Lincoln Educational Services Corporation (LINC) Q2 2025 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Lincoln Educational Services Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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.

Thank you, Gigi. Good morning, everyone. Before the market opened today, Lincoln Educational Services issued a news release reporting financial results for the second quarter ended June 30, 2025, as well as recent corporate development. 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 the term is identified in federal securities laws. The word 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 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, 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. 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 requeue to ask any additional questions. In advance, we thank you for your cooperation. Now I'd like to turn the call over to Scott Shaw, President and CEO of Lincoln Educational Services. Scott, please go ahead.

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 4-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 experience 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 will provide more details on the leverage we achieved 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 health care 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 campuses 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 5, 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 has 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 school while building our enrollment, and we are quite excited about the long-term potential of this initiative. In addition to East Point in 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 realized 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 developed each year to two and to fund this expansion through operating cash flow. With each new campus, our objective is to achieve $25 million to $30 million in annualized revenue and $7 million to $10 million of EBITDA by the fourth quarter of operations -- excuse me 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 time lines 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 health care 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. Meanwhile, 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 Paramus 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. And 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 19 and 20 with Barrington in Portland, Oregon and Salt Lake City, respectively, and participating in the September investor conferences organized by B. Riley, Lake Street and Barrington on September 10, 11 and 16, respectively. These activities follow our June 16 NASDAQ event, where we had the honor of bringing 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?

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 stock 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 academic calendar, the start class that took place in the last week of June 2024 shifted to July 1 in 2025. This was a onetime 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 start figures includes 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 stock 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 prior year. Now diving deeper in the composition of our start growth. We saw a 32% increase in starts across our transportation skill trades program, 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 program 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 operation with the higher student interest and employee demand programs, excluding the impact from these factors, our HOPS program delivered modest organic growth for Q2. As Scott mentioned earlier, we remain highly focused on improving the financial performance of our HOPS programs. With added personnel 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 was 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 education model, a 13% reduction in marketing cost per start and 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 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 selection -- 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 face processing delays as they work with students to gather additional documentation you need to clear eligibility. Second, as noted earlier, the academic calendar change on the 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 or 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 our 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 CapEx 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; student stock 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 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, onetime nonrecurring items, preopening costs and net operating losses for newly open or relocated campuses. You'll find more detailed guidance information on our earnings release, which was filed earlier today. In conclusion, based on our 2025 performance to date and our improved 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 at 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. And with that, I'll turn the call over to the operator for questions. Operator?

[Operator Instructions] Our first question comes from the line of Alex Paris from Barrington Research.

Congrats on the beat and raise. I was just trying to decide my two questions. I think I'm going to start with the last one first. Brian, you had just said that second half starts, you give a little color about what to expect in Q3, Q4. Did you say relatively flat starts in the third quarter? And then what did you say for the fourth quarter?

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

And you were talking to on the adjustment of that start because if you include that July 1st start, I would think, starts to be up significantly year-over-year?

Yes, it would be up meaningful.

Yes, but since we counted that in the second to make it apples-to-apples. And just for your own benefit, Alex, I mean we budgeted the third quarter to be flat. So everything is on track for how we budgeted the full year.

And it flows with also how we budgeted for marketing expenses as well.

Correct.

Got you. Yes, 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 are some other positive things in there, I would think, from your perspective. First of all, Pell, is funded. There was some talk at least the House version of the bill that they would increase or reduce eligibility, and that's not occurred. So funding is intact. The projected shortfall for next year has been made up for and then the introduction of Workforce Pell. So I'm curious about your thoughts on Workforce Pell and what does that -- does that create additional opportunity for Lincoln?

Yes. 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, I mean, 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. But 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. So 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.

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

Well, we'll probably update the guidance we have in November, and then we'll end up doing an Investor Day next year, in which case we'll set out new targets for us.

[Operator Instructions] Our next question comes from the line of Luke Horton from Northland Capital Markets. Our next question comes from the line of Raj Sharma from Texas Capital.

Congratulations on a strong quarter and a strong start. So I get the starts on the transportation side were strong, and that was the one extra start in July 1 that was counted and then-- so that's the adjustment makes 3Q flat. But can; you comment on the health care starts and how they are in line or moving along?

Sure. So first of all, just one comment. The counting of the July 1 starts, 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. But on the health care side, yes, we have -- I think as we've discussed before, our health care segment is not as profitable today as our skilled trades segment. And so 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 we'll start turning that around. And in fact, we're already seeing some signs of getting better. So 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 health care to be a future growth driver for us but that will be more later in 2026 and into 2027.

Right. And Raj, I'll just add, even though health care 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. And also, we teached out some underperforming programs such as culinary, massage therapy. So when you carve that out, our organic growth did grow slightly less than 3%. So we did have some organic growth on same program basis.

So could you sort of comment more on the health care side? Is it -- it's not profitable because you haven't achieved breakeven sort of capacity utilization of campuses or -- and your competitors are seeing some really good growth opportunities in the near term in this sort of segment. Are you looking to allocate some capital or grow in this area organically?

