Good day and welcome to the Universal Technical Institute Third Quarter 2024 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 welcome to Universal Technical Institute's fiscal third quarter 2024 earnings call. Joining me today are 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 and 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, financial supplement, and investor presentation. With that, I will turn the call over to Jerome Grant, CEO of Universal Technical Institute, for his prepared remarks. Jerome?

Thank you, Matt. Good afternoon, everyone. Before we jump into the quarter, I think it's important for us to reflect on the progress our organization has made since we first began this leg of our journey in November of 2017. At that time, we put in place a very specific strategy focused on unlocking the true potential of Universal Technical Institute. We focused on profitably growing the business and creating durable shareholder value, all while continuing to ensure the highest levels of student outcomes and industry satisfaction. When I became CEO in October of 2019, we further enhanced that strategy, accelerating our efforts to grow and diversify the company. As we have executed on our plan, which we internally coined our North Star Strategy, we made significant strides in improving the business. It's very rewarding to see our market capitalization near the $1 billion threshold and to have delivered an approximately 400% increase in the Company's stock price. While we are certainly not finished yet, I'm incredibly proud of how much work our entire organization and all our stakeholders have done to help us get us to this point. Now, as I'm sure you've seen in the recent headlines, macro data is indicating a weaker economy, including fewer jobs being added than expected and the unemployment rate rising. Though the economy may be lagging in certain sectors, demand for skilled collared labor across transportation, skilled trades and healthcare remains robust, with ample job opportunities and anticipated job growth across all of our focus areas over the next 10 years. When people look to reskill or upskill themselves, as a leading workforce solutions provider, we can offer them the industry-aligned education they need to achieve positive outcomes as exemplified by our 80% plus in field employment rates across both divisions. With…

Thank you, Jerome. Through the third quarter, we continued to deliver positive operational and financial performance, meeting our exceeding expectations across our key metrics. In the third quarter, total average undergraduate full-time active students grew 13.4% versus the prior year period. The total new student starts increased 5% year-over-year, both in line with our expectations. The Concorde division generated a 14% increase in average undergraduate full-time active students, while new student starts increased by 34.8%, partially due to timing shifts of clinical start opportunities between the third and fourth quarters relative to the prior year. This is a function of the start frequency and cohort sizes that we are approved for by the various programmatic accreditors. Clinical starts grew a staggering 64% year-over-year in the quarter, while starts for the combined core and short programs grew 20.6%. For the fourth quarter, we expect overall Concorde start growth in the mid-single-digit range, which is notably lower than third quarter due to the timing shift of the clinical starts. The UTI division drove a 13% increase in average undergraduate full-time active students. For new student starts, we saw more students in the first start in July instead of the last start in June versus the prior year, resulting in a 12.5% decrease in new student starts during the third quarter. We anticipated we would see this shift in our overall start phasing. For reference, our UTI division starts were down year-over-year in June by approximately 480 starts, but are up year-over-year by approximately 570 starts in July. We expect UTI to show double-digit growth in starts in the fourth quarter and approximately 10% start growth for the fiscal year. For the fourth quarter overall, we now expect year-over-year growth in new student starts in the mid to high single-digits given the dynamics…

Thank you, Troy. Moving into this final quarter of the fiscal year, our consistently strong performance has positioned us to continue making significant strides in delivering durable shareholder value. The core tenets of our mission, growth, diversification and optimization, remain the foundation for Phase 2 of our North Star Strategy. Organically, our initiatives are focused on expanding our campuses to greenfield geographies, broadening the reach of our existing programs and adding new in demand program offerings. We'll also continue to forge new partner relationships across the programs. Inorganically, our efforts remain centered around opportunistically exploring strategic acquisition opportunities with an emphasis on enhancing our presence in healthcare and program offerings that complement Concorde. As we close out the fiscal year, we will continue to focus our efforts around ramping recent campus and program launches to further boost enrollment, revenue and profitability, enhancing marketing and admissions efforts to optimize lead generation and inquiry conversion and improving workforce and facility utilization to increase program availability, margin expansion and operating leverage. We remain steadfast in our commitment to driving growth and innovation for both our students and our investors. We believe we are well positioned to capitalize on the increasing market opportunities to maximize shareholder value and expand the UTI brand. Thank you for your continued support and we look forward to providing further updates on our exciting trajectory over the coming quarters. As always, we welcome the opportunity to showcase our campuses and all the exciting initiatives we're working on, so please don't hesitate to reach out if you're interested in the campus tour. I'd now like to turn the call over to the operator for Q&A. Operator?

