Lincoln Educational Services Corporation (LINC) Earnings

Management highlights

- Core Business and Strategic Positioning - Lincoln is a leading provider of skilled trades, transportation, and healthcare career training, benefiting from persistent national skilled worker shortages that are expected to grow as AI displaces white-collar roles - The company is targeting 2030 goals of $850 million in total revenue and $150 million in adjusted EBITDA - Demand for skilled trades graduates is extremely strong, especially for electrical, HVAC, and welding roles supporting AI data center construction and maintenance - Enrollment and Student Metrics - Q2 2026 student starts grew 1% year-over-year (lower than the projected ~9% growth), with 9% enrollment growth, due to lower conversion of enrolled students to starts - Ending total student population grew 10% year-over-year to 19,800 students, as 150 basis points of improvement in student retention offset softer start growth - Improved retention is attributed to expanded student support services that help students address personal and logistical barriers to completing their programs - The company expects August 2026 will deliver one of the largest start classes in company history, with high school starts projected to grow over 15% year-over-year - Campus Expansion Initiative - Two full-size new campuses are under development: Hicksville, NY (on track to open Q4 2026) and Rowlett, TX (on track to open Q1 2027) - The company launched a new smaller, lower-capital focused program campus model: the Suitland, MD campus (serving Washington DC metro) will offer electrical and HVAC programs, require $10 million in capital investment (half the cost of a traditional campus), and is projected to generate $15 million in annual revenue and $5 million in adjusted EBITDA at full ramp, opening Q4 2027 - A lease is being finalized for the company's first Arizona campus in Tempe, serving the Phoenix market, scheduled to open Q1 2028 - The company acquired the previously leased Melrose Park, IL campus building for $18.8 million, funded by a $15 million mortgage, with lower monthly payments than prior rent expense - Operational Improvements - The Lincoln 10.0 hybrid learning model combines in-person hands-on training with online coursework, reducing program completion time and delivering operational efficiencies; cost savings are reinvested in student support and program expansion - The company overhauled and expanded its high school recruiting team, and is seeing growing interest from students, parents, and guidance counselors in skilled trades training - Updates are being made to the company website and digital communications to improve large language model AI search visibility for Lincoln's differentiated program outcomes - Two campuses received third-party recognition for program quality in 2026

Guidance

- Management reaffirms all full-year 2026 guidance metrics except capital expenditures, maintaining: 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% - Full-year 2026 adjusted EBITDA guidance includes approximately $10 million in pre-opening and first-year losses for new campuses, as the company no longer excludes these losses from adjusted EBITDA - Capital expenditure guidance is increased from $70 million to $75 million to $95 million to $100 million, to account for the Melrose Park campus acquisition and 2026 spending on the new Suitland, MD focused campus; approximately 75% of planned capital spending is allocated to growth initiatives - Management expects student starts will return to low double-digit year-over-year growth in Q3 2026, supported by improved lead generation, expanded high school recruiting, and higher enrollment-to-start conversion

Segment performance

Lincoln Educational Services reports its program mix as 60% skilled trades, 20% healthcare, and 20% automotive. Skilled trades are the company's most profitable segment, delivering the highest margins and largest absolute dollar contributions to the bottom line. No separate absolute financials or revenue contribution percentages were provided for individual product segments in the transcript. Total company Q2 2026 revenue was $142 million, up 22.4% year-over-year; adjusted EBITDA was $12.7 million, up 42.4% year-over-year; net income was $1.9 million, up 25% year-over-year; and diluted EPS was $0.06.

Risks & headwinds

- Changes to AI search algorithms and large language model output can reduce lead generation and visibility for the company's programs, as AI models may prioritize lower-cost community college options without highlighting Lincoln's stronger outcomes and faster program starts - The resumption of federal student loan repayments starting in May 2025 led to an increase in student defaults on prior educational debt, which disqualified some enrolled students from accessing new Title IV financial aid and reduced Q2 2026 enrollment-to-start conversion - Lower-than-expected start conversion in Q2 created higher marketing cost per start, though stronger retention offset most of this impact on full-year results - New campus development can face timing delays from permit issues and weather, though management notes these delays have only shifted spending between quarters and have not impacted planned opening dates

Analyst Q&A

• Q: UTI (a competitor) reported weak high school start season and a shift away from automotive/diesel to other skilled trades, and employer direct apprenticeship programs are receiving press attention. How does Lincoln compare on these trends?

  A: Lincoln deliberately expanded its high school recruiting team last year, and is already seeing strong growth, with August high school starts projected up over 15% year-over-year. Growth will accelerate further in 2027 as recruiter relationships mature. Lincoln currently has a 60% skilled trades, 20% healthcare, 20% automotive mix, and skilled trades are already the company's most profitable segment, so the industry shift to trades benefits Lincoln. Its new focused campus model is specifically designed to expand low-capital access to high-demand trades. Management has not seen material impact from employer direct apprenticeship programs on enrollment, and is instead partnering with employers to support student financing and graduate hiring, including very strong demand from AI infrastructure firms.

• Q: How much of Q2's soft start growth is attributable to AI search shifts, and how much of a headwind do you expect for the back half of the year?

  A: AI search changes slightly slowed lead volume growth in Q2, as large language models often only highlight cost and miss Lincoln's advantages (higher graduation rates than community colleges, faster start times, direct access to trade programs). Lincoln is updating its website to make its differentiated outcomes more accessible to AI models, and is already seeing lead growth improve. August 2026 is on track to be one of the largest starts in company history, indicating the adjustments are working. As AI search platforms introduce paid advertising, management expects a more level playing field similar to traditional search.

• Q: How much of the 22%+ revenue growth gap over 9% enrollment growth comes from tuition pricing versus other factors?

  A: Average annual tuition increases are only 2% to 3% across programs, with modestly higher increases for the highest-demand trades. Approximately half of the revenue growth gap in Q2 comes from a pro forma adjustment: a Q2 2025 start that was shifted to July 2025 was included in the year-ago comparison, adding a few days of revenue and all related textbook/tool revenue to the 2025 comparison base. The remaining half of the gap comes from normal 2% to 3% annual tuition increases.

• Q: What is behind the better-than-expected student retention improvement this quarter?

  A: Retention is up 200 basis points year-over-year, driven by targeted investments in expanded student support services. The company added more student service advisors at all campuses to proactively help students address personal and logistical challenges (such as transportation issues) that often force students to drop out. These initiatives have been rolled out over the past 14 months, and management expects further retention improvements in 2027, as the company works toward a 70% target graduation rate.