Good afternoon, and welcome to the Universal Technical Institute First Quarter Fiscal 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Matt Kempton, Vice President of Corporate Finance. Go ahead, sir.
Hello, and thank you for joining us. With me today are CEO Jerome Grant and CFO Troy Anderson. During the call today, we'll update you on our fiscal first quarter and fiscal year 2022 business highlights, financial results, and vision for the future. Then we will open the call for your questions. Before we begin, we want to remind everyone that today's call will contain forward-looking statements within the meaning of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Please carefully review today's press release for additional information and important disclosures about forward-looking statements. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.
Therefore, you should not rely on any of these forward-looking statements. As a reminder, the section entitled Forward-Looking Statements in today's press release also applies to everything discussed during this conference call. During today's call, we'll refer to adjusted net income or loss, adjusted EBITDA, and adjusted free cash flow, which are non-GAAP financial measures. Adjusted net income or loss is net income or loss adjusted for items that affect trends and underlying performance from year to year and are not considered normal recurring operations, including the income tax effect on the adjustments utilizing the effective tax rate. Adjusted EBITDA is net income or loss before interest expense, interest income taxes, depreciation, amortization, and adjusted for items not considered as part of the company's normal recurring operations.
Adjusted free cash flow is net cash provided by or used in operating activities less capital expenditures, adjusted for items not considered as part of the company's normal recurring operations. Management internally uses adjusted net income or loss, adjusted EBITDA, and adjusted free cash flow as performance measures, and those figures will be discussed on today's call. As a reminder, we have provided reconciliations of these non-GAAP measurements to the most directly comparable GAAP financial measurements in today's press release, and we encourage you to carefully review those reconciliations. It is now my pleasure to turn the call over to our CEO, Jerome Grant.
Good afternoon, everyone, and thank you all for joining us today. I'd like to begin today's call by thanking our students and staff for their continued commitment and hard work. We had a strong performance as we continue to navigate COVID challenges.
I'm proud of our team's dedication, resilience, and effectiveness to ensure our campuses operated seamlessly throughout the entire quarter. We're also thrilled to have the students, faculty, and staff from MIAT on the team as the acquisition officially closed November 1, 2021. The integration's going quite well, and we're excited for the future with them on our team. Today, I'd like to focus my comments in four key areas, performance, outcomes, strategy, and regulation. We delivered another strong top and bottom line performance this quarter, driven by higher average student population as well as higher overall revenue per student on a year-over-year basis. Revenue grew 38% for the quarter compared with a year ago, and adjusted EBITDA grew 360% versus the comparable period a year ago.
The first quarter results that were reported today reflect overall solid operating performance and execution against our key priorities. They also include two months of MIAT results. The positive performance in the first quarter sets us up well to deliver on our expectations for the full year. We expected to start the year with strong year-over-year financial performance, and we did just that. Average students as well as revenue per student were better than expected, and thus, so was our revenue. As always, our team was diligent on controlling costs, which along with revenue favorability, resulted in a strong performance with respect to profitability as well. Starts for the period were up just over 2%, aided by the addition of MIAT to UTI, as well as our new programs.
The modest student start rate was not unexpected, as we faced a difficult comparison from last year's first quarter, where we saw 21% year-over-year growth, partially driven by the measurable number of students deferring out of the fourth quarter of 2020 due to COVID travel restrictions and challenges. Hence, our initial commentary on pacing for fiscal 2022 indicated that we expected the first half of the year would be our lowest growth for new student starts. Nonetheless, we still believe we are outperforming the broader industry and our peer group, and we're focused on delivering our overall growth objectives for the full year. I wanna remind everyone, as we set expectations for 2022, we highlighted that the main risk that was outside of our control would likely be COVID-related. For example, new variants or a spike.
Our view on this has not changed, as we've seen some impact from Omicron, which burst into the scene in November 2021 as our quarter was winding down. We're seeing modest impact on start rates, the timeline for getting back to pre-pandemic revenue per student numbers, and similarly, we're seeing some incremental increases in leave of absences and the number of students studying online only versus our expectations. However, given the trend, we remain optimistic that any impact from this current variant will be brief, and we're confident in our ability to manage through it. Despite the choppiness this may cause in the short term, we're laser-focused on supporting our students and staff and meeting the full-year expectations we've set for the investment community.
