Q4 2020 Universal Technical Institute Inc Earnings Call
Good afternoon, and welcome to the Universal Technical Institute fiscal fourth quarter 2020 earnings conference call on.
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As a reminder, this event is being recorded and a replay of the call will be available at Www Dot U.T.I. Dot Edu worked through December 2nd 2020 by dialing 87734475 to nine or 41231 700.
Eight eight and entering passcode 1014 960 night.
I would now let's turn the conference over to Ms., Jody CAD Vice President of Communications on Public Affairs. Please go ahead.
Good afternoon, and thank you for joining US with me today are CEO Jerome Grant Yeah, So Troy younger Scott.
During the call today, well update you on our fiscal fourth quarter 2020, [laughter] highlight our financial results and our vision for the future. Then we will open the call from your question.
Before we begin we want to remind everyone that today's call will contain forward looking statements within the meaning of the safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.
Please carefully review todays press release for additional information important disclosures about forward looking statements.
Because forward looking statements relate to the future. They are subject to inherent uncertainties risks and changes in circumstances that are difficult to predict and many of which are outside of our control our actual results and financial condition may differ materially from those indicated in the forward looking statements.
Therefore, you should not rely on any of these forward looking statements as a reminder, the section entitled forward looking statements in today's press release also applies to everything Scott During this conference call.
During today's call, we'll refer to adjusted operating income or loss adjusted EBITDA and adjusted free cash flow, which are non-GAAP financial measures.
Adjusted operating income or loss income or loss from operations adjusted for items that affect trends on underlying performance from year to year and are not considered normal recurring cash operating expenses.
Adjusted EBITDA as net income or loss before interest expense interest income income taxes, depreciation amortization and adjusted for items not considered as part of the company normal recurring operation.
Adjusted free cash flow as net cash provided by or used in operating activities less capital expenditures.
Adjusted for items, not considered as part of the company's normal recurring operations.
Management internally either adjusted operating income in line adjusted EBITDA and adjusted free cash flow performance measures and those figures will be discussed on today's call.
As a reminder, we have provided reconciliations of these non-GAAP measurements to the most directly comparable GAAP financial measure myself today's press release, and we encourage you to carefully review those reconciliations star.
Starting with the third quarter fiscal 2019 on through fiscal 2020, we have reported operating metrics such a student application start exporting on Norwood, Massachusetts campus as we've shared previously nor would stop accepting new student applications in the second quarter fiscal 2019, and the campus was fully closed on July 22.
So we believe it is appropriate to exclude this impact is.
It is now my pleasure to turn the call over to our CEO Jerome Grant.
Thank you Jody good afternoon, everyone and thank you all for joining us today before.
Before I jump in season don't be well I once again share a heartfelt debt of gratitude to the Eugene like she would 2020 represented the very best human spirit and dedication, while helping our institution our students our industry partners navigate some of the most challenging conditions imaginable. Thank you all for your dedication hard work.
And passion.
This afternoon I'll be focusing my comments on three areas after which Troy will briefly review for you some of the highlights and key takeaways from our fourth quarter and full year results. Tracy will then provide some guidance on a handful of key metrics for 2021.
The three areas I'd like to focus on this in the next few minutes our outcomes the compliments accomplishments and our vision for the future of U T.
Outcomes, our metrics and standard instead of truly set us apart from the industry for the past five decades continue to underscore our unique value proposition today and will be critical to the success of our business strategies going forward.
With respect to accomplishments I will share with you some thoughts and examples from the effectiveness and importance on what the credentials our students earn as well as innovations we put into place to help our students succeed more efficiently and effectively in the workforce.
And finally I'd like to share with you our vision for the future of U.T.I. by updating you on our growth and diversification plans I.
Let me start with alcohol.
That's a very part of our operating model and U.T.I.s unique value proposition is the relentless focus on improving the employment and career outcomes for our current students and graduates this starts with ensuring that they succeed in their vocational curriculum and successfully graduate.
Our Chino I kept on the number of students who persist in their education and graduate is one of the ways, which we prove our value every day.
Nationally just 40% of college students earn a certificate her degree within six years would be getting their co secondary studies, yeah, Yeah, I nearly 70% of our students graduate within two years. This.
This is in no small part due to the investment our faculty and support teams make and the success of our students we work closely and individually with them to work through the many challenges that like brings so that they can stay focused on their passion finish their studies and go on to rewarding careers.
One such recent example was John Pagan after graduating from high School, Jonathan joined the U.S. Army research for years as a mechanic. Following this following his heart after leaving the military you've rolled at a local community college to pursue a degree in electronics engineering. Jonathan soon found that there was in his words.
Just too much involved with navigating the community college courses, including General education requirements in elective sales were not part of his chosen field. He said it was just too challenging to keep up he was looking for a more focused education. So enrolled on our Avondale, Arizona campus, we completed our core auto program and went onto our Ford.
On stream program.
John I think graduated during the pandemic and immediately went to work in Arizona Ford dealership. He told us that he loves the security of having a good steady job and doing something that he likes and and wants to do every day rather than in his words struggling through college were working in a random job there would not be as much founder fulfilling.
John It's his goal is to become a Ford Master technician.
The story of Jonathan and all students like him makes us proud at U.T.I. and is all too familiar example of a student who was struggling to fruit traditional career path and balance access that you'd see on.
Its journey also underscore it's another area of focus for your T.I. employment wildly 40 centers, 7% of those who attend traditional post secretary of institutions are working on their field of study to day, approximately 85% of UGI ice graduates go to work in their chosen field after graduation on.
