Lincoln Educational Services - Earnings Call - Q1 2025

Executive Summary

• Strong Q1: revenue +13.7% to $117.5M, adjusted EBITDA +63% to $10.6M, diluted EPS $0.06; student starts +16.2% and end-of-period population +15.2%.
• Clear beat vs S&P Global consensus: revenue $117.5M vs $114.7M, Primary EPS $0.113 vs -$0.044, while EBITDA trailed SPGI’s consensus (methodology differs from company’s adjusted EBITDA) — estimates likely to move higher on raised FY25 guide*.
• Guidance raised: FY25 revenue $485–$495M (from $480–$490M), adjusted EBITDA $58–$63M (from $55–$60M), net income $10–$15M (from $8–$13M), starts +10–14% (from +8–12%); capex unchanged at $70–$75M.
• Catalysts: accelerating transportation/skilled trades demand (+32% starts), operating leverage (marketing cost/start -20%), and campus expansion; Q2/Q3 start timing shift (2,300 students to Q3) should not materially impact revenue cadence.

What Went Well and What Went Wrong

• What Went Well

  • Demand and mix: Transportation & Skilled Trades starts +32.4%; total starts +16.2%; end-of-period population +15.2%.
  • Operating leverage: educational services & facilities as % of revenue declined YoY; marketing cost per start ~20% lower; adj. EBITDA margin cited ~9%.
  • Expansion execution: Nashville relocation completed; Levittown on track for 2H; Houston targeted by YE25; raised FY25 outlook.
  • Management quote: “We delivered a strong start to 2025… and a 63% increase in adjusted EBITDA… raising our full-year guidance.” — CEO Scott Shaw.

• What Went Wrong

  • Healthcare softness: Healthcare & Other Professions starts -6.3%, partly due to suspended nursing enrollments (Paramus) and discontinued massage/culinary; ex-these, HOPS ~+6%.
  • Corporate & other expense: increased to $18.3M from $12.8M, pressuring consolidated operating income.
  • Cash usage and capex ramp: Q1 operating cash flow -$8.4M and capex -$19.9M as growth investments ramp; cash fell to $28.7M (total liquidity $88.7M including $60M undrawn revolver).

Transcript

Operator (participant)

Today, and thank you for standing by. Welcome to Q1 2025 Lincoln Educational Services earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is ready. To ask your question, please press star one one again. Please be advised that today's conference is being recorded. I will now turn the conference over to your speaker for today, Michael Polyviou. Please go ahead.

Michael Polyviou (Head of Investor Relations)

Thank you, Lisa. Good morning, everyone. Before the market opened today, Lincoln Educational Services issued a news release reporting financial results and recent corporate developments for the first quarter ended March 31, 2025. The release is available on the investor relations portion of the 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 recorded and is being broadcast live on the company's website. 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 publicly stated as a term as 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 public statements.

Public statements should not be read as a guarantee of future performance. The company cautions you that these statements reflect certain expectations about the company's future performance or events and are subject to a number of uncertainties, risks, and other influences, many of which are beyond the company's control and may influence the accuracy of the statement and projection upon which the segmented statements are based. Factors that may affect the company's results include, but are not limited to, the risks and uncertainties discussed in the risk factors section of the annual report on Form 10-K and the quarterly report on Form 10-Q of the Securities and Exchange Commission. Public statements are based on information available at the time those statements are made and management's good faith belief as of the time with respect to future events.

All public statements are qualified in their entirety by this cautionary statement, and Lincoln undertakes no obligation to publicly revise or update any public statement, whether as a result of new information, future events, or otherwise, after the date they're out. One other housekeeping matter: during the Q&A portion of the call today, we would ask questioners to limit themselves to two questions and then re-queue to ask any additional questions. In advance, we thank you for your cooperation. Now I'd like to call over Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

Scott Shaw (President and CEO)

Thank you, Michael. Good morning, everyone. I hope you all had a nice Mother's Day yesterday. Thank you for joining us today for our review of Lincoln's very strong first quarter financial and operating performance. We have talked about the strategies we have put in place to generate consistent growth, including the Lincoln 10.0 hybrid teaching model, the new campus development program, replicating high-in-demand programs at existing campuses, signing corporate partnerships, and consistently providing high-value training and skills to our students to prepare them for rewarding careers. During the first quarter of 2025, our financial results, excluding the transitional segment, illustrated the increasing returns we are realizing from these strategies as revenue grew 16% and adjusted EBITDA grew 56%.

In addition, the results have enabled an increase in our full-year financial guidance, as well as our confidence in achieving our objective of approximately $550 million in organically generated revenue and approximately $90 million in adjusted EBITDA in 2027. For the past two years, the Lincoln 10.0 hybrid teaching model has provided increased flexibility to our students who often need to balance work and life while earning their certificate or degree. We've achieved this flexibility by combining hands-on learning at campus facilities with a component of classroom work delivered through online instruction. The model enables our students to work part-time or manage other commitments while pursuing their Lincoln education and reduces the time needed to complete many of our curriculums, accelerating our graduates on to their highly rewarding careers.