We've also seen some of the supply chain impacts, which have directly impacted the timeline of obtaining key electrical components for our new Austin campus and has delayed our targeted launch date for the campus by approximately 90 days, with our new target launch date in late April. I think it's important to note that the enrollments for programs at the Austin campus have been encouraging, in line with our expectations. It's also important to note that our new campus in Miramar, Florida, remains on track and on budget for its start in fiscal fourth quarter. Further, our new welding programs are on track, with the program at our NASCAR Tech campus in North Carolina having launched in January with a full first class. Our second new program, which will be at our Exton, Pennsylvania, campus, is on schedule for a July launch.
Closing on performance, we remain confident and supportive of our full-year guidance, which we reiterate today. As a brief recap, we expect full-year revenue for fiscal 2022 to be in the range of $405 million-$420 million, year-over-year growth in the low to mid 20% range. Starts growth should be between 14%-19%, and adjusted EBITDA with a range of $50 million-$55 million. Troy will share more detailed review of the quarter performance in his remarks. Looking at outcomes, we continue to excel here, graduating approximately 2,300 students in the quarter and placing graduating students with employment partners across this country where they can put their advanced technical training to work. Demand continues to be strong, as the need for skilled workers remains well in excess of the number of students we graduate each year.
Notably, our blended learning model, which has been enthusiastically embraced by our two core constituencies, students and corporate partners, is providing added flexibility in the current environment, creating scheduling options for our students while at the same time enabling them to progress through their programs despite the Omicron interruptions affecting the broader economy. Turning to strategy, we're progressing well on all aspects of our growth and diversification efforts. As a reminder, over the past 18 months, we've put in place, acted on, or accelerated action on all key components of the strategy. These include investments in new campuses, program expansions such as welding, and strategic acquisitions like MIAT. Importantly, these high-level components of our strategy feed one another, providing cross-fertilization opportunities like the planned MIAT program expansion across our UTI footprint beginning in 2023.
Supporting these efforts are important initiatives such as the development and rollout of our blended learning model, real estate rationalizations and other footprint optimizations, and operational excellence programs. While we are executing on many activities and initiatives in support of the operational and strategic priorities we've established, we retain the financial capacity and leadership bandwidth to continue to actively evaluate additional growth opportunities that would be additive to the long-term outlook we've established. As we previously shared, with the strength of our base business and the initiatives we have already underway, we believe we can generate revenue comfortably above $500 million and adjusted EBITDA margins in excess of 20% by fiscal 2025. I also wanted to briefly touch on the broader higher education sector we make our home in, and more specifically, the regulatory environment that governs our industry.
Here, as always, our relentless focus on the importance of outcomes is central to what we do. As I've said in the past, we don't manage or plan our business based on which party is in office. We actually keep it quite simple when it comes to how we manage our business in this regard, guided by a simple but important statement regarding what we do every day. We succeed when our students succeed. Lastly, we have a lot of important work to be done in fiscal 2022 as we continue to integrate the MIAT team with UTI. We will be leveraging the UTI national marketing and admissions team to drive growth into the MIAT campuses, and we will be completing the planning and approvals necessary to begin offering MIAT programs at an initial group of UTI campuses in 2023.
This is in addition to launching two new UTI campuses and two new welding programs during 2022, which we are on track to complete. In summary, I'm pleased with the strong results we've delivered this quarter and even more excited about what's still to come. I'll now hand the call over to Troy for an in-depth discussion of our operating performance and fiscal 2022 outlook. Troy?
Thank you, Jerome. We reported very positive financial and operational performance during the quarter, delivering on our expectations for continued strong top and bottom-line growth in 2022. Before I start, I will reiterate that all of our results include MIAT for two months, and unless stated otherwise, the year-over-year comparisons are on an as-reported basis. As far as student metrics, as Jerome mentioned, we saw 2.3% growth in total new student starts versus the prior year first quarter, with the addition of MIAT being the primary growth driver. Total average students grew 16.2%, reflecting the double-digit new student start growth we saw throughout fiscal 2021, along with the addition of MIAT. As we only have a partial quarter for MIAT, I will speak briefly to UTI standalone metrics.