Over the years, our teams have worked diligently to build our industry partnerships and employer networks in order to directly connect or students to employment opportunities during school and upon graduation.
As we've outlined in past updates the bureau of Labor statistics projects. The near there are nearly 160000, new technicians annually needed in our subject areas over the next 10 years.
While technician training will only provide the market with a combined set of credentials of about 50% of those needed to go out into the workforce. This.
This disconnect underscores that the jobs are there.
Students just need programs designed to match their interest and talents industrial line treating debt provides the hard and soft skills and credentials employers require inc.
Connections to industry opportunities.
The last three years, we poured innovative agreements with over 4500 employers offering a range of incentives to attract and retain our graduates over 3500 now offer lucrative tuition reimbursement programs up to $25000. These programs help students more easily evaluate and find employment opportunity.
You raise debt the accumulated while in school and lowered the possibility of student loan default.
We've also create an early employment partnership program with key employers designed to offer employment mentoring and hands on experience to students while they're in school with the opportunity to continue after graduation at higher salaries and received tuition reimbursement.
Employers and manufactured partnerships like these are at the heart of how we maintain such high employment outcomes for our students and deliver treme talent to our industry partners at the same time.
Nothing underscores the value of these types of partnerships more than a story of the Lario camps Torrey, who recently graduated from our Houston campus, Although lario.
Says he's always been a car Guy you initially chose to enroll in a four year College for engineering degree right out of high School My second year. He knew it wasn't breakthrough on money transfer to our Houston campus for automotive and diesel program Lario.
Larry on itself here.
Was among one of the top students in this program and only one of 12 students nationwide selected to participate in the most recent force advanced training program.
For someone like malaria, whose Venezuelan heritage talking that porsches the brand. It wasn't his word a boyhood dream come true.
He started we completed the program during the pandemic using our new blended learning model. Following his graduation in late September he went to work right away at momentum portion Houston.
A job loss.
The four year degree programs can be right choice for many young adults, but for others like the Lario a fast track quality technical education can be a powerful path to success.
Aereo was experienced book Education models told US College was no comparison to what he learned at Yutai now.
Lirio story is not an isolated case all the graduates simple aerials class in the course technology apprenticeship program, which is offered exclusively in partnership with Universal Technical Institute went immediately to work at force dealerships in New York, California, Texas, Florida, Pennsylvania, and North and South Carolina and Alabama.
All tuition and housing costs are covered by Porsche and the company also arranges moving part time employment for students while they are in the 23 week program the.
The fourth program is operating a blended format combining online education with hands on training and CDC compliant labs.
Force directly supports the clips and investing in the program, allowing students to receive training on all the latest ports vehicles and technology.
We've seen similar results during the pandemic for our recent graduating class is coming out of other manufacturer specific advanced training programs, including 98% employment for the Volvo graduates on 100% employment for Peterbilt program graduated on October Thirtyth.
As you can see the outcomes in metrics that mean, the most to us are aligned with those that meet the most to our students manufacturer partners and employers.
Persistence graduation, and ultimately employment rates are what kind of define the success of our education model for the past five decades and will continue to do so going forward.
Now I'd like to highlight some of the past years accomplishments candidly there were times in 2020, where it felt like just staying on our feet was a herculean task yeah do the hard work and discovery of new and innovative approach as all of our 12 campuses in eight states are fully operational and have been serving our students throughout the entire.
Higher quarter.
We continue to follow the CDC federal recommendations and guidelines as well as local health authority guidelines recommendations. We continue to work closely with students with respect to concerns about their health to help them continue their their education towards achieving their career goals. Despite the challenges we continue to provide the high quality.
State of the industry technical training for which we are now.
Our campuses have accomplished a great deal since resuming hands on labs last quarter. We graduated over 2700, 70 technicians and continue to see high employment rates as the transportation industry continues to serve the nation.
As critical infrastructure.
It's taken innovated new approaches the teaching and learning in order to continue to meet the robust employer demand and support students in completing their education through this challenging year.
We're maintaining a key focus on investing capital and our assets to hone our new blended learning approach fine tuning the student experience and ensuring student success. This.
In this new environment blended learning model will be how you tea ice students learn going for this innovation offers increased safety flexibilities and flexibility to are you do you I students better prepare super high tech careers that require both hands on and digital skills and aligns with how industry increasingly trains.
Up skills enrolls out new technology to its on workforce.
With that in mind, we're also providing students with laptops to ensure that each and every student has real reliable cost effective means of accessing the on my portion of the curriculum and will serve as an important tool to take with them as they begin their careers.
To date with the assistance provided by Cares Act funding, we've distributed over 12000 computers, and we will be continuing the program going forward.
It's important to note that combining the $17.1 million that weve now distributed directly to students and cares Act emergency grants with the funds utilized to purchase the laptops for students $23 million or approximately 70% of U.T.I.s higher education emergency relief on allocation has been.
In distributed directly to students in the form of cash and technology.
We once again like to thank the U.S. Congress and department of education for their strong support of our students and helping them stay in school on the path to fulfilling careers and essential industries during such injured John uncertain times.
Other accomplishments in 2020 also include the continued expansion of our successful welding technology training program, we added our fourth and fifth programs that are Houston and long beach campuses. During the fiscal year 2020. Our current plan is to launch welding technology at lie on campus early in the second quarter and the seventh growth.
In fiscal 2021 as well.
We continue to see strong demand for our welding program across campuses on average once fully ramped each new welding site launch increases overall student starts by about one and a half percentage.
