Q1 2022 Universal Technical Institute Inc Earnings Call
Good afternoon, and welcome to the Universal Technical Institute's first quarter fiscal 2022 earnings conference call.
All participants will be in a listen only mode.
Did you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one.
Please note. This event is being recorded I would now like to.
The conference everything that Kimpton, Vice President of corporate Finance. Please go ahead Sir.
Hello, and thank you for joining US with me today are CEO , Jerome Grant and CFO Troy Anderson <unk>.
During the call today, we will update you on our fiscal first quarter and fiscal year 2020 to business highlights financial results and vision for the future. Then we will open the call for your questions.
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 today's press release for additional information and important disclosures about forward looking statements.
Because forward looking statements relate to the future theyre 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 discussed during this conference call.
During today's call, we will refer to adjusted net income or loss adjusted EBITDA and adjusted free cash flow, which are non-GAAP financial measures adjusted net.
Net income or loss is net income or loss adjusted for items that affect trends in underlying performance from year to year and are not considered normal recurring operations, including the income tax effect on the adjustments utilizing the effective tax rate.
Adjusted EBITDA as 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 internal uses adjusted net income or 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 in today's press release, and we encourage you to carefully review those reconciliations.
It is now my pleasure to turn the call over to our CEO Jerome Grant.
Good afternoon, everyone and thank you all for joining us today I'd like to begin today's call by thanking our students and staff for their continued commitment and hard work. We had a strong performance as we continue to navigate COVID-19 challenges I'm proud of our team's dedication resilience and effectiveness to ensure our campuses operated seem.
Mostly throughout the entire quarter.
We're also thrilled to have the students faculty and staff from M. I a G on the team as the acquisition officially closed November one of 2021.
The integration is going quite well and we're excited for the future with them on our team.
Today I'd like to focus my comments in four key areas performance outcomes strategy and regulation.
We delivered another strong top and bottom line performance this quarter driven by higher average student population as well as higher overall revenue per student on a year over year basis Ret.
Revenue grew 38% for the quarter compared with a year ago, and adjusted EBITDA grew 360% versus the comparable period a year ago.
The first quarter results that were reported today reflect overall solid operating performance and execution against our key priorities. They.
They also include two months of M. I T results the positive performance in the first quarter sets us up well to deliver on our expectations for the full year.
We expected to start the year with strong year over year financial performance and we did just that average students as well as revenue per student were better than expected and thus so as our revenue.
And as always our team was diligent on controlling costs, which along with revenue favorability, resulting in a strong performance with respect to profitability as well.
Starts for the period were up just over 2%.
Aided by the addition of M I T to UTI as well as our new programs. The modest students start rate was not unexpected as we faced a difficult comparison from last year's first quarter, where we saw 21% year over year growth, partially driven by the measurable number of students deferring out of the fourth quarter of 2020 due to COVID-19 .
Restrictions and challenges, hence our initial commentary on pacing for fiscal 'twenty two indicated that we expected the first half of the year would be our lowest growth for new students starts.
Nonetheless, we still believe we are outperforming the broader industry and our peer group and we're focused on delivering our overall growth objectives for the full year.
I want to remind everyone as we set expectations for 2022, we highlighted that the main risk that was outside of our control would likely be COVID-19 related for example, new variants or spike.
And our view on this has not changed as we've seen some impact from omicron.
Which burst into the scene in November 2021 is our quarter was winding down.
We're seeing modest impact on start rates the timeline for getting back to pre pandemic revenue per student numbers and similarly, we're seeing some incremental increases in leave of absences and the number of students studying online only versus our expectations. However, given the trend we remain optimistic that any.
<unk> from this current variant will be brief and we're confident in our ability to manage through it.
Despite the Choppiness this may cause in the short term.
We're laser focused on supporting our students and staff and meeting the full year expectations, we've set for the investment community.
We've also seen some of the supply chain impacts, which are directly impacted the timeline of obtaining key electrical components for our new Austin campus and has delayed our targeted launch date for the campus by approximately 90 days with our new target launch date in late April I think it's important to note that the enrollments for programs at the Austin.
