Q1 2024 Universal Technical Institute Inc Earnings Call

Participants

Matt Kempton; Vice President of Corporate Finance; Universal Technical Institute Inc

Jerome Grant; Chief Executive Officer, Executive Director; Universal Technical Institute Inc

Troy Anderson; Chief Financial Officer, Executive Vice President; Universal Technical Institute Inc

Mike Grondahl; Analyst; Northland Securities

Steve Frankel; Analyst; Rosenblatt Securities, Inc.

Raj Sharma; Analyst; B. Riley Securities

Eric Martinuzzi; Analyst; Lake Street Capital Markets

Alexander Paris; Analyst; Barrington Research Associates

Presentation

Operator

Good day and welcome to the Universal Technical Institute's first-quarter 2024 earnings call. (Operator Instructions)
Please note, this event is being recorded. I would now like to turn the conference over to Matt Kempton, Vice President of Corporate Finance. Please go ahead.

Matt Kempton

Hello, and welcome to Universal Technical Institute Fiscal First Quarter 2024 earnings call. Joining me today are our CEO, Jerome Grant, and CFO, Dr. Anderson Following our prepared remarks, we will open the call for your questions. A replay of this call and transcript and our investor presentation will be archived on the Investor Relations section of our website at investor dot ETI. dot e. u., 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 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 2023. This information presented today also includes non-GAAP financial measures. They 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 measures 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?

