Lincoln Educational Services - Earnings Call - Q2 2025

Executive Summary

• Revenue grew 13.2% year over year to $116.5M; adjusted EBITDA rose 68% to $10.5M; diluted EPS was $0.05. Sequentially, revenue was modestly lower vs Q1 ($117.5M) while adjusted EBITDA was roughly flat. Management raised full-year guidance across revenue, EBITDA, net income, capex, and student starts.
• Student demand remained strong: starts up 19.5% (21.8% ex-Transitional) and end-of-period student population up 18.2% (20.6% ex-Transitional), aided by a timing shift of a large start from late June to July 1 for comparability.
• Campus development outperformed (East Point, Nashville) and Houston received regulatory approval with enrollments underway for early Q4 starts; Levittown relocation completed with program additions in Q3. Management reaffirmed longer-term targets of ~$550M revenue and ~$90M adjusted EBITDA in 2027 and expects to announce another new campus shortly.
• Full-year 2025 guidance was raised to Revenue $490–$500M, Adjusted EBITDA $60–$65M, Net Income $13–$18M, Capex $75–$80M, Student Starts +12–15%. CFO flagged temporary Title IV verification-driven cash timing shifting disbursements into H2, with total liquidity of $63.7M at quarter-end.
• Narrative/catalysts: strong demand in skilled trades, improved marketing efficiency, operating leverage from Lincoln 10.0, and a “beat and raise” versus internal forecasts; raised guidance and visible campus pipeline are key stock narrative drivers.

What Went Well and What Went Wrong

What Went Well

• “Our operating and financial momentum continued to build… nearly 22 percent student start growth… revenues… more than 15 percent from campus operations… increased consolidated adjusted EBITDA by 68%. As a result… we are raising our full-year guidance.” — Scott Shaw, CEO.
• Marketing efficiency and operational leverage improved: cost per start down ~13–14%, educational services and facilities as % of revenue fell to 40.2% (from 44.3% YoY), and adjusted EBITDA expanded materially.
• Campus execution exceeded expectations: East Point hit 36-month enrollment targets in ~18 months; Nashville relocation performing well; Houston enrollments underway; Levittown relocation completed with HVAC, electrical, welding to start in Q3.

What Went Wrong

• Healthcare and Other Professions starts declined ~8% due to a pause in Paramus nursing enrollment and discontinuation of underperforming programs (culinary, massage therapy); organic growth ex-these factors was slightly positive but segment trails skilled trades.
• Corporate expense increased (to $16.4M vs $10.7M prior year) including higher medical claims and compensation tied to growth; SG&A rose 15.9% YoY to $67.1M and was 57.6% of revenue in Q2.
• Cash receipts timing headwind: Department of Education verification spike delayed Title IV disbursements; combined with academic calendar shifts, cash collections skew to H2 despite liquidity of $63.7M.

Transcript

Speaker 5

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

Speaker 4

Thank you, Gigi. Good morning, everyone. Before the market opened today, Lincoln Educational Services Corporation issued a news release reporting financial results for the second quarter ended June 30, 2025, as well as recent corporate developments. 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 forward-looking statements as terms 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.

Forward-looking 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 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 of the time with respect to future events.

All forward-looking statements are qualified in their entirety by the cautionary statement, and Lincoln undertakes no obligation to publicly revise or update any forward-looking statement, whether as a result of new information, future events, or otherwise, after the date thereof. 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 to Scott Shaw, President and CEO of Lincoln Educational Services Corporation. Scott, please go ahead.

Speaker 1

Thank you, Michael, and good morning, everyone. Thank you for joining us today for our review of Lincoln's continued operational and financial momentum during the second quarter, which led to nearly 22% student start growth and about 15% revenue growth from our current operations, as well as a 68% increase in consolidated adjusted EBITDA over last year's second quarter. As a result of this performance, which follows an equally impressive first quarter, as well as current operating trends, we are increasing our guidance for the full fiscal year, as well as expanding some of our growth initiatives to capitalize on the growing demand for high-value career-focused skills training.

