Universal Technical Institute Inc

Good day, and welcome to the Universal Technical Institute's third quarter fiscal 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, today's event is being recorded. I would now like to turn the conference over to Matt Kempton. Please go ahead.

Hello, and thank you for joining us. With me today are CEO Jerome Grant and CFO Trey Anderson. During the call today, we'll update you on our third quarter fiscal year 2022 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, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside 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 in our SEC filings. And 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 is net income or loss adjusted for items that affect trends and underlying performance from year to year. and are not considered normal recurring operations, including the income tax effect of the adjustments utilizing the effective tax rate. Adjusted EVA does 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. Adjusted free cash flow is net cash provided by or used in operating activities, less capital expenditures, adjusted for items not considered as part of the company's normal recurring operations. Management internally uses adjusted 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 financial measurements to the most directly comparable GAAP financial measurements 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 like to start by expressing my appreciation to our students and staff for their hard work and commitment during the quarter. We are pleased to deliver another quarter of impressive results while most importantly achieving strong student and employment outcomes, including graduating 2,800 students in the quarter, enabling them to join the workforce in high-demand career fields. While delivering these results, we also had a busy quarter executing on all facets of our growth and diversification strategy. We opened the doors of our new Austin, Texas campus, finished the implementation of the Exxon Pennsylvania welding program, expanded the BMW fast track program to an additional two locations, completed the consolidation of the Phoenix MMI campus into the Avondale, Arizona location, announced our initial MIT program expansion plans, and finally, we signed the definitive agreement for the acquisition of Concord Career Colleges. Needless to say, I'm extremely proud of what our team has accomplished in the quarter. Moving on to our results from the third quarter, revenue in adjusted EBITDA exceeded our expectations for the quarter. Revenue was $101 million, reflecting a growth rate of 21% compared to the year-ago period and adjusted EBITDA was $11 million, which represents growth of 53% year-over-year. Given our year-to-date results and our outlook for the fourth quarter, we now expect to come in in the higher range of our guidance for revenue and adjusted EBITDA, which are $410 to $420 million and $52 to $55 million, respectively. Troy will go deeper into the context for our strong revenue and EBITDA results in just a few minutes. New student starts were roughly in line with our expectations and grew 25% versus the prior year quarter. As far as new student starts growth expectations for the balance of the year, we're now expecting year-over-year start growth in low to mid single digits. I'd like to spend a few minutes talking about student starts as there are some important initiatives and dynamics at play that both fuel the impressive growth for the quarter and provide context for our full year expectations. First, due to the cadence of the MIT start schedule, this was the first quarter that they had two start periods in the same quarter, since we closed the acquisition in November. Second, as previously noted, we successfully opened our Austin, Texas campus this quarter, and we're pleased with the results so far, which are in line with our expectations. Third is the impressive performance of our high school channel. In the quarter, for UTI only, excluding Austin, we grew 78% year over year. Year to date, this channel has grown 28%. This is after 6% growth for the full year of 2021. A portion of our year-to-date growth relates to some important work we've been doing to optimize the start schedules for our incoming high school students. More specifically, a year ago, We began working with high school students to encourage them to start school right after their graduation, rather than taking the summer off and starting in August and September. It's important to note that this approach will shift the overall contour of start growth from this key market going forward, as we'll see a larger number of high school students starting in the third quarter compared to historical norms. Our efforts around this optimization program are positive for our business as it reduces potential capacity constraints that we experienced in the fourth quarter at various campuses. It also provides benefits for graduating high school students as these earlier starts ultimately enable them to complete their program and join the workforce sooner with a career path already in hand. We plan to continue this effort in 2023 and beyond. Finally, we are seeing some pressure on our ability to generate growth in the adult job changer segment. Recent macroeconomic factors that include extremely tight job market, inflation rates that we've not seen in 40 years, along with more recent recession uncertainty are fueling these headwinds. I'll share some further thoughts on this in a few minutes. Importantly, we continue to see strong inquiry performance as our digital marketing optimization yields positive results. Thus, the adult issue is more of a conversion challenge than a decrease in interest. For