Q3 2023 Universal Technical Institute Inc Earnings Call
Hello, and welcome to Universal Technical Institute's third quarter of fiscal 'twenty to 'twenty three earnings conference call.
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Please note today's event is being recorded and now let's turn the comments over to Matt <unk> Vice President Finance. Please go ahead Sir.
Hello, and welcome to Universal Technical Institute's third quarter 2023 earnings call. Joining me today are CEO , Jerome Grant and CFO Troy Anderson.
Following our prepared remarks, we will open the call for your questions.
A replay of this call its transcripts and our investor presentation will be archived on the Investor Relations section of our website at Investor Doc <unk>.
Along with our earnings release issued earlier today and furnished to the SEC.
During this call we may make comments that contain forward looking statements as defined in the private Securities Litigation Reform Act 1995, which by their nature address matters that are in the future and are uncertain.
These statements reflect management's current beliefs and expectations and are.
Subject to a number of factors that may cause actual results to differ materially from those statements.
These factors include but are not limited to those discussed in our earnings release and SEC filings.
These statements do not guarantee future performance and therefore undue reliance should not be placed upon them.
We do not intend to update these forward looking statements as a result of new information or future developments, except as required by law.
These notes unless otherwise stated all comparisons in this call will be against our results for the comparable period of fiscal 2022.
The information presented today also includes non-GAAP financial metrics used.
Should be viewed in addition to and not as a substitute for the company's reported results prepared in accordance with U S. GAAP.
All non-GAAP financial measures referenced in today's call are reconciled in our earnings press release to the most directly comparable GAAP measure.
More information regarding definitions of our non-GAAP measures. Please see our earnings release and Investor presentation with that I will turn the call over to Jerome Grant CEO of Universal Technical Institute for his prepared remarks.
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 third quarter, we continued to execute on our growth and diversification initiatives as we further optimize and scale our company infrastructure.
Our results for the quarter exceeded expectations as we delivered $153 $3 million in revenue $11 $4 million and adjusted EBITDA and 5300 total new student starts across both divisions.
As a result of our strong performance in the quarter and year to date, we have raised and adjusted our financial guidance, which I'll cover in a few minutes.
Significantly we achieved same store start growth at our UTI campuses for the first time since the third quarter of 2022.
After driving steady improvement in this metric over the past several quarters.
We expect this to carry into the fourth quarter and we're pleased with the progress on this front.
Our Q3 performance is a testament to the strength and dexterity of our operating model I'd like to thank our Concord in UTI divisional leadership teams led by Jamie Frazier and Tracy the Rins, respectively for driving our operational initiatives and enabling us to optimally prepare and position our students for fulfilling careers in the in demand.
Fields, we serve.
I'd now like to provide some quick divisional updates for the third quarter, starting with Concord.
We've made great progress with our integration activities, which to date have focused on meeting critical public company requirements.
Concord starts have continued to perform well with strong core program starts in the quarter and across both clinical and core programs in July .
To further benefit this performance, we began implementing targeted grant assistance initiatives for certain Concord students in contrast to the enhanced grants aimed towards relocating students in our U T. I division, our Concord measures have focused on local students with prior healthcare experience dutiful local nature of Concord student body.
Though macroeconomic pressures have historically have less impact on Congress current students and prospects having this enhanced support for specific programs and campuses has helped our incoming health care students.
From program and growth perspective, Concord is currently planning to launch six new programs, which could begin as soon as September with the remainder launching in fiscal 2020 for.
These rollouts to include three new dental hygiene programs, we've previously mentioned, which remain on track to launch next year.
The other three programs are smaller programs that we've more recently identified as opportunities.
They already have department of education approval and at relatively low investment and ramp up requirements. Thus, we made the decision to launch them at two campuses in the coming months.
The first of these programs, which consists of the diagnostic medical and cardiovascular sonography programs or D. M. S. N C. B S respectively could begin starting students in September .
Moving to the U T. I Division, we continued to execute on our two main 2023 growth drivers for this segment new program launches and the scaling of our two newest campuses in Austin, Texas in Miramar, Florida.
Starting with U T. I's program Rollouts were now entering the launch phase for 14, new programs across nine UTI campuses plan for this fiscal year.
