Q1 2021 Universal Technical Institute Inc Earnings Call
Hello, and welcome to the Universal Technical Institute fiscal first quarter 2021 earnings Conference call.
All participants will be on us not only mode.
Should you need assistance, please still a conference specialist by pressing the star can you followed by zero.
After todays presentation, there will be and opportunity to ask questions.
And I ask a question you May press Star then one on your touched on phone.
To withdraw your question. Please press Star then two.
Please note today's event is being recorded and all the teleconference over to Jody Kent Muscat. Please go ahead.
Yeah.
Before we begin and 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 today's press release for additional information and important disclosures about forward looking statements.
Because forward looking statements relate to the future they are subject to inherent uncertainties risks and changes and 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 and 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 on todays press release also applies to everything discussed 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 is 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 is net income or loss before interest expense interest income income taxes, depreciation and amortization and adjusted for items not considered as part of the company's normal recurring operations.
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 uses adjusted operating income and loss adjusted EBITDA and adjusted free cash flow as 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 measurements and today's press release, and we encourage you to carefully review those reconciliations.
Starting with the third quarter of fiscal 2019 and through fiscal 'twenty and 'twenty, we have reported operating metrics such as student applications and starts excluding our Norwood, Massachusetts campus as we have shared previously Norwood stopped accepting new student applications and the second quarter of fiscal 2019 and.
And the campus was fully closed in July 'twenty and 'twenty. So.
So we believe it is important to exclude its impact. 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 to begin I'd like to once again applaud the tremendous efforts of our staff and students during the quarter, we were able to make progress on a number of strategic initiatives, while keeping all of our campuses fully operational starting 1900 and 27 student.
And nearly 21% increase over Q1, 2020, and graduating 1500 10 students. Despite a significant spike and COVID-19 cases throughout the country.
As with most post secondary institutions around the world, we did experience some temporary effects related to the pandemic this past quarter.
Troy will share more of our metrics and full financial results with you a bit later in the call.
You may recall from our last update and in addition to keeping U T I open and moving forward and this challenging environment. Our focus is in three key areas that we believe will be driving the evolution of UGI.
Student outcomes innovation, and our long term growth and diversification strategy.
Student outcomes continue to be the foundation for our platform on which UTI is built.
T is past and future is an extra <unk> tied to this measure because we only succeed when our students succeed.
Ensuring the highest level of outcomes is a team effort. The foundation of that team are world class instructors and support staff and curriculum design specialists. Additionally, one of UTI is most unique and critical outcomes oriented value proposition is our relationship with our employment military and OEM partners.
This quarter, we continue to build those partnerships to maximize the success rate of our students.
One excellent example is the announcement we made in November of our collaborative new hands on training program at Fort Bliss, and El Paso, Texas.
And innovative three way partnership between UTI.
Premier truck group, a wholly on subsidiary of Penske Automotive group and the U S. Army is the first on base diesel commercial vehicle technician career skills program and the history of the U S Army.
A second example of how a partnership drives outcomes is the announcement, we made December featuring the expansion of our exclusive relationship with downward trucks in North America or D. T N. A the number one heavy duty truck manufacturer in North America.
We're thrilled to be expanding D. TNA is finished first program to Orlando campus in the summer of 2021.
The program train students to maintain diagnose and repair D T and as industry, leading brands, including Freightliner Western Star and Detroit.
Orlando will become the third UTI campus to be offering this exclusive program, joining our campuses and Avondale, Arizona and Lisle, Illinois.
These partnerships underscore that Uti's education model has a long track record of distilling students the key skills that leading employers nationwide required.
A great example of how this all comes together for both students and industry as Kevin Smith Kevin.
Kevin graduated from the auto diesel and Ford program at our Houston campus and 2004 and he has built a successful 2017 year career.
He tells us that UTI helped create the foundation that is success has been built upon giving him work ready skills needed to succeed as a level one technician and then grow over time to become general manager at Rush Truck Center, and Hain City, Florida, which is just outside of Orlando.
Kevin now regularly interviews perspective technicians from UTI and Orlando campus for physicians and his location.
He does so because he says they received the state of the industry training needed to immediately hit the ground running and because throughout their UTI education. They have been held to a high level of professionalism, which translates to more successful and reliable employees.
