Universal Technical Institute Inc. Q2 2023 Earnings Call
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 1095.
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, relevant factors that could cause actual results to differ materially from the forward looking statements are listed in the press release, and our SEC filings and.
In 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 income or loss.
As net income or loss adjusted for items that affect trends in underlying performance from year to year and are not considered as part of the company's 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 adjusted for items not considered as part of the company's normal recurring operations, along with noncash stock based compensation expense.
Adjusted free cash flow as net cash provided by our used in operating activities less capital expenditures adjusted for items not considered as part of the company's normal recurring operations.
Management internally used as 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 measures to the most directly comparable GAAP financial measures in today's press release, we encourage you to carefully review those reconciliations.
It is now my pleasure to turn the call to our CEO Jerome Grant.
Thank you Matt Good afternoon, everyone and thank you all for joining us today.
I'd also like to thank our faculty staff and students for their ongoing hard work and commitment.
During the second quarter, we continued to build out the infrastructure of our combined company and execute on the actions we've already taken to realize the fullest potential of our growth and diversification strategy.
We delivered strong performance across a number of our key metrics during the second quarter with $163 $8 million in revenue $19 2 million and adjusted EBITDA and 4626 total student starts.
Note that our second quarter financial results include the first full quarter of financial contribution from Concord since completing the acquisition in December of 2022.
We strengthened our divisional model and leadership team through some key leadership appointments for our two divisions. We now have established dedicated divisional presidents with Jamie Frazier at the helm Concord as previously announced and our newest leadership addition, tracing rins serving as our new president of UTI.
Tracey joined in April as a proven growth oriented leader with over 20 Years' experience in higher education. She most recently served as president and CEO of Triumph education and she previously spent nine years at Apollo Education Group Trey.
Tracy will be wholly focused on utis operational and strategic execution and we're happy to welcome her to the team.
Additionally, we've strengthened our board's health care representation through the appointment of Michael Lebowski to the board of directors.
Michael is the president and CEO of Trinity Health of $21 5 billion National Health system and he brings 40 years of healthcare experience. We look forward to leveraging his insights as we further integrate and expand our Concord platform.
With this multi divisional structure, we're building upon our strength as a workforce solutions provider for an expanding range of in demand fields.
While current macroeconomic conditions have created a dynamic operating environment over the past year as we will discuss throughout the call. Our diversified model gives us greater flexibility to navigate these conditions and optimally support our current and prospective students.
Importantly, the fields in the industry segments on which were focused continue to have strong demand, which helps ensure that we're setting our students up success through graduation and beyond now.
Now I'd like to provide an update on our key areas of focus for our two segments in 2023, starting with UTI Division. There are two main drivers for growth in 2023.
The scaling of the two new campuses and new program launches planned for this year.
Two newest campuses in Austin, Texas in Miramar, Florida now have over 700 active students. We continue to expect both campuses to reach the benchmarks, we set for them as they ramp further.
These markets are showing impressive demand characteristics. One example of this the same day of the recent ribbon cutting in Austin, we held a childcare with 50 employers present in over 1500 job openings that were immediately looking to be filled.
This illustrates our success with targeting high demand fields in markets as well as connecting students with a strong range of career opportunities.
As for Miramar. This campus opened later than Austin in 2022, and did not benefit from a full high school start season last year and is now preparing for its first big summer and fall starts as new high school student graduates prepare to join us.
It continues to work on launching 14, new programs across nine UTI campuses this year and into 2024, which primarily came to us by way of our <unk> acquisition.
The programs they are planning to launch in Q wind and energy management.
<unk> robotics and HVAC ACR.
We're encouraged by the strong demand for these new programs as evidenced by the inquiry flow we have seen as they increase our marketing efforts.
UTI has now received all of the department of education approvals needed for their program launches in 2023.
With just the three planned aviation programs still needing another approval.
They are expecting the first new programs to launch in July <unk>.
It should be noted that for a handful of programs, we experienced delays in regulatory approval process.
Which we understand to be an industry wide dynamic as agencies worked through broader certification backlogs.
