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DATE

Monday, Aug. 10, 2026 at 10:00 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer and President - Scott Shaw
• Executive Vice President and Chief Financial Officer - Brian K. Meyers
• Investor Relations - Michael Polyviou

TAKEAWAYS

• Revenue -- $142.6 million, representing a 22.4% increase driven by a 14.5% rise in the average student population and tuition increases of 2% to 3%.
• Adjusted EBITDA -- $12.7 million, a 42.4% increase over the prior year quarter despite the inclusion of $3.1 million in losses from new campuses.
• Net Income -- $1.9 million, up 25% due to top-line growth and improved operating efficiencies across the campus network.
• Student Starts -- 1% growth during the quarter, representing a deceleration from the approximately 20% growth seen in the first quarter due to lower enrollment-to-start conversion rates.
• Ending Student Population -- 18,904 students, a 10.4% year-over-year increase across the company's 22 campuses.
• Full Year Revenue Guidance -- $590 million to $600 million, reiterated by management based on first half results and projected third quarter student start growth.
• Adjusted EBITDA Guidance -- $76 million to $80 million, reaffirmed for the full year and including approximately $10 million in projected new campus losses.
• Capital Expenditure Guidance -- $95 million to $100 million, increased from the previous $70 million to $75 million range to account for the $18.8 million Melrose Park property acquisition and the Suitland campus build-out.
• Student Attrition -- 150 basis point improvement through June, reflecting investments in student service advisers and the 10.0 hybrid teaching platform.
• Focused Program Campus Model -- $10 million estimated capital investment for the new Suitland, Maryland campus, which is less than half of the $25 million required for traditional campuses.
• Suitland Campus Financial Outlook -- $15 million in annual revenue and $5 million in EBITDA projected at full ramp, with an estimated internal rate of return exceeding 30%.
• Property Acquisition -- $18.8 million for the Melrose Park, Illinois campus building in July, funded with $15 million in new mortgage financing to reduce monthly cash outlays relative to previous rent.
• Total Liquidity -- $143.2 million as of June 30, 2026, comprising $44.2 million in cash and $99 million of availability under a $125 million credit facility.
• Operating Cash Flow -- $26.6 million for the first six months of 2026, an improvement of nearly $35 million compared to the prior year period.
• Student Population Mix -- 60% skilled trades, 20% healthcare, and 20% automotive, with skilled trades currently serving as the most profitable segment.

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RISKS

• Shaw stated, "defaulted students are not allowed or do not have the ability to take on any more Title IV funds," noting that the resumption of federal student loan repayments caused an initial wave of defaults that prevented some enrolled students from starting classes.
• Shaw noted that "sometimes the AI models are simplistic, and what they look at is cost, in which case they may highlight a community college over us," potentially obscuring the differentiation and higher graduation rates of the company's programs.

SUMMARY

Lincoln Educational Services Corporation (LINC -24.93%) reported sustained growth in revenue and student population while executing a strategic expansion through its new focused program campus model. Management noted a temporary slowdown in student start growth during the second quarter, attributed to student loan defaults and evolving digital search behaviors, but maintained full-year financial objectives. The company is prioritizing its skilled trades segment to meet high employer demand and is reinvesting operating efficiencies into student support services to drive higher graduation rates. Strategic capital allocation is focused on acquiring campus properties and developing smaller, specialized facilities in high-demand markets like the Washington, D.C. metropolitan area.

• CEO Shaw projected that the August start class would be "our company's largest in history," supporting the full-year start growth guidance of 10% to 14%.
• Management reported that high school recruiting efforts have been overhauled, with third quarter high school starts expected to rise by more than 15%.
• The company is advancing partnerships with organizations involved in data center infrastructure to supply trained electrical, HVAC, and welding technicians for the maintenance and build-out of facilities.
• CEO Shaw noted that skilled trades "have the highest demand" and are expected to remain insulated from the effects of artificial intelligence deployment on the domestic labor market.
• The Lincoln 10.0 hybrid teaching platform is being utilized to reduce the time required to complete curriculums while providing students with flexibility to balance work and education.
• The company added a second campus in Maryland via a lease in Suitland, which will initially offer electrical systems technology and HVAC programs to address regional demand.
• Management confirmed that the Hicksville, New York campus remains on schedule to begin student enrollment during the fourth quarter of 2026.

INDUSTRY GLOSSARY

• 10.0 Hybrid Teaching Platform: A learning model combining hands-on campus facility training with online classroom instruction.
• Adjusted EBITDA: A non-GAAP metric representing earnings before interest, taxes, depreciation, and amortization, adjusted for stock-based compensation and non-recurring items.
• IRR: Internal Rate of Return, a metric used to estimate the profitability of potential investments.
• MSA: Metropolitan Statistical Area, a geographical region with a high population density at its core and close economic ties throughout the area.
• SHARE Program: A high school recruiting initiative where students attend classes during their junior and senior years to accelerate certificate completion.
• Title IV Funds: Federal financial aid for post-secondary students, including Pell Grants and Stafford Loans.

