UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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Form 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): March 7, 2007
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Lincoln Educational Services Corporation
(Exact Name of Registrant as Specified in Charter)
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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 (Zip Code)
offices)
Registrant's telephone number, including area code: (973) 736-9340
Not Applicable
(Former name or former address, if changed since last report)
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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 March 7, 2007, Lincoln Educational Services Corporation (the
"Company") issued a press release announcing, among other things, its results of
operations for the fourth quarter and twelve months ended December 31, 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 March 7, 2007.
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: March 7, 2007
By: /s/ Cesar Ribeiro
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Name: Cesar Ribeiro
Title: Senior Vice President,
Chief Financial Officer and
Treasurer
Exhibit 99.1
FOR IMMEDIATE RELEASE
Lincoln Educational Services Corporation Reports
Year End and Fourth Quarter 2006 Results
West Orange, New Jersey, March 7, 2007 - Lincoln Educational Services
Corporation (Nasdaq: LINC) ("Lincoln") today reported fourth quarter and 2006
year end results.
Year Highlights:
* Revenue growth of 7.4% to $321.5 million from $299.2 million for the year
ended December 31, 2005.
* Diluted EPS of $0.60 decreased from $0.76 for the year ended December 31,
2005. Diluted EPS for 2006 included an impact of $0.02 per share incurred
in connection with our re-branding initiative.
* Operating income margin decreased to 8.7% of revenues from 10.9% for the
year ended December 31, 2005.
* Opened our new Queens, New York campus on March 27, 2006.
* Completed our acquisition of New England Institute of Technology at Palm
Beach, Inc. ("FLA") on May 22, 2006.
* Opened our new 101,000 square foot Grand Prairie, Texas campus on July 24,
2006.
Fourth Quarter Highlights:
* Revenue growth of 5.3% to $86.1 million from $81.8 million in the fourth
quarter of 2005.
* Diluted EPS of $0.37 decreased from $0.48 in the fourth quarter of 2005.
Diluted EPS for the fourth quarter of 2006 included an impact of $0.02 per
share incurred in connection with our re-branding initiative.
* Operating income margin decreased to 19.6% of revenues or $16.9 million,
from 26% or $21.3 million in the fourth quarter of 2006.
* Completed the re-branding of our campuses ahead of schedule. As of
December 31, 2006, 29 of our 37 campuses have been re-branded under the
Lincoln name.
2007 Guidance
* Revenue of $340 million to $350 million.
* EPS of $0.62 to $0.68, representing diluted EPS growth of 3.3% to 13.3%
over 2006.
* For the first quarter of 2007, revenues of $76 million to $78 million and
an EPS loss ranging from ($0.05) to ($0.10) per diluted share.
* For the second quarter of 2007, revenues of $76 million to $79 million and
EPS of break even. The balance of revenues and earnings will occur in the
second half of the year.
Comment and Outlook
"The past year represented a period of challenge and transition for our company.
While demand from employers and interest among potential students across our
five major verticals remained solid, our recruitment efforts came under pressure
due to changes in the environment, primarily the tight labor market. We also
experienced delays in the benefits of several strategic initiatives, including
our new Queens campus, our Grand Prairie expansion, our Florida acquisition and
our Online initiatives," said David F. Carney, Lincoln's Chairman and CEO.
"However, we believe these investments will begin to yield tangible results in
2007 and beyond."
"Capitalizing on our resources, particularly the assets we gained through our
Florida acquisition, we are continuing to move forward in replicating a host of
fast-growing programs across our footprint, including further building our
Associate Degree and Online offerings," added Mr. Carney. "We are also well
underway in implementing a concerted plan to improve the effectiveness of our
marketing and recruitment programs, with an emphasis on the process related to
packaging high school students. We are confident that the steps we are taking
will support growth in our revenues and earnings for the full year."
Fiscal 2006 Operating Performance
Revenues increased by $22.3 million, or 7.4%, to $321.5 million for the year
ended December 31, 2006 from $299.2 million for the comparable period in 2005.
Of this increase, approximately $5.4 million and $10.4 million, respectively,
was attributable to the acquisition of Euphoria Institute ("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. For the year ended December 31, 2006, excluding
Euphoria and FLA, our average population decreased 3.8% to 17,176 from 17,859
for the year ended December 31, 2005.
Our operating income for the year ended December 31, 2006 was $28.0 million,
which represented a 13.9% decrease compared to the year ended December 31, 2005.
The reduction in
operating income is due to lower than anticipated student starts during the year
coupled with higher fixed costs of operating our business.