These programs, which include wind and energy management Aviation Robotics, and H P. C are primarily came to U T. I by the way a M E. T acquisition as we continue to extract value from that investment in July we launched the first tranche of programs at four campuses combine these programs.
Started their initial cohorts with approximately 70 students, which represents an encouraging start performance in these early days.
Between August and September U T. I expect to launch the remaining planned new programs across six campuses in fact, two campuses launch robotics programs just yesterday.
We received the final FAA approval needed for the Avondale Aviation program in early July we expect to receive two other outstanding Aviation program approvals in September .
Other than the two final aviation approvals, we have worked through the industry wide regulatory approval delays UTI experienced earlier this year, which compressed the program launch timelines and caused us to shift if you start dates to later in the quarter than originally planned.
Overall demand for the new programs has remained strong as we further ramp our marketing efforts.
Our preliminary fiscal 2023 guidance included modest benefits our students starts in revenue for the planned program launches and we expect further benefits and higher growth expectations from these launches in fiscal 2024 and onward.
Turning to Austin in Miramar, Uti's, two newest campuses continue to scale nicely with over 800 students combined.
These campuses were also designed with program expansion areas and they will have some of our new programs, which began with the July launch at H B a C. R at Austin and aviation in Miramar is targeted for September .
Yeah.
Our progress on both campuses remains on track to meet or exceed expectations, and we will maintain our work on scaling and identifying future expansion initiatives.
Broader UGI divisional enrollment pattern had been moving in the right direction and overall demand and inquiry volumes remain high.
We're very pleased to report overall start grew up to the UTI division of 5% and with that a few points of same store growth during the quarter.
This was largely driven by continued gains with local students and improved traction with relocating students to whom you T. I provided targeted support package enhancements during the quarter.
These efforts complement the initiatives. The team has previously implemented to mitigate inflation related pressure on relocating students across the U T I channel.
The U T I division will keep assisting these groups through dedicated support and financial aid teams along with varying the mix of grant enhancements as needed.
This comes in conjunction with working to further ramp the yield of our divisions admissions and marketing investments to support high school and military channel recruitment, which are traditionally less affected by inflation.
Our work across both divisions reflects our core commitment to driving positive student outcomes. This commitment and the reputation we've built over nearly 60 years of operation, It's given us an industry leadership position that we are dedicated to maintaining.
As a recent example, a cocker campuses in Orlando and San Antonio along with our U T. I campus in Exton, Pennsylvania were all recently recognized as our latest E. C. C. S E schools of Excellence Award winner.
Our U T I campus in long Beach, California was also recognized as an ACC USC school of distinction.
This award recognizes ACC accredited schools for their commitment to the expectations and rigors of ACC S. T accreditation as well as demonstrating exceptional student achievement.
We have a long history of receiving these designations across our campus footprint and we're honored to receive these most recent recognitions.
We will continue to uphold the quality of our instruction industry partnerships and career preparation across health care transportation and skilled trades.
As Troy will discuss in more detail later in the call with our strong performance through the first three quarters and visibility we have into the fourth quarter. We've tightened our expected revenue guidance range and raised our adjusted EBITDA range for fiscal 2023.
We now expect fiscal year 2023 revenue to range between $602 million and $605 million.
As for adjusted EBITDA, We now expect the range to be 62 million to 64 million.
We are reiterating and tracking comfortably towards the middle of our expected fiscal year 2023, new students start range of between 22020 3500, and we remain confident in our previously stated fiscal 2024 projections are exceeding $700 million in annual revenue and approaching 100.
And adjusted EBITDA.
We will provide formal guidance ranges for 2024, when we report our year end results in just a few months.
I'm proud of the strategic progress and execution, we've maintain across both segments year to date.
I'd now like to turn the call over to Troy to discuss our results from the quarter in more detail Detroit.
Thank you Jerome our third quarter performance exceeded our expectations on both the top and bottom lines. Note. This is the second full quarter contribution from Concord and their results were a key driver of the upside in the quarter.
As a reminder, our reported results include both consolidated and segment views as well as corporate unallocated costs. Please.
Please also note that unless stated otherwise the year over year comparisons are on an as reported basis as the prior periods does not include Concorde.
