Prepared remarks
Hello, and welcome to Lincoln Educational Services second quarter 2026 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 *1 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press *1 again. I would now like to hand the conference over to Michael Polyviou. You may begin.
Thank you, Towanda. Good morning, everyone. Before the market opened today, Lincoln Educational Services issued a news release reporting financial results 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, Chief Executive Officer 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 statements and projections upon which the forward-looking 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. 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 would like to turn the call over to Scott Shaw, CEO and President of Lincoln Educational Services. Scott, please go ahead.
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 furthered 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 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 impact 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 continue 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 projects 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. 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 36,000 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, D.C. 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 three years. We are already building out the facility and plan to open during the fourth quarter of 2027. 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 90,000-square-foot facility in Tempe, Arizona, which is our first campus in Arizona. We expect it to open by the first quarter of 2028 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 corporate relationships 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 five 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 two 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 Lincoln 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 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. 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 efficiencies 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 2026 and review our reiterated 2026 guidance. Brian?
Thank you, Scott, and good morning, everyone. I will begin with a few recent developments, then review our second quarter 2026 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 2025 student start to include that class. Accordingly, the second quarter 2026 starts discussed today are compared with those adjusted numbers. Starting with recent developments, as discussed on our last call, we 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 focused program campus model when we announced the lease of our new facility in Suitland, Maryland, which further expands our presence in the Washington, D.C. 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 continued 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 three 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 start 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 one 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, which 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 six 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 focused program campus model we are creating in Suitland, Maryland requires an estimated $10 million in capital investments, which is less than half of the traditional campus build-out, and 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. 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. This 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 and 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.
Questions and answers
Thank you. Ladies and gentlemen, as a reminder to ask the question, please press *1 on your telephone, then wait for your name to be announced. To withdraw your question, please press *1 again. Please limit yourself to one question and one follow-up. Our first question comes from the line of Alex Paris with Barrington Research. Your line is open.
Hi, good morning, guys. Thanks for taking my questions.
Sure, good morning, Alex.
Good morning.
I have a couple, and they are related. First question: given the announcements of UTI in the trade school space last week and other moves, you differed by having a stronger high school start season than they did. But I am also wondering about shifts from auto/diesel to skilled trades, which your competitor noted last week. And then also, are employers hiring more potential students directly? Some of these announcements we have seen in the press about quasi-apprenticeship programs where people get paid while they are getting their training. Maybe you can compare and contrast the two different approaches.
Sure. So first on high school: as I mentioned in my remarks, last year we made a concerted effort to invest more in our high school market. Historically, about 20% of our students come to us right out of high school. Some of our competitors have a higher percentage, so we saw an opportunity to gain more growth by expanding that. Especially in a time when high school students, faculty, parents, and guidance counselors are all more receptive to our message. We bolstered our team and continue to invest in high school recruiting efforts. We expect to have a really strong August start; a lot of that growth is coming from high school and we expect that to continue. We expect next year to have even more growth — the high school marketplace requires talented individuals who remain engaged with the schools as they build relationships. The longer and stronger those relationships are, the more success you will have, and we are starting to see that. Regarding skilled trades versus automotive: for the last couple years, we've seen a continual shift with more interest in the skilled trades. Today, our student population is about 60% skilled trades, 20% health care, and 20% automotive. We've been in the trades for 80 years — HVAC started a long time ago — so we have a really good handle on the trades. Trades are our most profitable business both on margin and absolute dollar contribution to the bottom line. As that trend has continued, it has benefited us. Part of our focused campus model is to leverage that opportunity because it is easier to find facilities for HVAC and electrical programs than it is to find facilities that can support automotive and welding, which require additional height capacity and other characteristics. Long story short: trades are very important to us, critical to our further growth, and we do quite well with them. On the apprenticeship question: I have read about apprenticeships, but we have not seen them impact us in any material way. We are having more and more discussions with existing employers and finding new employers; I believe companies should support students while they are with us, and help with financing. We are seeing opportunities: we formed a new partnership with an organization supporting AI infrastructure that originally wanted to hire 10 students a week from us and plans to ramp to 20, paying between $70,000 and $100,000 for our graduates. That is an incredible opportunity. There will be more opportunities to work with employers to help finance students' education. But long story short, we have not seen apprenticeship models taking a large piece of the market at this point.
Okay. And then my related follow-up, and last question: I think there is some deliberate language in the press release: 'Our start growth for the quarter slowed to 1% as fewer enrolled students than expected attended the first day of class.' Historically, you have talked about show rate — the conversion from a lead to an application and then from an application to a start. It sounds like that is where the issue is. Can you explain that a little bit and what you are doing differently with enrollment counselors to improve that enrolled student to start conversion?
