Legacy Education Inc. (LGCY) Q4 2025 Earnings Call Transcript

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Overview

The earnings call revealed strong financial performance with significant revenue and net income growth. Despite some concerns about enrollment dependence and economic uncertainties, management demonstrated operational efficiency and a robust balance sheet. The Q&A highlighted capacity expansions and new program launches, though management was cautious with forward guidance. Overall, the positive financial metrics and strategic expansions suggest a positive stock price movement.

Key Financial Performance

Q4 Revenue $17.9 million, up 40.8% year-over-year, driven by a 15.7% increase in new student starts.

Fiscal Year 2025 Revenue $64.2 million, up 39.5% year-over-year, propelled by a 41.8% surge in enrollment to 3,101 students and a 26.9% rise in new student starts to 3,194.

Q4 Net Income $1.2 million, up 27.6% year-over-year, despite a $700,000 G&A expense charge tied to increased AR reserve for graduate borrowers falling behind in payments.

Fiscal Year 2025 Net Income $7.5 million or $0.59 per diluted share, up 47.3% year-over-year, reflecting strong revenue growth and operational efficiency.

Q4 EBITDA $2.1 million, up 133% year-over-year, driven by increased enrollment and operational efficiencies.

Fiscal Year 2025 EBITDA $10.4 million, up 61% year-over-year, supported by revenue growth and scalable operations.

Adjusted EBITDA for Fiscal Year 2025 $11 million, up 31.3% year-over-year, reflecting disciplined financial management.

Cash and Cash Equivalents $20.3 million, highlighting a robust balance sheet with minimal debt.

Educational Expenses for Fiscal Year 2025 $34.2 million, up from $26.4 million in the prior year, due to increased staffing, rent, externship fees, and investment in new programs.

General and Administrative Expenses for Fiscal Year 2025 $19.3 million, up from $13.0 million in the prior year, driven by increased marketing, professional fees, and AR reserve adjustments.

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Operating Highlights

New Degree and Certificate Programs: Secured approvals for three new degree programs and two certificate programs to meet evolving market needs.

RN to BSN Track Accreditation: Achieved initial accreditation from the National League for Nursing Commission for Nursing Education Accreditation (NLN CNEA), enhancing the nursing education portfolio.

Enrollment Growth: Enrollment surged by 41.8% to 3,101 students, with a 26.9% rise in new student starts to 3,194.

California Campus Expansion: Six campuses in California are thriving, with plans to explore additional branches and acquisitions.

Hybrid Learning Model: Implemented a hybrid model combining advanced simulation technology with hands-on training for better accessibility and outcomes.

Financial Aid Processing: Improved efficiencies in financial aid processing and active student payments while in school.

Governance Enhancements: Appointed two new Board members and established an advisory board to guide expansion and innovation.

Compliance and Policy Alignment: Focused on compliance with Title IV funding requirements and positioned to benefit from upcoming legislative changes aimed at workforce development and funding pathways.

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Risk or Challenges

Student Payment Softness: The company observed a softness in student payments related to graduate students, leading to an increased AR reserve of $700,000. This indicates potential challenges in collecting payments from graduated borrowers, which could impact cash flow and financial stability.

Increased Expenses: Educational services expenses rose due to increased staffing, rents, externship fees, and investments in new programs. General and administrative expenses also increased significantly due to marketing, professional fees, and bad debt expenses. These rising costs could pressure margins and profitability.

Regulatory Compliance: The company emphasized adherence to Title IV funding requirements and compliance with regulatory shifts. While compliance is positioned as a competitive advantage, any failure to meet these requirements could result in penalties or loss of funding, adversely affecting operations.

Dependence on Enrollment Growth: The company’s financial performance heavily relies on enrollment growth, which may be influenced by market conditions, competition, or changes in demand for healthcare education. Any slowdown in enrollment could negatively impact revenue and growth.