It is helping a higher percentage of our students to graduate and is attractive to our corporate partners who remain growth-constrained by the lack of skilled employees. As the first phase of Lincoln 10.0 was implemented, we generated instructional efficiencies, space efficiencies, and organizational productivity. With the first phase completed, the efficiencies have increased, which contributed to our adjusted EBITDA growth as compared to last year's first quarter. Brian will provide more detail on the leverage we achieved from our operating expenses during the first quarter in a few moments. Our student starts at 21 campuses operating in the first quarter grew an exceptional 20% over the prior period, and student starts have now increased at a double-digit rate for six consecutive quarters. As I mentioned, we believe Lincoln 10.0 has played an important part in this growth.

In addition, our new East Point campus continues to contribute to our strong start growth, and our marketing programs continue to be increasingly effective at generating leads while lowering the cost of those leads. Lincoln is successfully meeting the consistently growing demand for educational alternatives to a traditional four-year college as employers continue to seek solutions to closing their workforce skills gap. Our new campus development strategy is designed to expand our model to underserved markets within the United States and, during the first quarter, generate substantial progress. The first new campus under our expansion strategy, East Point in Metropolitan Atlanta, opened in March of 2024 and has demonstrated tremendous success in its first year of operation, becoming profitable well ahead of schedule. The strong performance of East Point has reinforced our confidence in our new campus program strategy, which includes the opening of three new campuses during 2025.

The first of the 2025 openings took place in the first quarter as we completed the relocating of the Nashville campus to a state-of-the-art facility overlooking the city skyline. Rebranded as the Nashville Auto-Diesel College, or NADC, the campus will expand its offerings to include new electrical and HVAC programs. NADC students and faculty have warmly embraced the new campus's 100 welding booths, the latest alignment racks from Hunter, brand new environmentally friendly spray booths from GFS, Electude training equipment, a Peterbilt training center, and much more. We will mark this exciting milestone on June 5th with a grand opening honoring NADC's historic position as a leading career technical college serving this country since World War I. This event will also exhibit the school's Hall of Fame room, recognizing the hundreds of graduates who have advanced into leadership positions throughout the automotive and diesel industry across the country.

Meanwhile, our new campus in Levittown, PA, which will incorporate our current automotive program in Philadelphia, is nearing completion, and we remain on schedule to complete the move to this state-of-the-art facility this summer. The efficiency and additional space of the Levittown campus is enabling us to add another three programs in the market. We recently hosted local leaders at the campus, which generated a great deal of enthusiasm for the contributions Lincoln is making to the local community with this new facility. Our third new campus scheduled to open late 2025 is our Houston campus, which is our second in Texas but first in the Houston market, which represents fast opportunities. The current schedule calls for us to begin our first classes in automotive, HVAC, electrical, and welding during the fourth quarter.

Our fourth new campus is Hicksville, Long Island, is under development, and we anticipate it opening in the latter part of 2026. As always, we continue to explore other underserved markets to determine additional new campus opportunities for Lincoln, and we expect to announce additional new school openings before year-end. Program replication at existing campuses is another of our key growth initiatives. During the first quarter, we opened an Electrical Program at our Lincoln, Rhode Island campus and an expansion of our welding program at our Denver campus. We have five additional programs scheduled to begin operation as the year progresses. Our efforts to enter into new corporate partnerships continued during the first quarter. The interest from corporate America and Lincoln as a solution to closing the workforce skills gap remains strong. However, decision-making timelines have lengthened primarily due to ongoing economic uncertainty.

We continue to see resources being made available to students learning essential skills and training that enable us to live the life we have grown accustomed to. At the same time, our proven commitment to providing high ROI programs continues benefiting students, their families, and their communities. Our high graduation rate, as well as graduate placement rate, indicate we offer an excellent return on investment. I believe that Lincoln Tech is uniquely positioned to capture an increasing share of the growing skilled trades training market. For over 78 years, we have remained focused on delivering high-quality, life-changing career education, and no one else has our combination of longevity, scale, and proven experience. Our growth strategy is simple. We will continue to expand our network of schools by replicating our most in-demand programs at our existing campuses while building new campuses in new and existing markets.

Despite the uncertainty that many face with the ever-changing economic landscape, our path forward is quite certain. Our country has an existing severe skills gap, which most likely will get worse before it gets better. There are major initiatives underway that will drive this increased demand for skilled workers. Whether it's our Navy's need for 250,000 skilled workers over the next 10 years to build three new submarines a year, or the electric utility's dire need to build new sources of electric power to fuel rapidly expanding demand caused by AI and the move towards electrification in general, or the expected massive onshoring efforts of our manufacturing base by the current administration to create greater economic security and prosperity, the demand for more talented men and women to enter the skilled trades will only increase, and Lincoln Tech will be there to meet that demand.