While this is an important component of our growth and diversification strategy as it broadens our student base and allows us to serve a much wider range of industry customers EPS.
Same time, it complements our core technical training business and is consistent with our commitment to quality education that prepare students to rewarding careers.
The U.S. Bureau of Labor statistics projects that there will be more than 400000 total job openings for welding over the next decade.
With our campus is fully operational our new blended learning model firmly in place and our welding expansion continuing I'd like to highlight the positive trends and momentum in our business right now.
As of October nearly 80% of our students are on regular course schedules, which means they're no longer making up labs. This is a dramatic improvement from last quarter when that figure was running at 40% now nearly 3% of our population are exclusively participating on line again, a significant improvement over the.
Last quarter.
Further the introduction of the new learning model has enabled us to double our class densities since the beginning of the year, while still maintaining CDC helped protocols. This increased capacity allows us to better meet the growing demand for education, and more efficient and effective manner.
Another innovation I've touched on in the past is our marketing and admissions operating models, we fully transitioned our approach to marketing to vote to be more pointedly acknowledge the sharp increase in unemployment of 16 to 24 year old population in the United States, our messages have been home to highlight the robust and durable.
John opportunities in our field. This sharpening of our strategy is paying off media inquiries were up 25% in both Q3 and Q4 compared to 2019 now we did see some slow down your the election as the campaigns poured millions if not billions of dollars into the marketplace seeking.
On that much coveted 18 to 24 year old voter, but we're already seeing double digit rebound in November which bodes well for our December January and February starts.
Our admissions organization is also transitioned primarily a virtual model and we're seeing some of the upside benefits and efficiencies created by cutting down on travel and other impediments in what was primarily a high touch strategy.
Not only are increase increasing as noted above but conversion rates for those increase in the last few months were up nearly 30%.
New students scheduled to start for the coming quarters in fiscal year are looking very strong right now and momentum across the business continues to build.
As far as student starts from the fourth quarter. Overall starts trail 2019, yet were up 1.1% on a comparable basis in September we saw double digit increases in starts and more importantly showed nice improvement over July and August in the third quarter.
Looking briefly into Q1 2020 October was great and November is trending even stronger the number of students who are scheduled to start and starts themselves are up double digits.
We're off to a strong start in 2021. The overall message here is that we have our new normal operating model firmly in place. The front end of our business funnel is continuing to strengthen and gain momentum try will share some of the details on Q4, and 2020 results and how this momentum translates into good.
Revenues for 2021 in just a few minutes.
Well, let me first spend a few minutes looking forward.
We're moving into 2021 with the strongest financial Foundation, we've had in decades and its adjusted indicated our business momentum is accelerating.
With that as a backdrop I want to take just a few moments to review some growth strategies, we've initiated and are pursuing in earnest. The management team supported by our board continues to focus on dual or rather parallel strategies of growth and diversification.
Both portions of the strategy could and likely will be realized by a combination of organic and inorganic actions. We're looking to maintain the flexibility and optionality in terms of timing and capital allocation new.
The organic components of this growth strategy are focused on both program expansions and extensions were appropriate and new campus locations that need.
The inorganic components of its growth strategy, which is primarily composed of potential M&A activity could include both tuck in acquisitions, which give us access to new locations as well as more transformative steps.
Both organic and inorganic options are very much alive and receiving regular attention from the management team and the board.
It's our plan to make some announcement announcements on this front in the coming months diversification. Another important component of our strategy and also continues in both organic and inorganic ways, new programs or product offerings, such as the welding technology program will initially which was initially.
Introduced in 2017 are just one representation to strategy and as you heard we continue to be active on this front.
Efforts to address student financing overall affordability and reliance on total for funding are in the planning stages business model transformation opportunities such as those born of implementing our new and more flexible and efficient blended learning model or on the horizon.
Not unlike our growth strategies acquisitions are also a potential component of this effort.
Growth and diversification are the cornerstones of our path for it yet. It's also important to underscore that there are multiple levers at our disposal to become even more efficient and strength in the company as we grow.
On since example is that our efforts to rationalize our existing real estate footprint and optimize our real estate strategy remains at the forefront of our team's attention to.
I will provide more details, but it should not be underestimated. How these efforts can and will strengthen the financial foundation to the future.
In connection with this implementation of strategic plans I've just outlined we are reviewing our cash needs in potential usages as part of this exercise we are evaluating in collaboration with Yutai Board of directors the opportunity to replace our stock repurchase plan, which was initially set at 25 million and had approximately.
On the $10 million of authorization remaining.
We believe circumstances are favorable for repurchases a concept, which we have been asked about in the past and we are still able to invest in our attractive roster of higher ROI growth and diversification initiatives are renewed plan would give us the needed selective debt flexibility to act will provide you with additional information.
If and when that purchase plan is put into place.
Before I hand, the call over to Troy I want to briefly speak to the idea or view out there bordering on consensus in some parts of the cash investment community that a Democratic administration is automatically and universally bad for our institution and the industry Ricardo from.
Profit education.
Most notably is the notion that in order to qualify for federal funding institutions, such as ours will lead to further proof that they are worthy of federal support.
As I outlined today in the form of metrics examples and outcomes and Yutai, we've held ourselves to a high standard and and delivering for our students and industry partners for 50 years. Our business model is built on one key tenant when our students succeed we succeed rugs.
Regardless of whether we have a Republican or Democratic presidential administration or Congress, we're optimistic about the future and the path for you to yacht.