Full Conference Call Transcript

Operator: Hello, and welcome to Lincoln Educational Services second quarter 26 earnings call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you would need to press 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. I would now like to hand the conference over to Michael Polyviou. You may begin.

Michael Polyviou: Thank you, Towanda. Good morning, everyone. Before the market opened today, Lincoln Educational Services issued a news release reporting financial results for the first quarter excuse me, for the second quarter ending 06/30/2026 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, CEO and president, and Brian K. Meyers, Chief Financial Officer and Executive Vice President. Today's call is being recorded. It 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 that term is identified in federal securities laws. The words may, will, expect, believe, anticipate, project, plan, intend, estimate, and continue as well as similar expressions are intended to identify forward looking statements. 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 segment 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 information available at the time those statements are made, and management's good faith belief as of that time with respect to future events. All forward looking statements are qualified in their entirety by this cautionary statement. And Lincoln undertakes no obligation to publicly revise or update any forward looking statements whether as a result of new information, future events, or otherwise after the date thereof. 1 other housekeeping matter. During the Q&A portion of the call today, we would ask questioners to limit themselves to 2 questions and then requeue to ask any additional questions. In advance, we thank you for your cooperation.

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

Scott Shaw: Thank you, Michael, and good morning, everyone. Thank you for joining us today to recap the progress Lincoln has made towards achieving our goals for 2026 as well as continued progress towards the 2030 targets we communicated earlier this year. We had a strong second quarter as we generated 22.4% revenue growth 42.4% adjusted EBITDA growth and increased net income 25% over prior year quarter levels. We also realized a $22 million improvement in operating cash flow for the quarter and further our liquidity and resources to execute our growth strategies with the expansion of our credit facility.

As a result of our performance during the quarter and first half of the year and current trends, we are reiterating our full year guidance while we increase our capital expenditure outlook to advance strategic growth initiatives. Brian will-- sorry, Brian will review our guidance in full during his comments. Lincoln Tech is leading the way in an evolving skilled trades marketplace as we have for the past 80 years. As a recognized leader of education and training services for safe in demand rewarding careers in the skilled trades, transportation, and health care fields, we are benefiting from the continuously expanding interest across America as the demand for skilled workers exceeds supply.

We have focused our strategies on simplifying operations to maximize graduate opportunities in skilled trades which have the highest demand. Our focused programs are for trades expected to remain in high demand as the effects of artificial intelligence deployment impacts white collar and other jobs across the country. During the first quarter of this year, we achieved student start growth of nearly 20% and we expected second quarter start growth to moderate to approximately half this rate. While enrollments for the quarter did grow at approximately 9%, our starts growth slowed to 1%.

Throughout the quarter, we identified changes in our leads and took action to ensure that prospective students were receiving accurate information to make the best decision for their future. With that said, the environment is dynamic as students utilize new AI tools in search for new career opportunities. The good news is that our strong brand and outcomes continues to drive up our organic leads and changes we are making to our website and other digital communications will further enable the large language models to better recognize and highlight our differentiation and superior outcomes. As we look to our second half, we see positive signs that our efforts are improving our lead generation results.

As per our start calendar, we had very few classes starting in July. But we have a very robust August, which we are expecting to be our company's largest in history. Given what we have achieved in the first half of the year and what looks like a return to robust growth in the third quarter, we remain confident in our full year student start growth guidance of 10% to 14%. A contributing factor to August projected strong starts is our reinvigorated high school recruiting platform. Last summer, we started an overhaul and expansion of our high school recruiting team given renewed interest by students, parents, and even guidance counselors in the skilled trades.

At present, we expect our high school starts in the third quarter to be up more than 15%. While we see improvement this year from these investments, we expect even more growth next year as the teams build on their relationships and reach even more prospective students. During the quarter, we continued to execute our new campus development project in Hicksville, New York and Rowlett, Texas. Hicksville remains on schedule to begin enrollment during the fourth quarter of this year While Rowlett should begin enrolling students in the first quarter of next year. Our efforts to identify suitable facilities in our underserved markets remain at a high pace.

And during the quarter, we have added another leg to our new market development strategy with the signing of a lease for our focused program campus in Suitland, Maryland. At 36 thousand square feet of space, the Suitland campus is approximately 50% of the size of our traditional campus facility and will initially offer electrical systems technology and heating, ventilation, and air conditioning programs to meet the exploding demand for employees trained in these skilled trade areas in the Metropolitan Washington DC area. The Suitland campus is our second in Maryland and we are hopeful it will generate similar marketing synergies that we continue to generate in the Metropolitan Atlanta market with our East Point and Marietta campuses.

The focused program development strategy being deployed in Suitland is expected to involve a $10 million capital investment versus our traditional campus development investment of approximately $25 million. And should produce about $5 million of EBITDA within 3 years. We are already building out the facility and plan to open during the fourth quarter of 27. With the development of the focused campus initiative, we have increased our expansion opportunities within and beyond the top 25 MSAs. I am also pleased to announce that we are finalizing a lease for a 90 thousand-square-foot in Tempe, Arizona, which is our first campus in Arizona. We expect it to open by the first quarter of 28 to serve the greater Phoenix market.