Jerome Grant

Thank you, Matt. Good afternoon, everyone. Our momentum continued into the first quarter of 2024 as the Company's financial performance has continued to exceed expectations we achieved $174.7 million in revenue and $24.5 million in adjusted EBITDA. Student starts were 43 46, which was right in line with our expectations.
Troy, I will spend some time in just a few minutes going a bit deeper into these impressive numbers. These results underscore the consistency with which we have delivered on our financial promises over the past several years. We have also made rapid progress on our growth and diversification objectives, and we have entered this fiscal year as a robust multi-divisional company poised for continued growth and with each division pride themselves on maintaining a strong track record of superior student graduation rates and employment outcomes. Our excellent performance is made possible by the dedication of our faculty staff and students across Concord and the UTI. division, along with support from our corporate teams. I'd like to thank them for their tireless commitment. As we continue executing on our growth objectives and expanding the training and employment opportunities, we provide our students across in-demand industries as a key corporate update, I'd like to highlight that effective December 2023, we satisfied the conditions that allowed us to fully convert our outstanding Series A. preferred stock into common stock in connection with the transaction, Coliseum Capital Management's Co-Founder and Managing Partner. Chris Shackleton was appointed as a Class three director to our board. Troy will review the milestones more fully later in the call, but we would like to thank Chris and Coliseum for their support when we most needed it and their continued investment in partnership. We also have continued to strengthen our corporate and divisional leadership teams as we announced last month, we recently appointed Caroline Frank as our first Corporate Chief Human Resource Officer. Caroline brings tremendous experience in building and managing human resource organizations, including finance of America and Guild mortgage company, both New York Stock Exchange company. I'm confident that she will contribute at a very high level to our mission, and I'm proud to welcome her to the Company.
I'm also happy to announce that Kevin Crane has been appointed the President of Concord career colleges. Since accepting this interim appointment in September. Kevin has made resounding contributions to both the division and our corporate leadership team with Kevin at the helm, I'm confident that the Concord division will quickly reach its fullest potential. We look forward to our continued work with Kevin and progressing conquered divisional goals. Let's turn our attention to both the performance and notable highlights for each of our divisions. Starting with Concord. In the first quarter, we continued to make progress with new health care program rollouts. As we announced in December, we launched a cardiovascular Sanofi program and a diagnostic medical scenario B program in Orlando and a dental hygiene program in Jacksonville and another cardiovascular scintigraphy program in San Bernardino. This brings us to five new Concord programs launched in the past six months as we had previously launched an online respiratory therapy program in late fiscal 2023. Market demand for our health care programs remains strong through the first quarter. We also continued to work towards launching two other dental hygiene programs this year where we have maintained our progress by completing their necessary regulatory approvals. In addition, we're in the process of expanding the capacity of our dental hygiene program in our San Diego campus. We also remain focused on driving additional operational and organizational efficiencies within Concord, along with executing on further integration and synergy opportunities while optimally supporting our current and incoming health care students. Our work to fine tune the divisional infrastructure gives our health care offerings and even greater platform for growth.
In the UTI. division, we've continued to accelerate our year-over-year start growth in Q1 and ramp our newest programs significantly. We have now launched the aviation program and UTI.s Mirum, our campus, which was the final launch from our 14 planned new programs last year. Demand for these newest programs has remained strong, with almost 400 combined student starts across the 14 programs over the last two quarters. We're encouraged by the early returns from these programs, and we're making good progress growing the enrollments and pipeline. We anticipate at least 1,000 new student starts with these programs. This fiscal year. The division's most recent program launches are just our first steps towards expanding the MIAT. source aviation, skilled trades and energy programs more broadly across the UTI. campus footprint. We continue to evaluate additional program expansion opportunities in the UTI. division. In fact, we've already started the second phase of the program expansions and at present, we're on track to launch three additional heating ventilation and air conditioning programs this year with a fourth HPAC. program expected to launch in early fiscal 2025 in another strategic step related to the MIT. acquisition. We recently announced our plans to consolidate the UTI. division's Houston operations into a single campus through this transition. The MIAT. Houston campus will start operating under the UTI. brand and implementing a phased transition beginning this May consolidation is meant to streamline operations and standardize our educational delivery model in Houston through aligning our campuses, curriculum, student facing systems and their educational and career support services to better serve students seeking careers in in-demand fields. This process will also help future students complete certain programs more quickly and strengthen UTI.'s position as a dominant provider of career and technical education solutions in the Houston market, a market in which we've operated for over 40 years. We're working to ensure that the current MIAT. students have a seamless and positive experience through the transition. And we expect the transition process to be fully completed in early fiscal 2025.
Our division level initiatives all support our core commitment to driving superior student outcomes across diversified in-demand fields we deliver on this commitment, not only through expanding our program offerings and optimizing our campuses, but also through prioritizing top quality, industry partnerships and instruction. In both division, our industry partners continue to invest in our programs and students. For example, Standard Motor Products or SMP. is a long-time UTI. division partner that manufactures and distributes premium automotive and truck parts S & P's products are deeply integrated into the hands on portion of our automotive and diesel programs. S&p recently extended its partnership with UTI. to provide a product allowance at our UTI campuses and investment of up to $80,000 per year. In addition, we recently secured a partnership with United service organizations, commonly known as the USL. This partnership will offer specialized training programs and resources to help military personnel with their transition to civilian life and careers in transportation, motorsports, renewable energy and aviation industries in terms of our health care partnerships. We announced last week that our partners at Jefferson dental and orthodontics recently donated to cutting edge I. Taro injure oral 3D scanners to conference Dallas and San Antonio campuses. Criteria of 3D scanners use a handheld one to capture thousands of images of patient's mouth in just seconds. And this enhanced visualization enables higher quality dental services and patient experiences through using the scanners and their clinical work. Our dental students will access innovative state of the industry technology that prepares them for the future of dentistry. We extend deep gratitude to our partners at Jefferson dental for their generous donation and dedication to our students. Also at Concord, Heartland Dental, one of the top dental service organizations in the nation with more than 1,700 supported practices nationwide recently extended their commitment to provide scholarship offerings to students in our dental hygiene program. This is the 3rd year that Heartland has invested in our dental hygiene students.
Now looking ahead to 2024, we continue to have high confidence in the trajectory of our student starts and the guidance we set in November of 24,500 to 25,500 starts. That said, with the strength of our first quarter results and continued progress on our growth, diversification and optimization strategy, we are raising our full year revenue and profitability guidance for fiscal 2024. Notably, we now expect to generate annual revenue between 710,000,720 million dollars and adjusted EBITDA of between 100,000,103 million. Troy will cover these updates in more detail in just a few moments to support our broader revenue and profitability and cash generation objectives.
We also continue to drive on our key operational focus areas for 2024, which include increasing enrollment revenue and profit growth from our fiscal 23 and 24 program launches ramping the yield of our marketing and emissions investments to further optimize lead generation and inquiry conversions in both divisions. And continuing to optimize our workforce strategies, hiring practices and facility utilization to drive greater capital and operating cost efficiencies, both of which propel our program and margin expansion.
Our focus in these areas will also give us an even greater foundation from which to drive strong student outcomes. We've already laid much of the foundation over the past two years, and we expect to make additional progress throughout fiscal 2024.
I'd now like to turn the call over to Troy to review our first quarter financial results. Troy?