Many factors are contributing to our dynamic top and bottom line growth, including, on the macro level, the continued increased interest in skilled trade training as an alternative to the traditional four-year college education, a factor that we believe will be further stimulated by recent federal government actions impacting student loans. At the same time, our strategies and investments have positioned Lincoln to capitalize on market demand. For instance, we are focused on training our students for rewarding careers in fields where there is a chronic shortage of skilled employees, thus helping to fill the growth inhibiting skills gap experienced by employers. Electrical, HVAC, automotive technician, welding, and nursing careers offer lifetime employment opportunities, as well as professional advancement potential. Our team is doing an excellent job executing our growth plan.

Our financial performance during the first half of 2025 reflects increasing returns from our investments in the Lincoln 10.0 hybrid teaching model, student start outperformance at our new and relocated campuses, execution of our program replication strategy at existing campuses, successful high school student initiatives, expanding corporate partnership relationships, and increased marketing efficiencies. Lincoln 10.0 is contributing to our start growth by providing 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, which reduces the time needed to complete many of our curriculums and accelerates our graduates to their highly rewarding careers.

We continue to realize instructional efficiencies, space efficiencies, and organizational productivity through Lincoln 10.0, and Brian Meyers provides more details on the leverage we achieve from our operating expenses during the second quarter in a few minutes. We continue to make investments in people and processes to ensure that we deliver an exceptional learning experience for our students. We want to be the best, and we want the best for our students. To achieve this goal, we are constantly evaluating new software, curriculum, and training aids. In addition, we want our instructors to have industry-recognized credentials that ensure they have the most up-to-date knowledge in their field so our students have an edge on their competition.

With technology ever-changing, we are constantly in pursuit of what will help our students master the skills they desire to become the technicians, welders, and healthcare providers that will lead the next generation of skilled hands-on professionals. As I noted at the beginning of my comments, student starts at our currently operating campuses grew nearly 22% in the second quarter. We continue to have growth at our existing campuses and programs, as well as from our new campuses and programs. At East Point, total student starts at the 18th month mark of the campus's opening have achieved a level we expected to occur at the 36th month mark. Similarly, we are seeing strong results from our recently relocated Nashville campus, which we have rebranded Nashville Auto Diesel College. In October, we will be layering on electrical and HVAC programs at NADC, which we believe will further enhance growth.

We held a grand opening of NADC on June 5th, which honored Nashville's historic position as a leading career technical college serving this country since World War I. Student start growth at existing campuses achieved an 18.3% growth rate, driven by the conversion of a higher number of leads generated by our marketing initiatives into student starts, as well as increased high school graduate enrollees. Our initiatives to increase high school student starts have led to growing interest from both the schools as well as parents and students, and we are devoting additional resources to further developing this important market segment. At the same time, high schools are reaching out to us to explore how to offer our skilled trades programs to their students.

Under what we call our high school share program, students attend Lincoln classes during their junior and senior years and then continue after high school to gain their certificate in less time, which accelerates their entry into rewarding careers. With students under constant challenge, our work with local high school boards is enabling the continuation of skilled trades training within the high schools while building our enrollment, and we are quite excited about the long-term potential of this initiative. In addition to East Point and Nashville, our current campus development programs include Levittown, Pennsylvania, Houston, Texas, and Hicksville, New York. In August, we completed the move of our highly successful Philadelphia automotive programs to the new Levittown campus, and we will be opening three replicated programs, including welding, HVAC, and electrical at this new facility in September.

In Houston, we received final regulatory approval during the second quarter and are pleased to announce student enrollment for the first classes starting in October is underway, approximately one month earlier than we originally expected. Our most recently announced campus, Hicksville, New York, continues to target a late 2026 opening, and we expect to announce another new campus when we report our third quarter results to you in early November. We recently completed a thorough review of underserved markets for the types of high-value career training programs we deliver to students and believe there are at least a dozen other metropolitan areas for Lincoln to enter and realize returns similar to what we have generated in East Point and to date in Nashville.

To seize on these opportunities for the next several years, we expect to increase the number of new campuses we develop each year to two and to fund this expansion through operating cash flow. With each new campus, our objective is to achieve $25 to $30 million in annualized revenue and $7 to $10 million of EBITDA by the fourth year of operation. Program replications at existing campuses and corporate partnerships remain key components of our growth strategy. I previously mentioned the opening schedule for replicated programs in both Nashville and Levittown. In addition, by year-end, we expect to have replicated or expanded a total of six programs across existing campuses, building on the five we completed in 2024. On the partnership front, corporate America continues to view Lincoln as a solution to closing the workforce skills gap, although decision-making timelines remain somewhat lengthened due to ongoing economic uncertainty.

