Executive Summary / Key Takeaways

• Lincoln Educational Services is capitalizing on the growing demand for skilled trades and healthcare professionals, driven by a national skills gap and increasing recognition of vocational education as a valuable alternative to four-year degrees.
• The company's strategic initiatives, including geographic expansion with new campuses and program replication at existing locations, are fueling robust student start and population growth, translating directly into strong revenue increases.
• Implementation of the Lincoln 10.0 hybrid teaching model is enhancing operational efficiency, improving student outcomes, and contributing to margin expansion and profitability growth, as evidenced by recent financial results.
• Strong financial health, including a debt-free balance sheet and expanded credit facility, provides the capital flexibility needed to fund significant investments in new facilities and programs, supporting long-term growth objectives.
• Management has raised full-year 2025 guidance and remains confident in achieving its 2027 targets of approximately $550 million in revenue and $90 million in adjusted EBITDA, reflecting expected continued demand and operating leverage.

A Foundation Built on Skills: Lincoln Tech's Strategic Resurgence

Lincoln Educational Services Corporation, with roots tracing back to 1946, has long been a provider of career-oriented postsecondary education. Founded by a veteran to assist fellow servicemen in acquiring workforce skills, the company has evolved into a network of 21 campuses across 12 states, focusing on high-demand fields such as automotive technology, skilled trades (electrical, HVAC, welding), healthcare services, and information technology. This historical focus on practical, hands-on training positions Lincoln Tech squarely at the intersection of a critical national need: the widening skills gap.

The current environment presents a significant opportunity for institutions like Lincoln Tech. As employers across various sectors struggle to find qualified technicians, electricians, welders, and healthcare workers, the value proposition of vocational education is gaining increasing recognition. This trend, sometimes referred to as the rise of the "Toolbelt Generation," reflects a shift away from the universal push for four-year college degrees, with more individuals seeking time-efficient and cost-effective paths to rewarding careers. Lincoln Tech is strategically positioned to capture an increasing share of this growing market, leveraging its longevity, scale, and proven experience.

Lincoln's strategy is built on several interconnected pillars designed to capitalize on this demand and enhance operational performance. These include expanding its geographic footprint, replicating successful programs across existing campuses, increasing operating efficiency, maximizing facility utilization, and evolving its teaching platform. The company's recent performance demonstrates tangible progress on these fronts, translating into strong financial results and a positive outlook.

A key differentiator and enabler of Lincoln's strategy is the Lincoln 10.0 hybrid teaching model. This platform blends hands-on learning at campus facilities with a component of classroom work delivered through online instruction. The first major phase of implementation was completed by the end of 2024, covering approximately 65% of the student population, with a target to reach 95% by the end of 2027, including the integration of nursing programs in Phase 2 starting in 2026. This technology offers tangible benefits: it provides increased flexibility for students balancing work and life commitments, reduces the time needed to complete many curriculums, and accelerates graduates into careers. For the company, Lincoln 10.0 creates instructional efficiencies, space efficiencies, and organizational productivity, contributing to operating leverage and margin expansion. While specific quantifiable efficiency gains per student are not detailed, the model's contribution to improved operating margins is evident in recent financial results. In automotive programs, Lincoln also utilizes the Electude curriculum and integrated training equipment, a cloud-based e-learning platform that is a global leader in automotive training. This technology employs discovery learning principles and seamlessly integrates with hands-on trainers, enhancing the student experience and providing a competitive advantage in delivering up-to-date automotive education.

Strategic Expansion and Operational Momentum

Lincoln's geographic expansion strategy is gaining significant traction. The East Point, Georgia campus, the company's first new greenfield campus in over a decade, opened in March 2024 and quickly exceeded expectations, becoming profitable by the third quarter of 2024. This success has reinforced confidence in the new campus model. Building on this, the company is executing plans for three new campuses opening in 2025: the relocation of the Nashville campus (rebranded NADC, completed Q1 2025, adding electrical and HVAC programs), the relocation of the Philadelphia facility to Levittown, PA (expected summer 2025, adding three new programs), and a new campus in Houston, TX (expected Q4 2025, offering automotive, HVAC, electrical, and welding programs, though facing some building permit delays). Looking further ahead, a new campus on Long Island, NY, is targeted for opening by the end of 2026, intended to complement the existing Queens campus and serve the strong demand for skilled trades in that region.

