
2007 earnings.
Operating Performance
Revenues increased by $6.1 million, or 7.9%, to $84.5 million in the third
quarter of 2006 from $78.4 million for the comparable period in 2005. Of this
increase, approximately $1.3 million and $4.1 million, respectively, was
attributable to the acquisition of Euphoria Institute LLC ("Euphoria") on
December 1, 2005 and the acquisition of New England Institute of Technology at
Palm Beach, Inc. ("FLA") on May 22, 2006, while the remainder of the increase
was due to tuition increases.
Our operating income for the third quarter of 2006 was $4.6 million, which
represented a 41.4% decrease compared to the third quarter of 2005. The
reduction in operating income is due to lower than anticipated student
enrollments during the quarter and increased costs.
On an overall basis, our educational services and facilities expenses increased
by $4.3 million, or 13.2%, to $36.8 million in the third quarter of 2006 from
$32.5 million in the third quarter of 2005. The acquisitions of Euphoria and FLA
accounted for $0.8 million and $2.1 million, respectively, of this increase.
Excluding the acquisitions, instructional expenses increased by 4.6% over the
comparable period in 2005 due to increases in compensation and benefits. Books
and tools expenses increased 3.5% over the third quarter of 2005 due to the
higher costs of books and tools. The remainder of the increase in educational
services and facilities expenses was due to facilities expenses, which increased
$0.4 million for the period. Educational services and facilities expenses as a
percentage of revenues increased to 43.5% of revenues for the third quarter of
2006 from 41.5% in 2005.
Our selling, general and administrative expenses for the third quarter of 2006
were $43.1 million, an increase of $5.1 million, or 13.5%, from $37.9 million in
the third quarter of 2005. Included in selling, general and administrative
expenses for the three months ended September 30, 2006 is $0.4 million and $1.9
million, respectively, from our acquisitions of Euphoria and FLA. Excluding
Euphoria and FLA, our selling, general and administrative expenses increased
7.6% as compared to the same period in 2005. This increase was primarily due to
a $3.2 million, or 20.2%, increase in sales and marketing expenses offset by a
$0.4 million, or 1.3% decrease in administrative costs.
Historically, our schools have lower student populations in our first and second
quarters and we have experienced large class starts in the third and fourth
quarters. Our second half growth is largely dependent on a successful high
school recruiting season. We recruit our high school students several months
ahead of their scheduled start dates, and thus, while we have visibility on the
number of students who have expressed interest in attending our schools, we
cannot predict with any degree of certainty the actual number of new student
enrollments and the related impact on revenue. As the third quarter progressed,
we experienced erosion between the number of students who had expressed an
interest in attending our schools and enrolled and those that commenced classes.
As we reached out to these students, in many instances they indicated that they
were currently employed and had elected to postpone starting their education. As
a result of the significant shortfall in starts during our prime start season,
we made the decision to increase our advertising expenditures (primarily
television and web based initiatives) to mitigate the shortfall in the high
school start.
For the quarter ended September 30, 2006, our bad debt expense was 5.7% as
compared to 4.2% for the same quarter in 2005. This increase is due to several
factors, including (1) higher accounts receivable balances at September 30, 2006
as compared to September 30, 2005, (2) loans to our students under a recourse
agreement we entered into in 2005 with Student Marketing Association (Sallie
Mae) to provide private recourse loans to qualifying students, and (3) normal
seasonal patterns in our business. Accounts receivable at September 30, 2006
includes five new campuses that did not exist in the prior period (our two
Euphoria campuses, our two FLA campuses and our new Queens New York campus).
Under the terms of the Sallie Mae
agreement, we are required to fund up to 30% of all loans disbursed into a
deposit account, which may ultimately be utilized to purchase loans in default.
Since recoverability of such amounts is questionable, we reserve 100% of the
amounts on deposit. As of September 30, 2006, we had reserved $1.5 million under
this agreement, which represents an increase of approximately $1.1 million from
amounts reserved at December 31, 2005.
As of percentage of revenue, selling, general and administrative expenses
increased to 51.0% from 48.4% in the prior period.
As a result of the above, our operating margin for the third quarter of 2006
decreased to 5.5% from 10.1% in the third quarter of 2005.
Net income for the third quarter of 2006 was $2.2 million, or $0.09 per diluted
share, as compared to $5.5 million or $0.21 per diluted share for the comparable
period in 2005. Earnings per share includes a charge of $0.01 per share for the
third quarter of 2006 and 2005, respectively, resulting from our use of the fair
value method of accounting for stock based compensation as prescribed by
Statement of Financial Accounting Standards No. 123R "Share-Based Payment".
Balance Sheet
At September 30, 2006, we had $12.4 million in cash and cash equivalents,
compared to $50.3 million at December 31, 2005. The reduction in our cash
balances is attributable to our acquisition of FLA, and seasonality in our
operations.