Troy Anderson

Thank you drove we outperformed our revenue and profitability expectations once again in the first quarter, reflecting a robust full quarter contribution from Concord in new student start growth in both divisions, consistent with last year's presentation. Our results include both consolidated and segment views as well as corporate unallocated costs. Unless stated otherwise, the year-over-year comparisons remain on an as-reported basis and the year ago period only includes one month of Concord contributions from the acquisition date of December first, 2020.
To summarize our operational performance, we recorded 4,346 total new student starts which was in line with our expectations and reflects year-over-year start growth across both divisions.
In the UTI. division starts increased 17.2% year over year, and we continue to see improved same campus same program growth consistent with the past few quarters. The divisional start growth also reflects contributions from our most recent program expansions. As Jerome already commented, on on a pro forma basis, Comfort Core starts grew a healthy 14.4% with total starts growing 12.5%. Core starts reflected additional marketing investments and continued success with the great programs implemented last year, no clinical start growth rates are highly variable on both a quarter-over-quarter and year-over-year basis due to varying program lengths and available starts, which can be limited by programmatic accreditation standard.
Moving to our financial performance. Our first quarter revenue of $174.7 million on a consolidated basis exceeded our expectations, increasing 45.6% versus the prior year for a full quarter of Concord contributed 59.3 million, which increased 24.9 million versus the prior year, while the UTIW. saw 9.3% year over year growth.
From a profitability standpoint, consolidated net income for the first quarter was $10.4 million or $0.17 per diluted share, while adjusted EBITDA was $24.5 million. These all reflect some measurable year-over-year growth due to the full quarter contribution from Concord, along with improved operating leverage and cost efficiencies as we generate yield from our growth investments and optimization efforts. Note, our EBITDA adjustments are largely consistent with last fiscal year versus last year, we expect less of an impact from new campus and program start-up costs and limited impact of acquisition related costs of potential new item. This year's restructuring costs related to the UTIMIT. Houston campus consolidation efforts. The extent there are calls for this, they will be recognized in the period they are incurred, as Joe mentioned, in December, we satisfy the conditions that allowed us to fully convert the outstanding Series A. preferred stock into common stock. This increased our total common shares outstanding by 19.3 million shares immediately prior to the conversion, we purchased 33,300 shares of Series A. preferred stock convertible into 1 million shares of common stock owned by Coliseum in an affiliate for 11.3 million. Through the repurchase, their combined ownership percentage post conversions is below 25%, thus eliminating the need for further regulatory approval as of December 31st, 2023, we had 53.7 million shares of common stock outstanding. Of note, given the partial quarter with the preferred shares in place, our earnings per share calculation for the first quarter reflects the two-class method we have used previously with the associated effects of the preferred dividend and the earnings allocation to the participating securities going forward. Our year to date and full year EPS calculations will also reflect the two-class method. While the remaining quarters will reflect a more traditional basic and diluted EPS calculation, we saw favorable effective tax rate in the quarter versus more recent quarters in the year ago period due to the impact of various discrete items following these benefits to the full year, we now expect a full year effective tax rate of approximately 27% versus our initial 30% expectation. Total available liquidity at the end of the quarter was 143.6 billion, which includes the 90 million drawdown of our revolving credit facility. We ended the quarter with excess net working capital, while our target going forward is to maintain a modest level of net working capital. As such, we will be actively managing the amount of the draw we have against the revolver to achieve this target and minimize interest expense as much as possible. Total debt was approximately 162 million, while net debt was approximately $18 million. Our first quarter operating cash flow was 10.8 million in adjusted free cash flow was 10.2 million. Our cash CapEx of 3.8 million for the quarter was a bit lighter than we expected due to spend timing but we still expect approximately 30 million of CapEx for the full year. Consistent with our guidance, we currently have lower levels of new growth investment activity planned for fiscal 2024 relative to recent prior years. Thus, we continue to anticipate having fewer adjustments and expect to generate strong unadjusted free cash flow for the fiscal year with our positive first quarter performance and current visibility into the remainder of the year, we are raising our revenue and profitability guidance ranges for fiscal 2020 for our updated guidance ranges are as follows. Revenue of 710 to $720 million, an increase of 5 million, net income of 36 to $40 million, an increase of $2 million diluted earnings per share of $0.67 to $0.72, an increase of $0.14 with approximately $0.1, driven by the combined impact of the preferred conversion and repurchase in adjusted EBITDA of 100 to 100 million, which increases the bottom end by 2 million. It narrows the range by 1 million. We continue to have high confidence in our prior adjusted free cash flow guidance of 62 to $66 million, as well as our prior new student start guidance of 24,500 to 25,500. As always, we will evaluate our guidance throughout the year as we gain further insight into our actual and expected performance and make adjustments as appropriate.
In terms of revenue phasing, we continue to expect upper single digit to low double digit revenue growth over the remaining quarters. These expectations are driven by the ongoing ramp of our recent program expansions and student start growth momentum in both divisions. For new student starts, we continue to expect double digit growth in the second quarter and then stabilization in the low to mid single digits in the second half of the year as we complete the initial ramp phase of our prior new program, investments in mature and the proactive green enhancements and other initiatives we put in place in fiscal 2023.
Moving to adjusted EBITDA, we continue to expect solid growth each quarter with higher growth and profitability in the second half of the year, given the revenue growth, higher yield from our program expansion investments and greater operating leverage for SG&A and fixed costs for GAAP net income and diluted EPS, we expect significant year-over-year growth each quarter, given the improvement in overall profitability and the relatively smaller numbers in the prior year, along with the benefits of the preferred share conversion.
As we look ahead across both divisions. We will be focused on optimizing our cost structures in facility and resource utilization and driving increased yield from the growth investments we have made in the past few years we will also continue working to identify additional growth opportunities where we can efficiently deploy capital and further our growth and diversification objectives.
We encourage everyone to review our press release, financial supplement and investor presentation. These materials include the most current information on our consolidated and segment actual results, our strategic road map and our guidance. I'd like to thank our team, Stevens and partners for their continued support as we progress further into 2024.
I'll now turn the call back over to Jerome for closing remarks.

