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Text: I'll refer you to today's news release for UTI's comments on that topic.
The safe harbor statement in the release also applies to everything discussed during this conference call.
During today's call, we'll refer to adjusted operating income or loss, adjusted EBITDA, and adjusted free cash flow, which are non-GAAP measures.
Adjusted operating income or loss is income or loss from operations, adjusted for items that affect trends and underlying performance from year-to-year and are not considered normal recurring cash operating expenses.
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 expenditures, adjusted for items not considered as part of the company's normal recurring operations.
Starting with the third quarter of fiscal 2019 and through fiscal 2020, we will report operating metrics such as student applications and starts, excluding our Norwood, Massachusetts campus.
As we have shared previously, Norwood stopped accepting new student applications in the second quarter of fiscal 2019 and will fully close before the end of fiscal year 2020, so we believe it is appropriate to exclude its impact.
We sincerely appreciate your interest and investment in UTI and look forward to working with you in the future.
As many of you know, and for those of you who are new to the call, UTI is the nation's leading provider of technical training for automotive diesel, collision repair, motorcycle, and marine technicians, and we also offer welding technology and computer numerical control, CNC machining programs.
We have a nationwide network of 13 campuses, where we offer hands-on training in state-of-the-industry labs, complemented by our new online training, which allows us to offer quality education during the COVID-19 pandemic and will serve UTI and its students going forward.
Our newly assembled executive management team is leading that charge and is supported by a solid balance sheet and excellent financial flexibility.
In our 54-year history, UTI has proven its ability to adapt to changing financial and regulatory landscapes and has seen increased student demand in times of economic hardship.
I'll add more on that later, but first, I'd like to discuss the recent quarter and review how we're approaching the COVID-19 crisis, preparing for the near-term, and positioning the company for the future.
In the second quarter, results were positive, and we demonstrated continued momentum.
New student starts were, up 6.6% year-over-year, excluding our Norwood campus, where we're winding down operations.
Contracts for the quarter grew 4.5% year-over-year, and our show rate improved 100 basis points.
Total revenues increased 1.2% to $82.7 million.
Net income, which included an income tax benefit of $10.8 million, was $10.1 million, and adjusted EBITDA was $3.1 million.
Troy will get into more details of our financial results a little later in the call.
Indeed, it was a busy quarter.
We bolstered our executive leadership team with new leaders heading up our corporate strategy, IT, and legal departments, changed our marketing and admission functions, and began the search for new commercial and human resource officers.
And we wish Roger Penske well, as he transitioned off the board after more than 20-years of insightful guidance and counsel.
Even in the face of the pandemic and as many challenges, we continue to move forward with our growth and improvement initiatives; including expanding our welding program to new campuses, optimizing admissions and marketing, and maximizing the productivity of our campuses.
In February, we successfully raised $49.5 million in a primary equity offering led by B. Riley FBR, who also led the December secondary offering and brought in many new investors.
Like many businesses, we began to feel the impact of COVID-19 pandemic in the last two weeks of March.
We were able to quickly pivot the business model in response, implementing changes that will help see us through the pandemic and innovations that can serve our students and our business for the long-term.
In response to this unprecedented situation, we implemented strict, CDC-guided safety precautions at all of our campuses and our home office, and quickly transitioned our in-person education model to online.
As the threat was first identified, we remained operational and immediately implemented protocols recommended by the CDC.
As governors and local officials began to issue orders and mandate closings of schools and businesses, we suspended all in-person classes at our 13 campuses on March 19 and transitioned all classroom learning to online.
The following week, we transitioned our first wave of students to the online platform, and within less than two weeks, we were fully operational and up and running.
We're proud of the dedicated team and their extraordinary efforts, as this type of curriculum transition would normally take many schools many, many months to execute.
Today, we have over 11,000 students enrolled, with more than 8,000 currently progressing their education through the online platform, including over 500 students, who have started directly into the online platform over the past several weeks.
Our online curriculum consists of instructor-led lectures and demonstrations, and we continue to engage students and give them one-on-one support through virtual classroom reviews and virtual office hours.
The transition to the online curriculum has been successful and opens new opportunities for the company and our students.
However, the uncertainty and disruption created by COVID-19 crisis means we do have more students on leave of absence.
We are now beginning to meet those students' need to practice and master hands-on skills that are so important to their success, by resuming in-person training, while online education continues.
To protect our students and staff, and align with the CDC guidelines and state and local directives, we have -- we are modifying our class sizes and schedules for safety and social distancing.
As of today, Dallas, Ft.
