Universal Technical Institute Inc

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 transcript, and our investor presentation will be archived on the investor relations section of our website at investor.uti.edu, 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 of 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 different 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. Please note, 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 measures. These 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. For 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.

Jerome? 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 third quarter, we continue 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 in adjusted EBITDA, and 5,300 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 improvements 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 and UTI divisional leadership teams, led by Jamie Frazier and Tracy Lorenz, 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 UTI division, our Concord measures have focused on local students with prior healthcare experience due to the local nature of Concord's student body. Though macroeconomic pressures have historically had less impact on Concord's current students and prospects, having this enhanced support for specific programs and campuses has helped our incoming healthcare 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 2024. These rollouts 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 more recently identified as opportunities. They already have Department of Education approval, and have 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 DMS and CVS, respectively, could begin starting students in September. Moving to the UTI 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 and Miramar, Florida. Starting with UTI's program rollouts, we're now entering the launch phase for 14 new programs across nine UTI campuses planned for this fiscal year. These programs, which include wind and energy management, aviation, robotics, and HVACR, primarily came to UTI by the way of MIAT acquisition as we continue to extract value from that investment. In July, we launched the first tranche of programs at four campuses. Combined, these programs started their initial cohorts with approximately 70 students, which represents an encouraging start performance in these early days. Between August and September, UTI expects to launch the remaining planned new programs across six campuses. In fact, two campuses launched 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 cost us to shift a few 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 on student starts and 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 and Merrimar, 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 house some of our new programs, which began with the July launch of HVACR at Austin, and aviation at Miramar is targeted for September. 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 UTI divisional enrollment patterns have been moving in the right direction. and overall demand and inquiry volumes remain high. We're very pleased to report overall start growth for the UTI division at 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 UTI 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 UTI channel. The UTI 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 division's 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 has given us an industry leadership position that we're dedicated to maintaining. As a recent example, our Concord campuses in Orlando and San Antonio, along with our UTI campus in Exton, Pennsylvania, were all recently recognized as our latest ACCSC Schools of Excellence Award winners. Our UTI campus in Long Beach, California was also recognized as an ACCSC School of Distinction. This award recognizes ACC accredited schools for their commitment to the expectations and rigors of ACCSC 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'll continue to uphold the quality of our instruction, industry partnerships, and career preparation across healthcare, 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 student start range of between $22,000 and $23,500. And we remain confident in our previously stated fiscal 2024 projections of exceeding $700 million in annual revenue and approaching $100 million in adjusted EBITDA. We'll 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 maintained 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. Troy?

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 the 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 also note that unless stated otherwise, the year-over-year comparisons are on an as-reported basis, as the prior period does not include Concord. To summarize our operational results for the quarter, we recorded 5,300 total new student starts, reflecting 5.3% year-over-year growth for UTI, or 3,333 total starts, and 1,967 Concord starts. For Concord, 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 UTI division, Q4 is a seasonally higher start quarter for Concord, as there are larger clinical starts in both July and September versus only one larger clinical start in the other quarters. We currently expect 3,500 or more new student starts for Concord in the fourth quarter, compared to the roughly 2,000 starts we saw in 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. UTI division start performance was above our expectations, and we are proud of the team delivering the first quarter of same-store start growth since the third quarter of last year. The majority of UTI campuses showed same-store start growth in the quarter, and we expect further same-store improvements in overall double-digit UTI 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 these students. The growth also reflects our success with 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 $0.5 million, with diluted loss per share of $0.05, and adjusted net income was $2 million. Shares outstanding as of 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. Profitability declines versus the prior year are a result of previous quarter same-store start declines in the UTI campuses that we are now seeing turn 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 is 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 at the UTI Orlando, Florida campus in March. The other main drivers of CapEx year-to-date are the completion of the UTI Austin and Miramar campus build-outs, and the ongoing UTI and Concord program expansion efforts. CapEx for the fourth quarter will primarily be driven by the program expansions across both divisions. For 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 to $605 million, which is above the midpoint of our $595 million to $610 million prior range. For the divisions, we expect Concord will be at or slightly above the high end of the previous expected revenue range of $170 to $175 million, and we continue to expect low single-digit revenue growth for UTI. 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 $22,000 and $23,500. As Jerome mentioned earlier, our total starts are currently tracking towards the middle of this range. For the Concord Division, we expect starts at or slightly above the upper end of their $7,500 to $8,000 range. For the UTI division, we continue to anticipate starts to be at the low end of their 14,500 to 15,500 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 appreciation for our students, team, and partners for their support as we execute on our strategic goals. I'll now turn the call back over to Jerome for closing remarks.