Jerome Grant

Thank you, Troy. As our first quarter performance demonstrates we continue to deliver on and exceed expectations across our key financial metrics while expanding the top-quality training and career opportunities we facilitate for our students in high-growth markets our execution has remained strong and consistent over the past several years, giving us much of the runway needed to achieve our updated fiscal year 2024 targets. We are at least a year ahead of our originally stated plan and our revised targets exceed even this long-term view. They are a testament to the robust multi-divisional foundation we have built and continue to refine upon this foundation. We will continue providing premier diversified career pathways for our students, but at even greater scale and Caliber over the coming quarters, we'll be working to ramp the most recent program launches in both divisions enhance the yield of our marketing and admissions investments and optimize our workforce and facilities utilization to drive greater margin expansion and improved operating leverage. This work enhances the benefits of the initiatives we put into place over the past year as well as the overall strength and efficiency of our growing platform.
In closing, I'd like to reemphasize that this is not the end point of our growth trajectory. We have conquered as the cornerstone of our health care operations and remain focused on ramping our presence and offerings for this rapidly growing industry as well as our expanding program offerings and corporate partnerships across both of our businesses. These focus areas make us well positioned to evaluate further pathways towards deepening and diversifying our footprint. We are proud of our progress, and we look forward to continuing and building on our momentum for UTI., Inc. in fiscal 2024 and beyond. And I'd now like to turn the call over to the operator for Q&A. Operator?

Question and Answer Session

Operator

we will now begin the question-and-answer session. (Operator Instructions)
Mike Grondahl, Northland Securities.

Mike Grondahl

Hey, guys.
Thanks, Jerome could you maybe highlight what is working on the marketing side and some of those investments you've made, whether that's high school military, just maybe expand on that a little bit like what's working on the marketing side and kind of getting people into SCHOOL?

Jerome Grant

Sure. Well, a couple of things on our group. Our adult population, which includes military interest, is driven demand. The demand is driven through us by digital means. And we've begun to use more sophisticated tools along with our social media vendors and Google. That's doing a much better job of utilizing new AI tools to isolate the population that's most likely to be interested in where we are. So the way we comb interest now days, whether it's geographically by age, by social media preferences and things along those lines is actually just giving us a better quality leads, which is great to see and also helping us discern between those that are less likely to convert. And those that are that are more likely to convert, which helps our reps. I'll spend more time with those that are more likely to convert. And so we're seeing a nice uptick in conversion based off of our ability to better identify those that are more likely to look into transportation and skilled trades or in the help in the health care field. And then one of the things we talked about at the beginning of the year is that we've significantly increased our presence this year in the high schools. And so in the high school organizations, a lot of the demand is driven. Most of the demand is actually driven by our reps going into the high schools and doing career presentations and then three, four days a week, five, six presentations a day and generating interest off of that. And so in top 2023, we added about 15 reps in the high school channel and they're hitting their stride in their 2nd year. Their relationships are stronger. They know more about the schools. They know more about the faculty and the administration of those schools, and we're seeing them be significantly more effective and frankly, doing a lot more presentations, which is generating a lot more to the. So those are the things that I think are probably <unk>, as you know, during that journey, things possibly than our direction on from a lead generation.

Mike Grondahl

St.
Got it.
And then just one more question. You've done a bunch of expansion at Concord at UTI., is there maybe one at each that really sticks out or one or two at each that is just done so well, Tom, any color there?

