Lincoln Educational Services Corp (LINC) 2020 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing back. And welcome to the Lincoln Educational Services 2020 Fourth Quarter and Full Year Results Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions) I would now like to hand the conference over to your speaker for today, Michael Polyviou with EVC. You may begin.

Thank you, Towanda, and good morning, everyone. Before the market opened today, Lincoln Educational Services Corporation issued its news release reporting financial results for the fourth quarter and full year ended December 31, 2020. The release is available on the Investor Relations' portion of company's corporate website at www.lincolntech.edu.

Joining us today on the call are Scott Shaw, President and CEO; and Brian Meyers, Chief Financial Officer. Today's call is being broadcast live on the company's website, and a replay of the call will be archived on the company's website. Statements made by Lincoln's management on today's call regarding the company's business that are not historical facts may be forward-looking statements as the term is identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate and continue as well as similar expressions are intended to identify forward-looking statements. The forward-looking statements should not be read as a guarantee of future performance or results.

The company cautions you that these statements reflect current expectations about the company's future performance or events that are subject to a number of uncertainties, risks and other influences many of which are beyond the company's control that may influence the accuracy of the statements and the projections upon which the segment and statements are based. Factors that may affect the company's results include, but are not limited to, risks and uncertainties discussed in the Risk Factors section of the annual report on Form 10-K and quarterly report on Form 10-Q filed with the Securities and Exchange Commission.

Forward-looking statements are based on the information available at the time those statements are made and management's good faith belief as at the time with respect to the future events. All forward-looking statements are qualified in their entirety by this cautionary statement, and Lincoln undertakes no obligation to publicly revise or update any forward-looking statements, whether as a result of new information, future events or otherwise after the date thereof.

Now I'd like to turn the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Thank you, Michael, and good morning, everyone. Thank you for joining our call to discuss Lincoln Educational Services' exceptionally strong finish to 2020 as well as our outlook for 2021. We continue to hope that you and your families have been impacted as little as possible by the ongoing COVID-19 pandemic, especially from a health and well-being perspective. I also want to thank the entire Lincoln organization for their dedication, determination and absolute commitment to serving our students through the most challenging period that any of us have ever faced.

A year ago at this time, during this earnings call, I was very excited about all the progress we had made collectively in our bright future. Then 2 weeks later, our world changed. We had to shut down all of our schools and moved to distance education. We all had to operate in a way that none of us had done before. But due to the heroic efforts of all Lincoln employees, I sit here today, proudly able to state that Lincoln is stronger now than it was a year ago.

During our previous 2020 quarterly conference calls, we shared some of the myriad of operating challenges our organization faced when the COVID-19 pandemic hit full force during the first quarter of last year. We also shared some of the steps we rapidly implemented to keep our students, faculty, administration and management as safe as possible while providing training for essential careers that remain in high demand.

As a result of our actions, Lincoln continued to increase the number of students pursuing these careers as 2020 progressed. During a period when other training methods and processes continue to be either inhibited or limited, and many in our field have seen student enrollment decline, Lincoln bucked this trend. For the first time in more than a decade, since 2009, to be precise, Lincoln achieved double-digit student start growth of 10.7% for the entire year. The student start growth enabled the company to finish with an exemplary fourth quarter and positions us for continued progress and positive trends in 2021, which Brian will highlight during his comments as we reintroduce financial performance guidance.

Importantly, we learned many lessons during our rapid transition to distance education, and some of these lessons have been incorporated into our ongoing operations. Others are being implemented during 2021 or remain under examination. These changes benefit our students and our faculty while improving our efficiencies. We began to see the positive impact from some of these changes on all aspects of our operations during the fourth quarter and are excited about the potential to expand that impact as 2021 unfolds.

When reviewing our fourth quarter financial performance, a common theme quickly surfaces, double-digit growth. Overall, student starts grew 15% over the fourth quarter of last year. This student start growth, which positions the company for revenue growth in future quarters is coming at a time when others in our field are experiencing student start declines and reduced enrollment.

Several factors combined to drive this start growth. On a macro level, we feel that we have begun to have some benefit from the high unemployment rate. However, the vast portion of our growth is coming from our team's successful execution. We've improved our ability to recruit students remotely and to help them through the financial aid process. We are training students for careers in fields deemed essential, and we are converting leads into starts -- student starts at an increasing rate. Our graduation in placement rates are higher than our nonprofit peers, and we have invested in new software systems and processes to better help our graduates secure their new careers.

The double-digit growth team extended to other key fourth quarter metrics. Our revenue during the fourth quarter increased 10.7% as compared to the year ago period as did our operating income. And when we exclude the significant tax benefit that resulted in our net income nearly quadrupling for the fourth quarter, we still increased this metric by a healthy 17.1%. And while not quite double digits, our average student population for the quarter grew a healthy 9.4%. Brian will review the other fourth quarter and full year financial highlights in a few minutes, but I'd like to point out 2 other double-digit results that contributed to our performance.

