Universal Technical Institute Inc

Good day and welcome to the UTI Fiscal Second Quarter 2020 Earnings Call. Should you need assistance, please press star followed by zero. At this time, all participants are in listen-only mode, and after these prepared remarks, we'll open the line for questions. As a reminder, today's conference call is being recorded. At this time, I'd like to turn the conference over to Ms. Jody Kent, Vice President of Communications, and Public Affairs for the Universal Technical Institute. Please go ahead.

Hello, and thanks for joining us. With me today are CEO Jerome Grant and CFO Troy Anderson. During the call today, we'll update you on our fiscal second quarter 2020 business highlights, our financial results and our vision for the future. Then we will open the call for your questions. Before we begin, we must remind everyone that, except for historical information, Today's call may contain forward-looking statements as defined by Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933. I'll refer you to today's news release for UTI's comments on that topic. The safe harbor statement in the release also applies to everything discussed during this conference call. During today's call, we'll refer to adjusted operating income or loss, adjusted EBITDA, and adjusted free cash flow, which are non-GAAP measures. Adjusted operating income or loss is income or loss from operations adjusted for items that affect trends and underlying performance from year to year and are not considered normal recurring cash operating expenses. Adjusted EBITDA is net income or loss before interest expense, interest income, income taxes, depreciation, amortization and adjusted for items not considered as part of the company's normal recurring operations. Adjusted free cash flow is net cash provided by or used in operating activities plus capital expenditures adjusted for items not considered as part of the company's normal recurring operations. Management uses adjusted operating income and loss, adjusted EBITDA, and adjusted free cash flow as performance measures internally, and those will be the figures discussed on today's call. Starting with the third quarter of fiscal 2019 and through fiscal 2020, We will report operating metrics such as student applications and starts, excluding our Norwood, Massachusetts campus. As we have shared previously, Norwood stopped accepting new student applications in the second quarter of fiscal 2019 and will fully close before the end of fiscal year 2020, so we believe it is appropriate to exclude its impact. It is now my pleasure to turn the call over to Jerome Grant.