These have somewhat compressed these programs launch timeline, yet interest is high and these programs should ramp nicely in 2024 and beyond.
As a reminder, our initial fiscal 2023 guidance for the planned program launches only included a modest benefit on students starts in revenue with the primary benefits and higher growth expectations in fiscal 2024 and onward.
Overall demand for the UTI programs remained high as exemplified by strong inquiry volume.
While we have seen some improvement in the broader enrollment environment relative to the second half of fiscal 2022.
It is important to note that the macroeconomic conditions have not yet normalized inflationary pressures have continued to impact some prospective students most notably those who must relocate to attend classes. Yet UTI remains focused on mitigating these impacts by implementing additional sources of support for students and families.
For example, UTI has enhanced the grant programs to include additional relocation and housing cost support as well as expanding family contribution eligibility.
These enhancements come alongside the initiatives previously implemented including establishing dedicated teams to support local and relocating adult students.
Dedicated military financial aid team as well as assisting prospective adult students due to enhanced call center team.
The UTI team is also steadily working to enhance the yield on their investments in admissions resources to support broader recruitment efforts across our high school and military channels.
Moving onto our Concord career College Division, we collectively continue to execute on critical integration items and have stayed on track with this process.
As noted in prior quarters, we are maintaining our focus on facilitating a seamless and effective experience for the conquer team and their students.
Keeping our integrations efforts focused on meeting public company requirements, including financial reporting internal controls compliance and security.
Throughout the process and over the past several months, we have visited all 17 Concord campuses. We remained encouraged by the high engagement and enthusiasm we've seen from Concord students staff and leadership and it's been great working with the copper team to support positive student outcomes across a variety of critical growing health care.
Professions.
From a growth perspective, the conquer team is programmatic a creditor visit schedule for the three dental hygiene programs. They are planning to open.
And we expect these programs to launch in 2024 once they've been successfully credited historically launching and scaling enrollment for Concord dental hygiene programs has also provided a boost to their dental assistant programs on those respective campuses and we expect this pattern to continue once the three newest programs are up and running.
Our company as a whole our strong commitment to robust student outcomes. These outcomes define our foundation and drive our future.
With Concord, our combined footprint spans two in demand industry segments, and 33 campuses, we significantly expanded how we reach and support our students and work collaboratively with the employment partners and rewarding high demand career paths.
As a recent example of our track record in partnership impact I'd like to share a success story from the annual aerospace maintenance competition event held in conjunction with aviation week's MRO Americas. This flagship event recognizes and celebrates aviation maintenance professionals and raises awareness of the knowledge and.
Skills required to maintain safe and airworthy aircraft.
We had two MAA student teams compete from our Houston campus. Our Lady Mustangs team won first place overall and the professionalism award category and men's Mustangs team placed in the same category.
Opportunities like these demonstrate the benefits of our premier industry partnerships and I want to thank our partners at United Airlines for making this event possible for our students.
We remain on track to achieve the guidance targets for fiscal 2023 that we set at the beginning of the year. These.
These include revenue ranging from between $595 million and $610 million.
Adjusted EBITDA between $58 million and $62 million and new student starts between 22020 3500 <unk>.
In addition, we continue to believe that our ongoing work to drive growth to strengthen our operational infrastructure will position our company for further growth in fiscal 2024 and beyond.
As such we remain confident with our previous stated fiscal 2020 for projections of revenue in excess of $700 million and adjusted EBITDA approaching $100 million.
I am proud of our execution and positive results through the first half of the year and our commitment to facilitating positive student and employment outcomes across a diversified in demand range of field I would now like to turn the call over to Troy to discuss our results from the quarter in greater detail Troy.
Thank you Jerome as Jerome mentioned, we delivered solid performance on our key metrics during the second quarter with our top and bottom line results exceeding our expectations and new students starts roughly in line with our expectations.
As a reminder, Q2 represents our first full quarter of contribution from Concord.
And we have presented results in the segment reporting model, we implemented last quarter as a result of the acquisition.
