Good afternoon, and welcome to the Universal Technical Institute Fiscal Second Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Matt Kempton, VP, Corporate Finance. Please go ahead.

Hello, and thank you for joining us. With me today are our CEO, Jerome Grant; and CFO, Troy Anderson. During the call today, we’ll update you on our second quarter fiscal year 2023 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, relevant factors that could cause actual results to differ materially from the forward-looking statements are listed in the press release and our SEC filings, and 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 will 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 as part of the company’s 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, income taxes, depreciation and amortization adjusted for items not considered as part of the company’s normal recurring operations, along with noncash stock-based compensation expense. 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 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 measures to the most directly comparable GAAP financial measures in today’s press release. We encourage you to carefully review those reconciliations. It is now my pleasure to turn the call to our CEO, Jerome Grant.

Thank you, Matt. Good afternoon, everyone, and thank you all for joining us today. I’d also like to thank our faculty, staff and students for their ongoing hard work and commitment. During the second quarter, we continue to build out the infrastructure of our combined company and execute on the actions we’ve already taken to realize the fullest potential of our growth and diversification strategy. We delivered strong performance across a number of our key metrics during the second quarter with $163.8 million in revenue, $19.2 million in adjusted EBITDA and 4,626 total student starts. Note that our second quarter financial results include the first full quarter of financial contribution from Concorde since completing the acquisition in December of 2022. We strengthened our divisional model and leadership team through some key leadership appointments. For our two divisions, we now have established dedicated divisional presidents with Jamie Fraser at the helm of Concorde as previously announced, and our newest leadership addition, Tracy Lorenz, serving as our new President of UTI. Tracy joined in April as a proven growth-oriented leader with over 20 years’ experience in higher education. She most recently served as President and CEO of Triumph Education, and she previously spent 9 years at Apollo Education Group. Tracy will be wholly focused on UTI’s operational and strategic execution, and we’re happy to welcome her to the team. Additionally, we’ve strengthened our Board’s health care representation through the appointment of Michael Slubowski to the Board of Directors. Michael is the President and CEO of Trinity Health, a $21.5 billion national health system, and he brings 40 years of health care experience. We look forward to leveraging his insights as we further integrate and expand our Concorde platform. With this multidivisional structure, we’re building upon our strength as a workforce solution provider…

Thank you, Jerome. As Jerome mentioned, we delivered solid performance on our key metrics during the second quarter, with our top and bottom line results exceeding our expectations and new student starts roughly in line with our expectations. As a reminder, Q2 represents our first full quarter of contribution from Concorde, and we have presented results in the segment reporting model we implemented last quarter as a result of the acquisition. Please note that unless stated otherwise, our year-over-year financial comparisons are on an as-reported basis as the prior year period does not include contributions from Concorde. I’ll begin with the new student start performance for the second quarter, where we recorded 4,626 total new student starts, reflecting a 4.4% year-over-year increase in UTI starts and 2,252 Concorde starts. Overall, UTI starts grew year-over-year across all three channels during the quarter. driven by continued ramp of the two new campuses and welding programs we launched last year, along with positive contributions from the MIAT campuses. However, similar to Q1, starts for many of our legacy UTI campuses were down year-over-year, driven primarily by relocating students. That said, for those campuses, we saw a lower overall decline this quarter versus what we saw in the first quarter. Finally, with this being our first full quarter of contribution from Concorde, we saw the more typical start cadence we outlined during our last conference call with a core program start each month and one primary clinical program start during the quarter. Concorde performed well in the quarter, and while not immune to the macro pressures, they are successfully navigating through these conditions. Moving into our financial performance. Second quarter revenue on a consolidated basis exceeded our expectations and increased 60% versus the prior year quarter to $163.8 million, significantly driven by Concorde’s $56.3…

Thank you, Troy. To briefly summarize, our second quarter performance came in ahead of our expectations as we sustained execution on our key priorities for both business segments. For UTI, we remain focused on scaling and driving enrollment growth at our new Austin and Miramar campuses. We will also continue to progress our 14 planned program launches this year into fiscal 2024, starting with the planned launch in July of our wind, industrial maintenance and robotics programs at UTI Rancho Cucamonga campus, along with the launches of welding in Sacramento, aviation in Avondale and HVACR in Austin. The remaining programs are planned to launch in August and September, some of which are pending for the regulatory approval. For Concorde, our integration activities have remained on track, and we will continue to advance this process and work to maintain this segment’s execution into the second half of the fiscal year. Our performance through the first half of the fiscal year gives us continued confidence in achieving our fiscal 2023 guidance targets as well as positioning us to achieve our fiscal 2024 revenue and adjusted EBITDA outlook. Across our business, we are strengthening our divisional operating model as we build out our strategic road map for our combined company. Even as we navigate an evolving operating environment, the breadth and flexibility of our business model optimizes our position as a leading workforce solutions provider for a growing range of skills, careers and fields. I’ll now turn the call over to the operator for Q&A. Operator?

