Universal Technical Institute Inc

Good afternoon and welcome to the Universal Technical Institute's Q1 2025 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please send your 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 and then one using a touch-tone telephone. To withdraw your questions, you may press star and two. Please also note today's event is being recorded. At this time, I'd like to turn the floor over to Matt Kempton, VP, Corporate Finance and Investor Relations. Sir, please go ahead.

Hello and welcome to Universal Technical Institute's Fiscal First Quarter 2025 earnings call. Joining me today are CEO Jerome Grint and Interim CFO Christine Klein. 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 to differ materially from those statements. These factors include, but are not limited to, those discussed in the earnings release and SEC filings. These statements do not guarantee future performance, and therefore under-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 2024. 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 release to a most directly comparable GAAP measure. For more information regarding definitions of our non-GAAP measures, Please see our earnings release, financial supplement, 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 for joining us to discuss our results for the first quarter of 2025. As we continue to execute on our growth, diversification, and optimization strategy, we delivered another quarter of our performance by exceeding expectations across all key metrics. For this, I want to sincerely thank our divisional and corporate teams along with our partners and students for their exceptional efforts and dedication to delivering strong results time and time again. With that, let's jump into the results for the quarter. Revenue for the quarter grew over 15% year-over-year to $201.4 million. Average full-time active students increased 11% year-over-year to 25,062 students. Net income increased $22.2 million with diluted earnings per share of 40 cents. Adjusted EBITDA improved an impressive 45% year-over-year to $35.5 million. Total new student starts increased year-over-year by over 22% for the quarter. So, what's driving these strong results? First, top-line performance exceeded our expectations across both divisions. On the Concord side, we continued to make higher strategic investments in our marketing and admissions efforts, which led to very strong student start performance for the quarter. we will continue investing in our Concord marketing and admissions teams to continue to improve results. On the UTI side, our first two starts for the quarter were exceptionally strong, which we believe was primarily the result of deferrals from the fourth quarter due to FAFSA delays. As the quarter progressed, our remaining starts performed according to plan. Looking at the bottom line, in addition to our overall achievement on revenue, we did not spend as much as we initially expected to on some specific transformation initiatives planned in the quarter. This was a result of shifting some of these into the second quarter. That said, we do anticipate our initiative spend increasing in the second quarter and then normalizing throughout the rest of the year. Overall, we're very happy with the results we're reporting today, and we remain confident in our ability to deliver both year-over-year top and bottom-line growth throughout the balance of 2025. Now, I want to briefly take a moment to express how incredibly proud we are of our students, faculty, and staff for their unwavering dedication to supporting those impacted by the California wildfires. Their efforts, whether through organizing food drives, spearheading fundraising initiatives, or volunteering their time, truly exemplify the values we hold as an organization. This collective commitment to making a difference highlights the strength of our community and our shared purpose of coming together to help those in need during these difficult times. For the most part, we had limited impact to our Southern California campuses during this tragic event. While there was a slight dip in attendance during the most challenging periods due to significant disruptions in commuter patterns, we're pleased to report that this did not impact operations. Our thoughts remain with those who are affected, and we will continue to support our community through these challenging times. From a regulatory standpoint, we are encouraged that the new administration has expressed an interest in reducing regulatory burden and believe any changes that fairly compare schools of all types based on outcomes will contribute to the more favorable regulatory environment for us. While the specifics regarding the Department of Education remain unclear, I'm hopeful that the administration will focus on student outcomes and helping schools expand in areas where employment demand is extremely high. That said, our attention remains firmly on the factors within our control, and we are unwavering in our commitment to achieving strong student outcomes. Lastly, before diving into each division's details, we're making great progress on our CFO search. Our elevated company profile has certainly expanded the available talent pool, and we're highly confident in finding an exceptional candidate for the role. We look forward to providing an update in the coming months. Turning to divisional specific highlights for the quarter, the Concord division continues to deliver strong results with consistent