reference, for UTI only, excluding the new Austin campus, we saw a 10% year-over-year decline in the adult channel in the quarter. Year-to-date, this group is down 12%. Overall for the year, we are expecting a double-digit decline in our adult channel, excluding MIAT and the new campuses. As far as the economy, we're operating in a macroeconomic environment. There's no shortage of uncertainties and challenges to navigate for companies and people alike. and no shortage of jobs in the field we're providing training in. It is important to note that challenging macroeconomic factors such as inflation, wage growth, and unemployment do not affect all of our prospective student channels uniformly. Prospective students in the adult population, which make up nearly half of our new student starts, has been most impacted by the current economic conditions and uncertainties that exist. creating a challenging environment for prospective adults looking to retrain in order to change jobs. In contrast, and serving as somewhat of a counterbalance, our results across the high school channel, which make up much of the other half of our student starts, tend to be less affected by broader economic factors and have performed more consistently regardless of the economy. And thus, we really don't anticipate significant impact from our current conditions for this channel. As we said in the past, we cannot predict nor do we budget for a recession or other economic conditions. Today, by the strictest definition of the word, we're in a recession. It's being debated all around the country. Many believe that this recession, in fact, will deepen and unemployment rates will be affected sometime in the next few quarters. Now, if they're right and past recessionary patterns hold true, we should see some headwinds facing our adult channel subside. potentially providing start upside in the second half of 2023 fiscal year. In order to both prepare for the growth associated with our strategic initiatives and these potential counter-cyclical tailwinds, we're working diligently to optimize our adult admissions organization. We're also working to optimize our high school admissions organization by immediately adding field-based resources in preparation for the coming school year. We believe that the pandemic-related high school access issues experienced throughout 2021 and the first half of 2022 are behind us. Now, in addition to having impact on some of our students and prospects, the inflationary cost pressures seen widely across the economy have been present internally for UTI as well. We do expect to experience some ongoing effects of this due to the persistent and higher than expected inflation levels everyone has witnessed in this past year. We've been successful thus far, largely offsetting these impacts with increased efficiencies and other cost-saving measures and are striving to continue to do so. All of that said, we're enthusiastic about the performance for the year and confident in our previously issued, subsequently updated 2022 financial guidance and longer-term roadmap. Next, I'll give a quick update on the initial steps we've taken in our growth and diversification plan. We're very pleased with the progress we've made to date. With our pending acquisition of Concord Career Colleges, I want to reiterate our positive outlook for the growth prospects of the healthcare industry, as everyone at Universal Technical Institute remains incredibly excited to diversify our core educational offerings into areas like dental and other allied health professions, as well as patient care and nursing. through the addition of Concord, which we now expect to close in early 2023. This acquisition is another key step for the company as we continue to make substantial progress in the early stages of our growth and diversification strategy. The MIT integration continues to go well, and it's nearly complete, enabling us to move on to the primary objective of this acquisition, the addition of more than a dozen MIT programs to the UTI campuses nationwide. In June, we announced our initial plans for the programs and locations we intend to launch in 2023 and 2024. And we continue executing on this plan. To remind you, we believe that we can more than double the size of the acquired MIAT business over the next three years with the combination of program expansions and modest organic growth. Since our Austin, Texas campus opened in the third quarter, we've welcomed 230 students through July. We're thrilled with the warm welcome we've received from both the community as a whole, and more pointedly, the large employers in Austin and San Antonio. Additionally, our new Miramar, Florida campus is on track to open during the fourth quarter of this year, and we expect to welcome the first cohort of students next week. Our new Exton, Pennsylvania welding program, which opened in July with a full first class, is also receiving a very enthusiastic response. New disciplines, new campuses, and continued program extension fuel my optimism and excitement about the future. We will continue to pursue growth and diversification opportunities regardless of health or economic challenges or tailwinds that come our way. We're pleased with our performance to date across all of these dimensions. As we've outlined in the past, with the steps we've taken thus far, we're on track to reach our longer-term growth targets of at least $700 million in revenue and approximately 20% EBITDA margin by 2025. Again, I'd like to thank all of our faculty and staff for their unwavering commitment to enhancing the futures of our learners. With that, I'll turn the call over to Troy to discuss our operational and financial performance for the quarter. Troy? Thank you, Jerome.