Lincoln Educational Services Corp: Form 10-Q for the period ended Mar 31, 2026

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All references in this Quarterly Report on Form 10-Q (“Form 10-Q”) to “we,” “our,” “us” and the “Company” refer to Lincoln Educational Services Corporation and its subsidiaries unless the context indicates otherwise.

This discussion may contain forward-looking statements, that are based on management's current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects, and results of operations to differ materially from those that may be anticipated by such forward-looking statements. Such statements may be identified by the use of words such as “expect,” “estimate,” “assume,” “believe,” “anticipate,” “may,” “will,” “forecast,” “outlook,” “plan,” “project,” or similar words and include, without limitation, statements relating to future enrollment, revenues, revenues per student, earnings growth, operating expenses, capital expenditures, and the effect of pandemics and its ultimate effect on the Company’s business and results. These statements are based on the Company’s current expectations and are subject to a number of assumptions, risks and uncertainties. Additional factors that could cause or contribute to differences between our actual results and those anticipated include, but are not limited to, those described in the “Risk Factors” section of our Form 10-K and in our other filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise. Readers are urged to carefully review and consider the various disclosures made by us in this Form 10-Q and in our other reports filed with the SEC that advise interested parties of the risks and factors that may affect our business.

The Company’s business is organized into two reportable business segments: Campus Operations; and Transitional. The Campus Operations segment includes campuses that are continuing in operation and contribute to the Company’s core operations and performance. The Transitional segment refers to campuses that have been marked for closure and are being taught out. As of March 31, 2026 no campuses were classified in the Transitional segment.

We evaluate performance based on operating results. Adjustments to reconcile segment results with consolidated results are included in the caption “Corporate,” which primarily includes unallocated corporate activity. The interim financial statements and related notes thereto appearing elsewhere in this Form 10-Q and the discussions contained herein should be read in conjunction with the annual financial statements and notes thereto included in our Form 10-K, which includes audited Consolidated Financial Statements for the last three fiscal years ended December 31, 2025.

General

Lincoln Educational Services Corporation and its subsidiaries (collectively, the “Company”, “we”, “our”, and “us”, as applicable) provide diversified career-oriented postsecondary education to recent high school graduates and working adults. The Company, which currently operates 22 campuses in 12 states, recently entered into leases for two new campuses: one in Hicksville, New York, with programs expected to begin by the end of 2026, and one in Rowlett, Texas, a northern suburb of Dallas, where the lease commenced in the fourth quarter of 2025, and programs are expected to begin in the first quarter of 2027. The Company offers programs in skilled trades, automotive, health sciences and information technology. The schools operate under the brands Lincoln Technical Institute, Lincoln College of Technology and Nashville Auto Diesel College.

Most of the Company’s campuses serve major metropolitan markets and each typically offers courses in multiple areas of study. Five of our campuses are destination schools, which attract students from across the United States and, in some cases, from abroad. The Company’s other campuses primarily attract students from their local communities and surrounding areas. All of our campuses are nationally accredited and are eligible to participate in federal financial aid programs administered by the U.S. Department of Education (the "DOE”) and applicable state education agencies and accrediting commissions which allow students to apply for and access federal student loans as well as other forms of financial aid. The Company was incorporated in New Jersey in 2003, as the successor-in-interest to various acquired schools including Lincoln Technical Institute, Inc. which opened its first campus in Newark, New Jersey in 1946.

Critical Accounting Policies and Estimates

For a description of our critical accounting policies and estimates, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and Note 1 to the Consolidated Financial Statements included in our Form 10-K and Note 1 to the Condensed Consolidated Financial Statements included in this Form 10-Q.

Effect of Inflation

Inflation has not had a material effect on our operations.

Business Strategy

We strive to strengthen our position as a leading provider of career‑oriented postsecondary education by continuing to pursue the following strategy:

Expand Geographically. We plan to open new campuses and enter new markets using existing resources or acquisitions. We have signed leases for new campuses in Hicksville, New York, where programs are expected to begin by the end of 2026, and Rowlett, Texas, which is expected to open in the first quarter of 2027. We continue to evaluate opportunities to expand our footprint in markets that support our long-term growth objectives.

Replicate Programs and Expand Existing Areas of Study. We are expanding our program portfolio by introducing in-demand programs across locations. This approach allows us to serve local market needs while leveraging our existing curriculum, faculty expertise, and infrastructure.

Increase Operating Efficiency. We aim to improve margins and scalability by centralizing operations, standardizing curricula, and leveraging technology such as artificial intelligence to streamline campus functions. By continuing to simplify and standardize our operating model, we believe we can enhance efficiency and support sustainable growth across our organization.