To summarize our operational results for the quarter. We recorded 5300 total new student starts, reflecting five 3% year over year growth for UTI or 3333 total starts in 1967 Concord starts.
We're Concorde starts were in line with our expectations with core starts growing year over year in the quarter driven primarily by the medical assisting program. While clinical starts were down primarily due to program start phasing versus the prior year quarter.
Similar to the UGI Division Q4 is a seasonally higher start quarter for Concord as they're a larger clinical starts in both July and September versus only one larger clinical start in the other quarters.
We currently expect 3500 or more new student starts for Concord, and the fourth quarter compared to the roughly 2000 starts we saw both the second and third quarters of this year.
For fiscal 2023 on a pro forma basis, both core and clinical starts are projected to grow approximately 3% year over year.
U T I's division start performance was above our expectations and we are proud of the team delivered in the first quarter of same store start growth since the third quarter of last year.
The majority of the UTI campuses showed same store start growth in the quarter.
We expect further same store improvements in overall double digit U T I start growth in the fourth quarter.
We continued to see higher start performance among local UTI students, but we also saw improvements versus prior quarters. Among relocating students as a result of the grant programs and our overall focus on enhanced support and engagement with the students.
The growth also reflects our successful starting more high school students in June , which we made good progress on last year, and which contributed more significantly this year.
Moving to our financial performance third quarter revenue on a consolidated basis increased 51, 8% to $153 3 million.
Driven by the $52 4 million contribution from Concord.
UTI revenue was $100 9 million roughly flat year over year.
UTI saw higher revenue per student in the quarter versus the prior year, which was offset by lower average undergraduate full time students.
Note that for both divisions. The third quarter is typically a lower revenue quarter from a seasonal perspective.
From a profitability standpoint, the consolidated net loss for the quarter was <unk> 5 million.
Diluted loss per share of <unk>, <unk> and adjusted net income was $2 million.
Shares outstanding as at the end of the quarter were $34 1 million.
Adjusted EBITDA was $11 4 million, including a 4 million contribution from Concord.
We have outperformed our initial expectations on profitability each quarter this year.
Mainly due to Concord revenue phasing and diligent expense management across both divisions and our corporate team.
The profitability declines versus the prior year are a result of previous quarter same stores start declines in the UTI campuses that we are now seeing turned positive.
UTI division growth investments in new campuses and programs and in admissions and marketing resources, all of which have begun yielding positive returns.
And also Concord integration costs and corporate costs as we scale the company in support of our growth and diversification strategy.
Note that we also have a higher effective tax rate year over year as a result of the valuation allowance reversal last year.
And the impact of certain discrete items this year.
Total available cash liquidity at the end of the quarter was $110 5 million.
And we have $8 2 million of remaining revolver capacity.
Total debt was approximately 163 million, while net debt was approximately $52 million for a net leverage ratio of less than one.
Our year to date operating cash flow was negative $4 7 million and adjusted free cash flow was negative $1 6 million.
While operating cash flow was down year over year, primarily due to working capital timing adjusted free cash flow was $1 4 million better than the prior year.
The fourth quarter is a seasonally strong quarter for cash generation, which we expect again this year in support of achieving our adjusted free cash flow guidance.
Year to date total capital expenditures were $48 8 million, a 30% decrease relative to the comparable period a year ago.
This includes the $26 million purchase of the three primary buildings and associated land in the U T I Orlando, Florida campus in March.
The other main drivers of Capex year to date are the completion of the U T I Austin in Miramar campus build outs.
And the ongoing UTI in Concord program expansion efforts.
Capex for the fourth quarter will primarily be driven by the program expansions across both divisions.
The year, we expect total capex of $60 million or less.
Turning to our fiscal 2023 guidance based on the robust year to date performance and current visibility into the fourth quarter. We are revising our financial guidance ranges as follows.
For revenue, we are tightening the range to $602 million to $605 million, which is above the midpoint of our 595 million to 610 million prior range.
For the divisions, we expect Concorde will be at or slightly above the high end of the previous expected revenue range of $170 million to $175 million and we continue to expect low single digit revenue growth for U T I.
We are raising our adjusted EBITDA expectations from the prior range of 58 million to $62 million to a new range of 62 million to $64 million.