We believe both political parties and administrations are big supporters of the type and value of education and credentials. We provide for students the need for our service is mission critical to keeping America, moving especially during a country's economic recovery.
We saw some benefits from the Trump administration, and we're hearing about plans, including increasing Pell grant in rebuilding infrastructure that could turn into benefits from the Bible administration.
I'd now like to turn the call over to Troy for a deeper discussion of our financial student metrics and after which I'll return to provide some closing thoughts and comments before we open the call up for questions Troy.
Thank you drown Jerome outlined we're very pleased with the progress we made during the quarter and with our operating results for the quarter the fiscal year given the many challenges presented by COVID-19 start.
Starting with student metrics, we started 5772, new students in the fourth quarter, which increased 1.1% year over year when adjusting for the extra start that occurred in the 2019 fiscal fourth quarter.
And was down 10.3% year over year, including it.
New students scheduled to start increased 6.9% year over year for the fiscal fourth quarter, excluding the prior year extra star.
We saw significant positive shifts in the momentum of new student starts from earlier in the quarter to later in the quarter look.
Looking at start dates from August 30, Onest through the end of September when over 3200, New student start program, we saw a 14.8% year over year increase and exceeded our pre covert expectations by almost 7%.
New students Kevin on the start for this period increased almost 20% year over year and exceeded our free cash and expectations by almost 15%.
That momentum has continued into the first quarter of fiscal 2020 watt with thus far through our most recent start weve seen strong double digit year over year growth and new student starts and we're currently seeing the same year over year strength in the pacing of new students scheduled to start.
First and second quarters from.
Fiscal year 2020, we started to 11283 new students on.
This was down 2.4% as compared to fiscal 2018, I'll point out that we started two thirds of these students during the pandemic directly into our new blended learning model.
Additionally, we saw growth in three of the four quarters of the fiscal year ending last.
Last night line most recent quarters.
In the fourth quarter, we saw from showing performance versus third quarter to show rate down 360 basis points year over year versus down 400 basis points from the prior quarter.
Similar to start we saw markedly better results from the August 30, Onest start date from September with the year over year show rate down only 180 basis points for that period.
So far in the first quarter of fiscal 2021, the overall showing for our most recent star has improved 140 basis points versus the same prior year pre total period.
For fiscal 2020 show rate was down 220 basis points.
With the decline all in the code impact third and fourth quarters.
We attribute the impact primarily the fact that roughly 50% of our students relocate to attend our programs, but this increased to 50, 560% of the fourth quarter, when we start more than half our students for the year most of them from the high School channel.
You welcome third and fourth quarters, we've worked extensively with our mission to campus teams.
And our students and their families to addressing the total related concerns. They may have had we are seeing the benefits of those efforts maybe improve show rates over the past few months.
As far as seen on progression through the curriculum, we're incredibly proud of the progress our team and our students have made since our last earnings call.
During the fourth quarter. We graduated approximately 1900 students and as of the completion of the most recent course fermentation the percentage of students fully caught up and not meaning makeup labs was 78% versus 40% at the time of our last earnings call. The.
On a percentage of students who were exclusively participating on line decreased 3% force.
13% at the time of our last earnings call.
This progress allowed us to recognize approximately $8 million, the 11 million revenue deferral from last quarter.
However, the net deferral as of the end of the quarter stood at approximately 6 million.
Reflects additional deferrals during the quarter based upon the varying stages of progression for students to still be makeup labs.
We have also seen measurable improvement and stabilization and the number of student needs of assets or lower price.
As of the end of the quarter. The total number of students on Elway was approximately 700 were 5% of total students and Arctic consistent level currently.
This compares to approximately 12% at the end of the June quarter, and 9% at the time of our last earnings call.
Given the dynamics of Covance, we will likely remain around 5% to 6% of total students in the near term, which is a few points above pre committed levels.
Average students for the quarter were 11251, an increase of 2.9% versus the same period last year total.
Total end of period active students was 12524 and 1.3% increase versus the comparable period.
Ending the year positive on these metrics as a testament to the resiliency of Yutai team and the incredible progress. They have made working with our students is code since cobot initially impacted our campus operations in late March.
Turning to the financials for the quarter on full year revenues for the fourth quarter decreased 12.9% year over year from 76.3 million.
On an increased approximately $22 million or 40% sequentially versus the third quarter.
The year over year change was primarily driven by the pace of student progress on completing in person last day.
On a disruptions from the pandemic, which drove the decrease from the average revenue per student approximately 15% and closed off the revenue deferral.
Sequentially, we saw on approximately 13% increase in the average revenue per student.
Based on the current trajectory of students on the makeup labs, we expect to see measurable quarterly improvement on the net revenue deferral in a revenue per student throughout fiscal 2021.
For the full year revenues decreased 9.3% to 300.8 million also primarily driven by the revenue deferral. The overall pace of student progress moving in personal ads as well as lower average students due primarily to the coding related l. away from the third quarter.
We prudently control cost throughout the quarter with operating expense this quarter decreasing 14.7% versus the prior neared 70.2 million.
Decrease span both education services costs as well as SGN day.
It was attributable to lower headcount and related compensation and benefit expenses, along with lower occupancy depreciation and travel expenses on.
Operating expense for the fiscal year with 304.6 million decreased 10.2% versus prior year.
Productivity improvements and proactive cost actions have been a key part of our operating model. The past several years and we continue to identify and execute on efficiency opportunities throughout our cost structure, while improving and investing in the overall student experience.