During the quarter, we did execute agreements to extend existing partnerships and recently expanded our relationship with Johnson Controls to their fire detection unit at our Denver campus. Another growth initiative with long-term ramification involves our healthcare programs. We recently brought on a seasoned professional to lead our nursing programs and have begun implementing changes to strengthen our instructional model and improve operating effectiveness. This review extends beyond implementing Lincoln 10.0, and we are quite excited about the long-term potential of this effort. Last quarter, we talked about our efforts to regain enrollment status at our Paramus Nursing Program. We have exceeded the graduation benchmark at this program for the past 12 months and are engaging with the state board so that we can once again be a full contributor to the effort to address the significant LPN shortage in New Jersey.

Just a brief note on the One Big Beautiful Bill Act. The most recent financial provision for us, the most relevant financial provision for us, is the introduction of annual and lifetime borrowing limits on Parent Plus loans, which goes into effect on July 1, 2026. However, based on our current analysis, we do not expect it to have a material financial impact. That's all I have to say on the One Big Beautiful Bill Act. For nearly 80 years, Lincoln has remained focused on delivering high-quality, life-changing career education, and no one else has our combination of longevity, scale, and proven experience.

By continuing 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, we believe we are on track to exceed our objective of approximately $550 million in revenue and approximately $90 million of adjusted EBITDA in 2027. As I've discussed before, our country's existing severe skills gap will likely get worse before getting 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 submarines a year, or the electric utilities' 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. Finally, I'd like to note we will be continuing our investor outreach with a non-deal roadshow scheduled for August 19th and 20th with Barrington Research in Portland, Oregon, and Salt Lake City, respectively, and participating in the September investor conferences organized by B.

Riley Securities, Lake Street Capital Markets, and Barrington Research on September 10th, 11th, and 16th, respectively. These activities follow our June 16th NASDAQ event, where we had the honor of ringing the opening bell in celebration of the 20th anniversary of our NASDAQ listing. With our continued operational and financial momentum, investor interest in Lincoln builds, and we are gratified by our increased analyst coverage. Currently, six analysts are publishing on the company, which I believe is the highest number of analysts in our 20 years of being a publicly traded company. Now I'll turn the call over to Brian Meyers so he can review some of our recent financial highlights and guidance. Brian?

Speaker 2

Thanks, Scott, and good morning, everyone. I'm pleased to share our second quarter results, which exceed our internal forecast, reflecting the strong momentum in our business. This performance was driven by robust student start growth and improved operating efficiencies, resulting in increased profitability. Before we dive into the numbers, a couple of reminders on our year-over-year comparisons. First, the financial comparisons in my remarks exclude the transitional segment, which consists of our former Summerlin, Las Vegas campus sold in late 2024. Second, as previously communicated during the first quarter's earnings call, as a result of a shift under our Lincoln 10.0 hybrid teaching model academic calendar, the student start class that took place in the last week of June 2024 shifted to July 1 in 2025. This was a one-time scheduling adjustment stemming from this year's calendar, and we expect to return to our typical June start schedule in 2026.

For comparison purposes, our Q2 reported population and student start figures include the class start on July 1, which accounted for 2,764 students. Revenue for the quarter was $116.5 million, representing a 15.1% increase over the prior year. The increase was primarily driven by our strong student start growth during the first half of the year. In terms of Q2, we had another solid performance as we grew an average student population by about 19%. We ended the quarter with about 17,100 students compared to 14,200 in the prior year, representing a 21% increase in population. Student starts for the quarter were approximately 5,900, representing about 22% growth over the prior year. Now diving deeper into the composition of our student start growth, we saw a 32% increase in starts across our Transportation and Skilled Trades programs.

Driven by continued strong demand and successful program additions and expansions, excluding the programs launched in 2024 and 2025, we still achieved 23% organic growth. As expected, our Healthcare and Other Professions programs experienced an 8% decline in starts. The decline was largely due to the temporary pause in enrollment in our nursing program at the Paramus, New Jersey campus. Additionally, as noted last quarter, we discontinued underperforming programs as part of our plan to optimize our campus operations with a higher student interest and employee demand programs. Excluding the impact from these factors, our Healthcare and Other Professions programs delivered modest organic growth for Q2. As Scott mentioned earlier, we remain highly focused on improving the financial performance of our Healthcare and Other Professions programs. With added personnel and dedicated resources, we are confident that these efforts will drive meaningful improvements and position the programs for long-term growth.

