Lincoln Educational Services (LINC) Q4 2008 earnings summary

Executive summary

• FY08 revenue rose 15.0% to $376.9m; average enrollment increased 13.1% to 20,006 students, including Briarwood acquired in December.

• Excluding Briarwood, revenue grew 14.7% and average enrollment rose 13.0%; higher enrollment and tuition supported growth.

• Operating income increased to $35.6m from $25.9m; net income was $20.2m versus $8.3m in FY07, which included discontinued-operation losses.

Financial highlights

• Revenue increased $49.1m YoY; average revenue per student rose 1.5%, with tuition increases offset partly by a mix shift to lower-tuition programs.

• Operating income was $35.6m versus $25.9m; reported operating margin was 9.4% versus 7.9%.

• Net income was $20.2m; diluted EPS was $0.78 versus $0.32 in FY07, which included a $0.21 per-share discontinued-operations loss.

• Q4 revenue was $107.3m, operating income $21.2m, net income $12.8m and diluted EPS $0.49.

• SG&A included $0.9m of Baran acquisition costs expensed in FY08; acquisition-related costs equaled $0.02 per share for Q4 and FY08.

Outlook and guidance

• Management expected 2009 revenue and net income growth, citing entry into the year with ~3,100 more same-school students than on Jan. 1, 2008.

• 2009 capital expenditures were expected at 5%–6% of revenue to upgrade and expand facilities and equipment.

• 2009 net incremental investment in accounts receivable was expected not to exceed $5.0m, assuming historical trends continued.

• Management expected revenue growth to moderate over time as the business matured; second-half results remained dependent on recruiting and new student starts.