This campus will be similar to our Hicksville and Rowlett campuses, offering automotive, electrical, HVAC, and welding. Meanwhile, our other growth initiatives continue to progress. We have recently added another member to our corporate development team and are advancing corporations involved in developing the data center infrastructure needed to support the growing demands of AI organizations. Not only are employees trained in electrical, HVAC, and welding needed to build the centers, the electrical and HVAC trades are needed to maintain the centers to high-performance standards. Given Lincoln Tech's track record at enrolling, supporting, graduating, and placing students, we are excited about helping corporations maximize their potential through providing exceptionally trained skilled trade employees.

Our leadership in skilled trades training is increasingly being recognized by third parties. For instance, in July, our Melrose Park, Illinois campus was included in USA Today's America's Top vocational schools for 2026. It was the second year in a row Melrose Park achieved inclusion in the list and comes after 81% of the campus's 600 graduates were hired for careers in their field. The USA TODAY survey evaluates career training schools based on 5 criteria, including graduation rate, graduate salaries, diversity within the student body, anticipated years to pay off the program cost, and social mobility.

In addition, our Grand Prairie, Texas campus was named a school of excellence by the Accrediting Commission of Career Schools and Colleges recognizing the campus' outstanding performance during its reaccreditation renewal. Earlier, I mentioned the success of our direct high school student recruiting efforts. In addition, we continue to generate substantial interest in our high school SHARE program where 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 a rewarding career. The list of interested school districts gets longer as we await funding decisions on some 2-dozen requested share proposals we have submitted to districts.

If the proposals are accepted and funded, this will be another positive contributor to 2027. We continue to realize operating efficiencies across our 10.0 hybrid teaching platform by providing students flexibility to those needing to balance work and life while earning their certificate or degree. We have achieved this flexibility by combining hands on learning at campus facility 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.

While our Lincoln 10.0 hybrid teaching platform continues to realize instructional efficiencies for the company, our instructors, and our students, we are also continuing to invest some of the savings gained from these inefficiencies back into our campuses with expanded programs, processes, and staffing to continuously drive improved student outcomes. Emotional and life support to help students face the challenges they experience in pursuing a new career while holding down a job and or raising a family are offered, and we believe this service is positively impacting our student retention rate at our programs open for more than a year, helping to build our already high graduation rate.

Striving to provide the best education and training for safe, rewarding, and in demand careers continues to drive our entire organization forward. Achieving this quest has put us in a position to approach $600 million in revenue for the full year. Our momentum as well as the availability of resources from our recently increased credit facility brings us another step closer to achieving our 2030 objectives. of $850 million in revenue and $150 million of EBITDA as we continue to expand our leadership position. After 80 years of providing high quality, life changing career education, we have amassed an unmatched combination of longevity, scale, and proven experience.

By continuing to execute our strategies to expand our network of schools, and replicating our most in demand programs at our existing campuses, we are providing a unique proven model to help America close its chronic and severe skills gap by meeting the growing demand for more talented men and women to enter the skilled trades. We have aggressively worked to increase the visibility of our message by those who can benefit from our training and career preparation and are constantly assessing how we can improve on our delivery. We have made substantial progress on this front in the past several weeks, and are excited about the prospects for the second half of the year.

Before I turn the call over to Brian, I would like to note we will be continuing our outreach efforts over the next few months by attending conferences and conducting non deal roadshows and other events with our covering analysts. We will be participating at the Barrington and Lake Street conferences in September as well as a fireside chat with Northland. Now I will turn the call over to Brian K. Meyers so he can review the financial highlights for the second quarter and first half of 26 and review our reiterated 2026 guidance. Brian?

Brian K. Meyers: Thank you, Scott, and good morning, everyone. I will begin with a few recent developments then review our second quarter 26 financial results and discuss our outlook for the remainder of the year. As a reminder, during last year's second quarter earnings call, we noted that a change to our Lincoln 10.0 academic calendar shifted a start class that would typically have occurred in late June to July 1, 2025. To provide a more consistent comparison, we adjusted our second quarter 25 student start to include that class. Accordingly, the second quarter 26 starts discussed today are compared with those adjusted numbers.

Starting with recent developments, as discussed on our last call, we have amended our credit facility in April, significantly increasing our financial flexibility by more than doubling the revolving credit facility capacity to $125 million. As Scott mentioned, in June, we expanded our growth initiatives to include a new focus program campus model when we announced the lease of our new facility in Suitland, Maryland, which further expands our presence in Washington DC Metropolitan Area. Subsequent to quarter-end, We also completed the acquisition of the building housing our Melrose Park, Illinois campus which we had previously leased. I will provide more details on these transactions shortly. Now let's turn to our second quarter financial results.