On an overall basis, our educational services and facilities expenses increased
by $15.1 million, or 12.4%, to $136.6 million for the year ended December 31,
2006 from $121.5 million for 2005. The acquisitions of Euphoria and FLA
accounted for $8.0 million, or 53%, of this increase. Excluding the
acquisitions, instructional expenses and books and tools expense increased by
4.9% and 9.3%, respectively, over the comparable period in 2005 due to increases
in compensation and benefits as well as higher costs of books and tools. The
remainder of the increase was due to facilities expenses, which increased $2.6
million for the year. Of this amount, approximately $0.8 million represented
additional rent expense in 2006 due to our expanded campus facilities in Rhode
Island and Connecticut, as well as from normal rent escalation clauses. During
the year, we also experienced increased costs for insurance and real estate
taxes, utilities and repairs and maintenance of approximately $0.4 million, $0.5
million and $0.4 million respectively compared to 2005. The increase in our
facilities expenses also resulted from an increase in student meal plan expense
of approximately $0.2 million due to costs increases and a new cafeteria
facility at our Grand Prairie, Texas facility. Educational services and
facilities expenses as a percentage of revenues increased to 42.5% of revenues
for 2006 from 40.6% for 2005.
Our selling, general and administrative expenses for the year ended December 31,
2006 were $157.3 million, an increase of $12.1 million, or 8.3%, from $145.2
million for 2005. Approximately $1.5 million and $4.0 million of this increase
was attributed to our acquisitions of Euphoria and FLA, respectively. The
remainder of the increase was primarily due to: (a) a 4.0% increase in sales
expense resulting mainly from incremental compensation and benefit expenses
related to additional sales representatives; (b) an 8.2%, or $2.3 million,
increase in marketing costs as a result of increased advertising expenses
associated with student leads and enrollment. Additionally, for the year ended
December 31, 2006, administrative expenses, excluding Euphoria and FLA,
increased by $2.9 million over 2005. This increase includes approximately $0.9
million of re-branding costs incurred during the year. The remainder of the
increase is attributable to higher bad debt expenses in 2006 as compared to
2005. Bad debt expense in 2006 increased by $4.4 million, from $11.2 million in
2005 to $15.6 million for the year ended December 31, 2006. This increase is due
to several factors, including (a) higher accounts receivable balances throughout
the year as compared to prior year; (b) 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 (c) the
effect of increasing the payment terms on the self finance portion of their
tuition to some of our students from five years to seven years. Accounts
receivable throughout the year included five new campuses that did not exist in
2005 (our two Euphoria and two FLA campuses as well as 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. As of December 31, 2006, we had reserved
$1.5 million under this agreement, which represents an increase of $1.1 million
from amounts reserved at December 31, 2005. Funding under this agreement
terminated by its terms on June 30, 2006.
These increases were partially offset by lower expenses incurred in rolling out
our campus management and reporting system as well as lower compensation
expense, primarily resulting from a decrease in annual bonuses. As a percentage
of revenue, selling, general and administrative expenses increased to 48.9% from
48.5% in 2005.
As a result of the above, our operating margin for the year ended December 31,
2006 decreased to 8.7% from 10.9% in 2005.
Net income for the year ended December 31, 2006 was $15.5 million, or $0.60 per
diluted share, as compared to $18.7 million or $0.76 per diluted share, for the
comparable period in 2005. Earnings per share includes a charge of $0.03 and
$0.05 per share for the years ended December 31, 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". Earnings per share for the year ended December 31,
2006 also includes the impact of $0.02 per share incurred in connection with our
re-branding initiative.
Fourth Quarter 2006 Operating Performance
Revenues increased by $4.4 million, or 5.3%, to $86.1 million in the fourth
quarter of 2006 from $81.8 million for the comparable period in 2005. The
acquisitions of Euphoria and FLA accounted for all of the increase and
represented approximately $1.1 million and $4.3 million, respectively. Excluding
the acquisitions, revenue decreased by $1.0 million from the comparable period
in 2005 due to lower average student population during the quarter. For the
fourth quarter of 2006, excluding Euphoria and FLA, our average population
decreased 6.7% to 17,539 from 18,804 in the fourth quarter of 2005.
Our operating income for the fourth quarter of 2006 was $16.9 million, which
represented a 20.8% decrease compared to the fourth 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 $4.7 million, or 15.5%, to $35.1 million in the fourth quarter of 2006 from
$30.4 million in the fourth quarter of 2005. The acquisitions of Euphoria and
FLA accounted for $0.9 million and $1.7 million, respectively, of this increase.
Excluding the acquisitions, instructional expenses increased by 8.8% over the
comparable period in 2005 due to increases in compensation and benefits. Books
and tools expenses increased 7.7% over the fourth quarter of 2005 due to the
higher costs of books and tools. The remainder of the increase was due to
facilities expenses, which increased $0.4 million for the fourth quarter.
Educational services and facilities expenses as a percentage of revenues
increased to 40.7% of revenues for the fourth quarter of 2006 from 37.1% in
2005.