year-over-year growth. The positive top line results are primarily due to our marketing investments as we continue to focus on maximizing the performance of our healthcare division. Moreover, the increasing effectiveness of our admissions team remains a key driver of growth across the division as well. As for Concord's program expansion strategies, we remain on track to launch 10 cash pay short course programs across the Concord campuses in 2025. Our new nursing program in Jacksonville, Florida, also remains on track to launch in mid-fiscal 2025. And the Dallas nursing program capacity increase is still on track to begin in fiscal 2025, which will increase our capacity by an additional 60 students. Turning to our partnerships, as we noted last quarter, we're progressing on Concord's partnership with Heartland Dental to construct a new co-branded campus. This project is still on track to open in early fiscal 2026 and will initially launch as a non-Title IV campus for dental assistants and hygienists. When Concord's growth restrictions are lifted, we plan to seek approval to offer Title IV funding as well. As a reminder, we anticipate this campus will add more than $4 million in annual run rate revenue, as well as contribute to Concord's EBITDA margin expansion as it scales. We look forward to keeping you updated on this partnership as it progresses. Now, onto our UTI division. The UTI division also continued to deliver year-over-year growth driven by expanded programs and increasing market demand for skilled collared workers. Our HVACR programs continue to ramp nicely across our campuses in Avondale, Long Beach, and Bloomfield. As we discussed on our last call, of the nine full-length programs we're launching this year across both divisions, we expect eight of those to be on existing UTI campuses. Also, as previously discussed, we plan to open three campuses in 2026, subject to regulatory approval, of course. With the upcoming Concord-Heartland co-branded campus marking the first of these, we're pleased to have recently announced the second location, which will be a fully optimized UTI campus with a comprehensive set of program offerings in the northern suburbs of Atlanta, pending regulatory approval. From an optimization standpoint in Q1, we completed the unification of two separate Houston campuses into a single consolidated campus. This strategic move was designed to drive operational efficiencies, reduce overhead, and create more streamlined learning environment for our students. The consolidation is part of a broader effort to optimize UTI campuses for greater success in delivering quality education. This was a significant project that required a big lift from our team and will ultimately deliver an enhanced margin profile for the combined campus. I'm very proud of what we were able to accomplish in this front and appreciate all who were involved. We also still anticipate that by the middle of the fiscal year, our MIAT Canton Campus, along with Motorcycle Mechanics Institute, Marine Mechanics Institute, and NASCAR Technical Institute campuses, will all officially operate under the Universal Technical Institute brand. I also want to highlight our Canton Campus for being recognized by the Michigan Veterans Affairs Agency as a veteran-friendly institution. The agency's award reflects our commitment to supporting veterans by providing conducive environment for their education and career transition. Turning now to partnerships, just this morning, we were excited to share that we've added Tesla to our successful manufacturer-specific advanced training programs. Beginning in the spring, UTI's Long Beach campus will offer Tesla's START program for collision repair. We continue to expand our partnerships across the two divisions, and this collaboration is a testament to our commitment to innovation and ensuring that our programs remain relevant and impactful in today's evolving landscape. Building on all this great work being done by both of our divisions, I'm happy to report that we are raising our guidance ranges for fiscal 2025. We now expect to generate consolidated revenue between $810 and $820 million, reflecting approximately 11% increase year-over-year. We now anticipate adjusted EBITDA between $122 and $126 million, and we are raising our expectations for new student starts to be from 28,500 to 29,500. Christine will provide more details on our fiscal 2025 guidance in just a bit. As we continue into 2025, I want to remind everyone that we are officially in phase two of our multi-year North Star strategy. I'd like to take a moment to reiterate just what this entails. As previously communicated, we are committed to launching a minimum of six new programs each year across Concord and or UTI campuses, pending the necessary regulatory approvals. Additionally, we've outlined plans to open at least two new campuses annually starting in 2026. It's worth noting, We announced nine new programs in 2025 and three new campuses in 2026, which demonstrates we are on track to meet or exceed both objectives and will continue to work diligently towards their successful completion. Further details on this strategy can be found on our investor deck on our website. We're proud of the substantial growth we've achieved across both divisions, and we believe we are well positioned for continued success in the quarters and years to come. With that, I'll turn the call over to Christine Klein, our interim CFO, to review the first quarter financial results. Christine?