Our growing student population continue to drive strong revenue growth and EBITDA margin expansion in the second quarter. Operating income and net income also increased although as previously communicated, at a slower rate than our EBITDA, due to the higher depreciation expense of our recent capital investments. Demand for our programs remained strong with our ending student population increasing by approximately 1.8 thousand students, or 10% year-over-year across our 22 campuses. Revenue increased 22.4% to $142 million during the quarter, marking more than 3 consecutive years of sustained double digit quarterly revenue growth. The increase was primarily driven by a 14.5% growth in our average student population.

As Scott noted, while we are reiterating our full year student start growth guidance, our start rate was lower than expected during the second quarter. Despite high single-digit enrollments in line with our expectation heading into the quarter, a lower percentage converted to starts. As a result, student starts increased 1% during the quarter and the lower staff volume contributed to a higher cost per start. In response, we have implemented actions to improve conversion from enrollment to start. While student start growth was softer than expected during the quarter, the impact was largely offset by a stronger retention among existing students. Through June, student attrition has improved by approximately 150 basis points compared with the prior year.

These favorable retention trends kept our student population in line with expectations and supported our 22.4% revenue increase during the quarter. They also contributed to the strong student population, which is up over 10% compared to last year as we enter the third quarter supporting continued revenue growth. Looking ahead, we believe the actions we have taken, which Scott reviewed, are gaining traction. An early third quarter performance is encouraging. We currently expect student starts to return to low double digit year over year growth in the third quarter. Supported by improved lead trends our investment in high school recruitment, and strong enrollment conversion metrics.

As Scott mentioned, these encouraging trends could result in 1 of the largest start classes in the company's history this month. We are also seeing a greater percentage of students at our upcoming start class complete the financial aid package process earlier in the enrollment cycle. Historically, students who are packaged earlier have converted to starts at a higher rate. This encouraging trend combined with our broader initiatives to improve enrollment to start conversion supports our confidence in our third quarter student start outlook. It also reinforces our full year start growth guidance of 10% to 14%. Operating expenses increased $22.6 million to $139.2 million broadly in line with our revenue growth.

These increased expenses were consistent with our budgeted expectations reflecting our larger student population continuing investments in growth initiatives, higher depreciation associated with our new facilities, and the timing of booking tool expense. Adjusted EBITDA increased 42.4% to $12.7 million As a reminder, our calculation of adjusted EBITDA no longer adds back the losses related to new campuses in their preopening initial year of operations. We incurred new campus losses of $3.1 million in the second quarter compared to losses of $1.3 million in the prior year quarter. Despite these additional investments, our adjusted EBITDA margin expanded slightly compared to the prior year. Net income was $1.9 million, up from $1.5 million in the prior year.

Diluted EPS was $0.06 based on approximately 31.4 million weighted average diluted shares outstanding. As a reminder, due to the seasonality of our business, we typically generate most of our annual profits during the second half of the year. Year to date capital expenditures totaled approximately $33.2 million, of which $29.1 million is reflected in the statement of cash flows. Spending that occurred in the second quarter was below plan primarily due to the timing of permits and weather related delays. Shifted a significant portion of the planned expenditures into the third quarter. We do not anticipate these timing differences to result in any significant delays in our opening of our new campuses.

Turning now to the balance sheet and financing activities. Building on the positive operating cash flow we generated in the first quarter, cash flow from operations totaled $26.6 million for the 6 months ended 06/30/2026, compared with a use of $8.1 million in the prior year period. An improvement of nearly $35 million We ended the quarter in a strong financial position with $44.2 million in cash and $99 million of availability under our expanded credit facility. This represents total liquidity of $143.2 million, with $26 million of debt outstanding under the facility.

The focus program campus model we are creating in Suitland, Maryland requires an estimate of $10 million in capital investments, which is less than half of the traditional campus build-out is projected to deliver an IRR of over 30% with a faster payback than our larger model campus due to shorter construction time. At full ramp, the Suitland campus is expected to generate more than $15 million in revenue and $5 million in adjusted EBITDA. in EBITDA. This compares to a traditional campus requiring approximately $25 million in capital investments and generating $30 million in revenue and $10 million in EBITDA at full ramp.

The acquisition in July of our Melrose Park, Illinois property for $18.8 million was funded with $15 million in new mortgage financing. When the property became available, we took the opportunity to secure an important long term campus asset while improving our cash flow as the mortgage payments are now lower than our previous rent expense. Turning to our full year outlook, we are reiterating our guidance for all metrics, except capital expenditures. We continue to expect revenue of $590 million to $600 million adjusted EBITDA of $76 million to $80 million net income of $23 million to $26 million diluted EPS of $0.74 to $0.83 and student start growth of 10% to 14%.

As mentioned earlier, beginning in 2026, calculation of adjusted EBITDA no longer excludes preopening and first year losses from new campuses. Accordingly, our guidance now includes approximately $10 million in new campus losses, which continues to be in line with our expectations and excludes only noncash stock based compensation. With regard to our capital expenditures, guidance, we are increasing it from $70 million to $75 million to $95 million to $100 million. increase reflects the $18 million purchase of the Melrose Park property and the anticipated 2026 spend of our Suitland, Maryland campus. Growth initiatives represent approximately 75% of our planned capital expenditures underscoring our continued focus on expanding capacity and supporting future enrollment.