For adjusted net income we are raising the prior range of 14 million to $18 million to a new range of 17 million to $20 million.
And for adjusted free cash flow, we are raising the range to 44 million to $46 million versus the prior range of 40 million to $45 million.
Alongside the updated financial expectations, we are reiterating our previously disclosed fiscal 2023 total new student start guidance.
With an expected range of between 22020 3500.
As Jerome mentioned earlier, our total starts are currently tracking towards the middle of this range.
But the Concorde Division, we expect starts at or slightly above the upper end of their 7500 to 8000 range.
For the U T. I Division, we continue to anticipate starts to be at the low end of their 14000 515500 range.
Which represents approximately 8% year over year growth.
We encourage everyone to review our press release financial supplement and Investor presentation.
As these materials include the most current consolidated and segment details for our actual results, our strategic roadmap and our guidance, including our non-GAAP reconciliation tables.
In closing I'm confident in our team's ability to finish the fiscal year on a positive note and to carry that momentum forward into 2024.
I would like to express my continued depreciation for our students team and partners for their support as we execute on our strategic goals.
Now I'll turn the call back over to Jerome for closing remarks.
Thank you Troy to reiterate the third quarter results reflect sustained strong performance this year and give us confidence to raise our expectations for the year and to reiterate our projected view of 2024.
I'll quickly recap divisional areas of focus as we move further into the fourth quarter.
Starting with Concord, we will continue to execute on integration and stay on track with this process in conjunction with these activities will also work to launch six planned new programs over the coming months and into fiscal 2024, which could begin as early as timber.
As for our UTI Division, we will complete the 14 program Rollouts in the fourth quarter on the heels of our first set of July launches with the remaining program set to launch across this month into next.
We will also work to further scale and drive enrollment growth at Austin in Miramar, It's maintained same store growth across our campus footprint.
Our ongoing execution puts us on solid footing as we move further into the fourth quarter and close out this fiscal year and our work to reinforce our divisional operating model allows us to continue to crystallize the strategic roadmap for our combined company.
I'm proud of our progress to date and we remain confident in our strategic trajectory through and beyond the end of this fiscal year I'd now like to turn the call over to the operator for Q&A operator, yes. Thank you at this time, we will begin the question and answer session.
Can I 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 keys.
Withdraw your question. Please press Star then two.
At this time, we will pause momentarily to assemble the roster.
And today's first question comes from Steve Frankel with Rosenblatt.
Good afternoon, and congratulations on the improvement in starts at UTI, just wondering Jerome can get some insight.
And two where do you think prospective students are relative to those inflationary headwinds and it seem to be.
Holding people back over the last couple of quarters do you think with lower gas prices. We've worked through some of that or is it the increased grants the table to get people over that hump.
Please hold the line we are attempting to reconnect the speakers one moment please.
Okay.
Okay, we have connectors.
And you hear us.
Yes did you hear my question or should I start over Jerome.
I heard your question I'm, sorry, I started talking in and then.
We had some technical difficulties.
Thanks for coming I think the the the.
The answer is a little bit of both we have seen some moderation in people's posture about relocating a wrap around the country I think people have normalized around.
Some prices that are that are starting to moderate but it is undeniable that the enhanced support programs that we've put into place to help people relocated get them over the hump until they they find jobs in market, which is a dedicated plan of ours for anyone who who relocate to quickly get some jobs in field and market.
It is also moving the needle so it's not a it's not a definitive one or the other I think I think a little bit of both our RNA on here.
Okay, and then any particular trend changes around what programs people are finding more attractive on the UTI side.
No I think we're very very happy with the interest we're seeing in the 14.
14 programs were starting specifically around I think theres a lot of excitement around both HVAC and aviation.
Those are R. R.
Are doing very very well from a lead and excitement perspective, I think there's a pent up need in the markets that we're starting to marketing in those in those areas.
What we're seeing.
Across the board I mean, one of the things about both UTI and comfort is that we really only focus in high demand areas right and so.
We haven't seen any any.
Big changes across the landscape in terms of in terms of demand because the need is so strong in every one of those markets.
Okay, and then on the Concord.
<unk> seems to be going well.
Yes, I think for the year, where we see focus on.