Operating income for the quarter was 6.2 million compared to an operating loss of 5.4 million in the prior year quarter.
Net income for the quarter was 6.5 million, an 18% increase versus the prior year period.
For fiscal year 2020, net income was $8 million compared to a net loss of 7.9 billion in 2019.
As previously noted our full year net income includes the 10.7 million tax benefit resulting from the application of our revised net operating loss carry back loans from the carriers that.
Basic and fully diluted earnings per share were 10 cents nine cents for the fourth quarter, respectively, and both were five cents for the full year.
Total shares outstanding as of the end of the quarter were 32.647 million.
The higher than the prior quarter.
Adjusted EBITDA was 9.7 million for the quarter as compared to 10.4 million in the prior year period.
Fiscal year 2020, adjusted EBITDA was 14 day compared to 17 million for fiscal year 2018.
For the year over year comparison recall that we implement the new lease standard fiscal 2020 did not adjust prior year results taking.
Taking this into account full year adjusted EBITDA increased by approximately 2 million year over year on a comparable basis.
This is despite $31 million at lower revenue and is a very strong outcome, considering all that transpired in fiscal 2020.
Note our adjustments for fiscal 2020 reflect costs associated with Nova campus closure.
With our CEO transition.
In fiscal 2019 and reflect costs associated with Norwood and a consultant termination.
Our balance sheet strength on further in the quarter with available liquidity of 114.9 million as of September Thirtyth.
Which includes $76.8 million of unrestricted cash and cash equivalents.
$38.1 million short term held to maturity securities. This.
This is a 23 million quarter over quarter increase was consistent with the increase in liquidity, we generated in the fourth quarter of fiscal 2018.
This is a notable outcome considering the challenging challenging operating environment during the quarter.
For the fiscal year operating cash flow was 11 million, while adjusted free cash flow was $4.3 million, including 9.3 million of Capex.
We estimate the cash flow is negatively impacted by $10 million to $15 million for the year due to the timing of tighter for fund flows tied to cobot related delays and student progression through the curriculum.
You can see this impact and the increase in our tuition receivables versus this time last year.
Most of which we expect we realized in fiscal 2021.
We believe that our strong balance sheet and ability to generate free cash flow provides us with a solid foundation to execute on our growth strategy as we enter into fiscal 2021.
We are actively working a number of strategic initiatives that will create value for our business, our students and our shareholders and that we plan to share more details on in the months ahead.
Also provide a brief update on our use of the cares Act herb funds.
During the quarter, we completed disbursing to 16.6 million of emergency student.
We also allocate 600000 of the institutional funds for emergency grant students.
On the remaining institutional funds, we utilized $9.1 million of these funds in the fourth quarter.
Ill just about 5.7 million was for our student laptop PC program.
The remainder was for technology and curriculum investments health and safety on our campuses and costs associated with additional lab sessions to allow for social business.
We have approximately 900000 in institutional funds remaining.
Now, let me touch on our real estate footprint optimization efforts.
Recap the actions completed in fiscal 2020, we completed our exit on campus Rightsizing of 71000 square feet on the first quarter on our home office relocation and 16000 foot reduction in June.
We gave back the remaining 152000 square feet for the Norwood campus after closing and in July and.
We signed a new lease for our Sacramento campus in September, which will reduce that campus by 128000 square feet.
On the calendar 2021.
Combined these actions reduced our annual EPS occupancy costs by over $8 billion with all but Sacramento captured in our Q4 run rate.
We are actively negotiating with landlords other campuses for similar actions.
Moving share more details on the negotiations are finalized.
Our total lease facility portfolio currently stands at 1.85 million square feet.
We're also exploring owning versus leasing certain campus facilities, given the strength of our balance sheet potential opportunities in the commercial real estate market.
Another topic to touch on is the 8-K filed in September regarding the distribution of the preferred shares held by calcium Holdings, Inc.
Affiliated and non affiliated entities.
We view the distribution is very much in support of our strategic objectives and as our overall important step forward.
To bolster utilize capital structure.
We appreciate the efforts Coliseum went through to initiate and implement the distribution as well as their overall support of the company focused on long term value creation for all shareholders.
The net effect on this distribution was to reduce calcium is direct and indirect holdings to 24.9% of total yutai outstanding shares on an as converted basis.
Ownership threshold is important the company is there any action involving 25% or more the company's total outstanding shares would require a change of control review by the department of education.
This type of review to take as long as six to nine months it could delay any future organic or inorganic strategic actions, we may be pursued.
The shares held by calcium and their affiliates are currently limited by a 9.9% voting and conversion cap, which.
Which can be lifted through further action by then and the company.
We have communicated with a few of the larger preferred shareholders, while enhancing for them on their attention than any point in time, we understand that they are supportive of the company and our long term growth strategy doesn't tend to be long term holders.
Lastly for the terms governing the preferred shares the company has the option to require to conversion of any or all outstanding preferred shares if the volume weighted average price of the companys common stock equals or exceeds $8.33 for 20 consecutive trading days. This price could change over time based on certain adjustments.
Looking forward given our business model, we already have considerable visibility into fiscal 2021.
We feel very positive about the outlook based on what we're seeing right now.
Yes, currently generate a significant portion of the fiscal year revenue neutral.
New student enrollments from start to pacing very strongly so far from here and we have visibility into and control of the key components of our cost structure.
As well as planned investments and productivity improvements on.
However, the potential for ongoing impacts from the pandemic cannot be fully determined to quantify.
Impacts could be on new student enrollments show rates I'll always withdrawals and overall student progression through the curriculum all of which could negatively impact revenue.