Please note that unless stated otherwise are year over year financial comparisons are on an as reported basis as the prior year period does not include contributions from Concord.
I'll begin with the new students start performance for the second quarter, where we recorded 4626 total new student starts.
Reflecting a four 4% year over year increase in UTI starts in 2252 cohort start.
Overall UTI starts grew year over year across all three channels during the quarter driven.
Driven by continued ramp of the two new campuses in welding programs, we launched last year, along with positive contributions from the MIP campuses.
However, similar to Q1 start for many of our legacy UTI campuses were down year over year.
Driven primarily by relocating students.
That said for those campuses, we saw a lower overall decline this quarter versus what we saw in the first quarter.
Finally, with this being our first full quarter of contribution from Concord, We saw the more typical start cadence we outlined during our last conference call with our core program start each month and one primary clinical programs start during the quarter.
Encore performed well in the quarter and while not immune to the macro pressures. They are successfully navigating through these conditions.
Moving into our financial performance second quarter revenue on a consolidated basis exceeded our expectations and increased 60% versus the prior year quarter to $163 8 million.
Significantly driven by Concorde $56 3 million contribution.
<unk> revenue increased five 4% relative to the prior year quarter, driven by the new campuses and programs launched last year and average revenue per student improvement, partially offset by declining average students.
<unk> segment revenue exceeded our expectations largely due to the phasing of revenue primarily for clinical programs.
We implemented a methodology change that was not contemplated in our initial expectations, which resulted in higher than previously expected revenue this quarter and in the third quarter and lower than previously expected revenue in the fourth quarter.
I'll discuss our overall pacing expectations for the third and fourth quarters in a few minutes.
Consolidated second quarter net income was $3 5 million and adjusted net income was $6 $3 million each.
These are down and roughly flat on a year over year basis, respectively.
Net income decreased in the quarter is due to the valuation allowance reversal that occurred in the prior year quarter.
Overall and consistent with our initial guidance our level of profitability reflects the impacts of slower start growth for UTI in the second half of 2022 and first half of this year.
Along with increased expenses associated with the new campuses and programs launched last year.
And both ongoing and onetime investments associated with our growth and diversification strategy.
Last we have a higher effective tax rate due to last year's valuation allowance reversal and the impact of discrete items around state taxes executive compensation and acquisition related costs.
Diluted earnings per share for the second quarter was <unk> <unk> per share compared to <unk> 11 per share in the year ago quarter again with the decline primarily due to the prior year valuation allowance reversal and result in higher effective tax rate.
At the end of the quarter, we had $34 1 million total shares outstanding.
Adjusted EBITDA increased 54% versus the prior year to $19 2 million a.
The year over year increase reflects an $8 4 million contribution from Concord.
Note, our adjusted EBITDA performance through the first half of the year is roughly flat relative to the comparable prior year period.
Both this quarter and last quarter were better than we expected when we first outlined our anticipated pacing for the year.
And largely reflects revenue and expense timing variances across the quarters versus net upside relative to our full year expectations.
Total available cash liquidity at the end of the quarter was $126 million and we have approximately $8 million of the remaining revolver capacity.
Our year to date operating cash flow was negative $4 3 million and adjusted free cash flow was negative $2 million.
Both are down year over year with operating cash flow driven primarily by working capital timing, while adjusted free cash flow reflects the decrease in operating cash flow that is mostly offset by lower capex spending.
For Capex year to date, we have spent $38 6 million a decrease of $14 5 million versus the prior year.
Included in the total Capex number is the purchase of the three primary billings and associated land at the UTI Orlando, Florida campus.
Purchase price was $26 million and funded from previously drawn proceeds from our revolving credit facility.
Purchase is expected to result in approximately $2 million of annualized adjusted EBITDA benefit in after tax cash savings of approximately $500.
This is another example of our strategically deploying capital towards our real estate footprint and optimizing our cost structure.
The primary drivers of the remaining Capex spend where the completion of our UTI often in Miramar, new campus build outs as well as program expansions for both UTI in Concord.