Maximize Utilization of Existing Facilities. We focus on increasing facility usage through enrollment growth, the introduction of new programs, and expanded industry partnerships. In addition, our hybrid teaching model provides increased flexibility to align our real estate footprint with evolving instructional needs.

Expand Teaching Platform. We are transitioning to a hybrid teaching platform, Lincoln 10.0, the implementation of which has been substantially completed and is expected to be finalized by the end of 2026 for all planned programs, except for our Licensed Practical Nurse program which should be completed by the end of 2027. This platform is designed to provide greater flexibility, efficiency, and value to students, while supporting a more scalable and standardized academic delivery model.

Recent and Planned Campus Openings

Results of Operations for the Three Months Ended March 31, 2026

The following table sets forth selected Condensed Consolidated Statements of Operations data as a percentage of revenues for each of the periods indicated:

22

Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Consolidated Results of Operations

Revenue. Revenue increased $26.5 million, or 22.5% to $144.0 million for the three months ended March 31, 2026, from $117.5 million in the prior year comparable period. Revenue growth was primarily due to a 18.2% increase in average student population driven by 19.5% start growth, with the remainder attributable to tuition increases.

Educational services and facilities expense. Educational services and facilities expense increased by $11.0 million, or 23.2%, to $58.4 million for the three months ended March 31, 2026, compared to $47.4 million for the same period in 2025. This includes $2.9 million increase in costs related to our new campuses in Houston, Hicksville, and Rowlett.

The increase was primarily driven by costs associated with a larger student population. The remaining increase was attributable to $3.9 million higher depreciation expense, including $0.8 million related to new campuses, largely resulting from capital investments to support our growth initiatives.

Selling, general and administrative expense. Selling, general and administrative expense increased by $12.2 million, or 18.3% to $79.2 million for the three months ended March 31, 2026, compared to $66.9 million for the same period in 2025. This includes a $1.9 million increase in costs related to our new campuses in Houston, Hicksville, and Rowlett.

Selling, general and administrative expenses continued to decline as a percentage of revenue to 55.0% for the three months ended March 31, 2026, compared to 56.9% for the same period in 2025.

Administrative expenses increased $5.1 million, or 17.7%, primarily driven by costs associated with enrollment growth, due to increased student population, and growth initiatives.

Student services expense increased $1.1 million or 17.9%, driven by continued investments in staffing and support infrastructure to serve a growing student base.

Sales and marketing expense increased by $4.2 million, or 21.3%, including $1.2 million related to our new campuses, resulting from planned investments and the timing of the marketing activities.

Provision for credit losses. While the provision increased in absolute terms, it declined as a percentage of revenue from 10.1% to 9.5% year-over-year reflecting continuing efficiencies from our financial aid processes and stronger collections.

Net interest expense. Net interest expense was $0.8 million for the three months ended March 31, 2026, relatively consistent with the prior year comparable period.

Income taxes. Income tax provision was $1.2 million for the three months ended March 31, 2026, representing an effective tax rate of 22.2% of pre-tax income, compared to $0.9 million income tax provision and an effective tax rate of 31.2% in the prior year comparable period.

Corporate and Other

This category includes unallocated expenses incurred on behalf of the entire Company. Corporate and other expenses were $21.3 million for the three months ended March 31, 2026, compared to $18.3 million in the prior year comparable period. The increase was primarily driven by higher salaries and benefits due to workforce expansion to support a larger student population and to execute our growth initiatives.

LIQUIDITY AND CAPITAL RESOURCES

Our primary capital requirements are for maintenance and expansion of our facilities and the development of new programs. Our principal source of liquidity has been cash provided by operating activities. The following chart summarizes the principal elements of our cash flow for each of the three months ended March 31, 2026, and 2025:

As of March 31, 2026, the Company had $16.7 million in cash and cash equivalents, compared to $28.7 million in cash and cash equivalents as of March 31, 2025. The change in cash position from the prior year comparable period was primarily driven by increased capital expenditures due to campus expansion, partially offset by higher cash inflows from operating activities.

Our primary source of cash is tuition collected from our students. The majority of students enrolled at our schools rely on funds received under various government-sponsored student financial aid programs to pay a substantial portion of their tuition and other education-related expenses. The most significant source of student financing is Title IV Programs, which represented approximately 85% of our cash receipts relating to revenues in 2025. Pursuant to applicable regulations, students must apply for a new loan for each academic period. Federal regulations dictate the timing of disbursements of funds under Title IV Programs and loan funds are generally provided by lenders in two disbursements for each academic year. The first disbursement is usually received approximately 31 days after the start of a student’s academic year and the second disbursement is typically received at the beginning of the sixteenth week from the start of the student's academic year. Certain types of grants and other funding are not subject to a 31-day delay. In certain instances, if a student withdraws from a program prior to a specified date, any paid but unearned tuition or prorated Title IV Program financial aid is refunded according to federal, state and accrediting agency standards.