New student starts were down just 34 starts versus the prior year quarter, which was an accomplishment after last year's 21% first quarter year-over-year increase. In the quarter, we saw a lower year-over-year decline than we expected in the high school channel and modest combined growth out of the other two channels. We believe Omicron had some impact late in the quarter as our December UTI start was the weakest versus our expectations, although it was up year-over-year. The UTI show rate was 30 basis points better than our expectations and down 40 basis points year-over-year, again, given the COVID-related dynamics in the prior year quarter. We continue to see strong front-end demand overall. In the first quarter, UTI media inquiries were up year-over-year, and high school non-media inquiries were up significantly given improved access to high schools.
This despite not having full access in the high school channel and thus leveraging a blend of virtual and in-person engagement. More recently, Omicron has caused further in-person limitations, which we are cautiously optimistic will be temporary in nature. Switching to financials, we delivered total revenue of $105.1 million during the quarter, which represented 38% growth versus the prior year quarter. The increase in revenue was driven by the growth in the total average student population, better than expected improvement in average revenue per student, and the addition of MIAT. Going deeper on revenue per student, we saw a significant increase from the prior year quarter as a result of the improvement we realized throughout fiscal 2021. Sequentially, we saw our normal seasonal dip this quarter due to the one-week holiday break in December.
Revenue per student in the first quarter, including MIAT, was $7,700 versus $6,400 in the prior year quarter and $8,000 in the fourth quarter of fiscal 2021. While revenue per student was better than our expectations in the first quarter, we see it being more in line for the remainder of the year. I should note that MIAT has a lower revenue per student given the duration and mix of their programs. On average, we estimate that the overall UTI blended revenue per student will be $100-$200 lower per quarter with the inclusion of MIAT. Adjusted EBITDA for the first quarter was $19.9 million, compared to $4.3 million from the prior year. Adjustments for the period included acquisition-related expenses, MIAT integration costs, and new campus startup costs.
Adjusted EBITDA margin for the quarter was 19%, compared to 5.7% a year ago. The substantial increase in adjusted EBITDA was driven primarily by the improvement in revenue per student, as well as operating leverage across the business and some expense timing benefits. Operating expenses were $91.5 million, a 21.4% increase from last year's first quarter. The year-over-year increase in operating expenses is attributable to education services costs to support higher student counts, the addition of MIAT, continued investments in the company's growth and diversification strategy, including our new campus investments, and increased advertising to support our growth objectives. While increased year-over-year, operating expenses in the quarter were lower than our expectations due to timing shifts, primarily around our new campus and other strategic investment spending.
We continued to see robust growth on the bottom line during the first quarter, with net income of $14.8 million and adjusted net income of $15.4 million, both compared to $1.1 million in the prior year quarter. We realized a $1.9 million income tax benefit in our GAAP net income, driven by an adjustment to our valuation allowance as a result of the inclusion of MIAT. Diluted earnings per share were $0.25 compared to a loss of $0.01 in the first quarter of 2021. Shares outstanding as of the end of the quarter were 32.9 million. Turning to cash flow.
Cash from operations in the quarter was $2.5 million, a decrease from the prior year quarter, mostly resulting from working capital changes associated with continued growth and investment in our business, and the income tax refund included in the year-ago period. Adjusted free cash flow was -$3.6 million, reflecting the increased CapEx spend for our campus consolidation projects and new welding programs. Looking at the balance sheet, we ended the quarter with $99.5 million in cash and cash equivalents, showing the expected decline from the prior quarter as a result of the MIAT acquisition and our increased CapEx spend. Also on the balance sheet, you will notice a few changes as a result of the MIAT acquisition.
The major direct impacts were a goodwill increase of approximately $10 million, a tangible assets increase of approximately $16 million, and approximately $15 million of increase to the operating lease asset and liability. You will find more details on this in the first quarter 10-Q, which we expect to file within the next few days. With a positive start in the first quarter and the visibility we have for the remainder of the year, we remain confident on our full year guidance for fiscal 2022 across all metrics, new student starts, revenue, adjusted EBITDA, adjusted net income, and adjusted free cash flow.