Campus have been encouraging in line with our expectations. It's also important to note that our new campus in Miramar, Florida remains on track and on budget for its start in fiscal fourth quarter.
Further our new welding programs are on track with the program at our NASCAR Tech campus in North Carolina, having launched in January with a full first class.
And our second new program, which will be at our Exton, Pennsylvania campus is on schedule for a July launch.
Hosing on performance, we remain confident and supportive of our full year guidance, which we reiterate today.
As a brief recap we expect full year revenue for fiscal 2020 to be in the range of $405 million to $420 million for year over year growth in the low to mid 20% range.
Start growth should be between 14, and 19% and adjusted EBITDA with a range of $50 million to $55 million.
Troy will share more detailed review of the quarter performance in his remarks.
Looking at outcomes, we continue to excel here, graduating approximately 2300 students in the quarter and placing graduating students with employee partners across this country, where they can put their advanced technical training to work day.
A man continues to be strong as the need for skilled workers remains well in excess of the number of students we graduate each year.
Notably our blended learning model, which has been enthusiastically embraced by our two core constituencies students and corporate partners is providing added flexibility in the current environment, creating scheduling options for our students while at the same time, enabling them to progress through their programs. Despite the omicron interruptions affecting.
The broader economy.
Turning to strategy, we're progressing well on all aspects of our growth and diversification efforts as a reminder, over the past 18 months, we've put in place acted on or accelerated action on all key components of the strategy.
These include investments in new campuses program expansions, such as welding and strategic acquisitions like M. I T. Importantly.
Importantly, these high level components of our strategy feed one another providing cross fertilization opportunities like the planned MAA program expansion across our UTI footprint beginning in 2023.
Supporting these efforts are important initiatives such as the development rollout of our blended learning model real estate rationalizations, and other footprint optimization and operational excellence programs.
While we are executing on many activities and initiatives in support of the operational and strategic priorities. We established we retain the financial capacity and leadership bandwidth to continue to actively evaluate additional growth opportunities that would be additive to the long term outlook we've established.
As we've previously shared with the strength of our base business and the initiatives. We have already underway. We believe we can generate revenue comfortably above $500 million.
And adjusted EBITDA margins in excess of 20% by fiscal 2025.
I also wanted to briefly touch on the broader higher education sector, we make our home inn and more specifically the regulatory environment that governs our industry.
Here as always a relentless focus on the importance of outcomes is central to what we do.
As I've said in the past, we don't manage or plan our business based on which party is in office, we actually keep it quite simple when it comes to how we manage our business in this regard guided by our simple but important statement regarding what we do everyday we succeed when our students succeed.
Lastly, we have a lot of important work to be done in fiscal 2022, as we continue to integrate the NIH team with UTI.
We will be leveraging the UTI national marketing and admissions team to drive growth into the MAA campuses, and we will be completing the planning and approvals necessary to begin offering <unk> programs at an initial group of UTI campuses in 2023.
This is in addition to launching two new UTI campuses and two new welding programs during 'twenty, two which we are on track to complete.
In summary, I'm pleased with the strong results, we've delivered this quarter and even more excited about what's still to come.
I'll now hand, the call over to Troy for an in depth discussion of our operating performance in fiscal 2022 outlook Troy.
Thank you Jerome.
We reported very positive financial and operational performance during the quarter delivering on our expectations for continued strong top and bottom line growth in 2022.
Before I start I will reiterate that all of our results included <unk> for two months and unless stated otherwise the year over year comparisons are on an as reported basis.
As far as student metrics as Jerome mentioned, we sold two 3% growth in total new student starts versus the prior year first quarter.
The addition of <unk> being the primary growth driver.
Total average students grew 16, 2%, reflecting the double digit new student start growth we saw throughout fiscal 2021, along with the addition of <unk>.
As we only have a partial quarter for them.
I will speak briefly to UTI standalone metrics.
New students starts were down just 34 starts versus the prior year quarter, which was an accomplishment after last year's 21% first quarter year over year increase.