As a result of the significant amount of Title IV Program funds received by our students, we are highly dependent on these funds to operate our business. Any reduction in the level of Title IV Program funds that our students are eligible to receive for tuition payment to us or any restriction on our eligibility to receive Title IV Program funds would have a significant impact on our operations and our financial condition. For more information, see Part I, Item 1A. “Risk Factors - Risks Related to Our Industry” of our Form 10-K.

Operating Activities

Operating cash flow results primarily from cash received from our students, offset by changes in working capital demands. Working capital can vary at any point in time based on several factors including seasonality, timing of cash receipts and payments and vendor payment terms.

Net cash provided by operating activities was $4.6 million for the three months ended March 31, 2026, compared to net cash used in operating activities of $8.4 million in the prior year comparable period. The increase in cash position was primarily driven by changes in working capital and higher net income.

Investing Activities

Net cash used in investing activities was $14.6 million for the three months ended March 31, 2026, compared to $19.6 million in the prior year comparable period primarily driven by higher capital expenditures associated with growth initiatives.

Capital expenditures for the three months were $14.6 million compared to $19.9 million in the prior year comparable period. The decrease resulted from a shift in the timing of planned capital expenditures which includes the buildout for the new Houston, Texas Rowlett, Texas and Hicksville, New York campuses. In addition, we continue to invest to expand programs at existing campuses which demonstrate high market demand and successful student outcomes. We expect to fund future capital expenditures with cash generated from operating activities and cash on hand.

Financing Activities

Net cash used in financing activities for the three months ended March 31, 2026, was $1.8 million, compared to $2.6 million in the prior year comparable period. The decrease in cash used was primarily due to higher net borrowings in the current period, partially offset by higher cash outflows related to net share settlement of equity-based compensation.

Credit Facility

The Company maintains a revolving credit facility to support working capital and general corporate purposes. In April 2026, the Company entered into an amended and restated credit agreement, which increased total borrowing capacity from $60.0 million to $125.0 million and extended the maturity of the Facility from March 7, 2028 to April 11, 2031.

As of March 31, 2026, the Company had $5.0 million outstanding under the Facility, which has now been repaid in connection with the replacement of the Facility with the Amended and Restated Facility. For additional information regarding the terms of the Company’s credit facility, see Note 7, Long-Term Debt.

Contractual Obligations

Current portion of Long-Term Debt, Long-Term Debt and Lease Commitments. As of March 31, 2026, the Company had $5.0 million in debt outstanding under the Facility. We lease offices, educational facilities and various items of equipment for varying periods through the year 2045 at basic annual rental rates (excluding taxes, insurance, and other expenses under certain leases).

As of March 31, 2026, the Company had outstanding loan principal commitments to our active students of $59.2 million. These are institutional loans, and no cash is advanced to students. The full loan amount is not guaranteed unless the student completes the program. The institutional loans are considered commitments because the students are required to fund their education using these funds and they are not reported on our financial statements.

Regulatory Updates

Negotiated Rulemaking

In 2025, the DOE announced its intention to establish two negotiated rulemaking committees. The Reimagining and Improving Student Education (RISE) Committee would consider changes to the federal student loan programs and the Accountability in Higher Education and Access through Demand-driven Workforce Pell (AHEAD) Committee would consider changes to institutional and programmatic accountability, the Pell Grant Program, and other changes to the Title IV Programs. This rulemaking is necessary to implement recent statutory changes to the Title IV and HEA programs included in the One Big Beautiful Bill Act ("OBBB Act") as well as to propose other changes. See 10-K “Regulatory Environment – Negotiated Rulemaking” and “Regulatory Environment – Gainful Employment and Accountability.”

The proposed RISE regulations were subject to a public notice and comment period, which ended March 2, 2026. The DOE is expected to publish a final version of the regulations with an anticipated effective date of July 1, 2026. The AHEAD Committee reached a consensus on two sets of proposed regulations on December 12, 2025, and January 9, 2026, respectively. The first set of proposed regulations would implement the new Workforce Pell program authorized by the OBBB Act. See 10-K at “Regulatory Environment – Negotiated Rulemaking.” These proposed regulations were published in a notice of proposed rulemaking on March 6, 2026, and subject to a public notice and comment period, which ended April 8, 2026. The second set of proposed regulations would establish new uniform accountability requirements applicable to all educational programs across all education sectors. See 10-K at “Regulatory Environment – Negotiated Rulemaking” and “Regulatory Environment – Gainful Employment and Accountability.” The DOE published these proposed regulations in a notice of proposed rulemaking on April 20, 2026, with a comment period ending on May 20, 2026. The regulations are expected to be published in final form and take effect by July 1, 2026, but we cannot predict the ultimate timing, content, or impact of the final regulations.