Thank you, Jodi. Good afternoon, everyone, and thank you all for joining us today. First, I want to acknowledge that our thoughts are with those most affected by the pandemic, including first responders and medical professionals working on the front lines. I'd also like to thank our team for their tireless effort to continue to provide the highest quality technical training for which we're known during this crisis. Finally, I'd like to welcome to the call a notable number of new investors who have joined us since our last update. We sincerely appreciate your interest and investment in UTI and look forward to working with you in the future. As many of you know, and for those of you who are new to the call, UTI is the nation's leading provider of technical training for automotive, diesel, collision repair, motorcycle, and marine technicians. And we also offer welding technology and computer numerical control, CNC machining programs. We have a nationwide network of 13 campuses where we offer hands-on training in state of the industry labs, complemented by our new online training which allows us to offer quality education during the COVID-19 pandemic and will serve UTI and its students going forward. Our newly assembled executive management team is leading that charge and is supported by a solid balance sheet and excellent financial flexibility. In our 54-year history, UTI has proven its ability to adapt to changing financial and regulatory landscapes and has seen increased student demand in times of economic hardship. I'll add more on that later, but first I'd like to discuss the recent quarter and review how we're approaching the COVID-19 crisis, preparing for the near term and positioning the company for the future. In the second quarter, results were positive and we demonstrated continued momentum. New student starts were up 6.6% year over year, excluding our Norwood campus where we're winding down operations. Contracts for the quarter grew 4.5% year over year, and our show rate improved 100 basis points. Total revenues increased 1.2% to $82.7 million. Net income, which included an income tax benefit of $10.8 million, was $10.1 million and adjusted EBITDA was $3.1 million. Trial will get into more details of our financial results a little later in the call. Indeed, it was a busy quarter. We bolstered our executive leadership team with new leaders heading up our corporate strategy, IT, and legal departments, changed our marketing and admission functions, and began a search for new chief commercial and human resource officers. We're also pleased to welcome George Brochik, Executive Vice President, Strategic Development at Penske Automotive Group to our board of directors. And we wish Roger Penske well as he transitioned off the board after more than 20 years of insightful guidance and counsel. Even in the face of the pandemic and its many challenges, we continue to move forward with our growth and improvement initiatives, including expanding our welding program to new campuses, optimizing admissions and marketing, and maximizing the productivity of our campuses. In February, we successfully raised $49.5 million in a primary equity offering led by B. Riley FBR, who also led the December secondary offering and brought in many new investors. Like many businesses, we began to feel the impact of COVID-19 pandemic in the last two weeks of March. We were able to quickly pivot the business model in response, implementing changes that will help see us through the pandemic and innovations that can serve our students and our business for the long term. In response to this unprecedented situation, we implemented strict CDC-guided safety precautions at all of our campuses and our home office and quickly transitioned our in-person education model to online. As the threat was first identified, we remained operational and immediately implemented protocols recommended by the CDC. As governors and local officials began to issue orders and mandate closings of schools and businesses, we suspended all in-person classes at our 13 campuses on March 19 and transitioned all classroom learning to online. The following week we transitioned our first wave of students to the online platform and within less than two weeks we were fully operational and up and running. We're proud of the dedicated team and their extraordinary efforts as this type of curriculum transition would normally take many schools many, many months to execute. Today we have over 11,000 students enrolled with more than 8,000 currently progressing their education through the online platform. including over 500 students who have started directly into the online platform over the past several weeks. Our online curriculum consists of instructor-led lectures and demonstrations and we continue to engage students and give them one-on-one support through virtual classroom reviews and virtual office hours. The transition to the online curriculum has been successful and opens new opportunities for the company and our students. However, The uncertainty and disruption created by COVID-19 crisis means we do have more students on leave of absence. We are now beginning to meet those students' need to practice and master hands-on skills that are so important to their success by resuming in-person training while online education continues. To protect our students and staff and align with the CDC guidelines and state and local directives, we are modifying our class sizes and schedules for safety and social distancing. As of today, Dallas, Fort Worth, and Houston campuses are operating in this modified format, and our Avondale, Arizona, Phoenix, Arizona, Long Beach, California, and Mooresville, North Carolina campuses should resume face-to-face labs the week of May 11th, and Florida's not far behind. We've also revised our marketing message to focus on the durable opportunities for skilled technicians in the transportation field. Broadly, our message to potential students feeling the economic impact of the virus is, We feel for you, we're here for you, and we want you to come to UTI because this is where the jobs are now and in the future. Now with no live sports on TV, broadcast media consumption among our target demographic is down. In order to optimize our lead generation in this environment, we cut $2 million from our broadcast budget and have intensified our focus to where our target audiences are spending their time right now, which is social media. It's paying off, evidenced by our inquiry activity. Inquiries pre-COVID through the first half of March were better than the prior year and beat our internal expectations. While we did see a significant dip in mid-March through the first week in April, we've seen an accelerating improvement since then. The full month of April performed similar to the first half of March, solidly above prior year and our internal expectations. We also have shifted our admissions model, which has been almost exclusively face-to-face, and are now connecting with students and their parents through online meetings, virtual tours, and other events. For example, in April, in addition to telephone interviews, our admission reps averaged 80 virtual interviews a day. Our admission reps have noticed an increase in the number of people who want to talk and meet with us virtually, many of whom have come away impressed by the technical education we offer and our teaching facilities. If you haven't had a chance to visit one of our campuses in person yet, I invite you to go to our investor website where you can take a virtual tour and see for yourself. While it by no means has been an easy transition, we're proud of the work to keep the students in school through the crisis and are finding innovative ways to introduce our education to people who can greatly benefit from it. especially now as our country begins to process of emerging from the crisis and moves into a period of economic recovery. Today, new student enrollments are above where they were last year at this point. This bodes well for a fourth quarter where the majority of our students start. But with fewer students currently active in school overall and the expense of transitioning online and modifying our educational model, we've taken some decisive actions to reduce cost. This required some very difficult decisions, including the furlough of approximately 280 of our employees. Employees on furlough continue to receive full benefits and we look forward to bringing them back as soon as we're able to reopen all of our campuses and our student population continues to recover. So, to sum it up, right now we're keenly focused on student retention, continuing to grow and bring in new students, and cash preservation. There of course will be challenges as the world recovers from COVID-19, but we believe our deeply held commitment to delivering value for both our students and industry partners, and our strength in innovation, which allowed us to transition to an online model and find safe and effective ways to offer our unique industry-aligned education, will continue to serve UTI and our students. I'd now like to turn the call over to Troy for a deeper discussion of our financials and student metrics, after which I'll return to provide some insight and thoughts post-COVID-19.