And the past few years Havent hired many technicians from UTI and Orlando and their demand for technicians continues to be strong.
Kevin also told us that UTI shift to a blended learning model is a benefit to both students and employers because it aligns more seamlessly to the continuous learning technicians already do on the job.
He said, it's another step that UTI takes to better prepare students for the real world.
Kevin story and bodies, the lifelong value of our strategic partnerships and also sheds light on a key area, where we're innovating to better prepare students for today's job market that area is our blended learning approach to continue to build on both our history and promise for successful outcomes for our stool.
We must challenge ourselves to innovate to better align our platforms, our model and our overall offerings with our market I think it's important to take a step back here and remind everyone that our blended learning model was not merely developed in response to COVID-19 and.
More limited iterations of this model were developed years ago, and had already rolled out and stages across a number of our campuses.
The onset of the global pandemic last year and necessitated a rapid expansion to a full blended learning model across our system and the first half of 'twenty and 'twenty.
We're seeing the advantages of blended learning come to fruition as time progresses and are confident its value will live on to serve as yet another durable advantage for UTI.
Thus, we will continue to invest appropriately and content technology and people to fuel its growth John.
Also important to note that blended learning is much different and the purely online learning approached us around much of the U S right now.
The skills of our students need require substantial hands on instruction and our blended learning approach allows our students to complete the classroom portion of the curriculum online while still receiving all with their hands on labs and person.
None of that's virtual so no crucial hands on training is omitted.
Not only does the approach offer students more flexibility and convenience. It also enables us to reduce repurpose and consolidate previously used classroom space to enhance our overall efficiency.
For example, we recently announced the purchase of our Avondale, Arizona campus and the relocation of our motorcycle programs to Avondale from their current location and North Phoenix. This move comes with substantial financial benefits to UTI and its shareholders.
And was facilitated through the efficiencies realized through our blended learning approach Kevin from restructuring is not alone and recognition and praise of our new innovative learning models.
Numerous employer partners have also expressed immense gratitude for the computer skills, we're now providing to our graduates. The reality is that while the majority of jobs for which we train are centered around hands on skills. Digital literacy is also essential in these fields.
We're confident that our blended learning model will continue to evolve to better serve the needs of our students and employment partners alike. While unlocking further efficiency opportunities that just were not feasible under our traditional operating model.
Our second area of innovation I'd like to highlight because with our marketing approach where throughout the last several months, we've strategically directed time and capital to further drive the efficiency and effectiveness of our campaigns.
While we continue to support our National brand appeal, and we've begun to allocate more resources to potential students living near our campuses.
And the current environment of high unemployment restricted travel and health and safety modifications.
This emphasis makes sense and is supportive of our students and their families.
As a management team we felt that it was our responsibility to ensure that the local communities and which we operate across the country fully understood and maximize the benefits of what we had to offer.
This could not be fully realized with a predominantly national approach to advertising.
You see it as really a win win opportunity.
Less costly for students and their families in terms of relocation and living expenses increased flexibility to complete their education and utilizing our blended learning model, while working at the same time more cost effective for us and enabling our students to spend more time with their families and.
Stakeholders and our communities. These are critical opportunities and students that we must do our best to connect with and serve.
As we mentioned last quarter, we've altered our messaging to both acknowledged the sharp increase in unemployment the 16% to 24 year old population and the U S.
And more concretely highlight the incredible robust job opportunities and prospective student local market.
Many of our advertisements now include information on the number of open jobs program length, and starting salaries within the campus communities, which are all backed by concrete and publicly available data.
We want people to know from the start what they can achieve by enrolling and our programs and exactly how long it takes to reach their goals were.
We're seeing the impact of our more locally focused advertising and sharp and messaging through an impressive increase and lead flow heightened conversion rates and improve start rates, all which are effectively improving the return on our marketing investment.
Finally, before I turn the call over to Troy I'd like to provide a brief update on our growth and diversification efforts and how were moving forward to shape the future of UTI.
Program expansion and serves as one of the tenants of our plan and it should be underscored that although we're looking at organic and inorganic means to bring more programs to UTI substantial opportunity remains to grow through the channels and which we currently operate.