Lastly, on January 27, 2026, the DOE announced a notice of its intent to initiate a rulemaking process with the goal of amending the existing regulations for the DOE’s recognition of accrediting agencies. The negotiated rulemaking committee met from April 13-17, 2026, and is scheduled to continue negotiations from May 18-22, 2026.

We cannot predict the timing and scope of any regulations or guidance the DOE might issue on these or other topics, but new regulations or guidance on these or other topics could increase the possibility that our schools could be subject to additional reporting requirements, additional oversight by DOE and accrediting agencies, and potential liabilities and sanctions such as letter of credit requirements, and potential loss of Title IV eligibility if our efforts to modify our operations to comply with any new requirements are unsuccessful which could have a significant impact on our business and results of operations.

Borrower Defense to Repayment Regulations

The DOE’s Borrower Defense to Repayment (“BDR”) regulations establish processes for borrowers to receive from the DOE a discharge of the obligation to repay certain Title IV Program loans based on certain acts or omissions by the institution or a covered party. The regulations also establish processes for the DOE to seek recovery from the institution of the amount of discharged loans. See 10-K at “Regulatory Environment – Borrower Defense to Repayment Regulations.”

Between April 2021 and February 2024, the Company received three separate notifications from the DOE that the DOE was in receipt of borrower defense claims containing allegations concerning our schools and requiring that the DOE undertake a fact-finding process pursuant to DOE regulations. We have completed the process of thoroughly reviewing and responding to each borrower application as well as providing information in response to the DOE’s requests.

In March 2026, the Company received additional borrower defense claims containing allegations concerning our schools. The DOE subsequently published guidance to all institutions of higher education in late March 2026 and acknowledged that it had notified institutions of the applications before the DOE, it had substantively reviewed them through a fact-finding process and that institutions are not required to respond to the notices (and that there is no negative inference against an institution that does not respond). We have thoroughly reviewed and responded to each application thus far. The DOE also indicated that institutions may receive additional borrower defense applications in the future.

With respect to the applications sent to us in March 2026, the DOE advised institutions in late March 2026 that it will deny the applications of borrowers that do not satisfy the applicable regulatory standard and that it will approve the application, discharge the relevant loans, and issue refunds of payments to borrowers who satisfy the regulatory standard. We cannot predict how long it will take the DOE to review the applications or the outcome of the DOE review of the applications sent to us in March 2026 or any future applications the DOE sends to us. Moreover, the DOE has noted that it will not determine until a later date whether to engage in a separate proceeding to recoup liabilities from institutions based on approved applications. The DOE advised institutions in late March 2026 that institutions will have the opportunity to contest any recoupment actions in a hearing process and will receive a second notification with the application forms for all loans for which recoupment is requested, all attachments submitted by the borrower, and the rationale for the DOE’s decision to discharge. If the DOE seeks recoupment from us based on any or all approved applications, we would evaluate our legal options for challenging the legal and factual bases for such actions.

Seasonality

Our revenue and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population. Student population varies due to new student enrollments, graduations and student attrition. Historically, our schools have had lower student populations in our first and second quarters and we have experienced larger class starts in the third quarter and higher student attrition in the first half of the year. The growth that we generally experience in the second half of the year is largely dependent on a successful high school recruiting season. We recruit high school students several months ahead of their scheduled start dates and, as a consequence, while we have visibility on the number of students who have expressed interest in attending our schools, we cannot predict with certainty the actual number of new student enrollments in any given year and the related impact on revenue. Our expenses, however, typically do not vary significantly over the course of the year with changes in our student population and revenue.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk exposure during the three months ended March 31, 2026. See Part II Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” of our Form 10-K.

CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Securities Exchange Act Rule 13a-15(e)) as of the end of the quarterly period covered by this Form 10-Q, have concluded that our disclosure controls and procedures are adequate and effective to reasonably ensure that material information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

(b) Changes in Internal Control Over Financial Reporting. There were no changes made during our most recently completed fiscal quarter in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

In addition to the other information set forth in this Form 10-Q, you should carefully consider the risk factors discussed in Part I, Item 1A of our Form 10-K and those contained in our previously filed Form 10-Qs, which could affect our business, financial condition, or operating results. The risks we describe in our periodic reports are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, or operating results. For the quarter ended March 31, 2026, the Company is not aware of any specific new and additional risk factors that were not previously disclosed.