Alongside new campus development, program replication is a vital growth driver. The company plans to launch 10-12 high-demand programs across existing campuses between 2024 and the first half of 2025, including electrical, HVAC, and welding expansions. These initiatives are expected to generate approximately $1 million each in profitability within three years of opening. As part of optimizing its program portfolio for student return on investment and efficient space utilization, Lincoln has exited certain lower-demand programs like cosmetology, culinary, and massage therapy, leading to the divestiture of the Euphoria Institute campus in Las Vegas in January 2025.

Corporate partnerships also remain a key focus, connecting students directly with employers seeking skilled talent. While decision-making timelines have lengthened for some new partnerships due to economic uncertainty, interest from Corporate America remains strong. Notable relationships include a five-year workforce development agreement with Container Maintenance Corporation (CMC), expected to generate approximately $6 million in revenue by leveraging Lincoln's curriculum to train CMC employees at their own facility. Partnerships with companies like Hyundai/Genesis and Tesla (TSLA) (expanding to a third training center) further enhance program relevance and graduate employability.

Financial Performance Reflecting Strategic Execution

The execution of these strategies is clearly reflected in Lincoln's recent financial performance. For the three months ended March 31, 2025, revenue increased by $14.1 million, or 13.7%, to $117.5 million compared to $103.4 million in the prior-year period. This growth was primarily driven by a 13.1% increase in average student population and a 16.2% increase in new student starts. The Campus Operations segment, which represents the core business, saw revenue grow 16.0% to $117.51 million, with operating income surging 71.9% to $21.67 million, demonstrating significant operating leverage. The Transitional segment had no activity in Q1 2025 following the sale of the Summerlin campus.

Operating expenses increased in absolute terms, reflecting the larger student population and investments in growth initiatives, but showed improved efficiency as a percentage of revenue. Educational services and facilities expense decreased to 40.3% of revenue in Q1 2025 from 41.6% in Q1 2024, driven by higher student starts and facilities costs but offset by instructional efficiencies, partly attributable to the Lincoln 10.0 rollout. Selling, general, and administrative expense also declined as a percentage of revenue, from 58.5% to 56.9%, despite increased administrative costs for expanded workforce and higher pay incentives, and higher student services expenses. Marketing efficiency improved, with cost per start decreasing 20% compared to the prior year. Bad debt expense also declined in absolute terms and as a percentage of revenue, reflecting improved collection efforts.

Overall, operating income for Q1 2025 was $3.41 million, a substantial improvement from $0.46 million in Q1 2024. Net income for the quarter was $1.94 million, or $0.06 per diluted share, compared to $0.21 million, or $0.01 per diluted share, in the prior year.

Lincoln maintains a strong balance sheet and liquidity position. As of March 31, 2025, the company had $28.66 million in cash and cash equivalents. While cash decreased from $59.27 million at December 31, 2024, this was primarily due to increased capital expenditures funding growth initiatives. Net cash used in operating activities improved to $8.38 million in Q1 2025 from $14.93 million in Q1 2024, driven by higher net income and improved cash collections. Net cash used in investing activities was $19.64 million, reflecting significant investments in property, equipment, and facilities, particularly for new campus build-outs and program expansions. Capital expenditures were 13.1% of revenues in 2024 and are projected to be approximately 16.0% in 2025, funded by operating cash flow and cash on hand. The company is debt-free and recently expanded its revolving credit facility with Fifth Third Bank (FITB) from $40 million to $60 million, with an accordion feature up to $25 million and an extended maturity to March 7, 2028, providing ample financial flexibility for future growth.

Competitive Landscape and Positioning

Lincoln operates within a competitive post-secondary education market that includes other for-profit institutions, community colleges, and increasingly, online platforms and corporate apprenticeship programs. Key publicly traded competitors include Universal Technical Institute (UTI), Strategic Education (STRA), Adtalem Global Education (ATGE), and Grand Canyon Education (LOPE).