In the quarter, we saw lower year over year decline than we expected in the high school channel and modest combined growth out of the other two channels.
We believe omicron had some impact late in the quarter as our December UTI start was the weakest versus our expectations, although it was up year over year.
The UTI show rate was 30 basis points better than our expectations and down 40 basis points year over year.
Again, given the COVID-19 related dynamics in the prior year quarter.
We continue to see strong front end demand overall.
In the first quarter UTI media inquiries were up year over year in high school non media inquiries were up significantly given improved access to high schools.
This despite not having full access in the high school channel and thus leveraging a blend of virtual and in person engagement.
More recently omicron has caused further and personal limitations, which we are cautiously optimistic will be temporary in nature.
Switching to financials, we delivered total revenue of $105 1 million during the quarter with.
Which represented 38% growth versus the prior year quarter.
The increase in revenue was driven by the growth in the total average student population.
Better than expected improvement in average revenue per student and the addition of <unk>.
Going deeper on revenue per student we saw a significant increase in the prior year quarter as a result of the improvement we realized throughout fiscal 2021.
Sequentially, we saw a normal seasonal dip this quarter due to the one week holiday break in December .
Revenue per student in the first quarter, including M. I T was 7700 versus 6400 in the prior year quarter and 8000 in the fourth quarter of fiscal 2021.
While revenue per student was better than our expectations in the first quarter, we see it being more in line for the remainder of the year.
I should note that M. <unk> is a lower revenue per student given the duration and mix of their programs.
On average we estimate that the overall UTI blended revenue per student will be 100 to 200 lower per quarter with the inclusion of the NIH.
Adjusted EBITDA for the first quarter was $19 9 million compared to $4 3 million from the prior year.
Adjustments for the period included acquisition related expenses.
Integration costs and new campus startup costs.
Adjusted EBITDA margin for the quarter was 19% compared to five 7% a year ago.
A substantial increase in adjusted EBITDA was driven primarily by the improvement in revenue per student.
As well as operating leverage across the business and some expense timing benefits.
Operating expenses were $91 5 million, a 21, 4% increase from last year's first quarter.
The year over year increase in operating expenses is attributable to education services cost to support higher student accounts the.
The addition of M I T <unk>.
Continued investments in the Companys growth and diversification strategy, including our new campus investments.
And increased advertising to support our growth objectives.
While increased year over year operating expenses in the quarter were lower than our expectations due to timing shifts primarily around our new campus and other strategic investments spending.
We.
To see robust growth on the bottom line during the first quarter with net income of $14 8 million and adjusted net income of $15 4 million.
Compared to $1 1 million in the prior year quarter.
We realized a $1 9 million income tax benefit in our GAAP net income driven by an adjustment to our valuation allowance as a result of the inclusion of <unk>.
Diluted earnings per share were <unk> 25, compared to a loss of <unk> in the first quarter of 2021.
Shares outstanding as of the end of the quarter were $32 9 million.
Turning to cash flow cash from operations in the quarter was $2 5 million a decrease from the prior year quarter, mostly resulting from working capital changes associated with continued growth and investment in our business.
And the income tax refund included in the year ago period.
Adjusted free cash flow was negative $3 6 million, reflecting the increased capex spend for our campus consolidation projects and new welding programs.
Looking at the balance sheet, we ended the quarter with $99 5 million in cash and cash equivalents.
Showing the expected decline from the prior quarter as a result of the <unk> acquisition and our increased Capex spend.
Also on the balance sheet, you will notice a few changes as a result of the <unk> acquisition.
The major direct impacts were a goodwill increase of approximately $10 million intangible assets increase of approximately $16 million.
And approximately $15 million of increase to the operating lease asset and liability.
You will find more details on this in the first quarter 10-Q, which we expect to file within the next few days.
With a positive start in the first quarter and the visibility we have for the remainder of the year. We remain confident on our full year guidance for fiscal 2022 across all metrics new students starts revenue adjusted EBITDA adjusted net income and adjusted free cash flow.