In addition, our debt under our long-term credit agreement declined by more than 48% from the December 31, 2019, level, and our cash at the end of 2020 increased approximately 61% from the year ago level. From all perspectives, financial, operational, and strategic, Lincoln is a much stronger company than we were a year ago. This strength is enabling Lincoln to expand our programs and curriculums to help a broader range of students gain the skills needed to begin or advance rewarding careers deemed as essential. As a result, each of our campuses are providing hands on education, which has been the case since August. This hands-on experience is now supplemented with distance education components. These tweaks and modifications have enhanced the student experience, supported our student start growth and enhance the operating efficiencies of our campuses.

During 2020, and despite the need to shut down our campuses in March and immediately transition to a distance education model and then gradually reopen the campuses, our team generated improved operating performance at our 22 campuses. In some cases, we achieved impressive turnarounds. A case in point is our Indianapolis campus, which, as many of our shareholders know, struggled in recent years. Through the combination of new leadership at the campus, consolidating facilities, a new welding program, a reinvigorated corporate partnership, changes to the admissions team and the implementation of some operating efficiencies Indianapolis has become a success story at both the top and bottom line.

During the fourth quarter, as American industry began to reopen, we began to see a pickup in employer interest in placing our students. For the year, graduate placements were down about 2%, but we are encouraged by recent trends, which are supported by the fact that approximately 90% of our students are currently pursuing careers that meet the U.S. Department of Homeland Security definition for critical infrastructure worker. These are well-paying stable careers that are enabling our graduates to establish themselves soon after leaving Lincoln.

From a recent internal survey, we know that one of the top 5 reasons why students select Lincoln Tech is our high-demand program offerings. A Lincoln graduate is often a sought-out graduate, and one of our corporate partners recently articulated why that is the case. This employer was challenged in finding skilled technicians and holding on to them. We worked with them to develop an 8-week training program that is offered to select students after completing our core HVAC program.

Over the past 3 years, our partnership has inverted the 2-year retention rate for new hires. Prior to the Lincoln partnership, the company was retaining only 40% of its hires after the first 2 years of employment. With Lincoln, that retention rate has increased to 80%. This is an oft-repeated success story with our corporate partners and a contributing factor behind our student start growth over the past 3 years.

There are several contributors to this comparatively high retention rate. First, through our 75 years of experience at training essential workers, Lincoln has identified the characteristics that contribute to employee retention. When a student enters a corporate partnership training program, they do so after demonstrating commitment and interest in the career and obtaining the skills required. Another differentiating characteristic of the Lincoln approach is the ability and eagerness to develop curriculum tailored to the individual corporation's needs. Such An approach is virtually impossible to deploy to most other educational delivery models as our rapid changes to a curriculum when corporation's need change. This customized approach extends to the student where we provide the individual a wide variety of support to maximize their opportunity to both learn as well as excel in the program as well with the employer.

Finally, the distance education model deployed and refined during 2020 enhanced our company's ability to provide life skill support to students. These life skills have often been the difference for corporation keeping a new hire and losing a new hire. When combined with our career services, we provide well-rounded professional and life skills development to our students that leads to enhancing their opportunities to build that life-changing career.

As companies have reopened, our conversations around how we can help solve their training needs picked up. On our call in November, we reported on our selection by Republic Services to provide training to their employees at their state-of-the-art new trading facility that they are building in Dallas, Texas. Republic services is the nation's second largest nonhazardous waste management company in the country. And we are rolling out a 12-week 100% employee-paid medium-to-heavy truck training program to assist Lincoln tech graduates to transition into their organization as well as to upskill their existing employees. This is another example how we seek to eliminate the middle skills gap while providing our graduates and others with exciting career opportunities in the transportation industry.

Our efforts to explore other similar tailored opportunities continue, and we hope to expand the approximately dozen corporate partnerships currently underway as 2021 unfolds. At the same time, we are on schedule to begin opening 4 new programs at our existing campuses around the country during the summer of this year. In addition to the top line growth opportunities in 2021, we also seek to extend the operating leverage we have positioned the company to benefit from. Most of this leverage is occurring at the segment level, where, for instance, in the fourth quarter, we achieved a 50% operating margin within the healthcare and other professions segment.