As additional campus locations are announced, we will update our capital expenditure plans accordingly. In closing, we remain focused on executing our growth strategies achieving our 2030 objectives of $850 million in revenue and $150 million of adjusted EBITDA. We appreciate the dedication of our team and their continued commitment to delivering high quality education and strong outcomes for our students. With that, we will turn the call over to the operator for questions. Operator?

Operator: Thank you. Ladies and gentlemen, as a reminder to ask the question, please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. Please limit yourself to 1 question and 1 follow-up. Our first question comes from the line of Alex Paris with Barrington Research. Your line is open.

Alex Paris: Hi, good morning guys. Thanks for taking my questions.

Scott Shaw: Sure, good morning, Alex.

Brian K. Meyers: Good morning. Morning.

Alex Paris: I have a couple, and they are related. First question, given the announcements of UTI in the trade school space last week also, you differed by having a stronger health, high school start season. Than they, But I am also wondering about shift from auto diesel to skilled trades, which your competitor noted last week. And then also, our employers hiring more potential students directly? Some of these announcements that we have all seen in the press You know, quasi apprenticeship programs, you know, they get paid while they are getting their training. Maybe you can compare and contrast the 2 different approaches.

Scott Shaw: Sure. So first on high school, I mean, as I mentioned in my remarks, I mean, last year, we made a concerted effort to invest more in our high school market. We have about 20% of our students that are historically coming to us right out of high school. Some of our competitors have more than that, so we saw an opportunity to gain more growth by expanding that. Especially in a time when, the high school students and faculty and parents and guidance counselors are all more receptive to our message. So we did change our approach. We bolstered our team, and we continue to invest in that place in the high school recruiting efforts.

And we expect I said, to have really strong August start. A lot of that growth is coming from high school and we expect that to continue. And we expect, frankly, next year to have even more growth the high school marketplace really requires, talented individuals that remain employed with you as they build relationships at these high schools. And the longer and stronger those relationships are, the more success you will have. And we are starting to see that. And with regards to skilled trades versus automotive, I mean, for the last, frankly, couple years, we have been seeing a continual shift with more interest in the skilled trades.

And, I think we have shared this a little bit, but today, when you look at our population, we are about 60% skilled trades. 20% health care, and 20% automotive. And our skilled trades means we have been doing skilled trades for 80 years. You know, HVAC started back in 1.95 thousand. So I think we have a really good handle on the trades, and our trades are, frankly, our most profitable business both as a margin as well as absolute dollar contributions, to the bottom line. So as that trend has continued, that has benefited us you know, frankly, as an organization.

And part of our focus campus model is frankly to help leverage that opportunity because it is a lot easier and, for us to find facilities that we can open up HVAC and electrical programs in then facilities that have automotive and welding as well. Require some additional, height capacity and other things. For those other 2 programs. So, anyway, long story short, trades are very important to us. Trades are critical, to our further growth, and we do quite well with them. And then I forget, Alex. a third part to your question?

Alex Paris: Apprenticeship.

Scott Shaw: Oh, the apprenticeship. Mm-mm. Yeah. Yeah. Apprenticeship.

Alex Paris: Competition you know, historically, your competition came from community colleges with their capacity constraint. I am wondering what sort of competition you are seeing from employers directly hiring. And training.

Scott Shaw: Yeah. So, I have read about it we have not seen the impact of that or really taking hold at any material way, as far as how it might be impacting us. We are certainly having more and more discussions with our existing employers as well as finding new employers, because I am fully on board that, companies should be supporting students while they are with us and certainly after us with helping them with their financing of their education. But we are also just seeing such strong demand, on the back side. We are forming a new we formed a new partnership with an organization that is supports AI.

They started off with they want to hire 10 students a week from us, but they want to ramp it up to 20 as quickly as possible. And they are paying between $70 thousand and $100 thousand for our graduates, which is just incredible opportunity for people. The only reason why I just mentioned that is that there is going to be more and more opportunity, I think, to tap into our existing employers and future companies that we connect with to help finance our students' education. But long story short, we have not seen anything that indicates that somehow the apprenticeship model is I will say, taking a big piece of the pie in any stretch of imagination.

Alex Paris: Okay. And then my related follow-up and last question, I promise. Is I think there is some deliberate language in the press release. Our start growth for the quarter is slowed to 1% as fewer enrolled students than expected attended the first day of class. Is what we have historically called the show rate the show rate, you have a conversion from a lead to an application and then a conversion from an application to a start. So it sounds like that is where the issue is you explain that a little bit? And what are you doing differently with enrollment counselors to improve that enrolled student to start?

Scott Shaw: Sure. Yeah. So as we said there, we had about a 9% increase in enrollment. And unfortunately, based off of start rates had held to where they have been historically, we would have had 9% growth in our, starts. The softness you know, comes from multiple sources. 1, Brian mentioned, we are doing a much better job with packaging our students, getting them the financial aid. The sooner students know what they-- how they are going to pay for their education, the more certain they are to start with us. So we are definitely working on that.