At September 30, 2006, our stockholders' equity was $144.2 million, compared to
$136.0 million at December 31, 2005, with the increase resulting from net income
for the period and stock-based compensation expense.
Student Enrollment
Average student enrollment for third quarter of 2006 was 18,427 students,
representing an increase of 2.2% from the third quarter of 2005. Excluding the
acquisitions of Euphoria and FLA, our average student enrollment decreased 4.8%
as compared to the third quarter of 2005.
Conference Call Today
Lincoln will host a conference call today at 10:00 a.m. Eastern Standard Time.
The conference call can be accessed by going to the IR portion of our website at
www.lincolneducationalservices.com. Participants can also listen to the
conference call by dialing (617) 614-4925 (international) or (800) 322-2803
(domestic) and citing code 42158834. Please log-on 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.lincolneducationalservices.com. A replay of the call will also be available
for seven days by calling (617) 801-6888 (international) and (888) 286-8010
(domestic) citing code 98143689.
About Lincoln Educational Services Corporation
Lincoln is a leading and diversified for-profit provider of career-oriented
post-secondary education. The Company offers recent high school graduates and
working adults degree and diploma programs in five principal areas of study:
automotive technology, health sciences (which includes programs for licensed
practical nursing, medical administrative assistants, medical assistants, dental
assistants, and pharmacy technicians), skilled trades, business and information
technology and hospitality services. Lincoln has provided the workforce with
skilled technicians since its inception in 1946. Lincoln currently operates 37
campuses in 17 states under eight brands: Lincoln College of Technology, Lincoln
Technical Institute, Denver Automotive and Diesel College, Nashville Auto-Diesel
College, Southwestern College, New England Technical Institute, Euphoria and
Lincoln College Online. Lincoln had a combined average enrollment of
approximately 18,400 students as of September 30, 2006.
Statements in this press release regarding Lincoln's business which are not
historical facts may be "forward-looking statements" that involve risks and
uncertainties. For a discussion of such risks and uncertainties, which could
cause actual results to differ from those contained in the forward-looking
statements, see "Risk Factors" in Lincoln's Form 10-K for the year ended
December 31, 2005. 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.
(Please see financial attachments.)
Contacts:
Investors: Press or Media:
Chris Plunkett/Brad Edwards Jennifer Gery
Brainerd Communicators, Inc. Brainerd Communicators, Inc.
212-986-6667 212-986-6667
LINCOLN EDUCATIONAL SERVICES CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended September 30, Nine Months Ended September 30,
2006 2005 2006 2005
------------------- ---------------- ------------------ -----------------
REVENUES $84,505 $78,352 $235,381 $217,457
------------------- ---------------- ------------------ -----------------
COSTS AND EXPENSES:
Educational services and facilities 36,818 32,514 101,565 91,158
Selling, general and administrative 43,064 37,943 122,687 115,091
Loss (gain) on sale of assets (7) (3) (7) (3)
------------------- ---------------- ------------------ -----------------
Total costs & expenses 79,875 70,454 224,245 206,246
------------------- ---------------- ------------------ -----------------
OPERATING INCOME
4,630 7,898 11,136 11,211
OTHER:
Interest income 82 278 860 308
Interest expense (696) (472) (1,740) (2,429)
Other income (loss) (200) 243 (130) 243
------------------- ---------------- ------------------ -----------------
INCOME BEFORE INCOME TAXES
3,816 7,947 10,126 9,333
PROVISION FOR INCOME TAXES 1,584 2,462 4,166 3,034
------------------- ---------------- ------------------ -----------------
NET INCOME $2,232 $5,485 $5,960 $6,299
=================== ================ ================== =================
Earnings per share - basic:
Net income available to common shareholders $0.09 $0.22 $0.24 $0.27
=================== ================ ================== =================
Earnings per share - diluted:
Net income available to common shareholders $0.09 $0.21 $0.23 $0.26
=================== ================ ================== =================
Weighted average number of common shares
outstanding:
Basic 25,410 25,037 25,300 22,908
Diluted 26,120 25,992 26,081 24,011
Other data:
Depreciation and amortization 3,941 3,469 11,085 9,602
Number of campuses 37 32 37 32
Average enrollment 18,427 18,029 17,828 17,544
Stock based compensation 316 426 1,000 1,135
Selected Consolidated Balance Sheet Data: September 30,
(unaudited) 2006
(In thousands) ------------------
Cash and cash equivalents $12,440
Current assets 49,432
Working capital/(deficit) (12,268)
Total assets 237,931
Current liabilities 61,700
Long-term debt and capital lease
Obligations, including current portion 27,017
Total stockholders' equity $144,235
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