The good news for Lincoln Tech and our country is the resurgent interest in the skilled trades. The press has labeled this generation the toolbelt generation. We and others have had numerous stories on national and local TV highlighting the need for skilled workers, why more and more people are turning to the trades, and why schools like Lincoln Tech provide an excellent alternative to obtaining a four-year degree. Across the country, we are seeing increased demand by adults and high school students. The audiences and engagement with parents is growing, even among those communities with a historically high number of students going to the traditional four-year colleges. The message is sticking, and it's being reflected in our results and rising interest.

As we saw with the latest jobs report for April, employers continue to struggle to find technicians, electricians, welders, and healthcare workers, and through our lead generation programs, we have seen a record level of interest in our curriculums. We continue to see the demand for what we do growing regardless of macroeconomic conditions or political agendas and have transformed our company into an exceptional provider of educational services meeting the needs of America's corporations, as well as America's workforce as we continue to work to be a leading voice for middle skills learning in this country. Our increasing financial performance over the past several quarters has enabled us to put in place the financial resources to carry out our growth strategies, achieve our objectives, and generate increasing returns to our shareholders.

Finally, I'd like to note I'll be meeting with investors over the coming weeks at various locations around the country. These include the B. Riley Annual Investor Conference in Marina del Rey, California, on May 22, the IDEAS Conference on June 11 in New York, and the Northland Securities Virtual Conference on June 25. Additionally, I will be in Portland, Oregon, on June 17, and Denver on June 18 with a Barrington-hosted non-deal roadshow. The level of interest coincides with our performance, and I believe the successful execution of our growth strategy has the potential for further price appreciation as we continue to grow our student population and generate an increasing level of operating efficiencies. Now I'll turn the call over to Brian Meyers so he can review some of our recent financial highlights and guidance. Brian.

Brian Meyers (CFO)

Thanks, Scott. Good morning and thank you for joining us today.

I'm pleased to provide an overview of our financial performance for the first quarter of 2025, discuss some key developments, and share our updated outlook for the remainder of the year. As Scott mentioned, we exceeded internal expectations in Q1, driven by robust stock growth and improved operating leverage. These key drivers translated to higher operating margins and improved profitability. Our results reflect the strength of Lincoln's business and the momentum we've built over the past several years. Please note that throughout our discussion, we'll refer to financial results compared to prior years that exclude the transitional segment. As a reminder, the transitional segment consisted of the former Summerlin, Nevada campus, which was sold late 2024, and thus impacts the prior year comparisons. We delivered solid year-over-year growth across the board in Q1. Revenue increased 16% to $117.5 million, marking the eighth consecutive quarter of double-digit revenue growth.

This strong performance was primarily driven by a 6.2% increase in average student population. Our student starts growth for the quarter was an impressive 20.9% as we enrolled over 4,600 students during the quarter during Q1 2025. The strong interest in our programs has remained consistent, as evident by our double-digit student starts growth over the past six consecutive quarters. To provide additional context around our student starts growth, the Transportation and Skilled Trades programs increased by a robust 32.4%. This strong performance was driven by growing demand combined with our efforts to replicate these programs across additional campuses. Within the Healthcare and Other Professions, the total student starts declined 6.3%. However, this decline was directly attributed to two reasons. First, in 2024, we temporarily suspended new enrollments in our Nursing Program at our Paramus, New Jersey campus. Second, we discontinued enrolling new students into Massage Therapy and Culinary Programs.

These changes are part of our ongoing strategy to optimize our campus operations by phasing out lower-demand programs and replacing them with offerings that have the highest student interest and employer demand. Assuming the impact of these changes, our HOPS Programs achieved approximately 6% organic growth, reflecting continuing demand. In terms of capital expenditures, we committed approximately $25 million during the first quarter, of which $20 million is reflected on the cash flow statement. As Scott mentioned, during the quarter, we completed the relocation of our national campus and launched two of the seven planned program replications in 2025. In addition, we made solid progress on our major construction project, keeping us on track to open our Levittown and Houston campuses in the second half of the year pending regulatory approval.

For the full year, we anticipate CapEx to range between $70-$75 million, consistent with our long-term growth plan. This investment supports two new campuses, two campus relocations, seven replication or expansions of our skilled trade programs at existing campuses, and increased maintenance CapEx to refresh and modernize training equipment, further enhancing the quality of instruction, hands-on training, student experience, and outcomes. We are highly confident that each of these investments will generate strong returns. For example, we expect each new campus to deliver approximately $6 million to EBITDA and each program replication to contribute $1 million to EBITDA 36 months after opening. To ensure we have the financial flexibility if needed to fund these initiatives, we have recently amended our credit facility with Fifth Third Bank.