We are also working with our admissions folks as well as some of our educators to stay in contact with students stitch in events, making sure that they know that this is a good opportunity for them, that they can complete the education, so that they, end up starting with us. There are also other touch points we are enhancing and making more broadly available to students. But I also will tell you there was an event, that kind of kicked in and happened and impacted us. And it will exist going forward, but I am anticipating that it will be less.

And what happened is as you know, the government did require students to start repaying their loans back in May. And what that has resulted in, is now that we are, more than let's say, 10 months later, those students, some of them have defaulted. And defaulted students are not allowed or do not have the ability to take on any more Title IV funds. So we did see a few percentage points of our students no longer be able to start with us because as we were packaging them, they could not get any more financial aid. Because as you know, we have a lot of adult students that have gone community colleges or other paths.

And, unfortunately, I guess they got conditioned like a lot of people over the last 5 years that you have to repay your debt. And then when the government required them to repay their debts, they ended up defaulting. So I am assuming that, that wave, initial wave is gonna be the biggest impact there, and then that should lessen over time. But that was also 1 of the factors, Alex, that softened our start rate in the second quarter.

Alex Paris: Thank you very much. I appreciate the additional color and allowing my questions.

Scott Shaw: Yeah. No problem. Thank you.

Operator: Our next question comes from the line of Lucas John Horton with Northland Capital Markets.

Luke Horton: Yes. Hey, guys. Thanks for taking the questions. I did want to touch back on the student starts growth for the quarter. And can you just talk about the dynamic of the increasing usage of AI search how much of the start softness in the quarter do you think was directly attributed to that And then also, I guess, kind of how much of a headwind from that are you baking into the back half of the year here?

Scott Shaw: Sure. So, you know, the AI, tough to know exactly what the exact impact was. I mean, we certainly saw some of our lead volume slow down a bit in the quarter. AI is incredible technology, but in many regards, it is as good as the prompts you give it. And what we do a lot of searching on our own just to understand how they interpret what people are typing in. The good news is we see that Lincoln Tech pops up more times than not as a great opportunity for people.

However, with that said, we also see that sometimes the AI models are simplistic, and what they look at is cost, in which case they may highlight a community college over us. Now as we all know, there is a lot of benefits for coming to a school like ours. First, our graduation rates are 2 to 3 times that of community college. If you are an adult looking to change your life, you might have to wait till September or January to start as a community college versus start within 30 days of reaching out to us.

You know, these models do not tell you that you may have to start off just taking gen ed courses before you can get into the skilled trade programs that you want. My point being is they are not getting the full picture. So what we are doing is trying to change what is available on our website so that these large language models can give students a better insight into what a career or opportunity is at Lincoln versus other things. And we are starting to see some improvement in the leads because of that. And some, additional attraction to us.

At the end of the day, though, you know, we have a superior product and we know our product, frankly, today is better than it is ever been. The challenge as you, as we are facing and some others is just getting in front of people to make sure that they understand that. So we are gonna continue to work with our vendors, continue to tweak our websites to make all the data as readily available, possible for these large language models to read. And, you know, as we just said, we do see a much stronger August than we have ever seen before.

So I interpret that as we are making progress, but there is still more work to be done.

Luke Horton: Got it. Okay. And then lastly for me, just on revenue growth of north of 22%, on enrollment growth of about 9%, It kind of implies a meaningful revenue per student uptick, I guess. Could you just kinda walk us through, I guess, how much of that gap is tuition or if you guys have pricing power here with just kind of the strong demand versus program mix shift or anything else that we could be missing on that front?

Brian K. Meyers: Hi, Luke. Yeah. So, tuition increases are 2% to 3%.

Scott Shaw: Historically, you know, we look at all our programs and programs that are a little bit more demand, it a little bit higher tuition going forward, and some are, you know, where there is competition every else, it could be a little bit lower. So it is it does average 2% to 3%. But what happened in the quarter is that we got a benefit from that 1 start that happened in July of last year that we pro forma-ed for, into 2025 into the second quarter. So we got a couple of days of revenue from that. We also got all the books and tool revenue from that.

A lot of the tool revenue we earn when we give it out. So that about half of the, I will say, the increase came from that additional STAR class, the shift in the start class and the other half Was for, tuition increases that helped our revenue per student. But just to be clear, our tuition increases on average is around 2% to 3%, kind of across the board for all of our programs. Yep.

Luke Horton: Okay. Got it. Makes sense. Thank you, guys.

Scott Shaw: Yep. No problem. Thank you, Lucas.

Operator: Please stand by for our next question. Our next question comes from the line of Steven Frankel with Rosenblatt Securities. Line is open.

Steven Frankel: Good morning, Scott. I would like to go back to this Q2 start issue 1 more time and maybe go and parse it this way. How much of the shortfall was a leads issue versus a process issue.

Analyst: Like, you talked about maybe the either default or not getting financial aid done at the right time.