Our guidance calls for double-digit growth across starts, revenue, and profitability for the year, supported by our strong base business, as well as from executing the initial steps of our growth and diversification strategy. As always, we will evaluate our guidance throughout the year to determine if any adjustments are needed. As far as the expected pacing through the year, I provided commentary last quarter that was directional and complementary to our fiscal year guidance. The primary revisions I would offer to that commentary are as follows: We expect new student starts will be more back-end loaded in the year, given the push of the Austin campus launch to April and some near-term impact from Omicron, with the second quarter being our lowest quarter for year-over-year start growth.
Revenue for the second and third quarters is likely to be in the mid- to upper $90 million range, with the fourth quarter still expected above $110 million. Profitability likely lowest in the third quarter given the change in the Austin launch timing and the expected flow of revenue across the quarters. For CapEx, we anticipate heavier spend in the second and third quarters than what we saw in the first quarter, again, giving timing shifts in our initiatives. In closing, we are pleased with the positive start to the year and confident in our ability to achieve the fiscal year guidance we established, absent any major unexpected disruptions. We are proud of the accomplishments and hard work demonstrated by our team and our students. I would like to now turn the call over to Jerome for his closing remarks.
Thank you, Troy. Before we get into the Q&A portion of the call, I'd like to reiterate Troy's final comments and express my appreciation and gratitude for everyone in the organization and their commitment to helping our students reach their goals. We will continue to hold ourselves to the highest standards and take pride in partnering with great employers to give our students the best opportunities and paths to successful and meaningful careers. We're executing well on our growth and diversification strategy, and we have the pieces in place to continue to do so going forward. Financially, we're in a strong position to continue to actively evaluate potential new growth opportunities, and we'll be ready to capitalize when both the time and opportunity is right. I'd now like to turn the call over to the operator for Q&A. Operator?
We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press stars and two. At this time, we'll pause momentarily to assemble the roster. Our first question today will come from Alex Paris with Barrington Research. Please go ahead.
Hi, guys. Thanks for taking my questions. Q1 was much better than expected, kind of across the board. Troy, in terms of your cadence, first of all, you reaffirmed full year guidance. Just to be clear, Q2 and Q3, mid- to upper 90s, and Q4 above $110 million in revenue to kind of get into that full year range. Is that correct?
Yeah. Hi, Alex. Thanks for the question. Correct. That's what I had said, which was an adjustment to the flow, you know, that we had articulated last quarter. Just shuffling the revenue around a bit, a little bit more in Q1, still about the same in Q4, a little bit less in Q2 and Q3.
Gotcha. Okay. I was wondering if you can give us a little bit more color around the delay in the Austin start. As I recall, I think that was supposed to open in February. You kind of cited supply chain issues. Can we kind of go through that again?
Yeah, it's actually, hey, Alex. Jerome.
Hey.
It's actually pretty simple. There's some significant electronic componentry that has to be attached to the side of the building to meet code. There's a shipping delay. That's the bottom line to it. It's on its way. We expect it to be in place. It's progressing well, but you know, just because of fire codes, we can't and won't open unsafely. We had to push it out 90 days to accommodate that.
Gotcha. Okay. What did you say, an April open now?
Yeah, end of April.
Yeah, end of April. Okay.
We do starts every three weeks, so we just jumped over a few and put it into the April start.
Good. Miramar, as you said, is on schedule for fourth quarter.
Yep. The construction's moving along, and it's absolutely on schedule right now. We don't anticipate the same delay, but then again, you know, we think a lot of the supply chain issues are coming back in line now, so we think we'll be fine.
Okay, great. Then, I guess my last question will be, can we just talk about cover again the modest impact from Omicron in the quarter? You said you saw some impact late in the quarter. Just again, I guess I'm slow in taking notes, but if we can get just, you just kinda cover that again, please.