Sure. As we said, we had about a 9% increase in enrollment. If the start rate had held, we would have had 9% growth in starts. The softness comes from multiple sources. First, we are doing a much better job with packaging our students and getting them financial aid. The sooner students know how they are going to pay for their education, the more likely they are to start. We are working on that. We are also working with our admissions staff and educators to stay in contact with students, strengthen communications, and ensure they understand the opportunity and can complete the education. There are other enhanced touch points we are making broadly available to students. Additionally, we experienced an event that impacted some students: the government required students to start repaying their loans in May. Some prior borrowers defaulted and defaulted students are not eligible for additional Title IV funds. We saw a few percentage points of students unable to start because, during packaging, they could not receive financial aid due to prior defaults. Many of our adult students have prior educational experiences and, unfortunately, some defaulted when repayment resumed. I expect that initial wave to be the biggest impact and to lessen over time. That was one of the factors that softened our start rate in the second quarter.
Thank you very much. I appreciate the additional color and allowing my questions.
Our next question comes from the line of Lucas John Horton with Northland Capital Markets. Your line is open.
Yes. Hey, guys. Thanks for taking the questions. I did want to touch back on the student starts growth for the quarter. Can you 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 how much of a headwind from that are you baking into the back half of the year?
Sure. It's tough to know exactly the precise impact. 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. We do a lot of searching to understand how models interpret what people are typing. The good news is we see Lincoln Tech pop up many times as a good opportunity. However, sometimes the AI models are simplistic and focus on cost, which may highlight a community college over us. There are many benefits to attending Lincoln: our graduation rates are two to three times that of community college, and we typically provide faster starts — often within 30 days — whereas community colleges may require waiting for semester starts and taking general education courses first. The models do not always give the full picture. We are changing what is available on our website so these large language models can give students better insight into Lincoln's value relative to other options, and we are starting to see improvements in leads. At the end of the day, our product is strong. The challenge is getting in front of people so they understand that. We'll continue to work with our vendors and tweak our websites so data is as available as possible for the models to read. As we said, we do see a much stronger August than we've ever seen before, which I interpret as progress, but there is more work to be done.
Got it. Okay. And then lastly for me, on revenue growth north of 22% and enrollment growth of about 9% — that implies a meaningful revenue per student uptick. Could you walk us through how much of that gap is tuition versus pricing power, program mix shift, or anything else we might be missing?
Hi, Luke. Tuition increases are typically 2% to 3%.
Historically, across our programs, tuition increases average around 2% to 3%. In the quarter we also got a benefit from that one start that happened in July of last year that we pro forma'd into the second quarter of 2025. So part of the increase came from that additional start and the associated books and tool revenue, which is often recognized when we distribute materials. About half of the increase was from that shifted start, and the other half was from tuition increases. To be clear, our tuition increases on average are around 2% to 3% across the board for our programs.
Okay. Got it. Makes sense. Thank you, guys.
No problem. Thank you, Lucas.
Please stand by for our next question. Our next question comes from the line of Steven Frankel with Rosenblatt Securities. Line is open.
Good morning, Scott. I'd like to go back to this Q2 start issue one more time and maybe parse it this way: how much of the shortfall was a leads issue versus a process issue? You talked about maybe the default or not getting financial aid done at the right time.
Like, you mentioned defaults and financial aid timing. Is that mainly what caused the conversion issue?
From a numbers perspective, we had 9% increased enrollment. If the start rate had held, we would have had 9% growth in starts — that was in line with our expectations. We had hoped for more enrollment growth from lead volume we had been seeing in the prior quarter, but some leads lessened within the quarter, reducing the potential enrollments. The conversion shortfall was due in part to defaulted students not being eligible for additional Title IV funds, which prevented them from starting. We also faced timing issues in processing financial aid for some students. There could also be some influence from AI and changed student behavior, but we are not 100% certain of that. What gives me confidence is the early third-quarter data: the trends indicate we have solved part of the problem and are seeing improvement. Employer demand remains strong and interest from prospective students continues.
Okay. And in terms of that Q3 strength, high school is typically what percentage of the overall starts in Q3?
About 40%.
Are the leads back to growing where you want them in Q3, or do you still have the AI leads issue you have to work through?