Turning to expenses, total operating expenses were $113.6 million, up from $101.8 million in the prior year. The increase is primarily tied to higher direct costs associated with supporting a larger student base, as well as expenses related to growth initiatives. From a profitability standpoint, our adjusted EBITDA grew by 56%, reaching $10.5 million, up from $6.7 million. Since our transitional Summerlin campus had a $0.5 million EBITDA loss last year, our total consolidated adjusted EBITDA growth increased 68%. This improvement reflects the operating leverage generated by several key initiatives. These include efficiencies from our Lincoln 10.0 hybrid teaching model, a 13% reduction in marketing costs per start, and a continuing decline in bad debt expense as a percentage of revenue. Net income for the quarter was $1.6 million or $0.05 per diluted share.

Adjusted net income was $2.7 million or $0.09 per diluted share, based on approximately 31.3 million diluted shares outstanding. As a reminder, given the seasonality of our business, we typically generate the majority of our annual profitability in the second half of the year. Now turning to the balance sheet, we ended the quarter with $63.7 million in total liquidity. Our ending cash balance and cash flow from operations were affected by a few timing-related factors during the quarter. First, we experienced a temporary slowdown in Title IV drawdowns, driven by a spike in verification selections by the Department of Education. This initiative was announced in early June and impacted institutions across the industry. As a result, our financial aid team, like many others, faced processing delays as they worked with students to gather additional documentation needed to clear eligibility.

Second, as noted earlier, the academic calendar change under Lincoln 10.0 impacted not only start timing but also the timing of Title IV disbursements. Specifically, some disbursements for both new and continuing students that would have occurred in late Q2 were pushed to Q3. As a result, we expect strong cash collections in the second half of the year, driven by both the timing shift in disbursements and our seasonality. We remain focused on executing on key capital projects. Total capital expenditures were approximately $58 million for the six months of the year, with $46 million reflected on the cash flow statement. The majority of our quarter spend was tied to two campus relocations and continued build-out of our future Houston campus, which remains on track to open in the fourth quarter of this year.

Based on our current plans, we are raising our full-year capital expenditures guidance by $5 million, bringing it to $75 million to $80 million. This increase is driven by growth initiatives, including our decision to take on additional space at a selected campus due to significant demand in the market. Looking ahead to the remainder of 2025, based on our strong second quarter performance and positive trends, we are raising our full-year guidance. We now expect revenue ranging from $490 million to $500 million, adjusted EBITDA in the range of $60 million to $65 million, net income ranging from $13 million to $18 million, capital expenditures ranging from $75 million to $80 million, and student start growth of 12% to 15%.

In terms of student starts for the second half of the year, we expect Q3 starts to be relatively flat, given the comparison to last year's strong performance, which saw over a 20% growth. That said, we anticipate Q4 starts to align more closely with the growth trends we've seen in the first half of the year. As a reminder, our guidance excludes stock-based compensation, one-time non-recurring items, pre-opening costs, and net operating losses for newly opened or relocated campuses. You'll find more detailed guidance information in our earnings release, which was filed earlier today.

In conclusion, based on our 2025 performance to date and our approved outlook for the year, driven by the momentum across our three core growth drivers: one, new relocated campuses; two, program expansions; and three, our growing organic demand in our existing base, we believe we're on track to exceed our 2027 financial objective of $550 million in revenue and $90 million in adjusted EBITDA that we established last year. With that, I'll turn the call over to the operator for questions. Operator?

Speaker 5

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Our first question comes from the line of Alex Paris from Barrington Research.

Speaker 4

Hi guys, morning and congrats on the beat and raise.

Speaker 2

Thanks, Alex.

Speaker 4

You're welcome. I'm just trying to decide my two questions. I think I'm going to start with the last one first. Brian, you had just said second half starts. You gave a little color about what to expect in Q3, Q4. Did you say relatively flat starts in the third quarter? What did you say for the fourth quarter?

Speaker 2

Yeah, relatively flat for Q3 because if you remember in Q3 of 2024, we had 20% growth, so it's a very high comparison. It should be very modest growth, you know, so relatively flat. Q4 will be on pace of what we did in the first half of the year. Q4 will be on pace with what we did in the first half of the year, which I think was like 18 to 20%.