Our guidance calls for double digit growth across starts revenue and profitability for the year supported by our strong base business as well as from executing the initial steps of our growth and diversification strategy.
As always we will evaluate our guidance throughout the year to determine if any adjustments are needed.
As far as the expected pacing through the year I provided commentary last quarter that was directional and complementary to our fiscal year guidance.
The primary revisions I would offer to that commentary are as follows.
We expect new student starts will be more backend loaded in the year given the push of the Austin campus launch to April and some near term impact from omicron with the second quarter being our lowest quarter for year over year start growth.
Revenue for the second and third quarters is likely to be in the mid to upper $90 million range with the fourth quarter is still expected above $110 million.
Profitability likely lowest in the third quarter given the change in the Austin launch timing and the expected flow of revenue across the quarters.
And for Capex, we anticipate heavier spend in the second and third quarters and what we saw in the first quarter again, giving timing shifts in our initiatives.
In closing we are pleased with the positive start to the year and confident in our ability to achieve the fiscal year guidance, we established absent any major unexpected disruptions.
We are proud of the accomplishments of the hard work demonstrated by our team and our students.
I would like to now turn the call over to Jerome for his closing remarks.
Thank you Troy.
Before we get into the Q&A portion of the call I'd like to reiterate choice final comments and express my appreciation and gratitude for everyone in the organization and their commitment to helping our students reach their goals. We will continue to hold ourselves to the highest standards and take pride in partnering with great employers to give our students the best opportunities.
And path to successful and meaningful careers.
We're executing well on our growth and diversification strategy and we have the pieces in place to continue to do so going forward.
Financially we're in a strong position to continue to actively evaluate potential new growth opportunities and we will be ready to capitalize when both the time and opportunity is right.
I'd now like to turn the call over to the operator for Q&A operator.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the key.
To withdraw your question. Please press Star then two and at this time, we will pause momentarily to assemble the roster.
And our first question today will come from Alex Paris with Barrington Research. Please go ahead.
Hi, guys. Thanks for taking my questions.
So Q1 was much better than expected.
Kind of across the board and Troy in terms of your cadence.
First of all you reaffirmed full year guidance.
And then just to be clear.
Q2, and Q3 mid to upper Ninety's in Q4 above $110 million in revenue to kind of get into that full year range is that correct.
Yes, Hi, Alex Thanks for the question, Yes, correct, that's what I had said, which was an adjustment to the flow that.
That we had articulated last quarter.
Just shuffling their revenue around a bit a little bit more in Q1 still about the same in Q4, a little bit less in Q2 and Q3.
Got you okay.
And then I was wondering if you can give us a little bit more color around the delay in the Austin startup.
Recall I think that was supposed to open in February you kind of cited supply chain issues can we kind of go through that again.
Yes, it's actually Hey, Alex Trump.
Is actually pretty simple.
Some significant electronic componentry that has to be attached to the side of the building to meet code.
And there's a shipping delay that's the bottom line to it and it's on its way we expect it to be in place.
It's progressing well, but.
Just because of fire codes, we can't and won't open Unsafely and so we had to push it out 90 days to to.
Accommodate that.
Gotcha Okay.
Yet you expect what did you say in April open now.
Yeah end of April end.
End of April I remember, we just starts every three weeks. So we just jumped over a few and put it into the April start.
Good but miramar as you said is on schedule for fourth quarter.
Yes.
Construction is moving along and it's absolutely on schedule right now we don't anticipate the same same delay, but then again.
We think a lot of the supply chain issues are coming back online now so we think we'll be fine.
And okay, Great and then I guess my last question will be can we just talk about it.
Cover again, the modest impact from Amazon in the quarter.
You said you saw some impact late in the quarter, just again, I guess I'm slow in taking notes but.
If we can get just maybe just kind of cover that again please.
Yeah.
Keep in mind, the timing there right yes.
Started around Thanksgiving flared up dramatically throughout the month of December I would say.
The primary impact we thought we saw in December was we had a mid December start and we were tracking pretty close through the quarter to our expectations in that one dropped off quite a bit and then we.