At the corporate level, we also seek operating leverage by lowering fixed costs whenever possible. Our most recent initiative involves moving into a smaller corporate office space next month, which will generate approximately $20,000 a month in savings. Since we anticipate more workers working remotely in the future, we leverage the current weak office market to secure an attractive rent with less space. Brian will shortly share with you our 2021 guidance. And if need be, we will update the guidance as the year progresses. Last year, as you may recall, the rapid onset of the pandemic in the middle of March forced us to close all locations. And as a result, hundreds of students who were scheduled to start in Q1 moved into the second quarter. This shift decreased last year's first quarter results and inflated second quarter's results.

As we stand today, we expect to have a very strong first quarter with starts exceeding a 20% increase. We have less visibility towards the second quarter and beyond, but we see 2 trends in our future enrollments. We know that our summer high school start will most likely be several hundred students less than last year, simply because we are not able to engage as easily with students. So many high schools have been closed to in-person visits. However, we also continue to see strong demand for our programs from adult students, a trend that has been evident for several quarters. Consequently, our total year guidance for start growth is lighter than what we've been currently achieving over the past 5 months. But if our adult leads remain as strong as they've been, we would anticipate achieving higher starts than current forecast. We will keep you up to date on our progress.

In summary, Lincoln is achieving for its students, corporate partners, faculties and shareholders. During the past year, our per share price has increased by more than 150%, and we've put in place the strategies to continue growing the company, improving the ROI for our students and building returns to our shareholders. We are optimistic about the year ahead with the full recognition that developments beyond our control can affect our momentum. However, the experiences of the past 12 months do give us confidence in our operating flexibility to meet unexpected challenges.

Now I'd like to turn the call over to Brian for a review of our fourth quarter and full year results. Brian?

Thanks, Scott. Good morning, and thank you for joining us. Today, I'm pleased to share our fourth quarter of full year 2020 financial results. But first, let me provide a perspective on the significance of our successful year. Lincoln entered 2020 with a great deal of momentum and optimism. Our new student starts had been growing for 9 consecutive quarters. We entered the year with a starting population, 7.2% higher than the year before. We had returned the company to net income profitability after several challenging years. And we had completed a financing transaction that has significantly improved our liquidity and provided growth capital.

Then as we were finishing a successful first quarter, the unthinkable occurred when the COVID-19 pandemic hit and completely altered our operations for the rest of the year. Our team rose the occasion and again demonstrated resilience, innovation and adaptability. The result, 2020 was a remarkable, successful and inspiring year. The challenge tested our result, and I'm pleased to say we have emerged an even stronger organization. Despite the difficult operating environment, we significantly increased our profitability in 2020 with pretax income of $13.5 million. This gives us a very strong financial funding as we enter 2021.

Now I'll begin my financial remarks with the fourth quarter results. Revenue was $81.8 million, up $7.9 million, or 10.7%, over the prior year quarter. This increase was driven by a 9.4% increase in our average population. I want to point out that this percentage is net of about 100 students on leave of absence, or LOA, mainly, due to the lack of access to externship sites available to some of our LPN students.

As such, we expect the majority of these students to complete their programs during the first half of 2021. Student slots for the quarter grew 5% over the prior year as both segments achieved double-digit stock growth. Most notably, our sales and marketing investment continued to yield high returns, evidenced by our lower cost per start. Additionally, I want to emphasize this quarter's growth completes 3 consecutive years of quarterly student start growth, with the only blip being the first quarter of last year when our March starts were delayed by the early days of the impact of COVID.

Another positive metric was our ending student population, which grew 8.3% to 12,200, representing about 900 students more than the prior year. Once again, these figures exclude approximately 100 students on leave of absence. This metric is very important because the higher the beginning population as of January 1, 2021, will help drive our revenue and growth and financial results reflected in our 2021 guidance.

I will now shift to our operating expenses for the quarter. Education service and facility expense increased $900,000, or 3%, to $31.5 million. This increase was driven by additional instructional expenses and books-and-tools expense due to our larger student population quarter-over-quarter. This is one source of our operating leverage as a 3% increase is lower than our population and revenue growth.

Selling, general and administrative expense increased $5.5 million, or 16.4%, to $39.2 million. During the quarter, we took some actions to address the impact that COVID had on both our students and employees. We provided stipends to all employees to assist with the impact of COVID and their transition to work from home. We also credit certain student balances for those who are adversely impacted by COVID-19.

Finally, during the quarter was an increase in incentive compensation accruals driven by our improved financial performance. The majority of these expenses were recorded as corporate expenses contributing to corporate increase of $4.9 million to $9.2 million quarter-over-quarter, and we do not expect to incur these same course in 2021.