To that and we plan to continue to expand our current offerings such as welding technology across the footprint.
Just last week, we announced the February launch of our six welding technology program and Lisle, Illinois.
Along with the planned launch and Bloomfield, New Jersey later this year.
We also announced our intention to bring two more welding programs to our campuses and 2022, which will bring the total to nine campuses and represent nearly complete rollout of this highly successful program.
And you see we want to be able to offer the best solution possible for the many people who want to post secondary education, but feel that a typical college degree just isn't right for them.
Our teams also continued to make substantial progress on a number of other strategic initiatives supporting our growth and diversification plan as well.
We have worked diligently and collaboration with the UTI Board of directors to solidify the plan of how our capital will be deployed and when.
Although we have no announcements on this front today, we expect that we'll be able to share more soon.
With that said I'd now like to turn the call over to Troy for a discussion of our key accomplishments operating and financial metrics as well as guidance for the balance of the year after which I'll return to provide some closing thoughts and open the call up for questions Troy.
Thank you Jerome as Jerome outline we experienced growth across a number of our key performance indicators during the fiscal first quarter and we are pleased with our operating performance in light of the broader macro environment.
We started 1927 students and the first quarter.
And increase of 29% over the prior year pre Covid first quarter.
With strength and starts across all three channels.
Scheduled starts increased 18, 3% year over year and the quarter.
As of the most recent data students scheduled to start and the second quarter is currently pacing at an even stronger clip from a year over year perspective.
Joe rate improved 110 basis points year over year in the quarter and notably we achieved the fourth straight year of first quarter year over year show rate improvement.
We saw continued strength and media driven inquiries with an 11, 5% year over year increase and the quarter.
As we commented and our last call, we saw a slowdown and media driven inquiries and October leading up to the election.
And that we reduced our advertising spending during that timeframe, given the market dynamics and diminishing returns.
Inquiries quickly bounce back to strong double digit year over year growth and November and December which also continued in January.
Our media inquiry conversion rate or the rate that we convert inquiries into enrollment was higher year over year throughout the quarter and this also continued through January.
In summary, the front and metrics for our business clearly demonstrate that momentum is building.
On the revenue side, we continued to see impacts from the COVID-19 pandemic on our students and their families.
Thus affecting their ability to fully engage in this environment.
This is reflected in our revenue for the first quarter, which decreased 12, 7% to $76 1 million compared.
Compared to $87 2 million and the prior year period.
This includes a $2 million net revenue deferral for students who are still completing makeup labs, which is down from $6 million at the end of last quarter, and 11 million and two quarters ago.
The decrease and the revenue deferral as a result of the continued improvement and the number of students fully caught up on their labs, which is now 84%.
And the decrease and online only students to less than 1%.
We saw a one 8% year over year increase and average students in the quarter, which is a positive sign for student engagement and overall revenue growth.
Revenue per student reflects our normal sequential seasonal decrease due to our annual holiday closure and December.
We would like to have seen revenue per student and a bit higher and the quarter, but the COVID-19 spike put pressure on leaves of absence for L. O A's and late November and throughout December and also contributed to higher withdrawals in the quarter.
Additionally, we continue working with a subset of students who are experiencing higher course, retake and fill rates, particularly those who enrolled pre COVID-19.
We have multiple initiatives underway to further assist students and increase their likelihood for successful outcome.
Including mentoring programs increased lab days conversion to a new learning management system with improved student experience and performance measurement capabilities and and streamlined re enrollment process for students, who previously withdrew and desire to reengage and complete the program.
We have seen improvements as the current quarter has progressed.
As of the last course rotation L O as were more consistent with our expectations and.
And overall, we're seeing better student persistence and engagement as those initiatives and rolled out.
We are confident that we will see ongoing improvements to the variables within our control as the year progresses.
We were able to offset the majority of the revenue impact for the quarter through diligent cost control with operating expenses for the quarter decreasing $7 6 million or nine 2% versus the prior year to $75 3 million.
The decrease was across both education and services and facilities and SG&A.
And was primarily attributable to productivity improvements, resulting in lower head count and related compensation and benefit expenses.
Along with lower occupancy expenses from our real estate rationalization efforts and.
And lower advertising and travel expenses.
Head count at the end of the quarter was 1590 down approximately 50 from the prior year period.
