Lincoln Educational Services (LINC) Q4 2010 earnings summary

Executive summary

• FY2010 revenue reached a record $639.5M, up 15.7% YoY; operating income was $122.6M and net income was $69.7M. Average enrollment rose 13.4% to 31,535.

• Diluted EPS increased 53.3% to $2.79. Fourth-quarter revenue was $167.0M, operating income $42.0M, net income $23.2M and diluted EPS $1.04.

• Regulatory changes prompted tighter admissions, especially limits on Ability to Benefit students, as management prioritized student outcomes and compliance.

Financial highlights

• Revenue rose $87.0M, or 15.7%, to $639.5M; average revenue per student increased 2.1%, reflecting tuition increases partly offset by program mix.

• Operating income increased to $122.6M from $88.3M; operating margin expanded to 19.2% from 16.0%.

• Net income was $69.7M versus $49.2M; continuing-operations diluted EPS was $2.79 versus $1.82.

• Operating cash flow reached $114.5M versus $73.2M; cash and cash equivalents ended the year at $66.0M.

Outlook and guidance

• Plans called for three new campuses in 2011, relocation of Denver to a 215,000-square-foot facility with three added programs, and replication of programs in new markets.

• A registered nurse program was targeted for launch in 2011; additional regionally accredited online programs were also expected later in the year.

• Management expected lower enrollment and revenue and margin pressure from reduced Ability to Benefit admissions, with the goal of bringing these students below 10% of the population over two years.

• Cash from operations, cash balances and available credit were expected to fund operations and planned capital needs through 2011; campus expansion and renovation commitments were $12M–$15M.