Yeah. Keep in mind the timing there, right? You know, it started around Thanksgiving, flared up dramatically throughout the month of December. I would say really the primary impact we thought we saw in December was we had a mid-December start, and we were tracking pretty close through the quarter to our expectations, and that one dropped off quite a bit. We saw some similar pattern in January. We also saw the LOAs perk up a bit, latter part of December through, frankly, through the month of January. It was really less of a quarter impact and more as we're talking about the year and the guidance taking into account some of those impacts. We had some students.
Of course, we have a more flexible model now, so we're able to move students to online only very quickly and seamlessly. That's, of course, a big benefit. We did, you know, have a spike there as well. We're already seeing it come back down. We had a big this Monday was a start and return date, and we saw a large number of those January LOAs come back. We think we're in pretty good shape and have accounted for it in our pacing for the year. It flared up, you know, pretty quickly like everybody else.
I would agree with you, it should be short-lived, but we're managing through that right now. All right. Well, thank you very much. I'll get back in the queue.
Thank you.
Thanks, Alex. Our next question will come from Raj Sharma with B. Riley. Please go ahead.
Hi. Thank you for taking the questions. You know, great results, Q1. I just wanted to understand a little bit more color on the young adults showed growth in starts, too, high schoolers or not. Do you expect high schoolers starts to kind of pick up through the year, or you think that's kind of still gonna be severely impacted? Then also, what about MIAT starts? How are they sort of trending? I noticed that you didn't break those out, or is it too early?
Yeah, it's not a clean quarter, obviously, with just... Thanks for the question, Raj. Two months. You know, their starts for the quarter were, I don't know, about 80. I mean, it was a pretty small number. They don't start in the same cycles. They're roughly on an every other month start cycle. Then every now and then there'll be something in between there. But you know, on average every other month. Of course, October was one of their months. So we, December was not a start month because of the holidays. It was a pretty light quarter from an MIAT perspective.
On the full year basis, again, as Jerome commented, last year first quarter we had a large number of high schoolers push out of Q4 of 2020. We saw that benefit. We were expecting a decline in the high school channel as part of our guidance this year in the first part of the year. On a full year basis, between same store and new campuses and the new welding programs, we expect good growth across all our channels.
Got it. The other question was around understanding how the Q1 seems to be a blowout revenue quarter, and Q2 is lower despite the fact that MIAT is gonna now have a full quarter the second quarter. Is it largely because of revenue per student change, maybe LOAs picked up, and you're accounting for that? Is that the way to think about it?
Yeah. A little bit lighter. Yeah, a little bit lighter start quarter. As I mentioned, the December start dropped off a bit, we think because of Omicron, and we saw some impact in January as well. The LOAs were elevated for most of the month of January. Then, the big drive. We were a little bit ahead on students in the first quarter. Average students was better than we expected. We did get a good bit of rate benefit, which is why the EBITDA was so much stronger. I mentioned in my comments that we thought that would be more in line, if not in Q2, maybe a little bit behind, because of the students that are having to come back, you know, in from LOAs and from online only.
It takes a few course cycles for them to get back to fully normalized. I'll use Jerome's word from his comments. We'll have some choppiness in Q2, just getting everybody back on track. Of course, with Austin starting in Q3 and then Miramar in Q4 and just our normal, you know, strength in Q4, it'll ramp back up again.
Great. That is really helpful. I was curious. I know that your model has changed in the sense of the blended learning and how, you know, how COVID impacted you and the LOAs back in 2020, you know, February, March, and your model is more flexible, but I know you've not reported the LOAs, and this was, you know, another sort of a repeat, Omicron COVID, you know, first quarter time. I was curious if you were to. You know, what were the LOAs at the peak here in January relative to, you know, they were pretty high back when COVID hit you first. I'm sure they're significantly lower. You know, they were 2,500, 3,000 LOAs. Do you disclose that number? Do you wanna talk about that?
It's.
We were running 1,000-1,200 throughout the month of January, which is, you know, probably double what we would have expected. LOAs are a function of how many students you have in the building too. Of course, holidays, we tend to have more, you know, student decides they wanna stay out an extra cycle. We're closed the week in December, they decide they wanna stay out an extra cycle. That, you know, who knows whether it was. We did see, you know, elevated activity from a intake perspective, students who were reporting that they may have been exposed and were tested positive, those types of things.