Operating income and adjusted operating income for the quarter were <unk> 8 million compared to $4 3 million and $6 5 million and the prior year quarter respectively.
Adjusted EBITDA was $4 3 million for the quarter as compared to $10 1 million and the prior year period.
For our adjusted profitability results, we had no adjustments and the current quarter.
And for the prior year reflects adjustments for our CEO transition and the Nord, Massachusetts campus closure.
Net income for the quarter was $1 1 million compared to $4 7 million and the prior year comparable period.
Basic and fully diluted loss per share were both one and <unk>.
Total shares outstanding as of the end of the quarter were $32 million 685000, and slightly higher than the prior quarter.
Our balance sheet remains strong and provides a solid foundation as we continue to navigate the pandemic and pursue our growth and diversification strategies.
We ended the quarter with available liquidity of $72 1 million.
Which includes $44 2 million and cash and cash equivalents and $27 9 million of short term held to maturity securities.
This is reflective of the $45 2 million net cash outlay for the purchase of our Avondale campus and late December.
And the quarter, we generated operating cash flow of $7 8 million and adjusted free cash flow of $5 8 million.
Adjusted free cash flow reflects an adjustment for the Avondale campus purchase and the current year and.
And for our CEO transition and Norwood campus closure and the prior year.
Just a quick recap regarding Avondale.
As we disclosed we expect to complete the consolidation of our Phoenix and and my campus into Avondale by the end of fiscal 2022.
And estimate a total annualized adjusted EBITDA benefit of approximately $6 5 million as a result of the purchase and consolidations.
We will see the initial benefits from the purchase transaction on occupancy expense and the second quarter.
Post consolidation Avondale will be our largest campus in terms of size number of students and program diversity.
We also made further progress on our previously announced Orlando campus consolidation.
And have finalized leases to secure the necessary space disc.
And this consolidation will bring all of our Orlando operations into one site.
And reduce the overall footprint by approximately 75000 square feet.
As a result, we estimate and annual adjusted EBITDA benefit of approximately $1 9 million beginning in fiscal 2022.
Our strong balance sheet and ability to consistently generate cash from our core operations and support our strategic initiatives as we move forward.
As Jerome mentioned, we're making good progress on this front and we expect to release more details in the coming months.
I would now like to turn briefly to our guidance for fiscal 2021 before handing the call back to Jerome.
Despite the additional pressure we saw on revenue this quarter from Covid.
We are pleased with the progress we are making across our business by the strength of the various leading indicators mentioned in my earlier comments.
And by the continued progress of our students and success of our graduates.
Given this we are maintaining our full year fiscal 2021 guidance.
This assumes the current environment in relation to the pandemic does not worsen.
And thus, we see steady performance improvement throughout the remainder of the year.
Briefly recapping the guidance for the full fiscal year, we expect year over year students start and revenue growth of 10% to 15%.
Net income of $14 million to $19 million adjusted.
Adjusted EBITDA of $30 million to $35 million.
And adjusted free cash flow of $20 million to $25 million, which assumes capital expenditures of $15 million to $20 million, excluding the Avondale campus purchase made in the first quarter.
With that I would like to thank the entire UTI team for their efforts during the quarter.
Now I'll turn the call back over to Jerome for closing remarks before he opens up the call for questions Jerome.
Thanks, Troy, we continue to feel optimistic about the remainder of the year and the future for UTI and feel the short term revenue pressures primarily attributable to the current health crisis. In America are just minor bumps on the road on our path to success.
We are seeing extremely strong demand at the front end of our lead funnel that we are more efficiently converting to scheduled starch and starch than we ever have.
The job market for our graduates has remained resilient and is expected to see further expansion over the coming months and years, we're confident that our blended learning is the premier way to be educated within our field and we're seeing tangible results from our ambitious marketing strategy.
Our financial position remains rock solid which offers us optionality moving forward.
Our team has a clear vision of both how UTI and must execute on the fundamentals in 2021, while aggressively pursuing the growth and diversification path to achieving our fullest potential and the future.
I'd now like to turn the call over to the operator for Q&A.
Yes. Thank you we will now begin the question and answer session.