Jerome Grant

Yes, there's well, I'm on the line on the Universal Technical Institute division side of the aisle. I think the the part of the HVAC programs that actually are operating the way traditionally we've talked about in terms of welding, which is they're filling up pretty much right away. Is that and again, I think, you know the the there's a lot of demand out there for HVAC technicians, people understand what an HVAC technician does and therefore, there's less our market knowledge that needs to be put in place and teaching and learning that has to happen about what the career is. And so we're really happy to see what's happened with the first HVAC implementations, and that's why we decided to accelerate more of them on the UTI. campus in second place, I think on aviation and the need for aviation taxes also very, very strong and on. And so our aviation programs have done very, very well and in most cases, exceeded our expectations for the initial cohorts that have started in the Group.
And then on the healthcare side, you know, the Concord is very, very strong in the dental field. And so it's a reason why we decided to move forward aggressively with implementing some dental hygiene programs that had been approved prior to that acquisition is go ahead and invest and get them in on the campuses that dental hygiene programs on sell out very quickly. We actually have to be quite selective in who we put into them because we have a limited number of seats and therefore, we didn't start creating waiting lists for the next cohorts that are coming on. So those two, right, right.
There.
Hvac and dental with Aviation closely behind, I think are the shining star so far, not to say that the other programs are not doing well, they are they're just smaller and in some cases like robotics or wind energy, we spend a lot more time of letting the market know what this discipline is because people really don't realize that there's someone who climbs up that windmill and add features that the fixes that on the inside. So I hope that answered your question.

Mike Grondahl

Yes, it does.
Hey, thank you, guys.
Thanks a lot.

Operator

Steve Frankel, Rosenblatt.

Steve Frankel

Good afternoon and thanks for the opportunity to ask questions. So one of the trends that has been going on for a while has been benefiting. You is employers really battling for these students and upping their offers in terms of things like tuition reimbursement, given where we are in terms of the overall employment market. Has that battle turn the other way? Or do you still see the stakes are getting higher for someone to get to the table at UTS?

Jerome Grant

Great.
Question on that. If anything, in many of the and many of the areas on the UTI. side of the equation, the demand you see growing, if you look at the last projections over the next 10 to 15 years is that demand for people on the transportation, skilled trades and energy, you are even growing. And so one of the things that we've commented on in the past that we're most proud of is this trip program that we put into place is that prior to putting that into place, we really didn't have an organized way of them sort of registering what the employment community would be offering or suites and these trip agreements, right? How much you're going to pay, how much tuition reimbursement?

Steve Frankel

And are there any other benefits like sign-on bonuses or in some cases, autos and things along those lines.

Jerome Grant

And so those agreements help us rank order the compelling nature of people that are gaining access to our students. They also and allow the employment community to understand what the landscape of because these are private documents.
Is there something we made public to all of the students and the employers and see it to what their competitors are offering. And so what we see is people in order to get more favorable position of accessing our graduates are are putting together more competitive offers. And that's, you know, that's what we want to do for our graduates. We want to give a very high-quality industry aligned education, and then we want to get the best jobs that we possibly can. And so these trip agreements, I think, are a great example of things that are actually heightening the competition between those who are gaining access to our to our students on that side. On our side of now, this is upside for Concord because prior to us owning them last year on the day, they did a very, very good job of cultivating local opportunities for their graduates. And as you know, from what we've been talking about health care opportunities, they dwarf transportation trades and energy in terms of the magnitude of need out there in the market. And so now we're starting to evolve the Concord organization with some of that same organization. And we expect that we'll see some of the same results out of that, and that's fantastic. And then another challenge, especially when inflation was was at its peak, convincing students to relocate some of the incentives that you are offering worked and kind of change the capacity situation at those big campuses like Orlando?

Troy Anderson

Yes. Yes.
Hey, Steve, this is Troy.
And yes. Look, we're still seeing I would say it's been moderated the last few quarters, so we haven't seen it turn. So we're still seeing really strong progress on the local side continuing to penetrate more deeply in the local space, especially with the new program offerings helping to drive that relocation. And we're making good progress. We're generating leads. And again, I think it's stabilized, but the some of the campuses where we have a much higher relocation concentration, we're still we're still trying to work with those students to find the right mix of things to it, bring the most students possible in there.

Steve Frankel

Okay.
And then the last one, at least relative to the way I modeled it, the revenue per head at the core UTI. or the legacy ECI. business was a little lower than I thought.

Jerome Grant

Was there anything kind of that we'll add to that, that you would call out what we had a traditionally Q1 dips because of the holidays were closed for a week in December. So that may be apologies if we didn't convey that in any of our prior conversations, but we do see a dip and then it bounces back up and you see here a traditional growth trajectory, few points of growth based upon tuition escalations.