Speaker 4

You were talking too on the adjustment of that start, because if you include that July 1 start, I would think starts would be up significantly year over year.

Speaker 2

Yeah, it would be up meaningful. Yes. Since we counted that in the second to make it apples to apples. Just for your own benefit, Alex, I mean, we budgeted the third quarter to be flat. Everything is, you know, on track for how we budgeted the full year. It flows with also how we budgeted for marketing expenses as well. Correct.

Speaker 4

Gotcha. Yeah, I do recall you telegraphing that on the last call. Then a follow-up question on the One Big Beautiful Bill. You talked about the lending limits, which should have no material impact on Lincoln, but there's some other positive things in there, I would think, from your perspective. First of all, Pell is funded. There was some talk in at least the House version of the bill that they would increase or reduce eligibility, and that's not occurred. Funding is intact. The projected shortfall for next year has been made up for. The introduction of workforce Pell, I'm curious about your thoughts on workforce Pell and what does that create additional opportunity for Lincoln?

Speaker 2

Yeah, we don't think it really creates that much more opportunity for us. I mean, we've looked at some short-term programs and there might be a few, but I don't view it as a major initiative for us. To be honest, when we've looked at some of those things, as long as you don't have to advertise for them, they make economic sense for us. To the extent we need to advertise to make people aware of these programs, we find that it doesn't make as much economic sense for us. If something comes around where we do see an opportunity, we'll certainly take advantage of it, but we're kind of focused on our core business right now.

Speaker 4

Great. I'm going to just cheat here and tag out one little one. You know, you've talked about exceeding your long-term targets, which were given in early 2023, and it's really not so long-term anymore. We're talking about fiscal 2027. When will you update and issue new long-term guidance?

Speaker 2

We will probably update the guidance we have in November, and then we will end up doing an investor day next year, in which case we will set out new targets for us.

Speaker 4

Great. Thank you very much for answering my questions, and I appreciate the time.

Speaker 2

Thanks, Alex. Appreciate it as well.

Speaker 4

Thanks, Al.

Speaker 5

Thank you. One moment for our next question. Our next question comes from the line of Luke Horton from Northland Capital Markets.

Speaker 4

Morning, Luke.

Speaker 5

Please check your mute button. Your line is now open. One moment for our next question. Our next question comes from the line of Raj Sharma from Texas Capital Bank.

Speaker 0

Thank you for taking my question again. Congratulations on a strong quarter and strong starts. I get the starts on the Transportation and Skilled Trades programs side were strong, and that was the one extra start in July 1 that was counted. That adjustment makes 3Q flat. Can you comment on the Healthcare and Other Professions programs starts and how they are in line or moving along?

Speaker 4

Sure. First of all, just one comment. The counting of the July 1 start is not an extra start for the second quarter. It's just to make the number of starts equal in 2024 and 2025, just as a clarification. On the healthcare side, we have, I think as we've discussed before, our healthcare segment is not as profitable today as our skilled trade segment. We haven't made as many investments in expanding the opportunity there until we get that segment to be more profitable, which, as I mentioned, I think Brian also mentioned, we do now have some new leadership there, which we anticipate will start turning that around. In fact, we're already seeing some signs of it getting better.

Overall, it is not growing nearly as rapidly as our skilled trade side, but some of that is mainly due to we're just investing more marketing dollars on the skilled trade side from the standpoint of that's where we're getting our strongest return. However, with all that said, I expect healthcare to be a future growth driver for us, but that'll be more later in 2026 and into 2027.

Speaker 2

Raj, I'll just add, even though healthcare was down by almost 8%, that included not having starts this year for our Paramus Nursing Program. As Scott was saying, we're optimistic that might come back shortly. We also taught out some underperforming programs such as culinary massage therapy. When you carve that out, our organic growth did grow slightly, less than 3%. We did have some organic growth on the same program basis.

Speaker 0

Could you sort of comment more on the healthcare side? Is it, you know, it's not profitable because you haven't achieved break-even sort of capacity utilization of campuses, or your competitors are seeing some really good growth opportunities in the near term, you know, in this sort of segment. Are you looking to allocate some capital or, you know, grow in this area organically?