Scott Shaw: Yeah. So, well, as I said, from a numbers perspective, we had 9% increase enrollment. So if the start rate had held, we would have had 9% growth in starts. And that was kind of right in line with what we anticipated. With that said, we also were anticipating, frankly, more, enrollment growth from the lead volume that we had been seeing in the prior quarter. So overall, some of the leads started to lessen within the quarter, which frankly lessened the number of enrollments we were hoping to possibly achieve. But as far as the exact number again, the 9% to 1%, those are processed.

Those are the fact that some of the defaulted students could not start, from you know, they defaulted from taking out loans at another institution. And then, you know, the processing of the financial aid for our students just to get more through the door. As well as, you know, there is always something else that, you know, I am just basing that off of what we know. But, certainly, there could be some changes because of the, AI that maybe the students that we have enrolled have some different perspectives on things. Well, we are not 100% sure.

All I can tell you is that, the growth that we are seeing and anticipating in Q3 certainly tells me that we have solved part of that problem, and we are gonna continue to work to make sure that we can be as robust as possible because we just know from talking to employers that demand is greater than it is ever been And from frankly talking to prospective students, we know there is a strong interest.

Steven Frankel: Okay. And then in terms of that Q3 strength, high school is typically what percentage of The overall starts in Q3.

Scott Shaw: About 40%.

Steven Frankel: K. And are the leads back to growing where you want them in Q3?

Scott Shaw: Or do you still have this AI leads issue that you have to work through? there is still AI issues we have to work through. I mean, again, changes happen all the time. Sometimes Google will change their algorithms and everything's moving smoothly, and then you have to figure out how you readjust to it. Our world was turned upside down during COVID. We figured out how to, you know, adjust to it. This is just another 1 of those instances where the playing field changed and we are taking action to correct it. And we are very confident that we can overcome it simply because our product is so strong, and I believe our brand is so strong.

So it is an opportunity ahead of us but, you know, things are not, I cannot say that things are the same as what they were 12 months ago. But I do anticipate things getting better. I mean, also, these AI models have to generate income as well. I mean, we are already seeing that chat GB is starting to offer paid advertising. And I think as they start I will say, behaving much more like Google, we will certainly have a benefit from that and be able to, I will say, have a more level playing field going forward. Okay.

Steven Frankel: But just to sum up, your leads are now back to growing year over year as you look at Q3 and into Q4?

Scott Shaw: Yeah. Yeah. I mean, our leads grew. Do not forget. Our leads grew also in the second quarter. it is just that the rate of growth was less. We continue to see continued progress across the board.

Steven Frankel: Okay. Great. I will jump back in the queue.

Scott Shaw: Thank you. Yeah. No problem.

Operator: Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Your line is open.

Eric Martinuzzi: Yeah. Following up on the new student starts the curious to know if this was kind of system-wide or if you noticed any concentrations in certain regions of the of the company's operations.

Scott Shaw: Yeah. Good question. No. It was basically system wide. With that said, our East Point campus just continues to be you know, robustly growing. But, overall, it was kind of across the board and across the board by program. There was not anything to discern, Eric, from what was happening as if there was regional or programmatic issues of any kind?

Eric Martinuzzi: Mhmm. And then you did call out and highlight the retention. Anything that you have been able to determine as far as what is behind the better than expected retention?

Scott Shaw: Oh, sure. I mean, we have put in a number of programs to help improve our goal is to get to 70% graduation rates. We are about 200 basis points this year higher in our retention than we were last year. And it all comes down to providing better customer service. We have put more student service advisers in all of our campuses. So that they can interact with students and help them when, you know, frankly, life gets in the way. Sometimes they might have a car breakdown. They cannot get to school, so we help them find a car pool. Other issues might pop up.

And just by being attentive and on top of it and making sure that students know that we are there to support them, gives them a lot more confidence, and makes them more successful. But, yeah, we have a number of initiatives that our education team has been implementing over the last 14 months. To make this happen, and we anticipate further growth and improvement next year.

Eric Martinuzzi: Got it. Thanks.

Scott Shaw: Sure.

Operator: Our next question comes from the line of Griffin Boss with B. Riley Securities. Your line is open.

Griffin Boss: Hi, good morning. Thanks for taking my questions. First, I want to start off. Scott, you talked about the opportunity to partner with more AI companies, in order to help supply that funnel of labor required for not only data center build out but data center maintenance over the next few years. Can you just dig more into that opportunity and that employer pipeline?

Scott Shaw: Sure. So, I mean, Johnson Controls has been a longtime partner of ours, and we have done things with them with their fires and alarm systems, and now we are doing things with them for both the building of data centers as well as training for the maintenance of those data centers. So since that is a name that we have always talked about, I am happy to share that. But we also have a number of other companies that have come to us that, well, let's say for competitive reasons, I am not gonna give their names out at this point, who are looking to hire students.

We have another organization in the AI field that is looking to, frankly, pay us, frankly, a fair amount of money per student that we place with them. We have another organization that is looking to create a specialized training program so that our students can slide more easily into their organization. All around, AI infrastructure.