To ask a question you May press Star then one on your touched on call. If he always and speakerphone. Please pick up your handset before pressing the case just try your question. Please press Star then two.
We will pause momentarily to assemble the roster.
And the first question comes from Austin and rolled out with Canaccord.
Thanks, very much for taking my questions.
You mentioned some negative impacts from Covid, but do you believe you're experiencing any improvements from demand from recessionary trends and high unemployment yet.
Yeah, Hi, Austin. This is Troy. Thanks for the question, we've been talking about the front end strength on our inquiry flow for a few quarters. Now we were we were 25% both in the last two quarters of fiscal 'twenty and 11, 5%.
This quarter and that includes a down month with October because of the election, so where we're seeing demand.
Clearly unemployment rate and our primary demographic is very elevated and.
Even with some of the more recent improvements.
And so and it's again always hard to call, but clearly the enrollments this quarter and the starts this quarter were very strong.
We see as I commented on we see strength and or.
For Q2, and a romance, which are actually pacing stronger.
Currently based on current data then that our Q1 enrollment and we continued to build the book for the back half of the year. So we're encouraged by the front end strength, we see and we will continue to do everything we can to maximize the opportunity and support our prospective students.
Great. Thanks for that can you go into a little more depth on the advertising environment and I think you mentioned something about localizing and messages can you just kind of go through that initiatives sure.
Austin, Thanks, and thanks for calling in anyway.
So a couple of things number one in terms of of the environment as a whole one of the.
Alterations, we've made is to start to more localize R.
Our advertising most of Uti's advertising over the last number of years has been sort.
National brand awareness advertisement that would that would bring someone to inquire about what they may want to do were getting far more pointed and our advertising right now and Youll see social media ads in the New York area, saying, there are 66000 open jobs, and and and 51 weeks you'd be certified.
And to be able to apply for one of those.
And we really believe that.
A little deeper mining and our our local areas.
Some of the results, we've seen and the first quarter.
A beginning of a shift to more <unk>.
Local enrollments, which convert at a higher rate and actually show at a higher rate and.
And then also a bit of a compressed timeframe between enrollment and start.
And just sort of leads to your first question that you had Detroit, which is the.
And the compressed timeframe, which usually is about four months between a inquiry and and a start.
Is really indicative that you've got people, who don't have jobs and are ready to get get retrained right away. So.
A lot of that messaging is much more focused on being there for people and then.
A significant amount of the focus is is.
Really reaching out to people who are local therefore, they can make a decision quickly and start school right away.
Okay, Great that's really helpful and if I could sneak in one quick one you mentioned computer skills.
Any thought around leaning further into that kind of computer science or.
Coding short term type boot camp.
Sure.
We have not.
Really gone deep into the notion of coding and boot camps. What we have been doing is we have been looking much more deeply into how the evolution of digital literacy starts to applied to ongoing continuing education, the <unk> markets as well as the transition from.
And combustion to Highbred to EV, we think that those those digital skills are going to become.
Much more at a premium and and.
And therefore, we're leaning in on them.
Great. Thanks, very much sure. Thank.
Thanks Scott.
Thank you and the next question comes from Raj Shah with B Riley.
Hello. Good afternoon. Thank you for taking the question.
So I just wanted to understand.
Last call the regulatory the students on regular course work was 8%.
And that has improved to 84% now.
What was the differential so the number of and also the number of graduates around and I think Jerome mentioned was 1500, what was the normal number that you would have expected during this quarter and other words and the delta.
Less students, graduating and not enough progressing that has caused the shortfall and the revenue.
Just trying to understand that better.
Yes, the pace of the course completion.
Yeah sure. Thanks, Thanks, Ross I appreciate the question.
On a few comment this is Troy I'll I'll make a few comments.
First as you look at Q1 or Q4 to Q1, we always have a seasonal effect of this holiday closure were closed a week and.
And the latter part of December and and.
So that always we always have a lower revenue per student and Q1, and then we do Q4 and our revenue was roughly flat, even though typically we have higher students and Q1 and Q4. So everything as you look at this last Q4 to this Q1 looks very similar to exactly what happened last year, which was a pre COVID-19 environment.
On what didn't happen, which we were.
Hum.
Counting on and are expecting to some degree was some improvement as.