Speaker 4

Yes. The answer is absolutely yes. As far as growing organically, the long and short of it, Raj, is our nursing program is the way it's structured. I think I've maybe mentioned this before. During the pandemic, our most important focus was ensuring that our students are going to get the quality education and be able to pass the NCLEX exams. Nursing salaries went up, you know, dramatically. We just continued to hire people at a high price in order to ensure the quality of the education. Now that's come down and we're restructuring it. I think, as we've mentioned in the past, our healthcare program nursing is not on the Lincoln 10.0 hybrid teaching model calendar or structure, which basically means we have two shifts for nursing. Once we get that to a blended format, we'll be able to have three shifts.

That will dramatically change the economics of that program, as well as give us greater capacity to meet the strong needs in the local markets. It's really on the healthcare side versus, I'll say, the medical assisting or dental assisting side that we're kind of held back on the growth. As soon as we get that restructured, that's where I'm saying later 2026 into 2027, we anticipate good growth. I think I've mentioned in the past, we are seeking degree-granting status in three different states: Connecticut, New York, and New Jersey. Once we get that degree-granting status, we'll be able to leverage our LPN program and then offer an RN program, which is what our longer-term goal is. It's the largest part of the healthcare sector and, frankly, all of our LPNs, if they haven't become an RN yet, are striving to become one.

With that combination, it'll, I think, be a very powerful healthcare offering, as well as a very profitable healthcare offering.

Speaker 2

Raj, I just want to add one thing for the healthcare schools. They are all profitable except for our Paramus campus because of the reasons they discontinued nursing. The campuses are all projected to be profitable by year-end, and it's because, as Scott mentioned, MA, and a lot of them do have skilled trade programs as well in those campuses. The campuses themselves are strong.

Speaker 0

Right. Thank you for that. Just one last question on the military and veteran side, in terms of, you mentioned increasing outreach in the past, military and veteran communities. There's also the recent bill that actually had an added contribution from the Department of Defense and tuition assistance. I don't know if that impacts you, but what is your medium-term sort of goal for this segment in terms of the percentage of total enrollment? Any specific programs that are happening there?

Speaker 2

Sure. Well.

Speaker 0

To increase.

Speaker 2

Yeah, no problem, Raj. Today, military represents less than 10% of our students. Frankly, part of the challenge is, as we move to Lincoln 10.0, it's a blended program. As I mentioned, just talking about nursing or the healthcare side, without a degree, you cannot offer a blended certificate program to military veterans. In certain markets, we've stopped serving the military, yet we're still achieving the growth that we're achieving. The reason we stopped serving them is because you cannot, as I say, offer a blended program. We would have to have them full-time on campus, which means that they have to be on campus more hours, which frankly reduces our operating efficiency. We've unfortunately made the decision to stop enrolling military students in, let's say, New Jersey, for example, where we don't have degree-granting status yet, because it just would add to our inefficiency.

As we get degree-granting status, which our application is in with the state of New Jersey, we'd anticipate getting that shortly. Once we graduate students from the degree program in New Jersey, we'll be able to re-enroll veterans. I would anticipate that that will be a nice growth driver for us once that happens, because as you probably well remember, Lincoln Tech was founded serving veterans. That's part of our heritage, and we want to get back to that heritage as much as possible.

Speaker 0

Right. Great. Thank you for answering my questions. I'll take it offline. Congratulations again.

Speaker 2

Thanks, Raj. Appreciate it.

Speaker 5

Thank you. One moment for our next question. Our next question comes from the line of Luke Horton from Northland Capital Markets.

Speaker 3

Hey guys, can you hear me this time?

Speaker 2

Yes, we can hear you.

Speaker 3

I'm sure Joey's back. Sorry about that. I'm not sure why we got disconnected, but congrats again on a really nice quarter here. Nice beat and raise again. Just wanted to see if we could get a sense for kind of what programs are driving these strong student starts, if you could kind of rank those. Also, just particularly on the East Point campus, it sounds like that's effectively moving twice as fast as initial expectations from an enrollment perspective. If you could kind of call out what programs there are also driving this outperformance.

Speaker 4

I'll just start with the second first. At East Point, all four programs, again, just to remind you, it's auto, HVAC, electrical, and welding, are all doing well and are strong. Frankly, those are our four highest growing programs out there. It's kind of across the board. Probably on the skilled trade side, more than automotive, is seeing more growth. You know, I'm happy with the growth that we have kind of across the board.