Steve Frankel

Okay, perfect.
I just want to make sure those were still in place for the rest of the year.
Thank you.
Yes, yes, sure.

Jerome Grant

No problem.
I see.

Operator

Raj Sharma, B. Riley.

Raj Sharma

Yes. Thank you for taking the questions and great solid performance in the quarter. And I wanted to understand better the starts on they are slightly higher than expected? And is my understanding and what is most of the starch gain that you expect for the year in the second half still?

Jerome Grant

So yes, Raj destroyed the and so the guidance we gave back in November was we would have very strong growth first half of the year, double digits. And then we would see that moderate in the back half of the year. I commented on that in my prepared remarks, that is still our expectation. So we get 17% for GTI. in the quarter, about half of that new programs or half of that same campus same programs. And then, of course, Concord, I commented on a pro forma basis. This will be the last quarter where there's a partial quarter, but that was 12%, a little over 12% on a pro forma basis. So good, good growth there as well. But as we get into back half of the year, we'll start lapping over. We're anniversarying over some of the improvements we implemented last few years for our grant programs, some of the marketing initiatives and of course, the program expansions on the UGI side. So that's why we expect to see something more in the in the low to mid single digit range in the back half of the year.

Raj Sharma

From.
Great. And then just across the board of the student starts and high school and adults were pretty consistent. Military was higher than usual. Is that an anomaly or is that just small numbers doing it in the very small numbers?

Jerome Grant

Yes, yes, it is a bit of small numbers. We also have talked about some of the improvements drove hit on on high school previously IT staffing and high school. We have done the same thing in military. It's a smaller team, much smaller, but it's about two dozen. Now we increased that almost by 50%, including some of the attrition that we had had seen over the last year or two. So that's a pretty fully staffed team.
We also centralized our financial aid support for our prospective military students to make that process much more streamlined and efficient. So you have the reps and a core group of financial aid representatives working together across the whole portfolio of prospective students, and we're seeing the benefits of those actions in the military growth rate. It will bounce around a bit from quarter to quarter again because of smaller numbers, but we have been very pleased with the military growth, certainly the last several quarters.

Raj Sharma

Great, thanks. And then just on the numbers, I know that starts would be low to mid in the second half, but there is a big jump in them in the top line and also especially the EBITDA of the second half of the first quarter. Q1, there was a big beat on EBITDA to where it is. And I see that the operating expenses are on 400 basis points about lower than last year. Most of these gains in EBITDA are coming from operating leverage then?

Troy Anderson

Yes, it was about half-and-half between versus our expectations. It was about half of the benefit was revenue and the other half was expense mostly timing.
We didn't ramp expenses quite as fast.
We thought we would we had some initiatives that we're going to start later in the year than we were thinking when we came into the year. So there's a little bit of push associated with the expense side. And some of that was just the timing on ramp, which is why we were able to increase our guidance because we'll flow through some of that benefit for the year.
The top line, keep in mind again, there's a tail we have started this quarter with that students and school for for a year. And so the strong growth we exited last year with the strong growth that we have in the first half of this year, we'll continue to benefit the top line over the next few quarters, whereas once we start seeing growth, say, let's say, starts are in the 3% to 5% range, just in a low to mid-single digit general type of guide, then all things being equal, that revenue would normalize to that plus any rate. It's differential that we have based on the tuition rate escalations that occur.

Raj Sharma

Got it.
It's just it seems like the overall increase in the EBITDA guidance for the year seem conservative given the big beat in Q1.

Jerome Grant

Yes.
Again, some of that is just moving some of the expenses around the timing of the year. We have a little bit of shuffling of revenue around just based on as we as we project the year, some of the start cadence and being able to flow through a portion of the Q1 beat. So look, we're it's early in the year. We would normally update our guidance frankly, in the first quarter, normally, it would be second or third quarter. But given the strong beat and just given our outlook for the year, we're comfortable doing that and we'll continue to monitor through the year and make other adjustments as we see appropriate.
Got it.

Raj Sharma

And then just my last question is on the regulatory front end a composite score is what where does the composite score stand now? And is there a target that you'd like to achieve? And does that kind of the number? And I guess the attempts are always trying to improve that number? And does that play into how you would think about capital allocation and financing of any of a specific acquisition in the future?
Yes.