Regardless, we expect to manage costs to limit potential impact to profitability and cash flow as we did through the actions we took in fiscal 2020.
Additionally, with our blended learning model fully functioning and the enhancements we have plan we.
We have the ability dependent rapidly in the event of any future campus disruptions, which is a capability. We did not possess back in March from the pin debit struck.
With that backdrop I will now provide our guidance for fiscal 2021.
For both new student start and revenue, we expect year over year growth of 10% to 15%.
Our net income we expect a range of 14 million to 19 billion adjusted EBITDA, We expect a range of 30 million to 35.
Our adjusted free cash flow, we expect a range of 20 million to 25 billion, which assumes capex of 15 million to $20 million.
Approximately two thirds of the planned Capex support high ROI investments, including the two welding programs, we are launching in fiscal 2021 enhance.
Enhancements to our online curriculum and our campus optimization efforts.
The remaining amount represents a consistent level of annual maintenance capex needed projects that were deferred from fiscal 2020.
From a timing perspective, we expect starts to be higher year over year in every quarter, reflecting the momentum we have referenced with growth in Q1, and Q3 being more pronounced.
We expect revenue to be down a few points year over year in the first half of the year as we made continued progress on the lab makeup progress.
And up measurably in the back half of the year, particularly in Q3.
Profit will also be down versus the prior year in the first half with the growth in the back half the year cash.
Cash flow should follow more normal pattern neutral and modest cash generation in the first half cash usage in the third quarter and a significant cash generation in the fourth quarter.
To the extent any strategic actions, we now have an impact on fiscal 2020 watt.
We will update this guidance accordingly.
We will also continue monitoring the cobot situation very closely and we'll update you with the causes any material change in our expectations.
Despite this potential uncertainty the visibility we have into the business on the confidence we have on our operating model. We feel it is appropriate to provide guidance on the investment community has an understanding of where we see the business heading over the upcoming fiscal year.
With that I want to congratulate you CCI team for their many accomplishments in fiscal 2020 and thank them for their tremendous efforts throughout the year.
Now I'll turn the call back over to drill for his closing remarks.
Thank you Troy.
To summarize the outlook for our business is great as we are seeing significant growing interest in our highly valued programs across the country.
We're making key investments in our core value proposition our programs industry relationships and talent.
We're continuing to gauge our prospective students via new pathways and methods they are responding well.
We're continuing to innovate our educational delivery model in ways that supportive today, but also open new opportunities for the future.
We're adapting every day to changes occurring in our market political and business environment and have demonstrated our ability to operate effectively even when faced with unprecedented challenges. We're proud that the innovations and improvements that we have made and will continue to make have made it stronger yutai today and a better UTI.
Positioned for the future our.
Our business remains resilient, we continue to make meaningful improvements our financial position is strong and clearly superior to many in our industry fine.
Finally, the academic and employment proposition, we offer is more valuable than ever to our students potential employers and industry partners.
Thank you both for your time and attention. This afternoon I'd now like to turn the call over to the operator for questions and answers operator, we will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad. If you are using a speakerphone. Please pick up your handset before pressing the keys to withdraw your question. Please press Star then too.
Our first question is from Steven Frankel with Colliers. Please go ahead.
Hi, Good afternoon. Thank you Ed Jerome could you give us a little more detail on the contract growth I know last quarter, you talked about as being.
Up 20% year on year has it accelerated from that and to what extent do you think you've seen any benefits from the uptick in unemployment.
Bringing more adult worse.
Q.
It's good question, Andrew I can get you on a.
Some of the numbers on that while I talk a little bit of on employment you know.
I think.
It may still be a bit too soon to call out sort of the flashed out effects of on it on employment. It is true that from a.
Growth standpoint that there is a slightly disproportionate amount of our growth coming from adult.
On the adult population right now and that.
Begins to show the signs of of that activity, but I think the color would affect that we've talked about this quarter to quarter before still sort of mask the.
The the real outcomes and Thats something that we think will still be coming down the line and Steve destroy the on what we said last quarter was that in the third quarter, our contracts were up 20% year over year on the quarter that also have the benefit of that extra start in the third quarter, and we said that our fourth quarter enrollments.
We're pacing ahead of our pre cobot expectations, but.
But our credo that expectations they were down on a year over year basis in Q4, because that extra start we did comment on further.
For this quarter, because we got a lot of feedback that the extra start between the two quarters was creating some confusion. So we did comment more on an apples to apples basis this quarter starts being up 1.1%.
In that day contract yes.
The new student enrollments were up 6.9% on a comparable basis.
Hey, but what what are your current contracts look like today.
So for sure.
Sure in my comments I mentioned that for Q1 and Q2, we're currently pacing at a double digit clip.
Ahead of last year, which keep in mind. This pre coded last year. We're currently pacing at a double digit clip ahead of last year for Q1, and Q2 now that the progress to date Q1, where we'll only be taking enrollment for another few weeks in another week or two actually really for Q1.
And then push most of that for Q2, but but so Q1 is pretty fully subscribed at this point from a what we would expect to enroll but we're pacing very strongly for the Q on Q2 and for the full year overall.
Okay, and what was the graduate employment rate for the fiscal year.
We ended up at 84% for the fiscal year.
We were 86 last year were 80 for the year before that I mean, we're very consistently in that in the mid Eightys plus minus.
Okay, and then going back to your comments around the incoming administration there.
Theres been some talk about a change in the 90 10 rules that would roll the.