Speaker 3

Got it. You did mention the kind of plans to open two new campuses per year. Just wondering from a program mix perspective, is that going to be similar to those that auto, HVAC, electrical, or will there be more of an emphasis towards skilled trades versus auto? How do you think about that for new campuses?

Speaker 4

Yeah, good point. Good question. No, we anticipate opening the kind of just like in East Point. It'll have an auto component plus the skilled trades. With that said, we have looked at locations that may not have an auto. The only reason why that is, our auto program requires a higher ceiling height. You can put a skilled trades program into, frankly, a traditional office building, whereas I couldn't necessarily put an auto program into a traditional office building unless I maybe tear out a floor, which just adds to expense. We have explored potentially having a skilled trades only program, but all the markets that we've done our research in, there is demand for auto as well. As of right now, the plan is auto, HVAC, electrical, and welding, but it may be tweaked depending on the individual local markets.

Speaker 3

Okay, got it. Sorry for the disconnect earlier, but I appreciate you guys taking the questions, and congrats again on another strong quarter.

Speaker 4

Thank you. We're glad you're on the call.

Speaker 2

Thank you.

Speaker 5

Thank you. One moment for our next question. Our next question comes from the line of Eric Martinuzzi from Lake Street Capital Markets.

Speaker 6

Yeah, I wanted to dive in on the marketing efficiency. Are you doing anything different than 90 days ago, or is it just more the demand, the reaction of the demand to the marketing?

Speaker 4

It's a good question. The one I'm trying to get my hands around, as I probably have said in the past, are certainly, I want to give credit to our marketing folks as well as to our admissions folks as they make it all happen. When I see consistently kind of across the board improvements, particularly also in our, you know, some of our conversion rates with our admissions folks, I have to believe that there is greater overall receptivity. Our messaging is getting out there. We're attracting those that are interested in finding a very high-value, rewarding career. They are, I'd say, even more interested, which helps create the success that we're getting. I think the overall awareness in the marketplace and the demand by young people to look for something that's very tangible, which is what we offer. As an aside, I guess it's interesting.

I was at a conference recently where they were talking about AI and they were talking about how, even though we think this younger generation is so digital, that I guess there are fewer people looking to date online and looking for instead, you know, more face-to-face interactions. I think in general, if I were to extrapolate on that, I think in general, that's one of the rewards of the careers that we offer. People find it very concrete and real, what they are able to do once they enter the skilled trades. I think all these things are helping drive greater awareness, greater interest, and then needless to say, a greater number of students in our campuses.

Speaker 6

Got it. For the two locations where you've relocated facilities, how's your staffing retention been in Nashville and in Levittown?

Speaker 4

Levittown, we just moved a couple of weeks ago, so I can't tell you any predictions there, but really there, we're ramping up because at that campus, all we had was automotive. We obviously moved all of our automotive instructors over and we're now hiring up for the electrical, HVAC, and welding. I can assure you that when the students went from their, I'll say, very vintage facility into this brand new facility, it was just a number, it was just, you know, there's just lots of excitement, to say the least. People just were amazed by what they're now able to learn in. I have to imagine it's going to lead to, frankly, greater retention. It was similar at Nashville when they left their campus that was probably over 80 years old. It came into this state-of-the-industry facility. People couldn't be more proud and honored, frankly, to be there.

We're seeing good results, and frankly, it's making our jobs as far as attracting students much easier.

Speaker 6

Got it. Thanks for taking my questions.

Speaker 4

No problem, Eric. Thank you.

Speaker 5

Thank you. One moment for our next question. Our next question comes from the line of Griffin Boss from B. Riley Securities.

Speaker 7

Hi, good morning. Thanks for taking my questions. First, I just wanted to start off on the CapEx side. The expectation there ticked up a little bit for this year. Given the expectation for, you know, grow two campuses, two new campuses per year, and the growing demand you're seeing, and you increased your credit facility earlier this year, and you had a little drawdown this quarter, I know you're not giving guidance for 2026, but directionally, is there anything you could say as to the expectation there of where CapEx goes beyond this year? I mean, should we expect it to kind of remain at these relatively heightened levels versus years past?