As we proceed through the remainder of the year and finalize our program expansion build outs, we expect our capex spend which is primarily growth focus skew more heavily towards the second half of the year.
As Jerome discussed earlier, we are reiterating our fiscal 2023 guidance targets across all key metrics and remain confident in our previously stated projections for fiscal year 2024.
As we look across the quarters are pacing expectations have shifted favorably relative to our initial view as a result of the change in Concord revenue phasing I mentioned earlier.
As well as the timing and mix of our new student start expectations and expense timing.
The phasing of revenue flows directly to our quarterly profitability.
As a result, we still expect adjusted EBITDA to be lower year over year in the third quarter and higher in the fourth quarter, but both to a lesser degree than our original expectation.
Overall, we expect adjusted EBITDA to be roughly flat on a year over year basis for the second half of the year consistent with the first half and the full year overall.
For UTI full year revenue, we still expect year over year revenue growth in the low single digits with the third quarter closer to flat in the fourth quarter showing modest growth.
Four Concord full year revenue, we still expect a range of $170 million to $175 million with the second and fourth quarters being seasonally higher revenue quarters in the third quarter being a lower end of the quarter.
For new student starts we are reiterating our overall range of 22 to 23500.
And based upon current and expected enrollment pacing our segment level expectations have shifted.
We currently expect full year UCI, new student starts to be at the lower end of the 14500 to 15500 range. We previously communicated.
This represents solid year over year growth of approximately 8%.
The primary drivers are the continued macro pressures, particularly for adult and relocating students and to a much lesser degree lowering our expectations for the initial program expansion losses.
Third quarter, UTI starts will likely be flat to down year over year, while we expect fourth quarter starts to show strong year over year growth.
Given the change in UTI start expectations and revenue pacing, we will be applying extra diligence to the UTI cost structure to align it as best as possible with student counts and revenues.
Before Concorde, we now expect full year, new student starts to be at the upper end of the 7000 508000 range. We previously disclosed.
Primarily due to a more limited impact from the macro factors and performance improvement opportunities, we have identified with marketing and grant programs.
I want to remind everybody to please be sure to review our press release financial supplement and Investor presentation.
Which have all been updated for the most current consolidated and segment details about our actual results, our strategic roadmap and our guidance, including our non-GAAP reconciliation tables.
In closing, we extend our gratitude to our team students and partners for their support and their contributions to our performance through the first half of the fiscal year.
I'll now turn the call back over to Jerome for closing remarks drone.
Thank you Troy.
To briefly summarize our second quarter performance came in ahead of our expectations as we sustained execution on our key priorities for both business segments for UTI, we remain focused on scaling and driving enrollment growth at our new Austin in Miramar campuses. We will also continue to progress our 14.
Land program launches this year into fiscal 2024, starting with the planned launch in July of our wind industrial maintenance and robotics programs at Uti's Rancho Cucamonga campus, along with the launches of welding in Sacramento Aviation in Avondale and HVAC.
In Austin the remaining programs are planned to launch in August and September some of which are pending for the regulatory approval for.
For Concord, our integration activities have remained on track and we will continue to advance this process and work to maintain this segment's execution into the second half of the fiscal year our.
Our performance through the first half of the fiscal year gives us continued confidence in achieving our fiscal 2023 guidance targets as well as positioning us to achieve our fiscal 2020 for revenue and adjusted EBITDA outlook.
Across our business, we are strengthening our divisional operating model as we build out our strategic roadmap for our combined company, even as we navigate an evolving operating environment, the breadth and flexibility of our business model Optimizes, our position as a leading workforce solutions provider for a growing range of skills careers.
Npls.
I'll now 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 you touched on the phone.
If you're using a speaker phone please pickup your handset before pressing the keys.
To withdraw from the question queue. Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
Okay.
Okay.
First question will come from Raj Sharma with B Riley.
May now go ahead.
Hi, Thank you for taking my questions I E could you. Please.
Start on the starts in the second quarter will give us some color. Please on high schoolers and young adults.
And how that kind of played out and then <unk>.