This amendment increased our line of credit from $40 million to $60 million and expanded the accordion feature from $20 million to $25 million. Our capital structure remains robust as we ended the quarter with approximately $90 million in total liquidity and no debt outstanding. Turning to expenses, operating expenses were $114.3 million, up from $101.2 million last year. This was in line with our plan, as such the increase aligns with our growing student population and expenses related to our growth initiatives. We also continue to generate operating efficiencies during the quarter. Notably, education service and facility costs as a percentage of revenue declined to 40.3% from 41.3%, partially driven by efficiencies from our Lincoln 10.0 education initiative. Additionally, our marketing efficiencies improved significantly with our total marketing spend declining, achieving a 20% reduction in cost per start compared to Q1 2024.

Turning to a key topic in the macro environment, the impact of tariffs. We have been notified of only minimum cost increases. As such, we do not currently anticipate a material impact on our cost or capital expenditures in 2025. Our adjusted EBITDA for the first quarter increased by 56% to $10.6 million, up from $6.8 million in the first quarter of 2024. The adjusted EBITDA margin also rose to 9% compared to 7% in the prior year. Adjusted EBITDA was favorably impacted by a shift of approximately $1 million in operating expenses into the second quarter. Without this benefit of the timing shift, our adjusted EBITDA would have still grown by almost 45%. The primary drivers of our improved profitability were instructional and marketing expenses, both of which experienced meaningful operating leverage.

In addition, bad debt expense declined both in absolute terms and as a percentage of revenue, reflecting the positive impact of several initiatives implemented over the past year. Finally, net income was $1.9 million, or $0.06 per diluted share, and our adjusted net income was $3.5 million, or $0.11 per diluted share, based on weighted average diluted common shares outstanding of approximately 31.1 million. The first quarter performance moves us closer to our long-term objectives we outlined at last year's analyst day, which included reaching $550 million in revenue and $90 million in adjusted EBITDA by 2027. I encourage you to review our plan, which is available in our latest investor presentation on our website. Looking ahead to the remainder of 2025, given the strength of our Q1 results and the positive trends we're seeing across the business, we are raising our full-year financial guidance.

We now expect revenue ranging from $485 million-$495 million, adjusted EBITDA in the range of $58 million-$63 million, net income ranging from $10 million-$15 million, student start growth of 10%-14%. As noted during our last call, we expect starts to follow typical seasonality with one notable exception. We have a significant class start shift from Q2 to Q3 in 2025 due to our Lincoln 10.0 teaching model, which can slightly change start dates from year to year. In 2024, we had a start in the last week of June of approximately 2,300 students. However, in 2025, the start class will move to July 1 and therefore be reported in the third quarter. While a shift in start dates will reduce Q2 starts, it will have a minimal impact on our Q2 revenue.

On a combined basis, we anticipate Q2 and Q3 starts to grow in the high single digits. Given the timing of this shift, we expect to provide additional insight during our second quarter investor call. Overall, it's important to note that timing shifts such as this have minimal impact on the cadence of our quarterly revenue. Our final guidance metric is our capital expenses, which is unchanged, ranging between $70 million-$75 million, as previously mentioned. As a reminder, in order to provide a clearer view of our underlying performance, our guidance excludes stock-based compensation and one-time non-recurring items. Additionally, it excludes pre-opening costs as well as net operating losses from new and relocating campuses. For additional guidance details, please refer to our earnings release filed earlier today.

In closing, I want to thank our entire team for their hard work and ongoing commitment to delivering strong outcomes for our students and stakeholders. We are encouraged by the start of the year and remain focused on executing our strategy and delivering shareholder value. We look forward to sharing our continued progress next quarter. With that, I'll turn the call back over to the operator for questions. Operator.

Operator (participant)

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. You'll hear the automated message advising your hand is raised. To ask for a question, press star one one again. We also ask that you please wait for your name and company to be announced before proceeding with your question. One moment while we start the Q&A session.

The first question will be coming from the line of Alex Paris of Barrington Research. Your line is open.

Alex Paris (President and Senior Managing Director)

Hi guys, thanks for taking my call and congratulations on the strong start to 2025. I'll do my first, my two questions from the top down, really. First, I wanted to discuss this strong demand during the first quarter and those increased marketing efficiencies such that your cost of your cost per start is down 10% year-over-year. Maybe a little additional color there, and then my follow-up question will be more top-down regulatory.

Scott Shaw (President and CEO)

Sure. I mean, we're obviously always monitoring and measuring our marketing efforts, always looking for ways to become more efficient. You know, part of it is, I would say, actions that we've taken and working with some of our vendors to get more with less.