Turning now to our bottom line results. Our consolidated operating income increased by $1.1 million, or 10.7%, to $11.1 million. Our EBITDA grew by $800,000 to $13 million for the quarter. At the segment level, the transportation and skilled trades segment achieved EBITDA of $17.2 million, a $4.4 million improvement. This was achieved on a revenue increase of $5.9 million, demonstrating significant operating leverage of 79%. And the Healthcare and Other Professional (sic) [Healthcare and Other Professions] segment achieved EBITDA of $4.8 million, a $1.3 million improvement on revenue growth of $1.9 million. This reflects operating leverage of 67%. These strong results were achieved partly due to the increase in our top line, coupled with the seasonality of our business.

On an annualized basis, we expect a more normalized operating level of approximately 40% on future revenue growth. And finally, pretax income increased $1.6 million, or 17%, to $10.8 million from $9.2 million in the prior year. After the release of our tax valuation allowance that provided a $35.2 million income tax benefit, net income for the quarter was $46 million compared to $9.2 million in the prior year. I'll now take a moment to explain the significant income tax benefit in greater detail.

Back in 2013, due to our operating losses, we recorded an income tax valuation allowance due to the uncertainty of whether we would be able to utilize a deferred tax assets such as our net operating losses, or NOLs, to offset future taxable income.

Fast forward to year-end 2020, after considering our sustained profitability and forecast for 2021, we determined that we should release our valuation allowance of $35.9 million. We expect to utilize our federal NOLs of $43 million and our state NOLs of $77 million to offset taxable income in 2021 and beyond. As a result, we project our effective tax rate in 2021 to be approximately 27%. However, we do not anticipate paying any federal income taxes in only nominal state income taxes this year.

Now I'll review the balance sheet highlights followed by the full year results and conclude with our 2021 guidance. Let's start with our strong year-end cash position. As of December 31, we had approximately $59 million in liquidity, which included $21 million availability under our credit -- our current credit facility and $38 million in cash and cash equivalents. Cash provided by operating activity was $23.5 million, and we generated free cash flow of $18 million for 2020. And cash used in finance activity was $18.6 million as we lowered our outstanding debt and paid a $1.4 million of cash dividends on our preferred stock covering the period from November 2019 through December 2020. As I mentioned last quarter, we have the option to accrue additional preferred value and thus increase the number of conversion shares in lieu of paying cash. However, we determined making the payment in cash is in the best interest of our shareholders.

Now I'd like to provide a recap of the CARES Act funds we received. In total, we received $27.4 million in 2 equal parts. The first part equaling $13.7 million was earmarked for direct distribution to our students in order to offset additional expenses they incurred in connection with the disruption of school operations. As of today, the full amount has been distributed to our students. The second part also equaling $13.7 million could have been used to either offset Lincoln's increased costs associated with the significant changes in the delivery of instructions as a result of the pandemic or put towards additional age of students. Following the DOE guidance on permitted uses, we utilized $5.8 million as of December 31, 2020. Most of these funds were applied towards measures that directly benefited our students.

Lastly, we anticipate our DOE financial responsibility score for 2020 to be 2.7 out of a possible 3.0. This is a strong indicator of Lincoln's healthy financial results and position at year-end.

Turning now to the full year financial highlights. As we have -- as we shared this morning, despite the COVID-19 environment, we were able to achieve a strong results in 2020 as the team pivoted and adapted to the pandemic. As a point of reference, our 2020 results exceeded our pre-COVID financial guidance we provided last March and later withdrew out of abundance of caution due to the uncertainty surrounding COVID-19.

First, revenue increased 7.2% over prior year to $293.1 million, exceeding our previous estimates of 3% to 5%. Second, student starts increased 10.7% over prior year, more than twice the high end of our original guidance of 3% to 5%. Third, we achieved EBITDA of $22.2 million, up 66.1% over prior year. This is also significantly above the original 2020 guidance of $15 million to $17 million. In every quarter during 2020, we achieved positive EBITDA and increase over prior year. And finally, we realized operating income of $14.8 million, which exceeded our initial $7 million to $9 million guidance.

To conclude my remarks, I would like to introduce our 2021 guidance. Despite the continued uncertainty surrounding COVID-19, we are cautiously optimistic. Our key operating and financial measures allow us to project continued growth in 2021. And with 2/3 of the first quarter behind us, I can say the trend is positive.

With that said, I'll be remiss if I did not acknowledge that COVID-19 remains an area of concern and that could adversely impact our future business operations. Based on the current state of the pandemic and what we learned about the company during the pandemic, we know that soon it's like the flexibility provided by distance education, and we know that we can provide many of our support services better and more timely remotely. As a result, we are making a number of onetime investments and changes to our operations which will result in increased cost in 2021, but lower costs in the future. One example of this is centralizing our financial aid process, which we believe will shorten the amount of time to package the students and lead to greater operating efficiencies. In total, these onetime costs will be between $1 million to $2 million. All of this is incorporated into our guidance as follows.