We saw some similar pattern in January we also saw the Loa's perk up a bit.
Latter part of December through frankly through the month of January so it was really less of a quarter impact that more as we're talking about the year and the guidance taking into account some of those impacts we had some students of course, we have a more flexible model now so we're able to move students to online only.
Quickly and seamlessly so that's of course, a big benefit.
But we did have a spike there as well, but we already we're already seeing it come back down we had a big.
This Monday was a start.
We returned eight and we saw a large number of those January <unk> come back. So we think we're in pretty good shape and have accounted for it in our.
And our pacing for the year, but.
It up pretty quickly I like everybody else.
Yeah, and I would agree with you it should be short lived but we're managing through that right now alright, well.
Thank you very much I'll get back in the queue.
Thanks, Alex.
And our next question will come from Raj Sharma with B Riley.
Hi.
Thanks for taking my questions great results.
Q1, I just wanted to understand a little bit more color on the.
The young adults showed growth in starts to high schools or suffered not do you expect high schoolers starts to kind of pick up through the year or do you think thats kind of still going to be severely impacted and then also.
What about the MAA starts are they how are they sort of trending I know that.
I noticed that you didn't break those out or is it too early.
Yeah.
Yeah, it's not a clean quarter, obviously with just and thanks for the question.
Two months.
And so theyre starts for the quarter were about 80, I mean, it was a pretty small number they don't start and the same cycles, they're roughly on an every other month start cycle and and then every now and then there'll be something in between there, but but on average I'd say its about every other month and of course October was one of their months.
And December was not a start month because of the holiday. So it was a pretty light.
For from an M&A perspective.
On a full year basis.
Again as Jerome commented we.
Last year first quarter, we had a large number of high school or pushed out of Q4 of 'twenty.
And so we saw that benefit and so we were expecting a decline in the high school channel.
As part of our guidance this year in the first part of the year, but on a full year basis.
Between same store and the.
New campuses in the new welding programs, we expect good growth across all our channels.
Got it so.
The other question was around understanding out of the Q1 seems to be a blowout revenue quarter.
And Q2 is lower despite the fact that <unk> is going to now have a full quarter of the second quarter. So this is largely because of revenue per student change maybe as low as picked up.
And Youre accounting for that.
Is that the way to think about a bit lighter yeah, a little bit lighter start quarter as I mentioned the December start dropped off at that we think because of omicron and we saw some impact in January as well the loa's were elevated for most of the month of January .
And then the.
The Big driver, we were a little bit ahead on students in the first quarter average students was better than we expected and we did get a good bit of rate benefit which is why the the EBITDA was so much stronger and I mentioned in my comments that we thought that would be more in line if not in Q2, maybe a little bit behind.
Cause of the.
Students not having to come back in from <unk> and from online only so it takes a few core cycles for them to get back to fully normalize.
I'll use drones word from his comments, we'll have some choppiness in Q2.
Just getting everybody back on track and then.
And then of course with Austin, starting in Q3, and then <unk> in Q4, and just our normal stress.
In Q4 that will ramp back up again.
Great.
That is that is really helpful. Joe I was curious I know that your model has changed in the sense of the blended learning and how and how.
How COVID-19 impacted you and yellow ways back in 2025 March and your model is more flexible, but I know you've not reportedly allo ways and this was another solid repeat.
On the Crown Kobe.
Quarter Slash time I was curious.
If you where does what would the low ways at the peak here in Jan relative to they were pretty high back when Covid two portions I am sure they are significantly lower.
503000, low ways and how do you do disclose that number and you want to talk about that.
I mean, there was we were.
We were running 1200 throughout the month of January which is probably double what we would have expected.
<unk> are a function of how many students you have in the building to and then of course holidays, we tend to have.
More student decides they want to stay out an extra cycle were closed a week in December they decided they want to stay out an extra cycle and who knows whether it was.
I mean, obviously, we did see.
Elevated activity from our intake perspective.
Active students who are reporting that they may have been exposed and were tested positive those types of things.