Also, though, to be honest with you, part of it is just this increased awareness and demand in the general environment, which then helps us drive more people. We're also getting more referrals and other actions like that, which help lower the overall average cost. It was a mutually impressive improvement in marketing costs in the first quarter. We're continuing to see strong demand overall, and I'm anticipating that the savings year-over-year, you know, should hold out throughout the year, probably not to the degree that it did in the first quarter, but time will tell.

Alex Paris (President and Senior Managing Director)

I think it goes without saying, based on your overview comments, that April and early May have exhibited the same strong demand.

Scott Shaw (President and CEO)

Yeah, the demand remains out there and is very consistent.

Alex Paris (President and Senior Managing Director)

For my second question, I was wondering if you could give us an update on regulatory changes and tone at the top coming out of Washington, D.C. Since your last conference call in late February, a lot has happened, including a significant reduction in the number of people at the Department of Education. There's been an important bill that's moved out of committee and at the House, a sweeping higher education bill that'll be part of the reconciliation bill, the one big beautiful bill, which, among other things, proposes the elimination of gainful employment and 90/10. Specifically, how it may have impacted you in the first quarter. You mentioned that the welding program that was in Lincoln, Rhode Island, is now up and running, suggesting that you got your approval, and then the approvals for the Houston campus later this year.

Scott Shaw (President and CEO)

Yeah, so yeah, a lot is going on. Just for a quick clarification, we haven't launched the welding in Lincoln, Rhode Island, as of yet. We did launch our Electrical Program. Welding is coming later in the year. In general, I mean, it's obviously, I think everyone knows that what's happening in Washington is a little bit fast-paced and ever-changing. Long story short, though, the good news is that we're on the right side, I'll say, of where certainly the administration wants to go from an educational standpoint. They definitely want to see more people go into the trades. They're hearing that from companies in general and just part of their overall initiatives and plans for our country require more people to go into the trades. From that high-level perspective, we're in a good position.

From the activities that they've taken at the Department of Ed, yes, a lot of the people that we typically deal with, frankly, are no longer at the department. However, we do have some high-level contacts, and we're staying very close to those individuals to make sure that certainly our needs can be met in a timely manner. We've had no indication to date that that's not the case. Obviously, there's lots, as you mentioned, the bills going through in Congress have some positive aspects and possibly some negative aspects. Overall, it's all working more in our favor. There's more, definitely a lot more good coming out of everything in Washington for us than bad. I feel good about it, frankly.

Alex Paris (President and Senior Managing Director)

As do I. I just wanted to hear your color. I appreciate that. I'll get back into the queue at this point.

Scott Shaw (President and CEO)

Thanks, Alex.

Operator (participant)

Thank you. One moment for the next question. The next question will be coming from the line of Eric Martinuzzi of Lake Street Capital Markets. Your line is open.

Eric Martinuzzi (Senior Research Analyst)

Yeah, I wanted to follow up on the new program progression here. It sounds like we were live on two, and then we've got five more expected throughout 2025. Are all five of those greenlit by the Department of Ed?

Scott Shaw (President and CEO)

The only one that is not, I'll say, greenlit by the Department of Ed is the welding program in Rhode Island. That's simply because that OPID doesn't have a welding program to date, and that's what requires additional effort from the Department of Ed. As I also just mentioned, you know, with Alex, we're in constant dialogue with folks in the department.

They know the urgency of our need, and we anticipate that we certainly will be getting it certainly in the next four to five months.

Eric Martinuzzi (Senior Research Analyst)

Okay. I wanted to follow up on the new student start contraction within healthcare. You called out the, you know, hey, we stopped enrolling in massage therapy and culinary. When do we anniversary that enrollment suspension in those programs?

Scott Shaw (President and CEO)

We had different times as we stopped them at different periods of time, but certainly by this coming November, it is my understanding we should no longer have any students in either of those programs.

Eric Martinuzzi (Senior Research Analyst)

Okay. The assumption is that healthcare and other will be in growth mode beginning in Q4 or growth?

Scott Shaw (President and CEO)

Yep.

Eric Martinuzzi (Senior Research Analyst)

Okay.

Scott Shaw (President and CEO)

Yeah We, and also as Brian mentioned, as you know, we had to suspend enrollment at our Paramus campus simply because of the pass rates being below the benchmark. I'm very pleased to announce that as of March for the prior 12 months, I think they had about an 87-88% pass rate. The benchmark is 75%. We're approaching the Board of Nursing in New Jersey to hopefully have them reinstate us sooner than having to wait to the end of the year just given the strong performance. We'll have to wait and see.

Eric Martinuzzi (Senior Research Analyst)

Got it. Thank you.

Scott Shaw (President and CEO)

Yep.

Operator (participant)

Thank you. One moment for the next question. The next question will be coming from the line of Steven Frankel of Rosenblatt Securities. Your line is open.