Following that then Youll guide for the rest of the year for starts in.
Emphasizing the macro factors could you kind of elaborate on that please.
Where you see the week, NASA, where youll see strength.
Sure Hi, Raj This is Troy thanks for the question.
So, yes, Q2 was pretty much in line with our expectations.
4% four 4% growth overall, you can see in our materials that we add growth across all channels High school was closer to flat, but modest growth.
A few points of growth on a dollar and a little bit stronger military and again, all pretty much in line with our expectations overall.
The benefits of the new campuses and new program launches from last year really driving that growth.
And across our legacy footprint.
Seeing some of the declines carryover from last year into this year and really that's predominantly driven by what we're seeing more now as pronounced.
Pronounced differentiation between local and relocation and we've talked about that a little bit before.
With the inflationary pressures and the like and so as we look into Q3 and Q4 remember last year, we had a.
A big push on high school to start students in June right After school and so were coming.
Coming up on a tough compare with that.
This year relative to last year, we're seeing about the same kind of result.
On the high school side.
As we go into Q4, we'll see stronger growth.
Both with really across all the channels.
And then the program expansions kicking in in the fourth quarter. It will look pretty much lapped the new campus.
Miramar, not quite as much but often in the new welding launches led lap as we get into the fourth quarter. So really the the growth will be the new investments, we made in our admissions channels as well as the program expansions, which the purchase of those programs will start in July and then there'll be another round in August and a final round in September .
Thank you so.
What you're saying is the start guidance hasnt for.
For the year unchanged since you're reiterating guidance for this year and you also kind of reiterating the guidance for next year.
Is that fair to assume that starts are still in range.
This year.
Yes, I'm, sorry, I didn't I didn't specifically comment on that so by that commentary I. Just gave was really geared toward the UTI start so yes, both for Concord and UTI, we're reiterating the range is.
But we are seeing UTI, probably in the lower end of the 14 five to 15, five range, which is 8% plus growth.
So still strong growth just not getting quite as far as we were hoping to.
Given some of the pressure on relocating and some of the delay on the program expansions Concorde. Conversely, we're seeing skew more towards the upper end of that range. So very comfortably in our total range of 22 to 23, five and by being their exiting this year going into next year.
Year that gives us a lot of confidence along with the program expansion launches.
Executing on those here in the fourth quarter those are really the big building blocks, along with just the full year of Concord for our 24 outlook. So as all of those things come together as we exit the year, then that that sets us up well for the in excess of 700 and approaching 100.
<unk> 2004 outlook.
Great. Thank you and then just.
If you could touch upon the conversion of the initial.
The interest.
And I think Jerome mentioned that there was an improvement.
From last year can you can do.
Give us some more color on the.
Reluctance or hesitancy in students and wanting to sign up that has improved.
Sure.
We.
<unk>.
We've seen we've seen an uptick both gaming interests.
As represented in in inquiry flow into into the system as well as our ability to convert students.
Two just starts as well the most pronounced uptick has been when our local population and as you know I think one of the things we've outlined to you in the past is that we've been working very very hard on.
Transformation ever for our local adult population and that is.
Paying dividends and then.
Our low most of the resources, we added in the high school market were added in the local locations cutting in territories that local locations close to campuses, which.
Which also is performing very very well right now and and as Troy said we've.
We've always been very transparent with you that the only resistance, we're seeing out there in the market is.
Economically based around relocation and with what we're doing in that front as.
Working to enhance our relocation grant programs and expand the group of people who qualify for those relocation grants to help people over the hump.
<unk>.
Moving across the country or wherever they want you to take programs to hei.
Great. Thank you very helpful. Just lastly.
Brandon Hi Raj.
But as you also but as you also see what we're saying is comparable come in in the high end of their range and as you probably know and we've talked in the past is that the health care business is a very local business.
And so.
Feeling the confidence of what we're seeing from from Concord in terms of their local recruiting efforts.
<unk> gives us that confidence that we will we'll comfortably be in that 22 to 23 five range and that next year sets up beautifully.
Alright.