Jerome Grant

I was trying to get a semi focused share?
Yes, we focus heavily on regulatory metrics. We are very purposeful about staying above any thresholds that cause issues in terms of any of our reporting with the Department of Education of our creditors. Student outcomes are also very important as far as composite score. What's interesting about that is, as you know, and maybe just for general education for those listening is it it's a scale of zero to three, but one dot five and above, it's basically pass sale. There's you get no benefit out of a 1.51 relative to a three.
It's you're just you're just you're above one five period end of story.
And so we're not managing to get two or three. I mean if we get a three that's rate, there's a lot of math and elements to the equation that drive the composite score were above 1.5. We're comfortably above 1.5, and we'll continue to manage above one.one dot five. We did dip relative to the prior year because of the acquisition of Concord. Again, there's a lot of variables that go into the math around that. So we were above the two. We were at one six this last year, we would most likely be above the two again this year as a kind of a temporary blip. But again, no impact because above one dot five is there's you're clear of any potential implications with the Department of Ed. So that's really the primary metric that we look at, but we take it very seriously and we manage our business to ensure that we were delivering that.

Raj Sharma

Great.
Thank you for answering my questions.
I'll take.
Thank you.
Congratulations again.
Thanks.

Operator

Eric Martinuzzi, Lake Street.

Eric Martinuzzi

Yes.
Wanted to make sure I understood the upward revision to the fiscal 24, obviously with the no change in the new student starts coming down to sort of the installed base of students outperforming. So that was just curious, is this a little bit better revenue per student maybe than you're originally thinking or better retention in the student population. What's the driver on the revenue without the change in new student starts?

Troy Anderson

Yes, sure. Thanks is Detroit.
The And yes, I think it's a little bit more of the population, better performance on the population starts were pretty much in line with our expectations. As you said, we were comfortable with the full-year guidance range we'd given previously. And again, early in the year, 4,300 starts out of a 25,000 midpoint that we have a lot of lot of work to do to lay in the other 21,000 starts for the year, but we feel very confident in that. And so just a bit better monetization out of the coming out of Q4 into Q1, a little bit better persistence and the lower attrition on the installed base, as you said, and we continue to feel good about the performance for the remainder of the year on that.

Eric Martinuzzi

Okay.
And then on the cash use of cash priorities, you guys have a lot of different directions. You can go in. Obviously, M&A has been a key driver of the business. But where do you stack rank? I don't know if you even have the ability post the convertible preferred conversion of share repurchases, but you've got you can new programs, new campuses, M&A buyback. Help me understand the stack rank there.

Jerome Grant

Yes, our bias is to continue down the path of the growth and diversification initiatives. We've been embarking upon the last few years. We're at the tail end of the work we've done the last few years with the program expansion, new campuses, et cetera. We have a few more program expansion just as Jim commented on earlier, planned for this year, and we're working on what the next round of decisions might be as Jerome said in his prepared remarks, we're not the end at the end of our journey. We're building a foundation and we have a playbook in place and we're going to continue looking for opportunities to grow and expand on, which could be a combination of organic and inorganic initiatives. Keep in mind a lot of our cash flow, most of our cash flow is generated in the fourth quarter and so that 62 to 66 million on adjusted free cash flow guidance. The majority of that is coming in the fourth quarter so we don't actually have the cash today. And we don't we I commented on our working capital position in my prepared remarks, and we'll be managing the revolver down from the 90 billion as we progress through the year and start building up the organic cash, but still expect asks and draw on the revolver even as we exit exit the year, absent any new decisions and around that. So right now, we're executing on our plan for this year, probably nothing. We have about 30 million of CapEx in that plan and probably nothing any new decisions we make would really materially impact cash this year. They would probably bleed more into next year and beyond. And our bias is definitely towards continuing on the growth and diversification strategy. At some point, we'll have a consistent, steady stream of of cash flow, strong cash flow and above and beyond what we would need to continue investing in the business, and we'll look at that what that broader capital allocation policy might be around return to shareholders and other other aspects.

Eric Martinuzzi

Yes, congrats on the strong quarter and good outlook.
Great. Thank you.

Jerome Grant

Thanks.

Operator

Alex Paris, Barrington Research.
Please go ahead.

Alexander Paris

Hi, guys.
Thanks for taking my question and congrats on the beat and raise some most of the My questions have been asked and answered, but so I'll use my time to kind of dive into Concord a little bit more. You've owned it for more than a year now you bought it on December first of 2022. You have said before in step one and the acquisition is to first do no harm and there were some integration activities during the first 12 months.
First question now what in terms of integration and then the second and related question is where can margins go on that business? I think at the time of acquisition margins were around 8%.