First, for 2021, we anticipate revenue to increase 7% to 12% over 2020 levels. Second, we expect student slots to grow 5% to 10% over 2020. Third, we expect our 2021 adjusted EBITDA to be between $29 million and $34 million, which would represent a 22% to 43% increase over 2020. Adjusted EBITDA is calculated as EBITDA adding back noncash stock compensation. Fourth, we expect pretax income between $19 million and $24 million, which would be a 41% to 78% increase over 2020's pretax income. And finally, we expect capital expenditures to be approximately $7.5 million.

We look forward to communicating our progress towards these goals throughout 2021 with you. Thank you for your time today. And with that, I'll turn the call back over to the operator so we can take your questions. Operator?

(Operator Instructions) Our first question comes from the line of Alex Paris with Barrington Research.

I'm sorry, guys, I had it on mute. Congrats on the Q4 beat and restoring guidance, which was -- which is ahead of consensus expectations. I got a few questions, which you've addressed some of the things. So you talked about strong student expense growth of 15%, that's 3 consecutive quarters of 15% or greater growth. Your guidance for the coming year is less than that. I think you addressed that to some extent. But what about leading indicators like inquiry flow, conversion and show rates? How do we look into early 2021 here?

Thanks, Alex. We look good, to be honest with you. We're having good results. There's still strong interest as we indicate the first quarter will be very strong. And the conversion rates continue to be as good, if not better, than the year before, and our leads are certainly exceeding what our internal plans are. As you know though, we would just tend to be more conservative on the longer term.

As you also know, our third and fourth quarter tend to be very robust. And we would anticipate that as we get closer to that period of time, we'll certainly update you on where we are. You are correct. The last 3 quarters have been stronger than what our overall guidance is. But overall, I feel very, very good about where we stand right now.

Okay. Great. And then I had a question about leaves of absence. It was about the same level as the end of the third quarter, roughly 100 students or so. Now while this is down from Q2 peak of 700 or more, is this a more normal level? I mean there's always students on LOAs, right?

Well, these are students on LOAs because of COVID. And it's really just that 2 campuses here in Northern New Jersey where the clinical sites haven't opened up to our students so they can complete their education. However, with that said, just within the last week, there are signs that they may be reopening some of the nursing homes and things of that nature to our students so they can complete their clinical work.

But literally, 88 of those 100 are these clinical students that we're just waiting for the sites to open up. So with the vaccine and everything else, we're anticipating that will happen. And then we really shouldn't have any more of these SPNs unless something spikes up again.

Got you. Okay. That's helpful. I think you mentioned that you're going to transplant 4 programs in 2021. First of all, did I get that right?

Yes.

And then second -- okay. Got it. These are welding programs, I assume. Or is that a combination?

Well, one's a welding program, one's a medical assisting program, one's a dental assisting program, so it's a mix of programs.

Got you. Any new programs planned? And one question I had very specifically in terms of new programs would be the opportunity within electric vehicles. Do you have courses on this topic right now? Are there a lot of technician opportunities? And then taking it a step forward, how about other interesting burgeoning areas like solar wind, things like that? Are there opportunities for Lincoln technician training in any of those areas?

Well, first of all, our students already are being hired by Tesla and all the manufacturers of electric vehicles because we cover all the basics of that training in our program. So there isn't a dedicated specialized program for that, but I would anticipate, certainly, we'll be making our electrical aspects of our auto program and diesel programs more robust. Simply because that is where the attention is at the dealerships for a lot of the repairs that are needed going forward. But also, remember, only about 4% of the vehicles sold worldwide or electric today, obviously, that's going to ramp up.

And as the fleet gets larger out there, we'll certainly make sure that our curriculum is addressing that need. With regards to other programs, we already incorporate into our electrical program, components of solar. Some of our schools have solar panels. And so the -- our students are taught how to install those and manage those. But to your point, are there new opportunities, we view that as continuing to grow. We view that there are greater efficiencies around energy efficiency, in particular, to help our HVAC students. As we talk to different employers in different markets, they are asking us to tweak our programs to help address what they're seeing up in the field. And so we continue to do that.

And then we are -- always are looking at overall new programs that we can launch. One that we picked around for a long period of time, and hopefully, we'll launch it soon, would probably be a plumbing program. Simply because it parallels very well with our HVAC students. A lot of the employers for -- that higher HVAC students also need plumbers as well.

Good's. That sounds like complementary. Just a couple left. Since it's year-end, I thought I would ask about 90-10. I'm sure that'll be part of the 10-K. But where do you finish 2020, if you know, for your 90-10?

We finished at 77% overall for the company, 77%. So it's a very healthy position.

Yes. And then that was down actually 100 basis points from 2019.

Correct.

And then what percent of your revenue is active military or veterans?

