Q1 2020 Earnings Call
Hello and welcome to UTI fiscal first-quarter 2020 earnings call should you need assistance, please Cinco a conference specialist try pressing the star key followed by zero at this time. All participants are in a listen-only mode and after today's prepared remarks will open the line for questions as a reminder today's call is being recorded at this time of the conference room is Jody can vice president of communications and public affairs for Universal Technical Institute, please go ahead.
Hello, and thanks for joining us with me today are our CEO and CFO Troy Anderson during the call today will update you on our fiscal first quarter 2018 business highlights our financial results and our vision for the future then we will open the call for your questions.
Before we begin we must remind everyone that except for historical information. Today's call may contain forward-looking statements as defined by section 21e of the Securities Exchange Act of 1934 wage section 27A of the Securities Act of 1933. I'll refer you to today's news release for UTIs comments on that topic the Safe Harbor statement and the release also applies to everything discussed during this phone call during today's call will refer to adjusted operating income or loss adjusted ebitda and adjusted free cash flow, which are non-gaap measures adjusted operating income or loss. It's income or loss from operations adjusted for items that affect Trends and underlying performance from year to year and are not considered normal recurring cash operating expenses adjusted ebitda a net income or loss before interest expense interest income income taxes depreciation amortisation and adjusted for items not considered as part of the company's normal recurring operations.
Adjusted free cash flow is net cash provided by or used in operating activities less Capital expenditures adjusted.
Previously Norwood stopped accepting new student applications in the second quarter of fiscal 2019 and willfully close before the end of fiscal year 2020. So we believe it is appropriate to exclude life impact. It is now my pleasure to turn the call to Jerome can grant. Thank you Jodi. Good afternoon everyone and thank you for joining us today. I particularly like them to investors and analysts who have joined us since our last update. We sincerely appreciate your interest and investment in UTI and look forward to working with you in the future.
In the first quarter of 2020 UTI delivered excellent results across all of our key metrics demonstrating the success of our strategy to improve operating performance and pivot the business towards its next month of growth in the first quarter. Revenue was up 5% compared to last year new student starts were 1594 which represents a 7.7% increase over June 2019 new enrollments grow 3.3% and we generated higher Revenue per student that solid top-line growth coupled with our success in optimizing cost generated first quarter operating income of 4.3 million dollars. Net income a 4.7 and adjusted ebitda of 10.1 million dollars.
behind those
Transforming marketing Admissions and our student journey and optimizing our cost structure with a keen focus on rationalizing our real estate footprint. All three of these strategic elements are designed not only to further Drive shareholder value creation, but also to enhance the company's value proposition to our students there by positioning the company for the long-term success across any phase of the economic cycle while we made progress on each of these Focus areas in the first quarter. I'd like to highlight two recent accomplishments in particular often fall into the areas of offering new and enhanced programs the growth of our welding program and the expansion of our partnership with Volvo.
Based on the initial success of our first three welding technology programs in Dallas, Texas Rancho Cucamonga, California and Avondale, Arizona and recognizing a job market wage demand far exceeds. The supply. We are accelerating the geographic expansion of this program.
We're on.
To open our previously announced Houston welding program in April and earlier this week. We announced will launch our fifth welding program at our Long Beach campus in August with at least one more location in our site thousand twenty Twenty-One. Well, we will be available at a minimum of six campuses. Once each welding program is fully ramped. They typically yield 150 to 200 incremental starts a year, which is roughly one and half percent of our current start total.
Our second major accomplishment in the first quarter was our new agreement with Volvo car Corporation as part of our work to build Innovative programs in partnership with industry will integrate Volvo the advanced and electrified vehicles in order to enhance our core Automotive curriculum the agreement put state-of-the-art industry technology into the hands of our students and let's Volvo show off their leading-edge products across the 11 of our campuses. It's also an Innovative way to promote Volvo service Automotive Factory education or a safe program, which is exclusively offered at UTIs campus in Avondale, Arizona at no cost to students who are accepted into the program.
Journey to the second prong of our strategy transformation
We're building on the progress. We've made in the past two years and are continuing to refine and optimize our marketing and admission strategies with the goal of finding the most efficient and effective ways to age age new students. We're now generating more than 50% of our inquiries from our highest converting media channels such as and we're exploring and implementing new technology that will increase the efficiency of a lead generation lower costs and further increase our show rates. We're implementing new business analytics systems, which are giving us significantly more insight into how prospects perspective students learn about UTI and how they interact with us online.