Yes. The answer is -- the answer is absolutely, yes. Yes, as far as growing organically. The long and short of it, Raj, is our nursing program is the way it's structured. And I think I 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. And nursing salaries went up dramatically, and we just continue 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. And I think as we've mentioned in the past, our health care program, nursing is not on the Lincoln 10.0 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 so 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. So it's really though on the health care side versus, I'll say, the medical assisting or dental assisting side, that were kind of held back on the growth. But as soon as we get that restructured, that's what I'm saying later 2026 into 2027, we anticipate good growth. And I think I've mentioned in the past, we are seeking degree-granting status in three different states: Connecticut, New York and New Jersey. And 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 health care sector and frankly, all of our LPNs if they haven't become an RN yet or striving to become one. So with that combination, it will, I think, be very powerful health care offering as well as a very profitable health care offering.

And Raj, I'll just want to add one thing for the health care schools. They are all profitable except for our Paramus campus because of the reason they discontinued nursing. But so 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. So the campuses themselves are strong.

Right. And then just one last question. On the military and veteran side, just in terms of -- so you mentioned increasing outreach in the past, military veteran communities. There's also the recent -- the Bill actually had a added contribution from 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?

Sure. Yes. I mean -- Yes, no problem, Raj. So yes, today, military represents less than 10% of our students. And frankly, part of that challenge is, as we move to Lincoln 10.0, it's a blended program. And as I mentioned, just talking about nursing or the health care side, without a degree, you cannot offer a blended certificate program to military veterans. So frankly, in certain markets, we stop serving the military, yet we're still achieving the growth that we're achieving because we stopped serving them is because you cannot, as I say, offer a blended program. So 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 efficiencies. So 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 yet because it just would add to our inefficiency. So as we get degree granting, which our application is in with the state of New Jersey, so we'd anticipate getting that shortly. And then once we graduate students from a degree program in New Jersey, we'll be able to reenroll veterans. So I would anticipate that, that will be a nice growth driver for us once that happens because as you probably will remember, Lincoln Tech was founded serving veterans. That's from part of our heritage, and we want to get back to that heritage as much as possible.

Our next question comes from the line of Luke Horton from Northland Capital Markets.

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? And then also just particularly on the East Point campus, sounds like that's effectively moving twice as fast as initial expectations from an enrollment perspective. So if you could kind of call out what programs there are also driving this outperformance?

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

Got it. And then -- 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? Or how do you think about that for new campuses?

Yes, good question. No, we anticipate opening the kind of just like an East Point. So it will have an auto component plus the skilled trades. With that said, we have looked at locations that may not have an auto. And the only reason why that is our auto program requires a higher ceiling height and 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. So 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. So as of right now, the plan is auto, HVAC, electrical and welding but it may be tweaked depending on the individual local markets.

Our next question comes from the line of Eric Martinuzzi from Lake Street Capital Markets.

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

It's a good question and 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. But when I see consistently kind of across-the- board improvements, particularly also in our -- some of our conversion rates with our emissions folks, I have to believe that there is greater overall receptivity. So our messaging is getting out there. We're attracting those that are interested in finding a very high-value rewarding career, but they are, I'd say, even more interested, which helps create the success that we're getting. So 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 was 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 more face-to-face interactions. And 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. And so 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.

Got it. And then for your -- the two locations where you've relocated facilities, are you -- how is your staffing retention been in Nashville and then Levittown?

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. So 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 there, I'll say, very vintage facility into this brand-new facility, it was just a number -- there's just lots of excitement to say the least. People just were amazed by what they are now able to learn in. And so 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. Again, people couldn't be more proud and honored frankly, to be there and we're seeing good results. And frankly, it's making our jobs as far as attracting students much easier.

Our next question comes from the line of Griffin Boss from B. Riley Securities.

First, I just wanted to start off on the CapEx side, that -- the expectation there ticked up a little bit for this year. But given the expectation for growth, 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?

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

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

Sure. Yes. As we mentioned last quarter, there is -- this quarter, there's two reasons that's driving that. One is we've shifted to a pro rata calculation for when students drop, we used to do a state-based drop policy. And now we move to a more pro rata policy, which is more student-friendly. So it does reduce the amount of revenue we do earn when a student does drop but also reduces our bad debt expense. So we're rolling that out. That will go into next year also. Like I said, I don't think that will affect our EBITDA at all, but it does lower our revenue that we earned on the drop students. It's offset by the bad debt reduction. But 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 the books and tools. And this year, we didn't earn that revenue. So there was about $2 million of revenue if we did have that start in June 24 this year, but we did happen in July 1. So those two items reduced our revenue per student.

Our next question comes from the line of Lars Munson from Tibor Capital.

Yes. Just following on that question about CapEx for Brian. To the outside observer, the returns on capital here don't look all that great. And 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? And over time, what kind of capital returns should investors expect for this business?

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

Yes. 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. So as we're already seeing -- we spend a big amount of money on Nashville. We're already seeing improvements there in their starts. We obviously spent a lot of money in Levittown, but we just moved into that facility two weeks ago. So 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.

I just wonder -- go ahead, sorry.

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

Okay. But just taking that example of East Point then, what does that imply in terms of an IRR or return percentage-wise? If you get to -- get to that $6 million, does that -- how does that pencil out?

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

[Operator Instructions] At this time, I would now like to turn the conference back over to Scott Shaw for closing remarks.

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 in 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 Tech, we know our success is directly linked to our student success and we will continue to share with the world that middle-skills careers like the ones we offer lead to rewarding, productive and fulfilling careers that our nation desperately needs. I'd like to thank our shareholders for their support and our entire team for their dedication to achieving our goals. I hope to see you during my time on the road visiting shareholders, employers and politicians as I share the Lincoln Tech story. Thank you all again, and have a great day.

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