Thank you, Gerald. We've kicked off fiscal 2025 with another quarter of strong results across the board. For the first quarter, average full-time active students increased 11.1% year-over-year to 25,062 students. New student starts increased 22.3% year-over-year to 5,313 starts, exceeding our expectations. The Concord division drove a 16.4% increase in average full-time active students compared to Q1-24. New student starts increased 26% in the first quarter, which was primarily the result of investments we've made within the division to bolster our marketing and admissions efforts and improve performance by Concord marketing and admissions teams. The UCI division generated an 8% increase year-over-year in average full-time active students for the quarter, while new student starts grew 19% year-over-year in the first quarter. Contributing to this growth was the impact of start deferrals from the fourth quarter primarily due to FAFSA delays, which shifted several students into the first two starts of the first quarter. We experienced more normalized levels of growth throughout the remainder of the quarter. Turning to our financial performance, first quarter revenue on a consolidated basis increased 15.3% year-over-year to $201.4 million. Concord contributed $70 million, an increase of 17.9% over the prior year quarter, while the UCI division contributed $131.5 million, an increase of 14% over the prior year quarter. From a profitability standpoint, consolidated net income for the first quarter was $22.2 million, or $0.40 per diluted share. Adjusted EBITDA for the first quarter was $35.5 million, a year-over-year increase of nearly 45%. As Jerome discussed earlier, we shifted some of our strategic initiatives planned for the first quarter into the second quarter, which led to lower-than-anticipated spend for the period. This change in expense timing, combined with the growth in average full-time active students and revenue overachievement, drove outperformance on our bottom line. As we remain committed to our ongoing strategic initiatives planned for this year, we do still expect to spend those investment dollars throughout the remainder of the fiscal year. At the end of the quarter, we had 54.4 million shares outstanding. Total available liquidity at the end of the quarter was $246 million, including $74 million of remaining capacity on our revolving credit facility. We also paid down an additional $5 million on our revolver in the first quarter, ending with positive net working capital of $28.5 million. First quarter 2025 operating cash flow was $23 million and adjusted free cash flow was $18.9 million. Year-to-date capital expenditures were $3.3 million, which was below our original expectations due to timing. However, we still expect to spend approximately $55 million in total capex this year. Building on our consistent execution and the strong momentum so far this year, we are raising the guidance ranges we set for fiscal 2025. Starting with revenue, we are raising our expectations to between $810 and $820 million for fiscal 2025, or approximately 11% year-over-year growth at the midpoint. This reflects the Q1 increase in average full-time active students from the program additions across both divisions, with total new student starts in fiscal 2025 now expected to range between $28,500 and $29,500. Following this higher revenue growth in Q1, we now expect growth in the upper single digits in Q2, followed by double-digit growth in the remaining quarters. For starts, we anticipate double-digit growth in Q2, with mid- to low-single-digit start growth each quarter thereafter. For fiscal 2025, we are raising our net income expectations to a range of $54 to $58 million, with diluted earnings per share projected between $0.96 and $1.04. We expect 2025 full-year adjusted EBITDA to now range between $122 and $126 million, or around a 20% year-over-year increase at the midpoint. While we are pleased with our adjusted EBITDA performance this quarter, the bulk of the outperformance is attributed to the in-year timing of our various initiative investments. Consequently, we anticipate that adjusted EBITDA will normalize throughout the year as we make these strategic initiative investments. Further, we still expect to incur the necessary growth expenses to drive our North Star strategy during fiscal 2025 and 2026. We anticipate 2025 full-year adjusted free cash flow to now range between $60 and $65 million, which continues to assume approximately $55 million in CapEx spend. We still expect the bulk of our cash generation and year-over-year growth to materialize in the fourth quarter, consistent with our historical cadence. Looking further ahead, I'll also reiterate our collective excitement as we enter phase two of our North Star Strategy this fiscal year. We're executing on our growth investments for fiscal 2025 and, as discussed previously, expect to see those investments increase in the next few years as we continue to add new programs and campuses. It's important to reiterate that as we advance through the next few years of our growth strategy and continue to strategically invest at both Concord and UTI, both our CapEx and strategic investments will grow materially. As always, in addition to this earnings call transcript, we encourage everyone to review our press release, financial supplement, and investor presentation, as well as the 10Q once it is filed. These materials include the most current information on our consolidated and segment actual results, our strategic roadmap, and our guidance. Thank you to our students, team, partners, and investors for their ongoing support. I'll now turn the call back over to Jerome for closing remarks. Thank you, Christine.