There are still AI-related issues to work through. Changes happen all the time — for example, Google might change algorithms. We adjusted during COVID, and this is another change in the landscape. We're taking actions to correct it, and I'm confident we can overcome it because our product and brand are strong. Things are not the same as 12 months ago, but I expect things to get better. Also, these AI models will need to generate revenue; we're already seeing paid advertising opportunities emerging. As they evolve to behave more like traditional search platforms, we expect to have benefits and a more level playing field.
But just to sum up, your leads are now back to growing year-over-year as you look at Q3 and into Q4?
Yes. Our leads grew in the second quarter; it was a question of the growth rate moderating in that quarter. We continue to see progress across the board and expect improvements.
Our next question comes from the line of Eric Martinuzzi with Lake Street Capital Markets. Your line is open.
Following up on the new student starts: was this kind of system-wide or did you notice any concentrations in certain regions of the company's operations?
It was basically system-wide. With that said, our East Point campus continues to be robustly growing. Overall, there was not a distinct regional or programmatic issue that we could discern.
You called out and highlighted retention. Anything you have been able to determine as far as what is behind the better-than-expected retention?
We have put in a number of programs aimed at improving our graduation rates; our goal is to reach 70% graduation rates. Retention is about 200 basis points higher this year compared to last year. This improvement comes down to providing better customer service: we added more student service advisers at our campuses so they can interact with students and help when life gets in the way — for example, helping arrange car pools if transportation becomes an issue. By being attentive and supportive, students feel more confident and are more successful. Our education team has implemented several initiatives over the last 14 months to make this happen, and we expect further improvement next year.
Got it. Thanks.
Our next question comes from the line of Griffin Boss with B. Riley Securities. Your line is open.
Hi, good morning. Thanks for taking my questions. 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 dig more into that opportunity and the employer pipeline?
Sure. Johnson Controls has been a longtime partner and we have worked with them on fire and alarm systems; now we are working with them on both building data centers and training for maintenance of those data centers. We also have several other companies in the AI infrastructure space approaching us — for competitive reasons I won't name them now — that are looking to hire students or create specialized training programs so our students can integrate into their organizations more easily. We have one organization in the AI field willing to pay a significant amount per placed student, and another that wants to create a specialized training pathway. Because our programs are consistent across our platform and we have a national presence, it is easy for larger companies to understand the quality of our students and their skill sets. This is a robust market opportunity for us and our students.
Got it. Thanks for the color. One more follow-up for Brian: given the higher CapEx expectation for the year, how, if at all, does that change how you think about the carryover on the revolver from quarter to quarter? Historically you've looked to pay down any outstanding amounts at the end of the year. Will that change or is that still the expectation?
We announced a mortgage outstanding of $15 million that we took for the Melrose Park acquisition, which will be outstanding at the end of the year. We will be slightly free cash flow negative with the increased capital spending. I would estimate that by the end of the year we would have roughly $20 million or so outstanding on the credit agreement, including the $15 million mortgage. So while we will carry some balance, we remain in a strong liquidity position and expect to manage that leverage carefully.
Understood. Okay for that, Brian. Appreciate you both taking my questions.
Our next question comes from the line of Alex Paris with Barrington Research. Your line is open.
Good morning. I want to go back to the conversion rate from enrollment to start. What level would you say you are back to now in terms of the start-to-enrollment ratio versus where it's been historically? And in the back half guidance you've reaffirmed, are you assuming that conversion rate gets back to historical levels or do you think there will still be some pressure?
We think it will certainly get better than what we had in the second quarter. Our next start occurs tomorrow and a week from tomorrow we'll know exact numbers. Based on orientation over the last week, we are not seeing as much falloff as in the second quarter, which gives me confidence things are moving in the right direction and that we'll have a robust start in August. It's a matter of staying on top of communications and making sure we are engaging students more robustly to drive the start rate back up.
Got it. And any update on expanding the breadth of slots during the week for the hybrid offering — adding more periods that may work better for students who cannot attend current sessions?
We have flexibility: we typically run morning, afternoon, and evening sessions. A few campuses — two or three — have weekend shifts using Friday, Saturday, Sunday when there's demand. That flexibility allows us to grow without spending more capital. Additionally, our East Point campus is adding about 15,000 square feet of capacity over the next 30 days, which will add capacity for about 500 students. That campus continues to be robust despite new competition; if anything, competitor marketing has driven more leads to the industry by increasing awareness of these career paths. There's a large untapped market and more marketing dollars benefit the whole industry. Demand remains as robust and exciting as I've ever seen it.
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.
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 the 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.
That concludes today's conference call. You may now disconnect.