The G by portion into the 90, how would that impact you.
And how would you benefit from an increase in Pell Grant.
So so that you can wear.
We are 70 30 generally speaking you'll actually see that in the sixties. In fact, we added to that detailed our investor deck, which is posted on the Investor Relations Web site, we're at 66% because of some of the delay on the title for revenue, so BA and cash pay or a little bit higher percentage this year because of that.
Hey, normally is around 15% cash pay is normally around 15%. So when you get to talk about our 70 30 70 title for 15 15.
If they just purely change hit 80 515.
Then we would be fine.
If they flip the V.A. than we start getting close but again us we're in pretty good position relative to other players and yes.
Yes, there would have to be from adjustment across the industry to address that but we'll be fine I think they work.
Okay, Great I'll jump back in the queue. Thank you.
Excellent. Thanks.
The next question is from Eric Martinuzzi with Lake Street. Please go ahead.
Yes, I was going to say the sequential progress there I know.
Tightly shy versus consensus budget too big.
Big step up versus what you guys had to deal with there in June so good to see that translate into the right direction.
Thanks, Phil.
For the guidance I know thats ticking on that got a little bit too given we're not nobody would clarify the current environment or qualify the current environment as many kind of status quo, but at least at least put some guardrails on them what were thinking from a year.
I was curious to know just for the student Reengagement in something that for me is key obviously.
New starts matter, but how would you characterize the student engagement kind of.
Well away.
Perspective, now versus 90 days ago.
I'll now comment.
Quantitatively and drugs you want to add any other color.
From a cash from operations and engagement perspective, I mean, I commented that we were at about 700, roughly 5% of Steven keep in mind were at peak seasons, right now and.
And we're talking about just to be clear total Alloa, we're not differentiating between net codell away on a regular alloy. We're just we're talking about a total outlays on our business had debt and we're we think we are probably on we normally run about 4% plus minus a percent depending on the time of year holiday summer spring break that type.
Thanks.
So, we're probably going to be elevated a point or two that we have.
Students, who enter out there for training their family might have a quarantine issue, maybe they just need to take a little bit of time off with.
All this.
Dynamics going on but I think we're at a pretty stable point right now and would.
We would expect as we get further into the cobot world that we continue to normalize probably up a point or two over time.
Jerome any color.
Yes, well first of all first of all there at the beginning of your comment on starts or starts I do want to make.
I would underscore that.
The trend, we're seeing is quite positive not only in the number of.
People scheduled to start or contracts, but also on the actual show rates, meaning the number of people who have signed a contract to actually show up to school.
Those numbers are at or exceeding last year's normal show rates right now, which are indications of People's Reengagement and I think that the questions about engagement. We're seeing some very very positive signs that people are engaged serious and and really focused on going out there and getting a job assets.
Solid.
Mhm.
Okay.
All right and then as I look at it.
Kind of you talked a little bit about M&A I was just curious to know obviously, you're going to be looking at things that are.
Incremental to the fundamentals of the business, but.
Theres kind of two directions I see you guys going on one would be more towards the horizontal expansion into.
Either a new geography, or a complementary auto diesel mechanic type of acquisition and then the other direction would be into.
The net non mechanic world is there.
Given a.
Do you have a preference for either of those two directions, assuming the revenue and EBITDA contribution that was equivalent between two potential targets.
No.
Actually in many cases you get both.
Is sort of the short answer is yes, one of the things we've talked about over the last year since our capital raise is that we'd like to look at the opportunity to expand our programs that in order to be able to offer more programs on the footprint that we have and optimize the square footage optimize the opportunity.
For that that group of people in any given area, but often in those instances you also have the opportunity to to bring our programs like diesel or auto into the footprint of of one of those as well and so it's really a mix of thought we are really thinking about diversification and getting more products into the.
Market.
But doing so in the light of.
Also expanding ourselves geographically to to be able to address more of that disconnect between the supply and demand of technicians in all areas.
Okay.
And then just could you revisit the seasonality here, obviously, you know the cobot quarter I get that that's going to be an easy comp Troy you talked about down a little bit. If we were to look at things revenue wise on a year on year basis.
Down a little bit in the first half and then in the back half, but overall to get to your year of 10% to 15% revenue growth.
Take take me through the seasonality discussion there one layer deeper.
Yes, it really comes down to the debt.
Two lab progression in that and the average revenue per student right. I mean that we will again were at peak students. We have such a strong strong starts that have already happened and expectations for the rest of Q1 and Q2.
And then as we continue to lap regressions.
But we'll be down first quarter more than we will be in the second quarter may be closer to flat second quarter and again. This is all predicated on.
On the kind of co dynamics, but.
And then as you said Q3 would just be a blockbuster quarter on a year over year basis.
From a percentage growth perspective, and then but then also showed growth in Q4 as well as out of the way Weve outlined.
Okay. That's helpful. Okay that covers it from me thanks for taking my questions.
I appreciate the questions, yes, thanks, Sir.
The next question is from Alex Paris with Barrington Research. Please go ahead.
Hi, guys. Thanks for taking my question I, just got it Hey, I just got a couple I wanted to dive back into the incoming administration and thoughts about the regulatory environment going forward and I do appreciate and agree with you.
The services that Yuchai provides our.
[noise] less offensive you know to the Democrats in fact.
They talk about investing in career learning and that sort of thing on the tank.
And I was impressed to see also the 90 10 ratio 70 30 mill.
Militaries about 15, so that would get you to 85, if they decided to include that I still below the 90 and even if they reduced it to 80 515 still be in that realm. So it seems like theres not a lot of concern there.