Economic and Market Uncertainties: The company operates in a sector influenced by broader economic and market conditions. Economic downturns or shifts in healthcare demand could affect enrollment and financial performance.

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Guidance & Outlook

Enrollment Momentum: Legacy Education plans to continue enrollment growth through advanced digital marketing strategies and strong employer collaborations, focusing on high-potential regions.

Curriculum Expansion: The company is rolling out three newly approved degree programs and two certificate programs, including the RN to BSN track accredited by NLN CNEA. Plans to add more programs tailored to regional needs are underway.

Operational Innovation: Legacy Education will enhance its hybrid learning model with advanced simulation technology and educational technology to improve efficiency and student success while scaling operations.

Governance and Expansion: The company is leveraging insights from two new board members and an advisory board to guide branching and M&A activities, targeting opportunities to expand its footprint.

Regulatory and Policy Alignment: Legacy Education is positioned to benefit from potential legislative changes, such as the 'One Big Beautiful Bill,' which aims to expand access, workforce development, and funding pathways. The company emphasizes compliance as a competitive advantage.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:What was the starts number in the quarter?

A:723.

Q:When do the three new degree programs and two certification programs start, and what is the rough range of revenue they might deliver in '26 or '27?

A:The programs are anticipated to start in October. However, no forward projections or revenue estimates were provided.

Q:Could the new programs start with 100 students next year or a couple hundred? What is the size or capacity created?

A:Each degree program can accommodate up to 30 students per start, and certificate programs have similar capacity. Degree programs typically start every 4-6 months, and certificate programs start roughly every 8 weeks.

Q:What is the outstanding balance against the $700,000 reserve? How many students are in that cohort?

A:The total balance for all graduate students is about $2 million to $2.5 million. The reserve was taken as a conservative measure against slowing payments, and the company plans to address this issue vigorously.

Q:Why was the tax rate so high at about 45%, and how does it look going forward?

A:The tax rate was actually 31%-32%, not 45%. The increase was due to a return to provision adjustment from the previous year. For the fiscal year, the tax rate is expected to be around 30%.

Q:Any commentary on cardiac or neuro programs?

A:The cardiac program is performing well and has been expanded to additional campuses.

Q:With seven facilities, are there any capacity constraints? Do you need more buildings or square footage to accommodate growth?

A:The company has added 25,000 square feet to the Central Coast campus and additional square footage to other locations for lab expansions. The hybrid education model helps manage space effectively.

Q:Were there any one-time or seasonal factors affecting the G&A numbers in Q4?

A:Yes, there were seasonal factors such as professional fees related to legal, regulatory, and audit expenses, as well as enhancements to the SIS system.

Q:What is the seasonality of the business, particularly for Q1 (September quarter)?

A:The first quarter is generally solid, the second quarter (December) is depressed due to holidays, the third quarter is robust, and the fourth quarter is moderate. Seasonality will continue, but growth is expected within this pattern.

Q:Review of Unclear Management Responses

A:Management avoided providing forward projections or revenue estimates for the new programs starting in October. They also refrained from giving specific forward-looking statements about revenues or detailed seasonality impacts for Q1.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

LGCY Transcript

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The earnings call revealed strong financial performance with a 38.5% revenue growth and a 9.6% increase in EBITDA, despite margin decline due to strategic investments. The Q&A section highlighted a robust acquisition pipeline and strategic capacity planning. Although management was vague on certain details, overall sentiment was positive due to strong enrollment momentum, new program launches, and strategic partnerships. This suggests a likely positive stock price movement in the short term.

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The earnings call highlights strong financial performance with a 50.7% revenue increase and a 57.1% net income rise, driven by enrollment growth and program expansion. Despite competitive pressures and regulatory challenges, the company maintains a strong cash position and minimal debt. The Q&A session confirms strong program performance, particularly in nursing and imaging, although some uncertainty remains regarding future acquisitions and seasonality impacts. Overall, the positive financial results and strategic focus on growth initiatives suggest a likely positive stock price movement.

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