As we talked about on the last call as we brought more students back and getting caught up on their labs and.
And things of that nature, because we saw some spike activity with yellow as with some withdraws.
And with some retakes that basically counter counter.
And against the improvements we were trying to make and and we.
Had progress, making it a leading into the last call. So we see those improvements happening and.
And we can point very specifically to <unk>.
Clearly the effect that happened really the last five to six weeks of the quarter.
And then we also see the first five weeks here.
And this quarter.
<unk> and.
And so that's really the long and short of it.
Didn't get quite the lift we were hoping for but we didn't go backwards as really how we're looking for it and we see that improvement again in the front end strength was tremendous and we see that strength continuing into Q2 and we're.
And we're going to continue working on everything that we can within our control to keep driving the performance improvements, which we have confidence we can achieve.
Any sort of it.
Was it and regional specific at all these sort of delays and the medicine.
And wanting to complete.
The course work.
There are there are definite variances across the campus foot brand I mean, we have a and and.
And Ah campus doesn't turn overnight right if it campus was.
Has a higher L O E rate than the other campuses and it takes longer to bounce back. So we definitely have some regional variation.
On.
And I had I mean, I know there was one or two of our California schools have been behind throughout we've seen Arizona. Some of the hotspots are where we've seen some of the most pressure, but it's not 100% consistent and so there's there's some puts and takes around there keeping in mind again, we have a younger demographic and our schools than broadly speaking is most.
<unk> Bye bye COVID-19 so.
Again, I wouldn't point to any one specific thing I think it is just what you see out and the macro headlines we saw some effect from that but we also see that the actions that we've been taking.
We'll continue to drive improvement.
So just one last question on that.
And I see that.
The guidance, obviously, you guys are doing well on the starts and the interest and to continue on the short rates are improving.
And then.
The revenue the easy revenue guidance would have to be met only if there was obviously a pickup and the pace of growth.
And of this revenue recognition. So are you expecting this more to be the back half.
When are you expected when do you expect the pace of completion of course worked are caught off entirely.
Yeah and that's it.
Yes.
They make ups are a piece of it right, having a more normalized LOI right and having.
Having a more normalized.
We take rate so all of those things contribute.
And so we do expect to see improvements that that guidance contemplates improvement throughout the year.
Certainly it is back end loaded was backend loaded when we gave it.
A little more backend loaded now.
It is a range so I want to emphasize it's a range and we're comfortable with the range.
And with with the initiatives, we have in place the front and strength that we see and.
And the expected improvements throughout the year.
Okay great.
I'll kick this off on thank you so much great. Thanks, Brian.
Thanks Raj and thank.
Thank you and the next question comes from Steven Frankel with Colliers.
Good afternoon, and I Wonder if you could just dig in a little bit on exactly what the number was what.
And what happened and that sequentially and where do you think that goes this quarter.
Yes, sure we when we talked last quarter.
And we said we were.
<unk> to run one to two points above pre COVID-19 levels that could and it varies we get spikes as we've talked about in the past around say spring break we get spikes around the holidays anyway, just normal course, because our program doesn't have breaks other than this one week that we've referenced in December.
Other than that it's straight through from start to finish and.
And so one to two points above a normalized level that would be roughly 600 to 800 Loa's again, depending upon on the time of year we were.
And the seven hundreds at the time and the last call. So we were in that range. We spent much of December over 1000 and.
And we had two really strong LOI return cycles, both with our January 11th cycle as well as just this past Monday and we're much more normalized.
So far this quarter.
Get back to where we would have thought to be if not even a little bit better on that.
So now you're back to somewhere around 700 again.
Yeah and that normalized range again, it's it's it's going to vary month by month, but definitely something and and a more normalized range of what we would've expected.
And how challenging is this failure rate issue is this.
Hi, maybe how does the students are affected and how long does it take you to get your arms around that and get those students back on track before.
Dropout.
Well, it's a few cycles.
And is unable to complete a course within two or three tries there theyre typically not going to not going to make it past that course.
We've as I mentioned and have a number of initiatives.
Mentoring identifying.
And again not all of this is new it's it's.
Evolving right and this newer and environment that we've been operating and the last number of months, but we have put even more incremental emphasis and do have some new programs and the mentoring is a newer program for us, but identifying at risk students earlier.