We're still -- if we add it back, we'll still be under the 90-10, we're still working towards that. It's not as easy as the revenue, but yes, you will still be comfortably, we believe, under 90%.

Okay. So then under 12% would be TA and VA?

Correct.

Okay. And then lastly, just a couple of cats and dogs. You said CapEx would be $7.5 million in 2021. That's higher year-over-year. How -- where are you going to be spending the incremental dollars?

Most of it -- about half of it is, as Scott was saying, was the new programs that we're rolling out. And it's some future initiatives. So that number could come down if we don't -- if certain things don't materialize going forward. So I would say half -- a little more than half of it is based on growth.

Okay. And then since you gave guidance on adjusted EBITDA, which includes -- which adds back stock comp expense, what's your expectation for stock comp expense in 2021?

Right. Can we -- might do...

We can do that as a follow-up.

Yes. I will have to give that to you as a follow-up. What -- I think, I might have it here. So give me one more second. I do have it. I have a lot of papers here. I'm sorry.

Yes. Sure, no problem. And then while you're looking at that, the tax rate, you just gave guidance of what, was that, 27% for 2021? I know you're not paying any actual taxes. But as far as remodel was concerned, as far as (inaudible) presentation is concerned...

Correct. Our fraction tax rate is approximately 27%. Correct.

And just back on your 90-10, last time that I'd seen numbers, we've had back military, we're at 85% to 86%.

And stock compensation for 2021, is it going to be about $3.5 million.

Our next question comes from the line of Steven Frankel with Colliers.

So you talked about lower cost per student start. Maybe give us some insight in how you're achieving that. You altered the messaging or the channels? Or is this a scale? What's driving it? And how much -- where can you take that metric?

Sure, Steven. Well, there are a number of things driving it. One, better execution by our admissions folks able to better communicate the value proposition. We are changing our mix of where we're getting students. We're certainly decreasing the number of, I'll say, third-party leads that come to us. So we're achieving and finding better-quality leads with students that are more interested in our programs. We're obviously continuing to expand our efforts in social media. I mean, basically, it comes down to where the best places to go looking for students to find ones that are most interested in our programs. And so that constantly evolves, and our team has lots of good statistics and information around what is working and what's not working, and we constantly tweak it to ensure that we're getting the best investment from our dollars as possible.

So it's better marketing, reaching our students. It's also better execution with our admissions folks on communicating the value proposition that we give our students. And so we do anticipate that, that will hopefully continue to decline in the future. How low it can go, I don't know, but that's certainly something that we constantly are monitoring to achieve lower cost per start.

Okay. And then what's your (technical difficulty) today between high school grads and adults?

Well, about -- last year, we had about 22% of our starts for high school students.

Okay. And in terms of the show rate, can you share what that metric was in 2020? And how that improved year-on-year?

Yes. We typically don't share that number, but the number, again, that I look at is our lead to start just overall, and we don't share that number as well. But I can tell you it's been declining because as we become more efficient with our marketing initiatives, it does get better. I mean I don't get too locked into show rates because it seems to fluctuate quarter-by-quarter.

Again, I'm looking to drive cost down overall. And I achieve that by monitoring our lead to start rate. So again, it can be a fluctuation of greater conversion and start rate may decline or go up or vice versa.

Our next question comes from the line of Austin Moldow with Canaccord.

Can we talk a little more about your employer partnership programs like with Republic? How many of those do you have in total? What does the pipeline look like for more? And how exactly does pricing and payment work in these programs?

Sure, Austin. So there are different models out there. I'd say, for the Republic model, as an example there, Republic would be paying us, Lincoln, to run this program on their facility. And the students, as I mentioned, pay nothing for that program. Then there are other programs whereby students might be paying the cost for getting the specialized industry training.

As I mentioned, we have about a dozen of these different types of programs of the different types, and we probably have another 6 or 7 that we're working on currently. They take a long time to bring to fruition. But again, what we like about them so much is they are great career opportunities for students. These employers are in really strong need for the students with the skill set. And they provide good compensation to our students and also flexibility for students because a lot of these employers are more national in presence.

And therefore, with so many students with, I'll say, dual income households, if one gets transferred to another area, the students are able to move to that other area and stay employed with that employer. So there are a lot of benefits by working with some of these national and large regional companies.

And does the growth in this channel bring cost per start down across the company because employers are funneling the students to you? Or what impact does that have on cost per start?

Yes. No. I mean I wish more employers were sending us students. I can't say that employers are sending us students. I think it does help our value proposition by students knowing that they have these opportunities with name brand companies. So I think it does eventually translate into a better cost per start, but there's really no way to determine how impactful it is. At the end of the day, again, the biggest driver for me is ensuring that our students are getting good, well-paying jobs, and that's what these partnerships definitely do bring.