The margin.
In addition to keeping that apply.
A flywheel.
New admissions going well.
Yeah I mean.
A couple of things number one you got to give all the.
Credit in the world to.
Jamie and her team often when you're going through a large scale integration like this people lose sight of.
The moving forward and get mired down in some of the integration things I think she's done a great job of navigating her team forward and thus we are seeing the results in their starts and in their persistence and revenue pursuit and all the all the rest of that employment rates are all all in.
In great shape, so great for keeping them on track, we're now sort of moving from the phase of what we said where the initial phase of integration, which was taking a private company and bringing it up to public company standards Sox requirements controls our organizational structure around the.
<unk> I'll mention as we as we turn our attention to more of the operational aspects of it that's where we would see synergy and margin expansion start to appear as we move into 2024.
Yeah.
Great. Thank you so much I'll jump back in the queue.
Thanks, Steve.
Thank you and the next question comes from Raj Sharma with B Riley.
Hi, Thank you for taking my question congratulations on consistent good results second.
Second quarter.
And two quarters in a row could you comment on.
The starts and the.
Breakdown at U T I E. Among.
High School news in young adults and if certain programs at better starts.
Than others that makes geographically are you seeing any sort of differences.
Yeah, Hi, Raj This is Troy and thanks for the question and for joining the call.
In our financial supplement we have a table in there on the new student starts by channel. That's total starts all land, including.
Existing campuses and the new campuses, but you could see high school has been really actually shown pretty good growth for several quarters now a little bit flat last quarter, but a pretty strong this quarter, 16%.
Clothing, and that does tend to be a more local programs, who as we continue to drive a better.
Traction in the local markets around our communities.
Welding and HVA Seadrome mentioned those are those are the kind of programs that really do attract off the local community.
<unk>. Thank you for that and then on the start I know you you.
You're watching more programs in Q3, two four at U T I.
But.
<unk> guidance <unk>, there is not much of a change is that correct.
Program launches included.
How much of a impact you things you can get and starts from the new program launches in Q3 and Q4.
Yeah, the the new program launches wearing our plan from the very beginning they ran our initial guidance. We've mentioned some of the approve of delays that we did have to shift some start dates out later in the year, which is which is part of the reason why we guided UGI down to the lower end of the range not all of it but the reload pressure contributing.
There is as well so expectation wise, we're in line with what we expected would that we announced last quarter and everything is tracking well if anything cock, where it's coming in a bit better at the at the high end or slightly above the high end of their range, but overall, we feel really good about our total range of 20.
2023, five and attracting very solidly to the middle of that range.
Got it that's very helpful. And then just lastly.
Just wanted to see what the.
Are you seeing a change in the interest in the program sort of pick up across the.
Two different campuses you know low unemployed unemployment is still low you're suddenly exhibiting more confidence and you start.
Any sort of change in numbers and interest insure rates in.
And the financially that's handed out.
That's great I think I think if you know if you go quarter to quarter I think the the biggest stories around around which which gaining confidence into comfortably standing into the middle of the range that we gave is number one we were making progress with the relocating students.
Uhm, both their their sentiments about overcoming the adversity of inflation on on their own and the enhanced grand packages that we're giving it that tends to to favor auto diesel motorcycle marine and aviation S. From a program standpoint, because those tend to be the program Sir.
Travel the most as opposed to H B a C welding that health care programs are all very very very local and so you know the the the movement we've seen both in student attitudes and reactions to the support packages that we put into place gives us.
A great deal of confidence in moving in that direction as far as show raised I think one of the things we've done a great job of Reorienting, our financial aid package packages to move quicker and then also to focus <unk>.
Media attention on local students, who <unk>, who can engage right away without thinking about relocating or thinking about three or four or five weeks from now and so are stark cadence is actually moving up in terms of the number of students who are starting quicker, which is helping are helping our start race. It as well. So if I were really pointing at a couple of those.
Sort of macro phenomenon for the third quarter that were you know remember we've only got about six weeks left here now and in the fourth quarter. So we've got really good site and for the last couple of Big starts that we've got as we move through the through the fourth quarter is is what we're seeing is improvement in the throughput in our packaging and and.