Steven Frankel (Director of Research and Senior Research Analyst)

Good morning and thank you. Just to go back to the healthcare start situation, could you maybe help us understand how much of that weakness is attributed to the Paramus situation versus the ending of the courses in Summerlin or maybe another way to look at it? Outside those two factors, what are healthcare starts doing?

Scott Shaw (President and CEO)

Yeah, I think that Brian—go ahead, Brian.

Brian Meyers (CFO)

Outside of that, they grew, I think, by almost 6%. Yes. Outside of that. Those two are almost evenly split between, you know, the teach-out of those two programs and the nursing.

Steven Frankel (Director of Research and Senior Research Analyst)

Okay. Great. That's really helpful. You had some comments about the cadence of starts between Q2 and Q3 that I didn't quite get into my notes. Maybe you could just go through that one more time.

Scott Shaw (President and CEO)

Yeah, no problem. Given the calendar, the start calendar, it just happens that the start that last year took place in the last week of June is now going to take place on July 1 of this year. Just by having it move by four days, it moves it from a Q2 event to a Q3 event. You know, from a revenue and economic standpoint, there is really no material impact whatsoever in those four days of having a large start take place a little bit later. Brian just wanted to make everyone aware that when you look at the Q2 actual starts, you are not going to see as robust a number as we had last year. They are all going to get put into Q3. Q3 is going to be, I will just say, exaggerated compared to the prior year.

Economically, from growth and revenue and profitability, you're going to see a similar pattern as what you saw last year. Right. Just to add on to that, it was a large start of 2,300 students. It is significant on a combined basis. It's going to be high single digits Q2 and Q3. Because of the timing of it, it's coming out July 1 on a pro forma basis. When we release Q2 numbers, we'll be able to tell you, you know, taking into account what that one start on July 1, what the starts would have been in the second quarter. It will be more of an apples-to-apples comparison.

Steven Frankel (Director of Research and Senior Research Analyst)

Okay. Again, just to be clear, even with this shift in start, you still should report high single-digit start growth in each quarter, Q2 and Q3.

Scott Shaw (President and CEO)

No, no, on a combined basis for Q2 and Q3, it'll be high single digits. It'll be down because of that start because it's such a large start of over 2,300 students in Q2.

Steven Frankel (Director of Research and Senior Research Analyst)

Okay. That's what I wanted to make sure of. Thank you.

Scott Shaw (President and CEO)

Right. Right. To your point, on a pro forma basis, you're correct, we're going to show growth in both quarters.

Steven Frankel (Director of Research and Senior Research Analyst)

Okay. Thank you.

Scott Shaw (President and CEO)

No problem.

Operator (participant)

Thank you. One moment for the next question. The next question will be coming from the line of Raj Sharma of Texas Capital Bank. Your line is open.

Raj Sharma (Senior Analyst)

Yeah, thank you for taking my questions again. You know, good morning, great execution, solid results. Congratulations. It's great to see—it was great to see the operating leverage improving, the EBITDA operating expenses, you know, grew slower than the revenues.

My question is around, you know, the fiscal 2025 EBITDA guidance. How much is the growth OPEX that's being—is it being excluded or included in that guidance? And if you could comment on, you know, next year, are those expenses—are you planning on sort of opening of two new programs and how that would impact the growth in, you know, the EBITDA growth that you could possibly project?

Scott Shaw (President and CEO)

Sure. I will start on it. In the press release, Raj, we do put out the midpoint in the range. It does exclude the new campuses, like our new Houston campus and pre-opening losses there because we had a little bit of rent earlier. It excludes the pre-opening courses and also some of our new programs. For this year, we do lay it out. You can see it in the midpoint of that.

We do add that back, those losses. For 2026, we're in discussions. We might not have—we might not no longer do that because now that we're opening up new schools every year and this is going to be going forward, we'll still report, you know, on a pro forma basis because we think it's important for you to know how much of these expenses are for growth initiatives that didn't take place yet going forward, but it might not be part of our guidance. In general, you know, for our guidance going up to out to 2027, it really just assumes about a 200 basis point a year improvement. Obviously, the first quarter, we've already shown that 200 basis points of improvement. Depending on how well 2025 comes, that certainly could be—we might be delivering that at an accelerated pace.

Raj Sharma (Senior Analyst)

That was a 200 basis points improvement in the EBITDA margins?

Scott Shaw (President and CEO)

Yes. Yes, Raj, each year. Each year.

Raj Sharma (Senior Analyst)

Got it. Thank you. That's very helpful. My next question was really on trying to understand where the demand and, you know, growth it starts is coming from. You've long said that, you know, this is a countercyclical business and you would expect starts to kind of pick up if the economy was showing any signs of slowdown or the unemployment rate was going up. Where do you see the demand coming from? Is it just reshoring and the need and the skilled gap, or are you seeing any sort of pickup from maybe some layoffs in some sectors?