[Operator Instructions] First question will come from Raj Sharma with B. Riley.

Could you please start on the starts and the second quarter? Give us some color, please, on high schoolers and young adults and how that kind of played out? And then following that, then your guide for the rest of the year for starts and emphasizing the macro factors, could you kind of elaborate on that place, where you see the weakness or where you see strength?

Sure. Raj, this is Troy. Thanks for the question. So yes, Q2 was pretty much in line with our expectations. Again, 4%, 4.4% growth overall. You can see in our materials that we had growth across all channels. High school was closer to flat, but modest growth a few points of growth on adult and a little bit stronger on military and again, all pretty much in line with our expectations overall. The benefits of the new campuses and new program launches from last year, really driving that growth, and across our legacy footprint seeing some of the declines carry over from last year into this year. And really, that’s predominantly driven by what we’re seeing more now is pronounced differentiation between local and relocation, and we’ve talked about that a little bit before with the inflationary pressures and the like. And so as we look into Q3 and Q4, remember, last year, we had a big push on high school to start students in June right after school. And so we’re coming up on a tough compare with that. This year relative to last year, we’re seeing about the same kind of result on the high school side. And as we go into Q4, we’ll see stronger growth, both with -- really across all the channels and then the program expansions kicking in, in the fourth quarter will pretty much lap the new campus Miramar, not quite as much, but Austin and the new welding launches will have lapped as we get into the fourth quarter. So really, the growth will be the new investments we made in our admissions channels as well as the program expansions, which the first of those programs will start in July and then there’ll be another round in August and a final round in September.

So what you’re saying is the starts guidance hasn’t -- the year hasn’t changed much since you’re reiterating guidance for this year, and you’re also kind of reiterating the guidance for next year. Is that fair to assume that starts are still in range this year?

Yes. I’m sorry, I didn’t specifically comment on that. So my -- the commentary I just gave was really geared toward the UTI start. So yes, both for Concorde and UTI, we’re reiterating the ranges, but we are seeing UTI probably in the lower end of the 14.5% to 15.5% range, which is [8%] plus growth. So still strong growth, just not getting quite as far as we were hoping to, given some of the pressure on relocating and some of the delay on the program expansions. Concorde, conversely, we’re seeing skew more toward the upper end of that range. So very comfortably in our total range of 22% to 23.5%. And by being there, exiting this year going into next year, that gives us a lot of confidence along with the program expansion launches executing on those here in the fourth quarter. Those are really the big building blocks, along with just the full year of Concorde for our ‘24 outlook. So as all those things come together as we exit the year, then that sets us up well for the -- in excess of 700 and approaching 100 for our ‘24 outlook.

Great. And then just if you could touch upon the conversion of the initial -- of the interest. And I think Jerome mentioned that there is an improvement from last year. Could you give us some more color on the reluctance or hesitancy and students in wanting to sign up that has improved.

Sure. I mean, we’ve seen an uptick both in interest, which is represented in inquiry flow into the system as well as our ability to convert students to starts as well. The most pronounced uptick has been with our local population. And as you know, I think one of the things we’ve outlined to you in the past is that we’ve been working very, very hard on transformation effort for our local adult population, and that is paid dividends. And then our -- most of the resources we added in the high school market were added in the local locations, cutting in territories at local locations close to campuses, which also is performing very, very well right now. And as Troy said, we’ve always been very transparent with you. The only resistance we’re seeing out there in the market is economically based around relocation. And what we’re doing in that front is working to enhance our relocation grant programs and to expand the group of people who qualify for those relocation grants to help people over the hump of moving across the country or wherever they want to, to take programs at UTI. But as you also see, what we’re saying is Concorde will come in, in the high end of their range. And as you probably know, and we’ve talked in the past is that the health care business is a very local business. And so feeling the confidence of what we’re seeing from Concorde in terms of their local recruiting efforts gives us that confidence that we’ll comfortably be in that 22% to 23.5% range and that next year sets up beautifully.