But it also could have just been people staying out an extra cycle just with some of the uncertainty about how quickly it was going to dissipate or or that type of thing, but so we saw a few hundred more students than online only in and probably about double the low as we would've expected, but it was about 1200 it wasn't anywhere near.
Back in that.
Right right and those of you said they came back at the end of Jan.
And came back down.
You are seeing better trends yet.
We just had a startup we just have to start on Monday and several hundred came back in line with that starts. So we're happy to see where things are snapping back in another thing I think that helped us in the quarter was the change in the CDC guidance about how long you were expected to be out for a quarantine right sometimes that went over two sessions rather than <unk>.
And so we can see things starting to.
Snapback.
Got it.
Thank you just one other question was you mentioned Jerome you mentioned new growth opportunities.
Outside of and different from the ones you already talked about do you expect those to come from that acquisition.
Or is it going to be new campuses or.
Any sort of direction there.
Are you going to be moving away from title four or any color.
Yes.
Well, we don't have anything specific to share today.
The M&A markets arent arent always under our control.
But we are active both organically and inorganically.
Looking at where we can go from the benchmark we set.
A few months back on the activities, we already had as soon as we have something to share we will we will be out there with it.
Got it okay. Thank you so much again and congratulation won't take money.
I'll take it offline. Thank you.
Thanks for asking.
And our next question will come from Eric <unk> with Lake Street. Please go ahead.
Yes.
And I had was with regard to the expense run rate.
I understand we've got a couple of moving parts here and trying to come up with a quote unquote normalized expense run rate, but given maybe just sort of core rising January I'm, just trying to get a sense for that 91 and a half that we had in Q1.
Include.
The month of October for MAA.
But it also had some push outs on some campus investments. So can you give us appeal for what's the quarterly expense run rate Troy.
Yeah.
If you went back to my Q4 comments I said that.
First quarter would be mid nineties step up to the mid <unk> and then go up to around 100 million from their high $90 million to $100 million and of course, we came in at 91 and a half as you said so that that was part of the profitability benefit we saw and again theres timing shifts the Austin push out and some other thing.
That.
Have phased out over the rest of the year. The other thing in Q1 as you have all your payroll tax resets.
And of course labor being a heavy component of our cost structure that is the spike up the one month as you said.
So probably in that high <unk> to $100 million range is what would make sense for the rest of the next two quarters and then.
A little bit higher than that with the Q4 spike up with the students and the education costs to support the large number of students that come in.
Got it that's helpful.
Yes.
Look at the two new.
Campus is one is in a geography, where you haven't had a campus. The other is and I think it's Houston, where you actually have.
A.
Legacy Uti's campus, what's the have you done anything synergies lies in Houston as far as.
Either decided to leave those two campuses standalone or doing anything with our consolidation plan.
Okay.
We've had great progress on working with the MAA team, bringing them into the family.
We're running them as two campuses in the network, we do have some synergy between the Houston campuses.
We're leveraging.
The skill set that that some of the leadership has developed on their program expansions to to lead the program expansion efforts.
The marketing and admissions teams.
Have been integrated.
So we've done a lot of work the back office side.
Of HR payroll finance, we brought a lot of that already into a common framework. So lot of good progress has been made and really the next few months, we'll probably complete the I would say that the core integration and really from there.
And we're already working on of course, the growth side as well with the marketing emissions combination and trying to drive more lead flow in <unk>.
Housing.
Program for the Michigan campus. So that there is relocating students have more of an opportunity to go there which is not something <unk> had really explored.
To any extent previously so all of that is is moving and moving very fast.
Okay.
Thank you for taking my questions.
Thanks, Eric Thanks, Eric.
Yeah.
And this will conclude our question and answer session I would like to turn the conference back over to Jerome Grant for any closing remarks.
Thank you very much operator, and thank you all for joining US today, we look forward to speaking with all of you in the next quarter and that will conclude our call for the day have a great evening.
We call. It continues now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.
Okay.
Yeah.
[music].
Yes.
[music].
Yes.
Okay.
[music].