With this greater depth of understanding we can optimize the performance of our campaigns and drive a greater return on our marketing investment. In addition. We're successfully engaging and track the behavior of our Target audiences using social media a social media channel as social media channels of all and offer more advertising opportunities, we're testing new channel and seeing positive results in one instance. We began to test in November because there was a new advertising opportunity and so immediate traction for UTI brand off and inquiries at a lower than expected cost per lead. Now. We're looking to expand the use of that social media channel for additional programs offered by UTI such as motorcycle as the fiscal year for Thursday.
Sam's are a powerful way to attract new students a recent National Open House Event had nearly two thousand and ten days including both perspective students in their influencers and generated more than a hug on that day alone based on our success with previously National open houses. We expect more enrollments coming directly from this event in the coming weeks and months.
Harley employment initiative which we launched last year in Arizona is expanding to our Exton campus later this month from there. We'll move on to Sacramento with plans to roll the program. All UTI campuses by the end of 2021 this program which blends proven post-secondary skills education with on-the-job Apprenticeship Training is a developing Talent pipelines for employer partners and giving students the inside track of rewarding long-term careers.
Under the early employment initiative students can apply for jobs while while participating local and participating local employment employers just as soon as they enroll employers registered with the program can screen hire and train students as they start school give them on the job experience while they complete their education graduates who have met their the employers criteria that are offered full-time jobs, and we'll get their school expenses paid for and reimbursed along with other incentives at Exton. There will be more than 30 employment positions that they available this winter months.
as we announced in January
We're looking to align our senior leadership team with the goals of streamlining and optimizing interactions with students from lead generation through graduation continuing to improve our strong student outcomes while becoming more efficient and both innovating and deepening our industry Partnerships. Our new Chief strategy and transformation officer. Hitchcock is leveraging as industry walk-ins and leading our growth strategy development as well as our work to identify and leverage new opportunities for UTI. In addition. We're redefining our student Outreach strategy with marketing admissions set to reside under a chief commercial officer a national search is underway and going well.
I'd like to spend just a few minutes discussing our industry Partnerships.
What's your fundamental long-standing element of successful education model and brand differentiation UTI is unique for its 10 automotive and diesel manufacturer-specific Advanced training programs. We call them and SATs.
which
Which we develop an offer in collaboration with our industry Partners in just a few months after completing their course certification. Our students can get the brand specific training and industry-recognized certifications that can often take course certification graduates more than two or three years to achieve out in the field. These programs help meet employers strong need for specialized skills and help students build their careers more quickly on February 4th. We're proud to celebrate our twentieth anniversary of our partnership with Ford Motor Company a partnership that exemplifies are offering relationship with industry in fiscal 2020. We're expanding our industry strategy and focus and working to deepen industry relationships in a more proactive Innovative and productive ways. Our new agreement with Volvo is just one example
Our industry Partnerships are also helping us to reach and train more military veteran technicians who are increasingly in demand. We're pleased with the progress of our BMW on base Program Camp Pendleton in California, which train students in the last few months before their military service ends to go directly to work for BMW dealers as they transition to civilian life. Now, we're working with them on a second Hyundai's training program additionally with Penske Premier Truck Group. We will launch a new on base diesel career skills program at Fort Bliss Texas. This spring. This will be the first on base diesel career skills program in the history of the US Army.
In just a few moments.
Try will share with you an update on the third prong of our strategy which is optimizing our cost structure with a keen focus on real estate rationalization in all we feel good about the business and our prospects for 2020 and we remain intently focused on delivering both our promises for this year and the next phase of growth for UTI. This business has plenty of room to scale and with the full support of our board. The management team is continuing to evaluate further organic and inorganic opportunities for growth and examining adjacent markets where we can leverage our core capability to serve more students and more industry Partners. I'd now like to turn the call over to Troy for discussion of our financial results that will come back and close with a few final thoughts Droid. Thank you Jerome with our q1 results. We are starting the year on a very positive note first-quarter revenue of 87.2 million was up 5% compared to the prior-year first quarter.
This was primarily driven by.
Average full-time enrollment increase of 3.3% and a revenue per student increase of 1.6%
regarding our key student metrics first quarter new student starts were up 7.7% with both high school and adult segments showing strong growth adult starts have grown you're over a year for five consecutive course, which is especially notable given continued strength in the economy.
Military was down slightly in the quarter after a significant uptick in starts in q1 of fiscal 2019 where we had benefited from additional military reps and other improvements. We feel very positive about the opportunity in our progress overall in the military channel, but face challenges around base access retention efforts from the armed forces and strong demand for veterans from employers.
