Good afternoon and welcome to the Universal Technical Institute First Quarter Fiscal 2022 Earnings Conference Call. All participants will be in listen-only mode. 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 sir.

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 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 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're 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 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 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, 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 expenditure, adjusted for items not considered as part of the company's normal recurring operations, management internal uses adjusted net income or loss, adjusted EBITDA, and adjusted free cash flows 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 to our CEO, Jerome Grant.

Good afternoon, everyone, and thank you, all for joining us. 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 continued 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 is 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 a 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 as our revenue. And 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…

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 and 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 students 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 students starts were down just 34 stars 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…

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?

And our first question today will come from Alex Paris with Barrington Research.

So Q1 was much better than expected kind of across the board and Troy in terms of your cadence. First of all, you reaffirmed full year guidance. And then you 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?

Correct. That's what I had said, which was an adjustment to the flow 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 than Q2 and Q3.

Got you. Okay. And then, 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 decided supply chain issues? Can we kind of go through that again?

It's actually pretty simple. There's some significant electronic component tree that has to be attached to the side of the building to meet code. And there's a shipping delay that's the bottom line to it. And it's on its way we expect it to be in place. It's progressing well, but just because of fire codes, we can't and won't open unsafely and so we had to push it out 90 days to accommodate that.

Got you. Okay. You expect what did you say in April open now?

Yes, end of April.

Yes, end of April.

Remember, we do starts every three weeks. So we just jumped over a few and put it into the April start.

Good. But Miramar as you said is on schedule for fourth quarter.

Yes. The construction is moving along and it's absolutely on schedule right now. We don't anticipate the same delay. But then, again, we think a lot of the supply chain issues are coming back in line now. So we think we'll be fine.

And okay, great. And 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 just kind of cover that again, please.

Yes. And keep in mind the timing there. Right? Started around Thanksgiving, flared up dramatically throughout the month of December. I would say the 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. And then, we saw some similar pattern in January. We also saw the LOAs perk up a bit, latter part of December frankly through the month of January. So 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 online only, very quickly and seamlessly. So that's of course a big benefit. But we did have a spike there as well. But we're already seeing a come back down. We had a big this Monday was a start in return date. And we saw a large number of those January, LOAs come back. So we think we're in pretty good shape and if accounted for it in our pacing for the year, but it flared up pretty quickly like everybody else.

Yes. And 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.

And our next question will come from Raj Sharma with B. Riley.

Great results, Q1, I just wanted to understand a little bit more color on the young adults showed growth and starts to high schoolers or suffered ? Do you expect high schoolers starts to kind of pick up through the year or you think that's kind of still going to be severely impacted? And then also, what about MIAT starts? Are they -- how are they sort of trending? I know that I noticed that you didn't break those out or is it too early?

Yes, it's not a clean quarter, obviously, with just thanks for the question, Raj. Two months, so they're starts for the quarter, were about 80. I mean, it was pretty small number, they don't start in the same cycles. They're roughly on an every other month, start cycle. And then every now and then it'll be something in between there but on average, I'd say it's about every other month. And of course, October was one of their months and December was not a start month because of the holidays. So it was a pretty light quarter from an MIAT perspective. On the full year basis. Again, as Jerome commented, we last year, first quarter, we had a large number of high schoolers pushed out of Q4 of '20. And so we saw that benefit. And so we were expecting a decline in the high school channel as part of our guidance this year, in the first part of the year, but on a full year basis, between same-store and the new campuses and the new welding programs, we expect good growth across all our channels.

Got it. So the other question was around understanding, Q1 seems to be a blowout, revenue quarter. And Q2 is lower, despite the fact that MIAT is going to now have a full quarter in the second quarter. This is 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?

Yes. A little bit lighter start quarter, as I mentioned, the December start dropped off at that 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. And then the big drive, we were a little bit ahead on students in the first quarter average students was better than we expected. And we did get a good bit of rate benefit, which is why the EBITDA was so much stronger. And 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 have to come back in from LOAs and from online only. So it takes a few core cycles for them to get back to fully normalized. Well, I will use Jerome’s word from his comments. We'll have some choppiness in Q2, just getting everybody back on track. And then, of course, with Austin, starting in Q3, and then Miramar in q4 and just start our normal strength in Q4. It'll ramp back up again.

Great. So that is really helpful. I was curious, I know that your model has changed in the sense of the blended learning and how COVID impacted you. And the LOAs back in 2020, Feb, March, and your model is more flexible. But I know you're not reported the LOAs and this was, another sort of a repeat Omicron COVID, quarter/time. I was curious, if you were to, what were the LOAs at the peak here in Jan, relative to -- they were pretty high back when COVID , I'm sure they're significantly lower. They were 2500, 3000 LOAs and do you disclose that number. Do you want to talk about that?

We were running 1000 to 1200 throughout the month of January which is probably double, what we would have expected, and LOAs are a function of how many students you have in the building too. And then, of course, holidays, we tend to have more student decides they want to stay out an extra cycle, we're closed the weekend, December they decide they want to stay out an extra cycle. And so that, who knows whether it was, I mean, obviously, we did see elevated activity from intake perspective students who were reporting that they may have been exposed, and were tested positive, those types of things. But it also could have just been people staying out an extra cycle, just with some of the uncertainty about, how quickly it was going to dissipate or that type of thing. But, so we saw a few 100 more students in online only and probably about double the LOAs we would expected, but it was about 1000 to 1200. It wasn't anywhere near back.

Right. And those who you said they came back at the end of Jan and came back down. So you're seeing better trends there?

Yes. We just had a start. We just had to start on Monday. And several 100 came back in line with that starts, 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're expected to be out for a quarantine, sometimes that went over two sessions rather than one. And so we can see things starting to snap back.

Got it. Thank you. One of the questions was you mentioned, Jerome, you mentioned new growth opportunities, outside of and different from the ones you already talked about? Do you expect those to come from an acquisition? Or is it going to be new campuses or any sort of direction there? Are you going to be moving away from title four or any color?

Well, we don't have anything specific to share today. The M&A markets aren't always under our control. But we are active both organically and inorganically looking at 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 will take it offline. Thank you.

And our next question will come from Eric Martinuzzi with Lake Street.

Yes, the question I had was with regard to the expense run rate, I understand we've got a couple of moving parts here and trying to come up with a “normalized expense run rate”. But given maybe just sort of quarter rising January, I'm just trying to get a sense for that 91.5 that we had in Q1, didn't include the month of October for MIAT. But it also had some push outs on some campus investments. So can you give us a feel for what's the quarterly expense run rate Troy?

Yes. If you went back to my Q4 comments, I said, the first quarter would be mid-90s, step up to the mid-90s, and then go up to around 100 million from there high 90s million to 100 million. And of course, we came in at 91.5, as you said, so that that was part of the profitability benefit. We saw and 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 to one month, as you said, MIAT, so probably in that high 90s million to 100 million range is what would make sense for the rest of or the next two quarters. And then, a little bit higher than that, with the Q4 spike up with the students in the education cost to support the large number of students that come in.

That's helpful. 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. What's the -- have you done anything synergies wise in Houston as far as either decided 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 in to the family. We're running them as 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. So we've done a lot of work, the back office side, HR, payroll, finance, we brought a lot of that already into common framework. So a lot of good progress has been made. And really the next few months, will probably complete -- I would say that the core integration and really from there, it's -- and we're already working on, of course, the growth side as well with the marketing emissions combination and trying to drive more lead flow and housing program for the Michigan campus so that there's relocating students have more of an opportunity to go there, which is not something MIAT had really explored to an extent previously. So all of that is moving and moving very fast.

And 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.

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