[Operator Instructions] The first question today comes from Jasper Bibb with Truist Securities. Please go ahead.

Hi, good afternoon, guys. Apologies for any background noise here. I wanted to ask about the North Star Strategy and the 20% target for '29. Just curious what that contemplates as far as the underlying segment margin potential for the UTI and Concorde segments.

Yes. Hi, Jasper, it's Troy. Thanks for the question. We're not going into the segment-level detail just yet. We're setting a longer-range marker out there. As far as the expectations from a growth perspective as Jerome commented on and as you know from prior discussions and others know, currently we have growth restrictions on Concorde due to the change in ownership through the Department of Education. So, initially the initiatives will be more skewed toward UTI, but we expect as we get into '27 and beyond that we would be more evenly distributed between UTI and Concorde as far as campuses and programs and therefore they would kick in as well as we get into the latter part of the five-year trajectory.

Thanks, that's helpful. And just to maybe follow up on the margin goals. I guess, how are you thinking about capacity as part of the North Star plan, both I guess in place capacity and potentially moving some course work online?

Sure, yes. I mean, we are expecting consistent level of baseline growth, low to mid-single digit that won't be equal across the footprint. Some campuses are more full than others. So -- but capacity is not a finite variable. We are constantly refining our educational delivery, our space utilization. That's a big initiative for us over the next few years is to continue getting more streamlined and being more flexible in our space utilization to continue increasing capacity. We have shifts available at many of our campuses that we could add. So we're going to continue working to fill our facilities as much as possible with the existing programs while we're adding new programs in upgrading our technology and getting more flexible with our delivery model. It's not as much a change I don't think in terms of how much is online versus on ground. We may see some evolution in that over time, bringing in some virtual reality type training aids as well, which again are less space intensive. So there will be evolutions in some of the technology and our approach to teaching over time, but bottom line is a measurable portion and we added a slide to our investor presentation, a bridge slide from the $800 million initial projection for next year to the $1.1 billion I referenced if you run the math out on the 10% CAGR. And a measurable portion of that comes through organic, that baseline growth and then the new programs and new campuses.

Makes sense. Last one for me. Just want to ask what your experience has been with some of the FAFSA issues that have been reported, I guess, at both segments and to what level that might have contributed to the timing shift on new enrollments in the quarter?

Sure. It's still not perfect. We've been working through our backlogs. Some of the -- I wouldn't say it's a direct contributor to some of that shift we saw with UTI from June to July, but because we had people so focused on working the backlogs, we didn't spend as much time working on students shifting into that last June start. It's just not a start right before the 4th of July and students -- a lot of students are just getting out of school a few weeks before that. So it's always taken a bit of effort to get students into that start. And if they signed up for a later start and then we tried to pull them into that start, they would have had to go back to the old FAFSA versus the new FAFSA. So it was just -- it was a lot of noise in the system. But overall, I'd say we're near normal. There are some differences. There are some things that do make it. It's actually not simpler for students and their parents. It's a little bit more complicated, but we continue to work through it and it doesn't affect us from a full year perspective by any means.

Thanks for the context there, looking forward to seeing everyone in California next week.

Great. Thanks for the questions.

The next question comes from Mike Grondahl with Northland Securities. Please go ahead.

Hi guys, thanks. Could you kind of provide an update on maybe your marketing channels? And just at a high level, how each one is doing, maybe kind of strongest to strong, if you will?