So it is just that we are reaching out to more companies as well as more companies are coming to us as they see the value of our, I will say, national somewhat national footprint, but also the program is the same across our platform, which makes it very easy for these larger companies to understand what the quality is of our students and what their skill sets are. So it is it is just a very robust market, which is fortunate for us and for our students.

Griffin Boss: Got it. Thanks for the color, Scott.

Scott Shaw: Yeah. That will be exciting to see more developments in the coming quarters.

Griffin Boss: And then just 1 more follow-up for me and maybe for Brian here. Given the higher CapEx ex expectation for the year, how if at all, does that change how you are thinking about the carryover of that revolver from quarter to quarter historically? You have kinda looked to, you know, pay down any outstanding amounts at the end of the year. Is that gonna change, or is that still the expectation going forward?

Scott Shaw: Go ahead.

Brian K. Meyers: So now with the I will say this. We announced that we are gonna have a mortgage outstanding of $15 million that we took, so that will be outstanding at the end of the year. And now, you know, while we will be slightly free cash flow negative, so I would say about maybe, you know, at the end of the year about, like, $20 million worth of well, actually, give me 1 second.

Scott Shaw: I cannot go with that. You are about, like, $20 million or so outstanding on the credit agreement. Including the $15 million. Yeah. Right. Right.

Griffin Boss: Understood. Okay for that, Brian. Appreciate you, both taking my questions.

Brian K. Meyers: Yep.

Scott Shaw: No problem.

Operator: Our next question comes from the line of Alex Paris with Barrington Research. Thanks.

Eric Wold: Good morning. I wanna go back to the, you know, the conversion rate from enrollment to start. So what level would you say you are back to now in terms of, you know, start to enrollment kind of ratio versus where it is been historically? And kind of what are you assuming in the back half of the year guidance, you are reaffirmed guidance, you assume that kind of that conversion rate kind of gets back to historical levels, or you think there is still be some pressure on that in the back half of the year?

Scott Shaw: We think that it will, certainly get better than we had in second quarter. I can tell you our next start frankly, occurs tomorrow. And so then a week from tomorrow, we will know exactly what the numbers are. But I can tell you that as we have gone through orientation over the last week, we are not seeing, I will say, as much fall off as what we saw in the second quarter. So to me, that gives me greater confidence that things are moving in the right direction and that we will have this robust start in August. So it is just a matter of, like, a lot of things, just constantly staying on top of things.

And not taking anything for granted and really making sure that we are communicating with our students, frankly, in a more robust way. In order to drive that start rate back up.

Eric Wold: Got it. And then any update on did you kind of expanding kind of the breadth of kind of slots during the week for the hybrid offering, kinda get more options, more availability for students that may not be able to have a work with the current general.

Scott Shaw: I apologize. Could you say the question again? I did not hear it all. I apologize.

Eric Wold: Sure. Any update on kind of offering additional slots with the new hybrid offering in 2 additional periods of the week that may work with students? Yeah.

Scott Shaw: That can work with the current Yeah. So we have a few, you know, we have 3 sessions a day, so with the morning, afternoon, and evening. And we do have 2 campuses now, maybe 3, have a weekend shift utilizing Friday, Saturday, Sunday. Just because there was a need and opportunity to do so. So it is still, as I said, maybe at 2 or 3 campuses with 1 program, but we have that flexibility as demand or we reach, capacity at certain locations with certain programs, we still have that lever to open up, to enable us to grow without spending more capital.

You know, with that said, I did highlight our East Point campus, and we are in the next, hopefully, 30 days, gonna open up an additional 15 thousand square feet that we had to build out at that campus, which will add about 500 students of capacity. We just see that campus continue to be extremely robust frankly, despite the fact that there is been some new competition come into the marketplace. If anything, we have seen their marketing spend drive more leads to us. Because it just highlights to me that there is such a untapped large market out there for students to go into the trades. They just need to be made aware of these opportunities.

So more marketing dollars that go towards it, I think, helps the whole industry. Just like these advertising for apprenticeships and other programs that are out there, just brings more awareness overall. And there is such a shortage and such a need, that, I see it just frankly benefiting us. I mean, it is -- I do not know. Today, remain as robust as exciting as I have ever seen them. Perfect. Thank you. Sure.

Operator: Thank you. Ladies and gentlemen, I am showing no further questions in the queue. I would now like to turn the call back over to Scott for closing remarks.

Scott Shaw: Thank you, operator, and thank you all for joining us today as we reviewed our strong progress. While Lincoln is benefiting from both macro operating environment trends and our own consistent execution of growth initiatives, at our existing campuses and new facilities, we are also demonstrating our ability to react quickly and successfully to changing dynamics within the market. I could not be more bullish on the need for skilled trade professionals and desire by prospective students to enter the field. Our investments in our operations, our students, and our organization continue to create numerous opportunities to generate increasing levels of shareholder returns over several years.

Of course, our success is only made possible by the commitment and dedication of our faculty and staff and the success of our students. I would like to thank our shareholders for their support and our entire team for their dedication to achieving our goals. Thank you all again, have a great day.

Operator: That concludes today's conference call. You may now disconnect.