Lincoln Educational Services (LINC) Q4 2006 earnings summary

Executive summary

• FY06 revenue reached a record $321.5M, up 7.4% YoY, but operating income fell to $28.0M from $32.5M and net income to $15.6M from $18.7M.

• Average enrollment rose 1.2% to 18,081; excluding Euphoria and Florida acquisitions, revenue increased 2.3% while average enrollment declined 3.8%.

• Strategic spending and delayed enrollment benefits weighed on results; management expected investments and operational initiatives to support renewed growth in 2007 and beyond.

Financial highlights

• FY06 revenue was $321.5M vs. $299.2M in FY05; acquisitions contributed $5.4M from Euphoria and $10.4M from Florida, with the remainder mainly from tuition increases of 2%–5%.

• Operating income was $28.0M vs. $32.5M; net income was $15.6M vs. $18.7M; diluted EPS was $0.60 vs. $0.76.

• Q4 revenue was $86.1M vs. $81.8M YoY; operating income was $16.9M vs. $21.3M and net income was $9.6M vs. $12.4M.

• Cash and equivalents fell to $6.5M from $50.3M; total assets were $226.2M and stockholders’ equity was $151.8M at year-end.

Outlook and guidance

• Management expected growth benefits from Florida Culinary Institute, Euphoria, the full-year operation of Grand Prairie and Queens, and expanded online programs to emerge in 2H07 and beyond.

• FY07 capital expenditures were expected at 10%–12% of revenue, funded by operating cash flow and, if needed, credit-facility borrowings.

• Campus management-system rollout was expected to continue through 3Q07, with about $0.5M of remaining cost; 2007 campus expansion and renovation commitments totaled $3M–$5M.

• Management anticipated sufficient liquidity through 2007 from operations, cash and available borrowings; year-end availability under the $100M revolving facility was $95.6M.