Hi, Mike, it's Jerome. So obviously with two divisions and two different demographics in the division between transportation traits and energy and the UTI division and healthcare, the marketing groups work a little differently in healthcare where we're seeing some great results. We're very much focused on the 25 to 35 year olds in that population, people who are making job changing decisions and looking for something more stable. And we're seeing some quite favorable rates in terms of media spend in that channel. We are too in the UTI channel. So strong results, I think double-digit beyond our expectations of what we're seeing in terms of media generation for the same dollars that we budgeted and that's one of the things that's fueling the growth on the Concorde side. On the UTI side, it's really a blend, right? Is that -- in the fourth quarter, about 65% of our students are high school students who graduated this past year. And our lead generation with them is very much about doing presentations in the high schools. And with the increased number of reps that we put into the field over the last two years, we're seeing some nice increases. That's one of the reasons why -- what Troy and I both had said is you're going to see a double-digit increase in the fourth quarter is that we'll see some stronger results also out of high school. And we're seeing that same favorability on our media spend, whether it's streaming media, paid search, paid social, where again we're seeing nearly double-digit improvement over what we expected this year in terms of both rates and that allows us to get more leads for the same amount of money. So, real strong performance out of marketing this year.

Great to hear. And then just one more. Your two new locations in 2026, one, roughly when do you think you'd announce those? And the slide has that campus size a range between 600 and 1,200. Do you think those two locations will be at the smaller end, the larger end? So just sort of rough announcement dates and size.

Yes, well, we're not yet ready to lay out the specific details of the product mix, makeup of the divisions. But as we've said on past calls, we now have a lot more optionality by markets and by product mix with the increase of -- and, of course, remember in 2026, it's really all about the UTI side because of the finishing up of the growth restrictions in Concorde, we won't be able to open a campus till '27 there. And so we've been looking at locations that would be great for a skilled trades and aviation campus. We've been looking at locations where the new version of why we see UTI, which is a combination of transportation, skill trades and energy. And we'd anticipate being able to utilize both of those models as quickly as possible. But we'll -- it won't be long before we'll be able to talk about at least the first location and the second will follow right after that. We'd like to get a couple of approvals in the -- under our belts from state agencies, et cetera, before we go ahead and point at a specific city. And so -- but we don't anticipate that being very far off at all.

Got it. Thanks, guys.

Thank you, Mike.

The next question comes from Steve Frankel with Rosenblatt. Please go ahead.

Good afternoon. Jerome, just diving into the growth restrictions again, just the exact timing on Concorde. And is there any difference in program expansion versus new campuses as to when you can do those?

No, whenever you buy something in this space, the Department of Education likes to see two full years of financials of the new combined company prior to allowing you to either start new campuses or add previously unapproved programs on those existing campuses, right. And so last year and going into this year, we've been launching new programs on the Concorde campuses that were previously approved prior to the merger and launching new programs that are cash paid. We talked about things like sterile processing, et cetera, where non-Title IV new programs can be launched. You also can launch new campuses that are not Title IV dependent. And so you saw our Heartland partnership where we'll be opening a co-branded campus in Fort Myers, Florida, prior to the growth restrictions being lifted because there are no Title IV funding requirements for that campus initially. Once the restrictions are lifted and that we are anticipating sometime in mid to late 2026, we will be able to offer Title IV funding on that campus pending approval, of course, at that time. And that's when we'll be able to start announcing new Concorde campuses and continued program expansions across the 17, now 18 with the Heartland campus that will be out there. So we're getting ready, we're loading it all up. It's part of our North Star Strategy and we're getting ready for it.

That's great. It's really exciting, new concept. Help me understand the economics. Given that Heartland is putting up the capital, does your share of the profits look different under that model than it does when you're the one putting up the capital? And will it change when it moves from cash pay to a combination of cash pay and Title IV?

Yes, those are good question, Steve. This is Troy. The -- in our -- in the appendix in our Investor slide, we have a dental hygiene illustrative program launch and time horizon. And so that campus will be dental hygiene and dental assisting. So it's not exactly representative of what will be in that campus, but generally speaking, the ramp of the program will look similar to that. We will run the program. We are administering the student finances, et cetera. Heartland will be providing financial assistance to the students, both in form of scholarships as well as backing the student loans similar to what Department of Ed and Title IV, but there will be private loans. And we keep all the economics once it's open. So the deal is we run it, we staff it, we're responsible for all the regulatory requirements, et cetera. We'll monitor outcomes. We'll ensure we're meeting the outcome standards and all the things required around that and then we keep the economics there. The economics will change once we are Title IV eligible as we are offering more of a discounted because it's cash pay and dental hygiene is average $85,000 or so two-year program, dental assisting obviously much less expensive. But once it will be discounted relative to that under the cash pay model, and then we'd flip back to more of our standard pricing for dental hygiene and dental assisting post Title IV.