Lincoln's estimated aggregate market share in career-oriented education is in the range of 5-10%. While competitors like LOPE and STRA may have larger overall market shares or greater digital scale, Lincoln differentiates itself through its specialized focus on hands-on skilled trades and automotive programs, its expanding physical footprint in targeted markets, and its hybrid Lincoln 10.0 model. Compared to UTI, which also focuses on trades, Lincoln's hybrid model offers greater flexibility and potential operational efficiencies. Against online-focused competitors like STRA and LOPE, Lincoln's campus-based model provides essential hands-on training critical for trades and certain healthcare professions, potentially leading to higher practical skill acquisition and job placement rates in these specific fields. However, these online competitors often benefit from lower operating costs per student due to digital scalability, which can pressure margins. ATGE, strong in health sciences, presents direct competition in that segment, where Lincoln's hybrid model is being applied to enhance efficiency.

Lincoln's competitive advantages lie in its established brand reputation built over 78 years, its strong relationships with employers seeking skilled graduates, its debt-free balance sheet providing financial agility for expansion, and its innovative Lincoln 10.0 hybrid platform which enhances efficiency and student experience. The company's strategy of clustering campuses in certain regions also contributes to operating efficiencies. Vulnerabilities include potential regulatory changes impacting Title IV funding (a significant source of revenue, representing ~82% of cash receipts related to revenues in 2024), dependence on student enrollment trends, and the execution risk associated with opening multiple new campuses and programs simultaneously. The recent Executive Order regarding the potential closure of the DOE and the subsequent reduction in force introduce uncertainty regarding the timing and administration of federal student aid, though Congressional action is required to dissolve the department. Lincoln actively engages with regulatory bodies and industry groups to advocate for policies that support career education and a level playing field.

Outlook and Future Growth

Management is optimistic about the future, citing continued strong demand for skilled workers and the positive momentum generated by its strategic initiatives. Based on the strong Q1 results and positive trends, the company has raised its full-year 2025 guidance. Revenue is expected to range from $485 million to $495 million, representing significant growth over 2024. Adjusted EBITDA is projected to be between $58 million and $63 million, and net income is guided to be between $10 million and $15 million. Student start growth is anticipated to be robust, in the range of 10% to 14% for the full year.

While a large class start is shifting from the last week of June 2024 (Q2) to July 1, 2025 (Q3), which will impact the quarterly start cadence (reducing Q2 starts, boosting Q3 starts), management notes this timing change will have minimal impact on the cadence of quarterly revenue. Combined Q2 and Q3 starts are still expected to grow in the high single-digits.

Capital expenditures are projected to be between $70 million and $75 million in 2025, reflecting ongoing investments in new campuses, relocations, and program expansions. These investments are central to achieving the company's long-term objectives. Management remains confident in reaching its 2027 targets of approximately $550 million in organically generated revenue and approximately $90 million in adjusted EBITDA, implying continued operating leverage and margin expansion, estimated at around 200 basis points per year.

Key risks to this outlook include potential adverse changes in the regulatory environment, particularly concerning Title IV funding eligibility and administration, which could be impacted by political shifts or operational disruptions at the DOE. Enrollment declines due to economic conditions or increased competition, challenges in student placement, and the successful execution and ramp-up of new campuses and programs also pose risks. However, the company's strong balance sheet, strategic focus on high-demand programs, and operational efficiencies provided by the Lincoln 10.0 model position it to navigate these challenges.

Conclusion

Lincoln Educational Services is executing a clear and effective strategy to capitalize on the significant and growing demand for skilled trades and healthcare professionals in the United States. By expanding its footprint through new campuses and program replication, enhancing operational efficiency and student outcomes with the Lincoln 10.0 hybrid model, and maintaining a strong financial position, the company is demonstrating its ability to drive both top-line and bottom-line growth. The strong performance in Q1 2025 and the raised full-year guidance underscore the positive momentum. While regulatory risks and execution challenges for expansion initiatives warrant monitoring, the fundamental market trends, coupled with Lincoln's strategic responses and technological advancements, provide a compelling narrative for long-term value creation. The company appears well-positioned to continue its growth trajectory and work towards its ambitious 2027 financial targets, making it a relevant consideration for investors seeking exposure to the essential and growing middle-skills economy.