On the.
Our efforts around our transition from Google classroom to blackboard, So we'll have a fully integrated.
<unk> suite of student curriculum and student management support.
All of those initiatives, we see when we pilot them improvements and now we're rolling them out and it's more broadly.
So really again, we didn't.
And I would emphasize we didn't go backwards.
We just didn't move forward as much as we would like to have seen because we were.
And going into a headwind there and the latter part of the quarter.
On some of these metrics.
Yes, Steve, Okay, and you're one of them.
It's Jerome here, one on one of the challenges and giving you a definitive answer on the withdraw of thing is also the notion of we have a number of students who.
Either gets sick or have to quarantine don't call us just missed a couple of weeks and then come back for the third week and fail the course and and.
Oh, you know, what I better try and retake or maybe I'll just pause for a little while along those lines and so.
And not unrelated to COVID-19 in and of itself. There are other factors involved with that too, but it's not unrelated to COVID-19 and and of itself and so you know what we've been seeing so far and the second quarter is a.
And if they can't re enrollment rate, which again gives us confidence in reiterating our guidance for the balance of the year.
Okay and.
And with the.
High rate of unemployment have you seen a significant and.
Mix shift more towards 18% to 24 year olds, and then you had pre COVID-19.
Yes, that's a really great question.
There's.
A couple of ways to answer that one we've seen a mix shift and our and our major metropolitan areas, where a lot of the service jobs went away with the closing of restaurants closing of of retail things et cetera, along those lines, we've seen a compression and the number of days it takes someone to start from when they when they inquire again something thats indicative of.
And people who are are readily available to start work and.
More than more than the 20 to 25 year olds I think there are a lot of 18 19 year olds that graduated from high school last year, who.
Didn't find that job they thought they would find when they decided they werent going to go to school and.
So if anything what we saw on the and this last quarter was a more pronounced number of that 18 19 year old who left school last September.
But didn't find anything to do right and so.
If we look at what sort of stacks up in terms of the last quarter. We had some pent up demand you know remember when we talked a quarter before we had said that there are a number of a number of students who were fearful of starting and the back to school season that came through and in November and December of more of those those starts and.
Those are the younger students and then also we saw more local students.
And people who are readily available.
And then the lead volume I think that it also fueled that as well so.
We're we're as Troy said, it's hard to say, yes. This is all unemployment because there still was the notion of a delay because of COVID-19.
But I think they're anecdotally, we're seeing a lot of students that just werent able to find that unskilled labor job when they left high school last year.
Okay, and then one more.
What changes are you making to your high school.
Recruitment efforts given the challenges of Covid.
Yeah.
That's a great question one.
We are getting more access to the high schools than we originally expected when we when we thought through the year of how we were going to up.
And where you're going to navigate some one were actually somewhat pleased with the amount of high schools, we are getting access to either virtually or or in person.
That's great, but we've also started much more events based.
Outdoor event space.
Our recruiting efforts on weekends et cetera car shows.
And bringing people to our campuses and the parking lot socially distance of course, all of that sort of stuff and we're seeing a really our virtual events with weather.
And whether the race car drivers are whether there are people that are are and the employment community and and that event spaced approach is actually bringing more people to us as they think true. They also think things are if you look at the faster data and the United States. We think that things are just a bit delayed as well the early fast.
And numbers were double digits down.
Early early on and the year and we're beginning to start to see a bit of a catch up I think as students were just sort of surviving and that September October timeframe, not thinking about what I'm going to do next year, but how I'm going to learn online or highbred or or what this all means but where.
<unk> by March or April pretty much everyone's decided what they're going to do it we really don't see the year going that way. This year, we think that the decisions are going to go a little later as people pivot from.
Surviving their senior year two.
Thinking about what I have to do next.
Great. Thank you.
Sure. Thanks, Steve.
Thank you and the next question comes from Eric Much Newsy with Lake Street.
Yeah, and I wanted to drill down on one of those segments and the channel the new students starts by channel. It looks like the military has been pretty strong and here the last two quarters.
And you explain what's behind that trend.
Hum.
A couple of things.
One you know.
Yeah.
