Universal Technical Institute, Inc. (NYSE:UTI) Q1 2024 Earnings Call Transcript
Universal Technical Institute, Inc. (NYSE:UTI) Q1 2024 Earnings Call Transcript February 7, 2024
Universal Technical Institute, Inc. beats earnings expectations. Reported EPS is $0.2775, expectations were $0.06. UTI isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good day, and welcome to the Universal Technical Institute First Quarter 2024 Earnings Call. All participants will be in listen-only mode. [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's fiscal first quarter 2024 earnings call. Joining me today are our 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 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. 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?
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 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 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 priding 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 III 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 Carolyn Frank as our first Corporate Chief Human Resource Officer. Carolyn brings tremendous experience in building and managing human resource organizations, including Finance of America and Guild Mortgage Company, both New York Stock Exchange listed companies. 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 Prehn has been appointed the President of Concorde 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 Concorde division will quickly reach its fullest potential. We look forward to our continued work with Kevin, and progressing Concorde's divisional goals. Let's turn our attention to both the performance and notable highlights for each of our divisions starting with Concorde. In the first quarter, we continue to make progress with new healthcare program rollouts. As we announced in December, We launched a cardiovascular sonography program and a diagnostic medical sonography program in Orlando and a dental hygiene program in Jacksonville and another cardiovascular sonography program in San Bernardino.
This brings us to 5 new Concorde programs launched in the past 6 months. As we had previously launched an online respiratory therapy program in late fiscal 2023. Market demand for our healthcare programs remained strong through the Q1. We also continue to work towards launching 2 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 with Concorde along with executing on further integration and synergy opportunities, while optimally supporting our current and incoming healthcare students.
Our work to fine tune the divisional infrastructure gives our healthcare offerings an 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 in UTI's Miramar 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 our just our first steps towards expanding the MIAT sourced 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 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 HVAC program expected to launch in early fiscal 2025. In another strategic Step related to the MIAT 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. The consolidation is meant to streamline operations and standardize our educational delivery model in Houston through aligning our campus' curriculum, student facing systems and their educational and career support services to better serve students seeking careers and 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 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. SMP's products are deeply integrated into the hands-on portion of our automotive and diesel programs. SMP recently extended its partnership with UTI to provide a product allowance at our UTI campuses, an investment of up to $80,000 per year. In addition, we recently secured a partnership with the United Service Organizations commonly known as the USO. 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 healthcare partnerships, we announced last week that our partners at Jefferson Dental and Orthodontics recently donated two cutting edge iTero inter oral 3D scanners to conference Dallas and San Antonio, Texas. iTero 3D scanners use a handheld wand to capture thousands of images of patients' mouth in just seconds. And this enhanced visualization enables higher quality dental services and patient experiences. Through using the scanners in 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 Concorde, 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 third 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 million and $720 million and adjusted EBITDA of between $100 million and $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 2023 and 2024 program launches, ramping the yield of our marketing and admissions investments to further optimize lead generation and inquiry conversion 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 2 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, Jerome. We outperformed our revenue and profitability expectations once again in the first quarter, reflecting a robust full quarter contribution from Concorde and 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 as the year ago period only includes one month of Concorde contributions from the acquisition date of December 1, 2022. 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 form a basis, Concorde core start grew a healthy 14.4%, with total starts growing 12.5%. The core starts reflected additional marketing investments and continued success with the grant programs implemented last year. Note clinical start growth rates are highly variable on both the quarter-over-quarter and year-over-year basis due to varying program lengths and available starts, which can be limited by programmatic accreditation standards. 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.
The full quarter of Concord contributed $59.3 million which increased $44.9 million versus the prior year, while the UTI division 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 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.
A potential new item this year is restructuring costs related to the UTI and MIAT Houston Campus consolidation efforts. To the extent there are costs for this, they will be recognized in the period they have occurred. As Jerome mentioned, in December, we satisfied 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 and an affiliate for $11.3 million. Through the repurchase, their combined ownership percentage post conversion is below 25%, thus eliminating the need for further regulatory approval.
As of December 31, 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 had used previously with the associated effects of the preferred dividend and the earnings allocation to the in 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 the more traditional basic and diluted EPS calculations. We saw a favorable effective tax rate in the quarter versus more recent quarters and the year ago period due to the impact of various discrete items. Following these benefits through 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 million which includes the $90 million drawdown of our revolving credit facility. We ended the quarter with excess networking capital, while our target going forward is to maintain a modest level of networking 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 and 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 to be 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 2024. Our updated guidance ranges are as follows: Revenue of $710 million to $720 million an increase of $5 million net income of $36 million 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 $0.10 driven by the combined impact of the preferred conversion and repurchase and adjusted EBITDA of $100 million to $103 million which increases the bottom end by $2 million and narrows the range by $1 million.
We continue to have high confidence in our prior adjusted free cash flow guidance of $62 million 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 a program. 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 the second half of the year as we complete the initial ramp phase of our prior new program investments and mature the proactive grain 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 yields 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 their 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 where we can efficiently deploy capital to further our growth and diversification objectives. We encourage everyone to review our press release, financial supplement and investor presentation as 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, students 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've continued 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 a greater scale and caliber.
Over the coming quarters, we will be working to ramp the most recent program launches in both divisions, enhance the yield of our marketing and admission 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 endpoint of our growth trajectory. We have conquered as the cornerstone of our healthcare 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. I'd now like to turn the call over to the operator for Q&A. Operator?
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