One more question [indiscernible].

Yes, that does. That's really helpful. And then on the North Star next phase, you talked about six program expansions per year. Is that a total of six or it's six across a number of campuses?

Well, it's a minimum of six. And thrilled that Troy let me put the word minimum in there. It's a minimum of six and it is across both divisions and it's an average. Obviously, we won't be launching as many programs in Concorde earlier, but over that time period we just wanted to put a marker out there for that you could see. Obviously in the later years, we'll be looking at being more aggressive across both of the divisions. There's still a lot of opportunity to bring the MIT programs onto the UTI campuses, which will be most of what's initially launched in '25, '26, '27. And then the opportunity to bring new programs onto the Concorde campuses is something that we're looking forward to. Specifically nursing, because nursing is only on a few of their campuses right now. So that's what's built into that.

Great. Thank you so much. I'll jump back into the queue.

Great.

Thank you, Steve.

The next question comes from Raj Sharma with B. Riley. Please go ahead.

Yes. Thank you for taking my questions. Congratulations on the good results. So my first question is on the starts. You had guided overall starts to about 5% for Q3. Overall, they seem to be in line. Obviously, the UTI is lower what you've been guiding. So can you speak on the trajectory and the environment of enrollment here? And you're seeing is the -- is the shift seems to be about 580, 600 students, the June-July shift. And are you making up clearly from your guidance you're saying you're going to hit the top line. So you are making up more than the students that you would have lost in Q3. And also how much of the start shift could you have anticipated or is this something new?

Thanks for the question, Raj. It's Troy. We anticipated it. Is it exactly what we anticipated? Probably a little bit more than we anticipated, but we saw it building as we were working, our last call 90 days ago beginning of May. We have pretty good insight into the funnel and we could see the enrollments piling up more in July than again in that last June start to the question I answered earlier. That's just a hard start to get high school students specifically really focused on given the just finishing school, given going into July 4th holiday, et cetera, et cetera. So anyway, we put a lot of effort into trying to fill that start in prior years and our resources were really focused on working down the FAFSA simplification rollout and the backlogs associated with that. So it is entirely made up in July. In fact, it's more than made up in July for UTI specifically. And again, we see approximately 10% for the full year will be double digit in the fourth quarter was I think 16% and 17% in Q1 and Q2. So it's 100% a timing shift and literally last start in June to first start in July and again we anticipated that. On the Concorde side, just to complete the thought, we have a little bit of a different dynamic where the certain clinical programs have more starts in the third quarter and they don't have starts or they have fewer starts in the fourth quarter. And so we saw that significant uplift in the Concorde clinical starts in the third quarter. And again, overall though, still very strong growth for the year for Concorde just timing. And you're going to hear that more from us. We didn't spend a lot of time on that last year. We didn't have the year-over-year compares and really until the last quarter, but those clinical starts are very uneven. So any given quarter you're going to hear from us a really strong quarter or even a decline quarter on the clinical side with Concorde.

Raj, I think the one thing that Troy alluded to in his comments that on the whole notion of that June-July piece was, the new FAFSA was for students who started July 1 and beyond. And so all of these thousands of students went through the new FAFSA process in April, May, June, that painful process that was late and filled with errors, quite frankly. And we got them settled in with the new process in July. And traditionally what we do then is then start moving them back to June to get them started a little early, help us with our capacity, help us with a whole number of things. This year, because it was the brand new FAFSA, that would have meant asking them and their families to go back and fill out the old FAFSA again, so that we could get them started the last week in June. And after what they had gone through on the new one, we just weren't going to do that. We're afraid we'd potentially lose them or something like that. So as Troy said, more than made up in July. We're happy with the trajectory we're having, but this was a particular year because of the FAFSA change that can we say that that's because of the delays? No. But we can say it's because of the complications and because of the transition.

Got it. That's very helpful. Thank you. And then on the North Star Strategy, the timeline of the new campuses, I know you haven't announced the dates. That's relative to the ones that -- the new ones that are already on track. And then I just wanted to understand your guide. You are kind of soft guiding to a 10% CAGR on the revenues. But if you take a mid-single-digit starch growth and a tuition increase of what you've had in the past, I mean, that alone accounts for about 8%. So if you add -- I guess, what I'm getting to is the 10% CAGR a conservative sort of number, if you add the two new campuses every year with six new programs.