It also could have just been people, you know, staying out an extra cycle. Just with some of the uncertainty about, you know, how quickly it was gonna dissipate or that type of thing. We saw a few hundred more students in online only and probably about double the LOAs we would have expected, but it was about, you know, 1,000 to 1,200. It wasn't anywhere near back in that
Right. Those that you said they came back at the end of January and.
Yes.
Came back down.
Yeah.
You're seeing better trends.
Yeah.
Okay.
We just had a start on Monday and, you know, several hundred came back in line with that start, so we're happy to see where things are snapping back in. Another thing I think that helped us in the quarter was the change in the CDC guidance about how long you were expected to be out for a quarantine.
Right.
Sometimes that went over two sessions rather than one, and so we can see things starting to, you know, snap back.
Got it. Thank you. One other question was you mentioned, Jerome, new growth opportunities, you know, outside of and different from the ones you already talked about. Do you expect those to come from an acquisition, or is it gonna be new campuses or any sort of direction there? Are you gonna be moving away from Title IV or any color?
Well, we don't have anything specific to share today. You know, the M&A markets aren't always under our control. We are active both organically and inorganically looking at, you know, where we can go from the benchmark we set a few months back on the activities we already had. As soon as we have something to share, we'll be out there with it.
Got it. Okay. Thank you so much again, and congratulations. I'll take it offline. Thank you.
Thanks for asking.
Thanks so much.
Our next question will come from Eric Martinuzzi with Lake Street. Please go ahead.
Yeah. The question I had was with regard to the expense run rate. I understand we've got a couple of moving parts here in trying to come up with a quote-unquote normalized expense run rate. Given maybe just sort of quarterizing January, I'm just trying to get a sense for that $91.5 that we had in Q1 didn't include, you know, the month of October for MIAT, but it also had some push outs on some campus investments. Can you give us a feel for what's the quarterly expense run rate, Troy?
If you went back to my Q4 comments, I said the first quarter would be, you know, mid-$90s, you know, step up to the mid-$90s and then go up to, you know, around $100 million from there, high $90s million-$100 million. Of course, we came in at $91.5 million, as you said. That was part of the profitability benefit we saw. Again, there's timing shifts, the Austin push out and some other things that have phased out over the rest of the year. The other thing in Q1 is you have all your payroll tax resets and of course, labor being a heavy component of our cost structure, that is the spike up, the one month, as you said, of MIAT.
Probably in that high $90s million- $100 million range is what would make sense for the rest of or the next two quarters and then, you know, a little bit higher than that, with the Q4 spike up, with the students and the education costs that support the large number of students that come in.
Got it. That's helpful. You know, as I look at the two new MIAT campuses, one is in a geography where you haven't had a campus, the other is in, I think it's Houston, where you actually have a legacy UTI campus. Have you done anything synergies wise in Houston as far as either deciding to leave those two campuses standalone or doing anything with a consolidation plan?
We've had great progress on working with the MIAT team, bringing them into the family. We're running them as, you know, two campuses in the network. We do have some synergy between the Houston campuses. We're leveraging the skill set that some of the MIAT leadership has developed on their program expansions to lead the program expansion efforts. The marketing and admissions teams have been integrated. We've done a lot of work, you know, the back office side of HR, payroll, finance. We've brought a lot of that already into a common framework. A lot of good progress has been made, and really the next few months we'll probably complete the, I would say, the core integration, and really from there it's.
We're already working on, of course, the growth side as well with the marketing admissions combination and trying to drive more lead flow and housing a program for the Michigan campus so that relocating students have more of an opportunity to go there, which is not something MIAT had really explored to any extent previously. All of that is moving and moving very fast.
Okay. Thank you for taking my questions.
Thanks, Eric.
Thanks, Eric.
This will conclude our question and answer session. I'd like to turn the conference back over to Jerome Grant for any closing remarks.
Thank you very much, operator, and thank you all for joining us today. We look forward to speaking with all of you in the next quarter, and that will conclude our call for the day. Have a great evening.
This conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.