Jerome Grant

Yes.
Thanks, ounces, Troy. So so we're still we made a great progress last year were super pleased with the acquisition in the performance of the Concord team drove commented on Kevin crane and him being out of the division. President named officially the division president, and I haven't missed a beat there. So we're really, really excited and pleased with the performance of the team on the integration this year are now starting to get into things like payroll and benefits and some of the other financial systems and some of the organizational you'll see referenced in our press release and and in the Q about some realignments we've done organizationally and the expense allocations associated with that so we're now really getting into the plumbing of the organization. And I'm really more the finance organization, the IT organization, HR, some of those more central support than at lunch and so we're doing that kind of work, but that's more background work at this point. And so really, it's now helping them to drive really a growth mindset and an optimization mindset throughout that organization, which they are embracing wholeheartedly and they're bringing great ideas to the table, which then feeds into the second part of your question, which is we continue to believe wholeheartedly and that the team does as well that that can be a mid 10s margin business this year will be approaching 10%, maybe touch 10%. It was eight or 9% before we bought them in last year. And so over the next two, three years, maybe we'll get that we'll get solidly into the 10s and then continue to look to drive higher from there. But there's there's optimizations there. We have leverage from growth, which they really didn't have a growth profile previously modest growth, but now we're really taking advantage of the opportunities in the market. There was some additional marketing dollars and just a change in strategy around marketing, the program expansions. And so combination of levers that we believe are available and readily available to really drive that business forward, both from a growth and margin expansion perspective?

Troy Anderson

Yes, I'll just make a couple of comments of because trade, even though said when you really think about unlocking the growth potential of Concord, there are a couple of things that Troy mentioned, which was, you know, during the selling process. Usually you sell to them tons of money on your marketing, et cetera. And so on, unleashing the upside from a from a marketing and demand generation standpoint is going very, very well, you know, but number two, the program expansions, those were something that weren't being invested in during the selling process. But now that we've taken control, we accelerated that the six programs that we put into place this year and into the beginning of next year.
The last couple of things I'd point to would be we're beginning to work very collaboratively with the Concord leadership team in two other areas. One place where you TI. has really differentiated itself in the market, which is industry alignment and B2B relationships is that we really believe unlocking the power of relationships with folks like Heartland, Eric, that we mentioned in his speech and you know, taking problem of taking off from places like tuition reimbursement and scholarship programs, deeper partnerships, the kind of things we do, AUTIB. relationships, training relationships, things along those lines. Those are things that we're excited about moving forward over the next year.
And then the last place where I think is a significant amount of upside and a differentiator that copper will will have as well as is in the acceleration of growth within their online programs is that prior to the acquisition conference did a great job filling their campuses and really focused on the local community and the programs that were tied on each individual campus and a strong outcome, strong employer connections really deeply embedding into the community, but not particularly strong in online. And we believe that's a significant amount of upside for them over the next 24 to 36 months.

Jerome Grant

And we're going to we're going to really focus on that with them as well.
Great.

Alexander Paris

That's a very thorough answer. I appreciate the additional color. And then I guess my last question would be inorganic growth.
M&a.
You've been very successful with M&A over the last few years. The acquisition of MIAT. and kind of quarter been home runs, in my opinion, didn't talk much about it in the prepared comments. I assume these things take a while to close anyway. But what's your thoughts with regard to M&A? And where would you target M&A?

Jerome Grant

Well, you're right.
We didn't talk about a lot in our prepared speech because we've got nothing to announce today.
And so therefore, I'm not going to talk a lot about it. We have made it clear in the past that we're we're not done. We are looking in places that whether it's geographies or on or program areas, and we think we can accomplish through through M&A as well.
You know, in just one example in the healthcare area, we were incredibly blessed with Allied Health and Dental in the Concord acquisition, but a very small number of their students and small number of campuses are actually in nursing. And so therefore, that's an area of research where we can. We can look at participating more deeply in the in the in the health care arena. So we are we are excited about conquering as a cornerstone acquisition in health care, and we will likely look to be more aggressive in that space.
On the UTI. side of the of the equation, as we've said in the past, is when we look at new add new locations, we also or for programs in that we're not teaching location. We also look at inorganic means for entering a market so that we don't have start-up from the very beginning takes about 18 months to get a campus from a from a warehouse to a campus. And so we'll also look in terms of geography and new program areas to continue to proliferate a broader band of in-demand skills. And when we have something to announce, you guys will be the first to know.
That's great.

Alexander Paris

Well, again, thank you very much for your time and congrats on the strong start to the new fiscal year.

Jerome Grant

Thanks.

Troy Anderson

Thanks, Charles.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Jerome Grant for any closing remarks.

Jerome Grant

Hey, thanks a lot, Dave. I'd like to thank everyone who attended today is always Troy and I are going to be available for follow-up questions over the next few days.
We look forward to speaking with many of you over that time period. And once again, we look forward to your audience once again in May when we do our second quarter fiscal results.
So thanks.

Operator

Thanks, everybody.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.