Speaker 2

Yeah, I'll just mention two things. One is the capital expenditures going into next year is just for our new Long Island campus. Some of that, and as Scott mentioned in the Q3, we're hoping we'll announce another new location because obviously Houston is all in this year. I think it'll be at a lower level because even if we sign another new lease, it probably won't be until the latter half of 2026. It'll definitely be on the lower side of this year.

Speaker 7

Okay, great. That makes sense. Thanks for that, Miller. Second one for me, just looking at average student population and revenue, I mean, kind of back into this, call it average revenue per student or average tuition per student, that looked like it ticked down year over year. Is there any read-through there as to what's driving that, or is that just the mix of program students are entering in the second quarter, or any color you could provide there?

Speaker 2

Sure. Yeah, as we mentioned last quarter, this quarter, there's two reasons that's driving that. One is we've shifted to a pro-rata calculation for when students drop. You know, we used to do a state-based drop policy, and now we moved to a more pro-rata policy, which is more student-friendly. It does reduce the amount of revenue we do earn when a student does drop, but it also reduces our bad net expense. We're rolling that out. That'll go into next year also. Like I said, I don't think that'll affect our EBITDA at all, but it does lower our revenue that we earn on the drop students. It's offset by the bad net reduction. The main thing that happened this year is last year we had that one start that we talked about. It was June 24, so we earned all revenue and revenue on books and tools.

This year we didn't earn that revenue. There was about $2 million of revenue if we did have that start on June 24 this year, but we did have it on July 1. Those two items reduced our revenue per student.

Speaker 7

Got it. Excellent. Okay, thanks, Brian. I appreciate you guys taking my questions.

Speaker 2

Thanks. No problem.

Speaker 5

Thank you. One moment for our next question. Our next question comes from the line of Lars Munson from Tobor Capital.

Speaker 4

Yes, hi. Just following on that question about CapEx for Brian. To the outside observer, the returns on capital here don't look all that great. I'm just wondering, as someone newer to the story, which unit level return metrics or methodologies do you guys focus on, track internally, and hold yourself to? Over time, what kind of capital returns should investors expect for this business? Thank you.

Speaker 2

Right. First, we were very optimistic with our East Point campus because within the first year of operations, it returned profitability in Q3. Within three years of operations, we think we can get a return on investment there with our East Point campus. We're hoping these other campuses that are a little bit larger can do similar returns as well.

Speaker 4

Yeah, I would just say that, I mean, obviously the CapEx has been much larger recently, but we really haven't seen the benefit of that CapEx yet, except for East Point, which has been open 18 months. As we're already seeing, we spent a big amount of money on Nashville. We're already seeing improvements there in their starts. We obviously spent a lot of money on Levittown, but we just moved into that facility two weeks ago. You will start seeing in 2026 and 2027 the increase in revenue and cash flow that's going to come from those to justify the investments that have been made.

Speaker 2

Right. I'm just wondering, go ahead, sorry. Oh.

Speaker 0

East Point is doing what we thought it would do at 36 months out. The first full year, it's going to be doing over $6 million worth of EBITDA. We are getting a nice return there. The model on the website is not anticipating that, but we think it should reach those levels.

Speaker 4

Okay, just taking that example of East Point, what does that imply in terms of an IRR or return %? If you get that $6 million, how does that pencil out?

Speaker 2

It's about a $17 million all-in cash investment that 18 months after opening, actually it'd be like, let's say 20 months after opening, should generate between $6 million and $7 million of cash flow.

Speaker 4

Okay, thank you.

Speaker 7

Yep, no problem.

Speaker 5

Thank you. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. At this time, I would now like to turn the conference back over to Scott Shaw for closing remarks.

Speaker 1

Thank you, Operator, and thank you all for joining us today as we reviewed our continued progress, growth, 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. With our student start growth, new campus development, and increasing level of operating efficiencies, we believe we have numerous opportunities to generate increasing levels of shareholder returns over several years. Our success is only made possible by the commitment and dedication of our faculty and staff, who day in and day out are engaging with our students to motivate, educate, and inspire them to reach their potential.

At Lincoln Educational Services Corporation, we know our success is directly linked to our students' 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 goal. I hope to see you during my time on the road visiting shareholders, employers, and politicians as I share the Lincoln Educational Services Corporation story. Thank you all again and have a great day.

Speaker 5

This concludes today's conference call. Thank you for participating. You may now disconnect.