We are anecdotally hearing that a number of the people who are enrolling and starting our people who may have wanted to go directly out into the workforce, but the job market just isn't robust enough for them to do it. So I would attribute some of that to the unemployment rate that's out there that that.
Folks are thinking more about that I'd also.
You know when we look at where our enrollments are coming from in the military channel are on base programs are generating more leads and more enthusiasm towards UTI.
Therefore, we're doing our part with the military to train people on their bases.
Or their camps, but the folks that aren't able to participate and that those are great leads for us to bring into our campuses once they rotate out so we're starting to see some some movement off of that as well.
And I didn't understand your first comment about the unemployment versus military and could you recap that for me.
So so.
When someone has is rotating out of their service.
You know theres a number of things they can do they can take advantage of the Gi Bill and they can go on to higher education or two.
Or they can go out into the job market and a significant portion of them don't take advantage of the higher education benefit that they get and go out and do the job market and.
I think what we've been seeing is a number of people who are rotating out of the military arent finding jobs and and therefore they they.
And then you know.
Choose to exercise their Gi benefits too.
Learn a skill and and move forward.
Gotcha, Okay. Thanks for taking the time on that one.
Troy and wanted to ask about the operating expenses and the business.
What should we anticipate or we kind of level set here as we go into <unk>.
Q2, Q3 or is there a step up.
The business comes back.
No I mean, I think we'll see some trending up.
John.
Within within the guidance.
Do the math around there, you'll you'll get to some higher expense levels as we get into the back half of the year.
We have obviously the higher students as we get into the back end of the year with the start strength and as we stabilize the student base.
And we'll add students, particularly heavily in the fourth quarter as usual, so definitely a spike up there and you'll see a little bit some investment and a few areas that may show up and the SG&A side and that's not significant but.
And that will trend up a little bit and so I think I think generally speaking you would model that increasing throughout the year.
Okay.
And were 75 million I think.
75 and.
And in Q1 does that youre, saying it might trend up into the 80 to 82 range over the year or is it something bigger than that yeah, probably something in the low eighties and by the time you get to you and of the year.
Okay.
And then last question you use of cash here and obviously you guys made a big decision to go ahead and buy the Avondale facility, that's $45 million that went on it versus Lisa just wondering the logic, there versus maybe keeping more dry powder for acquisitions.
Other education related businesses and what was the thinking at the board level on that one.
Sure I mean, we are as we've been commenting on this call last call and and since last year I mean, we were aggressively pursuing.
And our opportunities for growth and diversification so I.
And I think we've also talked about there is timing around that right. Even if we announced an acquisition today it would not the money would not leave our hands given the diligence process. The pre acquisition review process. The department of Ed The Asa CSC. The various steps we have to go through for six or nine months.
And so on.
I'd say, a new campus or even the welding we made a welding announcement last week well. That's 22, two programs and 22, but we have to announce and now because we have all of that lead time to implement and those are relatively short.
Or lead time type of any.
And so as.
As we were looking at opportunities, we think of ourselves as opportunistic and the real estate side, we own Dallas and Houston, we've owned other campuses and the past.
And then and then done sale leasebacks when the company needed cash.
Avondale and there was a there was a great opportunity there, we're clearly making a huge strategic commitment to that site.
And and we were able to negotiate what we felt was pretty good deal and then.
We are you will see in the Q, which will be filed tomorrow. We are looking at our financing and options. There. So we can replenish that cash at a pretty low rate I think as you probably know and so we don't think of it as limiting at all.
We have plenty of options and again, we'll have more to talk about and.
As we go forward here as we get further down the path on on our strategic options.
And I appreciate the explanation.
You have to be reminded about the timelines and.
Education related M&A. So I appreciate the color that's it from me. Thanks.
Great and good luck, thanks, Eric Great question.
Thank you and then.
And that does conclude the question on that session I would like to return the Florida, Mr. Grant for any closing comments.
Oh, Thanks, a lot.
So as we've consistently underscored in the past Troy and I believe and are very open and transparent partnership with the investment community to that and we look forward to meeting with as many of you as possible over the coming days and months. So thanks, everyone for joining us and that concludes our call for the day. Thank you.
Thank you and as mentioned on the conference has now concluded. Thank you for attending today's presentation and all of this.
And that your lines.