Great. Thank you and then just lastly did you could you comment on the initial enrollment of the new campuses Austin. There I know you said that you got 700, so far are they in line with your expectation that ahead.
Yes, there are there in mind I mean, as we said last year Austin opened later than we wanted it to so we generally missed out on.
<unk>.
High school season last year by the delays associated with supply chain issues and getting getting that campus opening so.
Austin is doing very very well and some of the numbers, we saw around employment et cetera or are all.
Very encouraging that Austin will meet or exceed the benchmarks and our first big fall season for Premier Maher is is upon us and the.
The pipeline looks strong and it looks like we're going to do just fine there and so we have absolutely no reservations about saying, what we said on the call here, which is these things are on track.
Two.
To meet the models that we put in place.
Yes, it's a it's a three to four ramp last year ramp up period on the new campuses. So.
As drunk said this will really be this is really a year one for miramar, whereas often got about a half a year.
Last year, but we forget about the markets that we're in there and the trajectory that we're heading on.
Great very helpful. Thank you.
Thank you taking my questions I'll take this offline. Thank you again.
Thank you Raj.
Again, if you have a question. Please press Star then one.
You may hear on on other calls the department of Education had quite a backlog and so the timelines to get that first approval, we're significantly longer than historical averages.
Because of their backlogs and that sort of just pushed everything back and so because the aviation.
Programs need that final step, which is the FAA very important step.
Those over the last three we're waiting for.
Got it and then how should we think about how you are marketing these new campuses in these new programs and then more how we should think about that marketing spend associated with them.
Yes, when we.
Troy Ryan.
We continue to refine our marketing model as we add in markets as we added programs.
Some of the programs are very mature like an HVAC is a very well understood and mature program tends to be more local the wind technician program of robotics.
We're having to build the market a little bit more raise more awareness train or.
Educate the prospective students on what the career options might be so there's a little bit of a different.
Angle on the various programs of course are more mature programs welding auto diesel et cetera, and on the healthcare side as well they have a bit of a different marketing approach, where they have the clinical programs in nursing in the dental hygiene and some of the other programs where people will come in more for those programs and realized that they.
Either that's a longer program or more extensive program or maybe they are not able to pass that required tests or have the prerequisite for those programs and then they migrate into a dental assisting where medical assisting or or some of the other.
Core programs that they offer which tend to be lower cost and shorter programs get some work experience and then come back me before one of the clinical programs.
It's a bit of different different dynamic across the two schools.
But we continue to look at.
Opportunities to drive optimization.
They're in.
And with the new programs for UTI for example, we're leveraging off the M model clearly with those programs and so we're able to leverage the work that they had done previously.
And then with Austin in Miramar, we're having to put more money into those markets locally as Jerome said, we're driving really trying to drive the new campuses is primarily local campuses and that relocating campuses.
But but net net yes, you'll see some continued upward.
Movement on marketing spend to support growth.
But we should get net efficiency, probably a little bit inefficient originally with the program launches or a new market launch, but then as they mature you can get more more efficiency overall.
Got it that's helpful. And then last one for me how have adult learner enrollments tracked relative to your guidance expectations.
Well the <unk>.
Mitigation efforts, we've put in place in the local markets are actually paying off quite well.
In terms of.
The adult learners both.
Additional focus on their needs to make the transition from jobs. They ran two jobs that we would find them while they are.
While they're in school.
And also just adding additional resources, whether it's in high school or on the campuses to two.
Be able to talk to more of them and get in there. So we're very very happy with what we're seeing in the local adult markets and as we said on the call. We've still got some work to do in terms of the relocate students. We've got programs in place for the third and fourth quarter, which we think can.
Help people over the hump of making that decision to relocate to come to school at one of the one of the UTI campuses, but.
That's where we are.
Got it thanks for taking my questions.
Sure. Thank you Roger.
This concludes our question and answer session I would like to turn the conference back over to Jerome Grant CEO for any closing remarks.
Thank you very much and thank you all for joining US today. This concludes our conference for today and we look forward to talking to you all in the very near future take care.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.