Financial aid process in our employment process by the way for for also are local and relocating students and you know and we're seeing that the combination of enhanced grant packages and and student attitudes.
Are helping our relocation students so those would probably be the biggest the biggest driver.
Roger I would add one other thing the across our can't split print the legacy campus footprint same store.
I mentioned that the majority of the campus to show growth.
And I want to be clear that same store seeing programs. So we are separating out the new program impacts when we're quoting that statistics. So we just resolve good performance crossed the majority of our footprint.
Definitely improvements from <unk>.
Got it great. Thank you I'll I'll take my questions all fine. Thank you so much.
Thank you thanks.
Thank you once again please press Star then one if you would like to ask you a question.
And the next question comes from Eric much of Nosy with like Street.
Yeah Uh huh.
Yeah upward revision definitely get to see their on the adjusted EBITDA just curious I mean, the the revenue is relatively in line with what you were expecting 90 days ago I I realize you've taken the reigns a little bit, but what's behind me the better adjusted EBITDA. The bitcoin is that with just kind of conservatism.
Maybe some of the costs that you were looking at that you entered the year or.
Just a little deeper on the upper division to be adjusted EBITDA.
Yeah sure. Thanks, Thanks, Eric the on the revenue side as opposed to that quickly. We did ship that mid point up so that new range is tighter and in the upper upper portion of the original range.
On the on the profitability side, both adjusted EBITDA adjusted net income within upload into the adjusted free cash flow. We do have some better expense performance. If you remember our original adjusted.
Even out guidance the beginning of the year I said about half of it would be in the fourth quarter.
And we would be down the first three quarters and in fact, we've been flat through the first three quarters and have delivered.
Roughly roughly three quarters of that 70 per cent of that adjusted EBITDA number. So the phasing has played out differently with you. We expect it again, we had a a phasing revenue recognition change on on Concorde that redistributed revenue over the year did change the total view, but redistributed over the year, how that would be recognized.
Which flow through into profitability and then just just very diligent expense management as we've been rolling out. These programs are launching the new campus is making sure we're not getting too far ahead of.
Spend needed to bring in those initial cohorts and to support the students we haven't just continuing to drive efficiency across or a larger campus footprint.
Okay and then the.
And user demand I imagine you know employers are still aggressively hiring your graduates here any new employer partner initiatives that you're seeing either on the UTI side or the cockpits tier.
T S up for F y 24.
But I I, just don't know that there's I mean, we're we're constantly building more relationships and we have a dedicated team we have local campus teams and we have a national team who are building relationships constantly and our local relationship may be established but then there's a larger.
Play there either a regional or national play that we expand upon that of course with our new program launches. We are building new relationships in aviation and HVA see when all of those areas robotics. So that's an opportunity to build more relationships were speaking to some of the major airlines.
Now that we have a national footprint law five programs on the aviation side across the country. So that will give us a nice footprint to partner with some of the the larger airlines.
So there's there's just constant activity there we continue to build build that broke in with that our tuition reimbursement programs and incentive programs, where students and also looking at at other potential Impsat. We're partnering programs from a curriculum perspective, yeah, I think Eric one one quick point on that which is you know.
Rather than forging exclusive agreements with any specific large scale employer in any given market well we've been focusing on he was giving our students.
The largest opportunity to gain the best ROI from the education that they get from U T. I and an example of that was just three or four short years ago.
Our our trip agreements, which is actually the formalized way an employer would engage with us our trip agreements were somewhere in the neighborhood of 3500 employers around the country now we have 6000 and the point is is that.
What we've been pushing on in every local market is getting organized.
Organized codify offers in front of our students to make sure that they can make the best decisions.
Both the work environment career trajectory and the salaries and benefits that they're getting and we're really proud of having that strong connection point between every local market in our students.
Got it thanks, and congrats on the quarter.
Thank you Sir Thank you Sir.
Thank you and asking a question and answer session I would like to trying to afford a drunk grand for any closing comments.
Thank you operator, and thank you everyone for joining us today that'll conclude our call. We look forward to answering any of your questions over the next couple of days in our private sessions and we'll talk to you again in three months have.
Have a great day.
And I just mentioned the conference has now concluded. Thank you for attending today's presentation, Amy and I'll just connect your lines.
Mmm.