First quarter new student applications increased 3.7% year-over-year with growth driven by high school and Military the increase in applications reflects. Our enhanced marketing mix more rep generate leads and increased productivity and continued refinement of our grant programs.
Our show rate improved 90 basis points in q1 improvements were driven by broad-based efforts including refinements to Grants and student contact strategies and increase Effectiveness across our campus operations.
In addition to driving Revenue growth. We're also maintaining focus on optimizing our cost structure in the first quarter operating expenses decreased 8.1% year-over-year driven by reduced expenses for Contracting Professional Services advertising in compensation and related expenses.
We ended the quarter with headcount of approximately 1650 down 120 versus last year's quarter and 20 versus the end of fiscal 2019.
Year-over-year reduction reflects improved efficiency in our operations throughout the last twelve months and we were also seeing reductions from the Norwood exit as we gradually ramped down operations at the campus wage addition to lower headcount. We had expense reductions due to changes to our benefit plans for fiscal 2020.
For advertising we will see different spend timing than last year. Although we expect the overall full-year spend to be relatively flat year-over-year lastly first quarter of 2020 included one point five million in a sense costs related to our CEO transition while the first quarter of 2019 included the four million dollar transformation consultant termination fee.
First quarter as a result of the increased revenue and improved cost structure operating income was 4.3 million, which was an eleven point five million improvement over last year's operating loss that income was 4.7 which was a twelve point four million improvement over the last year's net loss that we had basic and fully diluted EPS that $0.07 basic shares were twenty five point seven million while fully diluted shares were 47.1 million adjusted operating income was 6.6 million, which was a 9.5 million improvement over the prior-year quarter and adjusted ebitda for the quarter was 10.1 month compared to the prior-year adjusted ebitda, 1.4 million.
Our adjusted operating results exclude the costs associated with our transition the impact of the Norwood exit and cost associated with our transformation Consulting engagement that ended in the first quarter of FY nineteen tourney to cash. We delivered operating cash flow of 7.1 million in the first quarter and adjusted free cash flow of seven million both increased year-over-year due to our improved profitability with some offset for working capital timing capex was one point eight million in the quarter a 1 million decrease in the prior-year quarter primarily due to phasing of investment spending.
We ended the quarter with a strong balance sheet including.
3.5 million of unrestricted cash an increase of 5.1 million from September 30th, and we had no debt with our strong balance sheet and continued cash flow Improvement. We have the financial resources to fund our operations in near term investments.
It's real mentioned with the support of our board. We continue to examine a variety of opportunities to support long-term growth scale our business and maximize returns for all our stakeholders. We have proven month. We can opportunistically deploy with our Metro campuses and welding program expansions. And in addition are considering variations of these and other adjacent opportunities where we can leverage our core capabilities.
In that regard, we followed it and we'll see who had have effective a general-purpose 100 million dollar shelf registration statement. This will provide us flexibility as we explore options for growth and determine potential, It's going forward before covering our 2020 guidance in real estate rationalization efforts. Let me take a few minutes and highlight the key changes associated with our implementation of the new lease accounting standard, which was just to this quarter. Our 10-q has the full disclosures. So I'll be brief upon adoption. We had a net asset increase of 116.1 million, which was a gross increase of 1048.6 million for the right of use asset that was partially offset by decreases to property and equipment and other assets mainly for D recognition of assets associated with to build to suit leases.
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Increase of $107 million which was a gross increase of 163 million for the current and long-term lease liabilities partially offset by elimination of the Deferred financing obligation deferred rental fees and other liabilities.
Inequity increase of 9.1 million due to the recognition of the to build to suit leases and the difference between the assets and liabilities associated with them.
Changes to our December 31st balance sheet When comparing it to September 30th are largely driven by the net impact of the lease standard change and the related q1 amortization.
You'll also notice impacts of the lease accounting standard on our cash flow statement these include new line items for the amortization of the right-of-use asset and the lease liability as well as the elimination of the amortization of off subject to deferred financing in the Deferred rent liability.
As a result of this adoption and specifically the elimination of the to build to suit leases. We are now recognizing rent expense. We're in Prior years, we had interest and depreciation and amortization expense has this negative impacts operating income by approximately 1.6 million in ebitda by 5.2 million for the fiscal year. These impacts are roughly evenly spread throughout the year, and we're reflected in our fiscal 2020 guidance wage discussed on our last call.
As far as 2020 guidance goes we are reaffirming all elements of our full-year.