Well, a couple things. Number one, generally speaking, our organic growth, we never predict it to be much more than low to mid-single digits. And therefore, no, we're not -- we don't load in 5% organic growth in a model. It's below that. And so -- but the way to look at that would be the low to mid-single digits, adding six programs, adding two campuses gets you to right around that 10% mark. And I think one of the differences between what we've been saying and what we're saying now with more of the details in place is that one of the things we've been saying pretty clearly through the quarters is that we think the combination of UTI and Concorde is a business that's somewhere in the mid to high teens in terms of EBITDA. And now we're saying we feel it's closer to 20 and that's an improvement of what we've seen in terms of as we move forward.

Yes, the one thing I'll add, Raj, is that if you think about the trajectory, so '24 to '25, we've already said approximately 10%. We probably -- because we -- the program, any programs we launch at this point in '25 would be very late in '25 and the campuses would be -- we're hopeful maybe one in the second quarter of '26 and then one in the third quarter, early fourth quarter. So, not a huge amount of impact on '26. And then again programs sort of phasing in. So we probably pull back a little bit in that '26, '27 timing and then it accelerates, right. So we're not necessarily 10% every year. Maybe it's 10% and then 7%, 8%, 9% and then 11%, 12%, it starts accelerating in that '27, '28, '29 time horizon to get to that 10% CAGR.

Got it. Thank you. Very helpful. I'll take my questions offline. Thank you.

Right. Great. Thank you.

The next question comes from Eric Martinuzzi with Lake Street. Please go ahead.

Yes. Just interested in your thoughts on the most recent unemployment report. Job growth a little bit below what people were expecting, unemployment a little bit higher. That's the macro. But from your perspective on the micro side, are you seeing anything not necessarily with your high school pipeline, but with your adult learner pipeline?

Hi, Eric, good to hear from you. It's Jerome. Number one, one of the things we've said is when it starts to move, there's usually a lag somewhere in the 90 to 160 days when you start to see -- you potentially start to see impact when the unemployment rate starts to rise. And so we're seeing the signaling out there that things are tightening up, but it's too new to be able to point to a number and say that. We are seeing that our interest is on the rise. We continue to see strong double-digit growth of our inquiries and our conversion rates are very, very strong, so we feel good about that. But I can't yet call that what we just saw published has already seen the uptick. It's just a leading indicator which is a strong indication in our part of the market that things tend to move in that direction.

Got it. As far as the North Star, this is an organic plan, this Phase 2, curious to know what is your expectation? And I know it can change based on a single phone call, but M&A is part of that build from $800 million to $1.1 billion. Is there anything that closes that gap significantly that's maybe somebody you've had conversations with that have started to heat up?

Well, first of all, I just want to make sure you're clear. M&A has nothing to do with the $800 million to $1.1 billion. It is an organic plan that we put out in the market. So everything that we signal are things that we've been doing very successfully for the last five years, opening new campuses, starting new programs, becoming more efficient with our marketing and the things that do more margin expansion, et cetera. So any M&A activity would actually be additive to what we're talking about. So just wanted to put that qualifier in there that none of it is assumed in the plan. And I think I could probably only reiterate where we are right now, which is we have been having conversations with a number of folks, but nothing to talk about right now. And also, I think my -- the way I look at it is we want to be very, very opportunistic, but very strategic in our thinking. We are looking for things that complement what we are doing, whether it's from a geographic perspective or from a program perspective with particular attention continuing to be focused in healthcare. We had said before that nursing is a strong focus of where we'd like to see ourselves move both organically once the growth restrictions have been lifted, but inorganically in the short term. So, nothing to announce right now, but we remain active in conversations and we'll let you know if anything percolates to that point.

Got it. Thanks for taking my questions.

Sure. Thank you, Eric.

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

Thank you very much and appreciate those great questions and the attention. Sorry, we took a little more time. We wanted to spend a little more time talking about our longer range plans. With that, we'll close the call. We look forward to meeting with all of you over the next couple days and reporting back again in three months. Thanks and have a great evening.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.