Scott Shaw (President and CEO)

Sure. Yeah. I mean, we're definitely not seeing, because of layoffs in any kind of sectors, affecting us.

I mean, it's been surprising, to be honest, since COVID, the demand level that we're seeking. As you started off, typically we get these huge growth opportunities during recessions, and we're far from a recession, and we're growing nicely. It's all because of this trend that people are realizing that not everyone needs or should go to college. There are great job opportunities out there by not going to a college and going to a trade school like ours, where you can get into the workforce cheaper, faster, and frankly, probably more securely, because so many people are concerned today about AI. AI is designed to take away the mind. It doesn't take away the hands. We're doing hands-on training. Just more people are seeing the need.

More people are realizing the personal satisfaction they can get by being in the trades and doing something that's helping other people, where they can see the results of their work each and every day. It's a fundamental shift that's taken place. As I mentioned in my remarks, I've gone to several different communities now in upscale areas where the local school boards, you know, brag about 98% going on to college. Yet parents in the room want to know, maybe my child shouldn't go to college. I want my child to do what's best for them. I see some of these trades as being great opportunities for them.

If these conversations continue, which I think they will, and as I mentioned, there are these huge driving forces that are going to require more people than we even have today, with the whole electrical grid needs to be rebuilt, our armed forces are looking to be rebuilt. You know, the administration is striving to bring manufacturing back. All those things require technology and automation, and someone needs to maintain all that. Otherwise, it does not work. Anyway, there is a lot of really positive trends happening for us, and we just have to make sure that we can stay ahead of them, frankly, so we can capitalize as much as possible.

Raj Sharma (Senior Analyst)

Got it. Thank you. Thank you for that. It is very encouraging demand trends that continue. Thank you. I will take my questions offline. Thanks. Congratulations.

Scott Shaw (President and CEO)

Thank you, Raj.

Operator (participant)

Thank you. One moment for the next question.

The next question will come from the line of Luke Horton of Northland Capital Markets. Your line is open.

Luke Horton (Analyst)

Yeah. Hey, guys. Thanks for taking the question and congrats on the really nice quarter here. I did want to touch on your comments, Scott, in the prepared remarks just about talking about some additional new campus announcements possibly coming here throughout the rest of the year. Just wondering if these would be net new campuses or if they would be relocations and any other sort of color around these new campus announcements that you're expecting.

Scott Shaw (President and CEO)

Sure. Thanks, Luke, and welcome to the call. Yeah, these would not be relocations that we've done, let's say, with Nashville and Philadelphia. These would be new campuses in either new or existing markets where we see demand.

Luke Horton (Analyst)

Okay. Got it. I also just want to touch on the 2025 guide as far as how much contribution are you guys kind of baking in on the Nashville relocation as well as the Philly campus coming this summer? I guess also just kind of how has Nashville trended here so far since opening up in March?

Scott Shaw (President and CEO)

Yeah, we really do not break it out that way in general, but obviously we have it in our models how each one's going to impact us. It is too early to say with Nashville. They just relocated in March, and we will not start seeing some of the benefit till the high school students start this summer.

In all honesty, it's really going to be next year that you're going to see the real benefit because at that point, we'll have opened up the electrical and HVAC programs, which are new, and we'll also be out there marketing for a full year, the brand new campus, which should help drive even more enrollments from our high schools into that campus. 2026 is going to be the real impactful year, I would anticipate, for the Nashville campus.

Luke Horton (Analyst)

Okay. Great. Awesome. Thanks for taking the question, guys. We'll take the rest offline.

Scott Shaw (President and CEO)

No problem. Thank you.

Operator (participant)

Thank you. The next question will be coming from the line of Griffin Boss of B. Riley Securities. Your line is open.

Griffin Boss (Equity Research Analyst)

Hi. Thanks for taking my questions. Good to see the solid demand trends in the quarter and going forward.

Just one for me, curious about the CapEx cadence for the year. I had originally anticipated kind of a lighter Q1 with maybe a bit more ramp going through the rest of the year, but should we basically expect kind of a similar cadence to Q1 throughout the year to hit that $70-$75 million target, or is it going to come perhaps heavier in the back half of the year? Thanks.

Scott Shaw (President and CEO)

It's actually Q2 right now. We're forecasting to be one of the heaviest quarters in our CapEx spend. It should, you know, slightly exceed actually Q1, which was at $25 million. Then Q3 would be, you know, maybe a similar, a little bit less than Q1 and then the remainder in the fourth quarter.

Griffin Boss (Equity Research Analyst)

Okay. Understood. That's helpful. Thanks a lot. Appreciate it again. Congratulations on the solid demand.

Scott Shaw (President and CEO)

Thank you. Appreciate it.

Look forward to the conference coming up.