Got it. So you're acquiring the students for these partner programs?

Yes, yes. And frankly, it's one of the value propositions we bring to these employers, they seem to struggle to find people that have an interest in working with their hands. And that's certainly who we're attracting both at our high school initiatives and through our marketing initiatives. I mean that is probably one of the biggest challenges that these employers have is just trying to find the pool of interested candidates.

So as we look to expand our footprint, over the years and go into more states and really build out our presence, we should become that much more valuable to these larger employers. Again, a number of them just want us to help them locate students that will be highly motivated to work with their hands.

Got it. And last question here. Are you able to say what your total advertising expense was in Q4 and 2020? And maybe if you could talk about the outlook for how you'll be growing spending or not over time.

Well, I can tell you, we don't share that information, first of all. And I can tell you that we are looking at more modest increases going forward at this time. Because we're seeing good, strong results. But we also respond to the marketplace. And where we see opportunity and need to invest more, we will. But as Brian said, and as I guess, I've said, we constantly are looking at what the cost per start is. So, so far, so good. Over the last 3 years, we've constantly been able to grow our business and lower that cost per start. And right now, we see all the same trends continuing in 2021.

Okay. Congrats on the quarter.

Great. Thanks. I appreciate your interest.

Our next question comes from the line of Raj Sharma with B. Riley.

Congrats on your solid results. And yes, there have been such great questions prior to me that -- but I do have a few more left. So could you talk a little bit about the graduation rate, how your graduation rates have been affected during COVID? Have the drop-off rates gone up? Or I don't know if you can give some numbers on that. But just trying to understand any change in the pace of coursework completion. Outside of the LOAs that you just said 88 out of 100 more clinical students waiting. And any different revenues on that front?

Yes. Deferred revenue is pretty miniscule. I think it's less than $60,000.

But with regards to the graduation rate, again, happy to talk about that because we're certainly very much focused on that number. So kind of like our placement rate, it did dip a little bit in 2020. So we typically say that we're in the mid-60s, so 65%, 66% or so, and that's where it's still hanging out for our graduation rate. It did dip simply because a lot of students weren't expecting to go online, and a lot of our faculty members weren't expecting to teach online. So I think that given that transition, we did quite well.

But again, our objective is to get up to a 70% graduation rate overall for our company. And so what we've done to address this is, we've hired an individual to help us with training of all of our educators on how to be more effective delivering their curriculum via online. And we've already gone through one level of training with our instructors and level 2 and 3 are in the works and will be rolled out, if you have all the confidence in the world that we'll be able to get back on to that improvement curve with our retention. But it is a transition for everybody. But I'm very confident, again, that we will get back to be in a more positive position.

Right. So it's dipped a little, but it will come back. And sort of the pace of course work completion, are you fighting reticence among students to -- or any reluctance in sort of pacing along and any sort of changes in revenue recognition that you could do?

Yes, yes. No. Well, no, again, we have very few students as we only have these about 89 students in our 2 campuses and premise that are kind of on hold that would be impacting our revenue. They're the ones waiting to go back into the clinical sites. Otherwise, frankly, our campuses are open, and the students are quite anxious and frankly, enjoy coming on to campus to do their hands-on work. So they are not slowing down on their progression. And all of our students have been caught up. So they're going through the program at a normal pace right now.

That's great. So -- and just sort of moving on, on the inquiries and the enrollments. I know that the starts are up 15% year-on-year. Have the show rates -- I don't know if you can talk about it, but have the show rates have gone up, gone down? Any sort of change in that? You mentioned higher unemployment is kind of helping you get a lot more inquiries. Are they sort of trending at the same rate or much higher in the show rates? Can you talk about the -- just the trends on the show rates and the interest?

Yes. Absolutely. Yes. So what we're seeing is really strong uptick in our leads, in our interest. And as that volume has increased, our show rate has -- frankly, has gone down a little bit. But again, at the end of the day, as long as our lead to start rate goes up, which it has. I'm happy with that. But I think that there's more opportunity for us. I think that when we centralize our financial aid process, I think, we'll become more efficient, and that should hopefully drive a better show rate. Time will tell. But again, as long as overall, we continue to improve our lead to start rate, I'm quite pleased with that progression, very pleased with how the team is operating.

Great. And then just on any particular geographical areas that are slower than others in their curriculum progression or...

No. No, it's pretty...

Or (inaudible) certain area (inaudible) in the others?

No. No, no, no geographical differences. Brian?

No, as Scott said earlier, just the 2 schools in Northern New Jersey. Those are the only ones with the 88 students that were waiting for externship sites, and they were optimistic that they're going to open up. But other than that, nothing.