Great. That’s great. And then just lastly, could you comment on the initial enrollment of the new campuses? Austin, I know you said that you you’ve got 700 so far. Are they in line with your expectations ahead?

Yes, they’re in line. I mean, as we said last year, Austin opened later than we wanted it to. So we generally missed out on the high school season last year by the delays associated with supply chain issues and getting that campus open. So Austin is doing very, very well. And in some of the numbers you saw around employment, et cetera, are very encouraging that Austin will beat or exceed the benchmarks. And our first big fall season for Miramar is upon us, and the pipeline looks strong. It looks like we’re going to do just fine there. And so we have absolutely no reservations about saying what we said on the call here, which is these things are on track to meet the models that we’ve put in place.

Yes, it’s a 3- to 4-year ramp-up period on the new campuses. So this -- as Jerome said, this will really be -- this is really year 1 for Miramar where as Austin got about a half a year last year, but we feel good about the markets that we’re in there and the trajectory that we’re heading on.

[Operator Instructions] Our next question will come from Ryan Meyers with Lake Street Capital.

First one for me. Can you give us a little bit of commentary on how many of the new programs you guys are still waiting on approval? It sounds like you expect some open in July some August and some September. Just curious how many you’re still waiting on that approval for.

Yes, three, and it’s really just the three aviation programs. There’s a sequencing of approvals that you get that all starts with the Department of Education and then moves on to state and local agencies, et cetera. And then the additional layer in aviation programs are the FAA. And so those are the last three for the three aviation programs that we’re still working towards. We don’t see any problem getting them. That’s not the issue. The issue really was that -- and you may hear on other calls, the Department of Education had quite a backlog. And so the time lines to get that first approval were significantly longer than historical averages because of their backlogs, and that sort of just pushed everything back. And so because the aviation programs need that final step, which is the FAA, very important step, those are the last three we’re waiting for.

Got it. And then how should we think about how you’re marketing these new campuses in these new programs? And then more, how we should think about the marketing spend associated with them?

Yes. When we -- this is Troy, Ryan. We continue to refine our marketing model as we added markets, as we added programs. Some of the programs are very mature, like in HVAC is a very well understood and mature program tends to be more local. The wind technician program or robotics, we’re having to build the market a little bit more, raise more awareness, train or educate the prospective students on what the career options might be. So there’s a little bit of a different angle on the various programs. Of course, our more mature programs, welding, auto-diesel et cetera. And on the health care side as well, they have a bit of a different marketing approach where they have the clinical programs, the nursing and the dental hygiene and some of the other programs where people will come in more for those programs and realize that they -- either that’s a longer program or a more extensive program or maybe they’re not able to pass the required tests or have the prerequisites for those programs and then they migrate into a dental assisting or a medical assisting or some of the other core programs that they offer which tend to be lower cost and shorter programs, get some work experience and then come back maybe for one of the clinical programs. So it’s been a different dynamic across the two schools. But we continue to look at opportunities to drive optimization there. And with the new programs for UTI, for example, we’re leveraging off the MIAT model, clearly, with those programs, and so we’re able to leverage the work that they had done previously. And then with Austin and Miramar, we’re having to put more money into those markets locally as Jerome said, we’re driving -- we’re really trying to drive the new campuses as primarily local campuses and not relocating campuses. But net-net, yes, you’ll see some continued upward movement on marketing spend to support growth but we should get that efficiency probably a little bit inefficient originally with the program launches or a new market launch, but then as they mature, you can get more efficiency overall.

Got it. That’s helpful. And then last one for me. How have adult learner enrollments track relative to your guys’ expectations?

Well, the mitigation efforts we put in place in the local markets are actually paying off quite well in terms of the adult learners, both additional focus on their needs to make the transition from jobs they’re in to jobs that we would find them while they’re in school. And also just adding additional resources, whether it’s in high school or on the campuses to be able to talk to more of them and get in there. So we’re very, very happy with what we’re seeing in the local adult markets. And as we said on the call, we’ve still got some work to do in terms of the relocating students. We’ve got programs in place for the third and fourth quarter, which we think can help people over the hump of making that decision to relocate -- come to school at one of the UTI campuses, but that’s where we are.

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

Thank you very much, and thank you all for joining us today. This concludes our conference for today, and we look forward to talking to you all in the very near future. Take care.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.