Operator (participant)

Thank you. We have a follow-up from the line of Alex Paris of Barrington Research. Your line is open.

Alex Paris (President and Senior Managing Director)

Hi guys. Thanks for taking my follow-up. Just a question about the East Point Atlanta campus. It opened up in March of 2024. The comparison in this Q1 is apples and oranges. What did East Point contribute in terms of revenue in the first quarter versus the first quarter a year ago?

Brian Meyers (CFO)

Right. I do not have that. I can follow up with the revenue. I told you we were going to ask a different question. I do not have the revenue right here.

Alex Paris (President and Senior Managing Director)

Okay. Do you have it on an EBITDA basis or a starts basis or something along that?

Brian Meyers (CFO)

Yeah, actually, I do. If you give me one second, I can actually give you the revenue for East Point.

Alex Paris (President and Senior Managing Director)

All right.

Brian Meyers (CFO)

Revenue was, you know, slightly over $4 million for the Q1. And since it opened up last year, they had about $100,000. So they contribute over $4 million.

Alex Paris (President and Senior Managing Director)

Gotcha. Okay. That's helpful. And then remind me along the same lines, what does the campus operating model suggest in year four? Is it year four, $20 million in revenue and $5 million in EBITDA? Is that what it was?

Brian Meyers (CFO)

Yeah, five to six, depending on the campus of EBITDA. Correct. Yeah. Hopefully, you know, by year four, you know, after it opens, it should be $6 million worth of EBITDA and over $20 million worth of revenue.

Alex Paris (President and Senior Managing Director)

But it's profitable now one year into the process. Is that right?

Brian Meyers (CFO)

Yeah. It's, you know, East Point was profitable when it went into the third quarter. Yeah. Third quarter profitability.

Alex Paris (President and Senior Managing Director)

Great. Could you say, could you say on a last 12-month basis how much revenue East Point is at this point? On a last 12-month basis? Either in the last 12 months or on a run rate, you know, basis where are we with the new Atlanta campus?

Brian Meyers (CFO)

Yeah. I do not have last year's in front of me, full year. We can do it online, Alex.

Alex Paris (President and Senior Managing Director)

Yeah. Yep. No problem. Here's my final question. Great progress on bad debt. I think bad debt in 2024 was 12% of revenue. In the first quarter, if my math is right, it's more like 10%. What have you done there to get that number down? Do you have a target for bad debt, either absolute or as a percentage of revenue?

Brian Meyers (CFO)

Right. For the full year last year, it got up to 13% in Q1.

It was a little, like you said, it was 12%. This year is 10%. You know, we had great cash collections because now we, you know, as I mentioned on prior calls, we changed, you know, we implemented a new software system. It kind of didn't work out for us. Then we implemented, you know, we implemented another system, our old system with a lot more enhancements that, you know, working out very well for us. We went for, you know, a hybrid model. Everything's, you know, doing well. Our cash collections are doing very well. Some of that was for past due collections, which you can't keep, you know, collecting on past due. That did help slightly. We're optimistic that, you know, we'll keep showing improvement every single quarter. Right now, we're hoping for, like I said, it was, you know, 13% last year.

We're hoping to be, you know, hopefully, I'd be happy with 11%. And maybe there is, you know, an up to that, so 11-12% for the next couple of quarters. We're not willing to claim victory yet, but things are looking very good as well as when we look at the percentage of students and how quick they're getting packaged year-over-year, it's much quicker. Hopefully it'll even help with start rate going forward as well. Things are going extremely well in our financial aid department now.

Alex Paris (President and Senior Managing Director)

That's great to hear. Thank you very much. That's all I have. Thanks.

Brian Meyers (CFO)

Thank you.

Operator (participant)

Thank you. There are no more questions in the Q&A. I would like to turn the call back over to Scott Shaw for closing remarks. Please go ahead.

Scott Shaw (President and CEO)

Thank you, Operator. Thank you all for joining us today and learning about our strong start to 2025 and increased financial guidance for the full year. As more and more people, both high school graduates and adults, seek a time-efficient, cost-effective path to develop skills that can serve them a lifetime, interest in our programs continues to grow. We are well-positioned to grow through the expansion of our footprint and existing campus development. Our success is only made possible by the commitment and dedication of our faculty and staff who day in and day out engage with our students to motivate, educate, and inspire them to reach their potential. At Lincoln Tech, we know our success is directly linked to our student success, and we will continue to share with the world that middle-skills careers like the ones we offer lead to rewarding, productive, and fulfilling careers that our nation desperately needs.

I'd like to thank our shareholders for their support and our entire team for their dedication to achieving our goals. I hope to see you during my time on the road visiting shareholders, employers, and politicians as I share the Lincoln Tech story. Thank you all again and have a great day.

Operator (participant)

Thank you all for participating in today's conference call. You may now disconnect.