I also noticed in your supplement or supplementary material that you're cdrs year cohort default rates were down again in the most recent period down slightly but but heading in the right direction and in at 14.5% well below you know statutory limits.
The other thing that the Biden administration or people, who are watching conclude is one of the things that they are likely to do is to reinstate.
The Obama era, the inflow employment growth can you refresh my memory I didn't cover the company actively at the time, but what was your gainful employment experience versus the previous set of.
Net the could you have any programs that failed or any programs that were in the zone and what did you do have on it.
So.
I want to make sure we're talking as credibly inaccurately about that time period, as we possibly can on and so I'm going to let Jody who was here at the time give you a couple of pieces.
Data around exactly what happened in the reaction of the company at that time frame.
Hi, Alex.
So back on any Obama gainful employment regulations, we had a few program if I remember correctly I think two or three that were in itself on the sort of.
The yellow zone, but we had no failing programs.
That's very helpful.
And then.
Moving on I.
I just had a question about guidance Troy you gave guidance for revenues adjusted EBITDA a few other things net income.
Capex et cetera.
In getting to a earnings per share, you're giving net income guidance before preferred dividends correct.
That's correct that's the growth had income.
Okay and then so.
And then what number of shares should I used on the denominator. So if I take your net income guidance.
Subtract from it preferred dividends what share count should we be using to calculate EPS.
Well as you can see the last.
Last two quarters is really been minimal change quarter over quarter few small investing you debt from employee shares are up last year Grant was in January so there'll be some shares that best some restricted shares that vast and January this year not a huge amount. So I think this the current.
Count to 36, 47, I referenced plus a few hundred thousand shares may be.
It's probably a good count.
Okay. Good.
And then.
I guess lastly from me.
The advertising I think you gave us a figure in Q3, you spent a $9 million on advertising in Q3, what was that figure in Q4.
Yes, there is a supplemental table in our press release and the number was 9.6 on quarter 39.7 for the year.
Okay, Great and then I guess I think in one more and I think you alluded to it.
The significant increase in unemployment among young male 16 to 24, almost double the national rate I know, it's hard to determine if you're getting any pick up from that cohort of individuals and coded tends to mask it to so on but.
Would you expect to see I mean like you saw last recession every recession is a little different but would you expect to see a similar.
Some uptick in new student enrollment as a result from the rise in unemployment in the coming quarters.
Yeah, I save any effects of code that may have on sort of the regular be hit the regular behavior of however, this the contours of.
Of of a recession the short answer would be yes, I think we said some of the characteristics are different than than the last.
Then the last recession, one emerging trend we're seeing is.
In a number of high school students, who were not college bound because they believe the employment market was out there for them.
Our starting were starting to see more of a pickup of interest in the high schools around students, who werent colleagues on before which tends to make sense right. If the if the unemployment is is.
Hi of highly concentrated on that age group, they're not seeing the opportunities on the other end net debt.
They had before so we're beginning to see it but I think more of this in front of us than line, Yeah, Hey, Alex I think we have one more in Q, we're going to try to sneak in one more question.
So I appreciate your questions and.
On that question is from Austin, most out with Canaccord. Please go ahead.
Hi, I've got a quick follow up on the Ela ways, how many total debt related alloys.
Do you think were ultimately lost and not expected to come back.
On the we have seen a bit of.
Yes uptick it our withdraws so.
That that's also kind of runs in that low.
To mid single digit percentage. So we're working through the law people have been on the extended elway's keep in mind the department of Ed Loosen yellow way guidelines, so that people can take on longer than the standard six months.
And also with students you have accumulated a significant backlog in terms of their makeup labs. We're starting now to go to them and say hey, we really need to have a recovery plan here to keep you current in the curriculum or get you credited to curriculum. So no it's not dramatic.
But.
Yes, 100 200 students.
You know as we're working through that but they they cycle out of an l. away. They either have become active and go to withdraw that than we have we have other people who go out on that we'll assets it really isn't it cost and cycle.
Got it and then my last question.
On his is on blended learning <unk> can you give an update on the lending learning on the blended learning rollout and what the specific areas of improvement on in that and can you also explain the differences and how you expect it will look in the future compared to what it might look like today after I imagine spinning it off relatively quick.
Moving to cope with the pandemic.
Yes, I mean.
[music].
A lot of effort now is being placed into a few a few different areas number one on.
You know, putting some more sophisticated learning architecture into the the workload to students.
Yes, net projects things along those lines on.
That better.
Better keep students engage those were things you just couldn't do land on the 16th of March you have to create and go live with nearly 200 courses and so we've been bringing more interactivity and learning design into them.
Higher people into our shop that are experts in that area in order to do that.
Assessment is another area of bringing more sophisticated assessment tools and into it and then also continued to hone our communication tools to make sure that these cohorts are staying connected with the campuses and staying connected.
The lab, because our new normal is that students are doing online learning in the same week that they would come in and do lap. So it's not wildly disconnected by a week online and then a weekend the layoffs and so we want to keep that.
Communication stream openness and students are doing both in a given week.
Great. Thanks for your question thoughts.
All right and care. Thank you.
Before signing off on once again like to express my utmost gratitude beauty I keep their continued effort these unprecedented times.
It was a pleasure to further express our focus on student outcomes share accomplishments the suit and students in the organization and convey our vision for the future deals, especially important this year to convey our warmest wishes to everyone from a safe and healthy holiday season, and I want to thank you. All this concludes the call.
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