Our selling, general and administrative expenses for the fourth quarter of 2006
were $34.6 million, an increase of $4.5 million, or 15.0%, from $30.1 million in
the fourth quarter of 2005. Included in selling, general and administrative
expenses for the three months ended December 31, 2006 is $0.3 million and $1.5
million, respectively, from our acquisitions of Euphoria and FLA. Excluding
Euphoria and FLA, our selling, general and administrative expenses increased
9.0% as compared to the same period in 2005. This increase was primarily due to
a $1.2 million,
or 17.7%, increase in sales expenses and a $1.6 million, or 10.4%, increase in
administrative costs. Included in the increase in administrative costs for the
quarter ended December 31, 2006 is approximately $0.7 million incurred in
connection with our re-branding initiative.
For the quarter ended December 31, 2006, our bad debt expense was 3.9% as
compared to 3.8% for the same quarter in 2005.
As of percentage of revenue, selling, general and administrative expenses for
the fourth quarter of 2006 increased to 40.2% from 36.8% in 2005.
As a result of the above, our operating margin for the fourth quarter of 2006
decreased to 19.6% from 26.0% in the fourth quarter of 2005.
Net income for the fourth quarter of 2006 was $9.6 million, or $0.37 per diluted
share, as compared to $12.4 million, or $0.48 per diluted share, for the
comparable period in 2005. Earnings per share includes a charge of $0.01 per
share for the fourth 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". Earnings per share for the three months ended December 31, 2006 also
includes the impact of $0.02 per share incurred in connection with our
re-branding initiative.
Balance Sheet
At December 31, 2006, we had $6.5 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 the repayment of all amounts
outstanding under our credit agreement.
At December 31, 2006, our stockholders' equity was $151.8 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 year ended December 31, 2006 was 18,081 students,
representing an increase of 1.2% from the year ended December 31, 2005.
Excluding the acquisitions of Euphoria and FLA, our average student enrollment
decreased 3.8% as compared to the year ended December 31, 2005.
Average student enrollment for fourth quarter of 2006 was 18,840 students,
essentially flat with the fourth quarter of 2005. Excluding the acquisitions of
Euphoria and FLA, our average student enrollment decreased 6.7% as compared to
the fourth 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 (800) 291-5365 (domestic) or
(617) 614-3922 (international) and citing code 58382110. 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 (888) 286-8010 (domestic) or (617) 801-6888
(international) and citing code 94409913.
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 five brands: Lincoln College of Technology, Lincoln
Technical Institute, Nashville Auto-Diesel College, Southwestern College and
Euphoria. Lincoln had a combined average enrollment of approximately 18,100
students at of December 31, 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)
Three Months Ended December 31,
(Unaudited) Years Ended December 31,
----------------- ----------------- ----------------- -----------------
2006 2005 2006 2005
----------------- ----------------- ----------------- -----------------
REVENUES $86,125 $81,764 $321,506 $299,221
----------------- ---------------- ----------------- -----------------
COSTS AND EXPENSES:
Educational services and facilities 35,065 30,366 136,631 121,524
Selling, general and administrative 34,626 30,104 157,309 145,194
Loss (gain) on sale of assets (428) (4) (435) (7)
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Total costs & expenses 69,263 60,466 293,505 266,711
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OPERATING INCOME 16,862 21,298 28,001 32,510
OTHER:
Interest income 121 467 981 775
Interest expense (551) (462) (2,291) (2,892)
Other income (loss) 1 (132) 243
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INCOME BEFORE INCOME TAXES 16,432 21,304 26,559 30,636
PROVISION FOR INCOME TAXES 6,842 8,893 11,007 11,927
----------------- ---------------- ------------------ -----------------
NET INCOME $9,590 $12,411 $15,552 $18,709
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Earnings per share - basic:
Net income available to common shareholders $0.38 $0.49 $0.61 $0.80
================= ================ ================== =================
Earnings per share - diluted:
Net income available to common shareholders $0.37 $0.48 $0.60 $0.76
================= ================ ================== =================
Weighted average number of common shares outstanding:
Basic 25,440 25,159 25,336 23,475
Diluted 26,104 25,979 26,086 24,503
Other data:
Depreciation and amortization 3,783 3,462 14,866 13,064
Number of campuses 37 34 37 34
Average enrollment 18,840 18,846 18,081 17,869
Stock based compensation 231 151 1,231 1,286
Selected Consolidated Balance Sheet Data: December 31,
(In thousands) 2006
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Cash and cash equivalents $6,461
Current assets 38,891
Working capital/(deficit) (20,220)
Total assets 226,216
Current liabilities 59,111
Long-term debt and capital lease
Obligations, including current portion 9,860
Total stockholders' equity $151,783
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