Right. Okay. And then I've still got 2 more, I hope I have the time. On the starts in sort of breaking down the starts, I know they're up 15%, any particular segment. I know that's not doing well. You mentioned the high schoolers. And then you think that, that's going to continue to impact your starts for the rest of the year. Could you talk a little bit about that?

Sure.

Why should that continue?

Yes. So actually, in the fourth quarter, we had a good number of high school students start. The challenge that we have today with our high school students is more for the upcoming summer start. Needless to say, depending on where the geography is, some high schools just are not allowing people whether -- any schools to go in and talk to their students. So it's all being done virtually, which can be done, and we're doing it as robustly as possible.

But with that said, it's not quite the same experience as being able to meet people face-to-face and interact with them. So as we look at where we stand today, we think that our high school market for the summertime could be down 100 to 300 students from what we had last year. I was hoping in the normal course of business to have a couple hundred more.

But as I also mentioned, though, our adult market is very strong and leading to very strong growth rates. So as we get closer to that summer period and see where the results come out, we'll share any updates. But overall, demand remains, as we say, the first quarter is going to be as strong as the quarter we just finished. And as we get closer into the second quarter, we'll have a better window into how that's performing. But I have no indications right now to say that it should be anything less. The only thing that is a little bit less is our high school market.

Got it. And then I just -- I know you just mentioned the Title IV and the veterans for numbers. And could you please touch upon that again? So if 90-10 goes to including the veteran, as is the top is, where would you guys stand on that?

Right. Yes. As we mentioned, today, we're at 77% and if Title IV goes back into a numerator, we would still be under 90%. We're still evaluating it, but we're very confident that it will be under 90%.

Right. So comfortably under 90%?

We think so. We're still working through that, but yes.

Okay. So again, I think, great results. Congratulations.

Sure. Thanks for your interest.

Our next question comes from the line of Justyn Putnam with Talanta Investment Group.

Scott and Brian, congratulations on navigating a very incredible year. Just a of couple of quick questions for you, kind of big-picture type questions. I mean, first of all, based on your guidance in the last couple of years, is that you're growing your EBITDA, on average, about 50% a year, which is pretty incredible? But your valuation, your stock price looks like it's 1/3 to a 1/2 of kind of what you're seeing for multiples in the stock market as a whole. You're open to comment on that, if you won't. But I guess, big picture, what I'd like to know is, in the summer, the story was a little bit different with your industry.

We were -- there's a lot of talk about recession and a lot of people getting laid off. And we know historically, how your company has performed with -- in recessions and with higher unemployment levels and you had some data on that in some of your presentations. But of course, you can't have so many people laid off that they don't have jobs to go to, because I would think that, that would push against your ability to continue to enroll students at some point.

Now -- as we sit here now today, the talk is more about, although unemployment is still highest, talk about economic recovery now and maybe job is becoming more clinical. I'm just curious to know what you -- what your thoughts are about where that balance sits right now.

Yes. It's a good question. This is certainly one that we think about. But I think that overall, we sit in a very good position. Again, prior to the unemployment rate spiking, we were growing for 2 consecutive years when we had the lowest unemployment in 50 years. And I think that, that trend will continue even if unemployment drops, simply because I think more people are questioning the value of just jumping into a 4-year education. I think more people are getting attuned to the fact that there are faster, quicker ways to get into the workforce, especially getting into the workforce with meaningful jobs that have in themselves, good long-term career prospects.

So I don't think that, that dynamic's going to change. I think that a lot of the dynamics that are occurring right now, again, really played to give us greater opportunity because the people that remain unemployed tend to be the ones that are in, let's say, lots of areas that would normally come to us because they're, I'll say, in the nonessential career today.

And as I mentioned, 90% of the programs that we offer are going into essential careers. And these are essential because there's good demand in need, in good times and bad, for these careers. So the fact that there are more people unemployed in the nonessential careers should help us going forward. So again, if we didn't have the strong success that we had prior to COVID in the lowest unemployment period in the last 50 years, as I said, I guess, I wouldn't be maybe as bullish as I am. But so many things have even happened over the last 12 months that seem to still indicate that the younger generation are current -- 20- to 25-year olds are really having a different thought process when it comes to going to college or how to achieve the success that they want to achieve.

I'm not showing any further questions in the queue. I would now like to turn the call back over to Scott Shaw for closing remarks.

Great. Thank you, operator. As always, I want to thank our employees for their continued dedication to serving our students and shareholders for your continued interest and support. We remain excited about Lincoln's growth prospects. We entered 2021 stronger than we've been in a decade. And we expect our first quarter enrollments to be as least as strong as the last quarter, which should position us for a strong 2021. Brian and I look forward to sharing our 2021 first quarter results in May. And until then, I hope you'll all stay safe. Thank you for your time.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.