Worth and Houston campuses are operating in this modified format, and our Avondale, Arizona, Phoenix, Arizona, Long Beach, California, and Mooresville, North Carolina campuses should resume face-to-face labs the week of May 11th, and Florida's not far behind.
We've also revised our marketing message to focus on the durable opportunities for skilled technicians in the transportation field.
Broadly, our message to potential students feeling the economic impact of the virus is, we feel for you, we're here for you, and we want you to come to UTI because this is where the jobs are now and in the future.
Now, with no live sports on TV, broadcast media consumption among our target demographic is down.
In order to optimize our lead generation in this environment, we cut $2 million from our broadcast budget and have intensified our focus to where our target audiences are spending their time right now, which is social media.
It's paying off, evidenced by our inquiry activity.
Inquiries pre-COVID through the first half of March were better than the prior year and beat our internal expectations.
While we did see a significant dip in mid-March through the first week in April, we've seen an accelerating improvement since then.
The full month of April performed similar to the first half of March, solidly above prior year and our internal expectations.
We also have shifted our admissions model, which has been almost exclusively face-to-face, and are now connecting with students and their parents through online meetings, virtual tours, and other events.
For example, in April, in addition to telephone interview, our admission reps averaged 80 virtual interviews a day.
Our admissions reps have noticed an increase in the number of people, who want to talk and meet with us virtually, many of whom have come away with the -- impressed by the technical education we offer and our teaching facilities.
If you haven't had a chance to visit one of our campuses in person yet, I invite you to go to our investor website, where you can take a virtual tour and see for yourself.
While it by no means has been easy transition, we're proud of the work to keep the students in school through the crisis and are finding innovative ways to introduce our education to people, who can greatly benefit from it, especially now, as our country begins to process and emerging from the crisis and moves into a period of economic recovery.
Today, new student enrollments are above where they were last year at this point.
This bodes well for our fourth quarter, where the majority of our students start.
But with fewer students currently active in school overall, and the expense of transitioning online and modifying our educational model, we've taken some decisive actions to reduce cost.
This required some very difficult decisions, including the furlough of approximately 280 of our employees.
Employees on furlough continue to receive full benefits, and we look forward to bringing them back as soon as we're able to reopen all of our campuses and our student population continues to recover.
So, to sum it up, right now, we're keenly focused on student retention, continuing to grow and bring in new students, and cash preservation.
There of course will be challenges as the world recovers from COVID-19, but we believe our deeply held commitment to delivering value for both our students and industry partners, and our strength in innovation, which allowed us to transition to an online model and find safe and effective ways to offer our unique, industry-aligned education, will continue to serve UTI and our students.
As Jerome noted, we performed well for the majority of our fiscal 2020 second quarter and posted solid results, but they were impacted, starting in mid-March by the COVID-19 pandemic, which lowered our revenue approximately $2.5 million to $3 million from our pre-COVID expectations for the quarter.
The revenue impact is primarily a timing differential, due to the temporary student leaves of absence, or LOAs, we have discussed.
We partially offset the revenue impact on profitability by taking steps to mitigate costs, such as the employee furloughs, and reduced variable and discretionary spend across the enterprise for categories like travel, contract services, and campus supplies, so that the profitability impact in the quarter was approximately $1.25 million to $1.7 million.
As students on LOA return to continue their education, we fully expect to recover the associated revenue and profit.
We're also stringently managing payment terms with our vendors, working cash optimization opportunities on a number of fronts.
For student metrics, new student starts in the second quarter increased 6.6% year-over-year, and were 2,093 in the quarter.
In the first half of 2020, starts were higher by 7.1% year-over-year.
We saw start growth across all three channels in the quarter and year-to-date.
This is all same-store growth and is driven by enrollments, which were higher by 4.5% in Q2 and 5.1% year-to-date, and show rate improvement of 100 basis points in the quarter and in the first half.
We continue to yield very positive results from our marketing, student engagement, and grant strategies.
I'll now turn to a few highlights on our second quarter and first half 2020 financial results.
Revenue increased 1.2% to $82.7 million, driven by higher revenue per student, partially offset by a decrease in the average student population, due to the student LOAs that caused the $2.5 million to $3 million impact in the quarter I mentioned previously.
First half 2020 revenue of $170 million is up 3.1% versus the first half of fiscal 2019, due primarily to higher revenue per student.
Average students for the quarter were down 3.1% year-over-year, and slightly positive for the first half of the year, when compared to the first half of 2019.
We ended the second quarter with 7,373 active students.
This has since increased to approximately 8,300 active students, with another approximately 600 students on LOA, who only need to complete their remaining hands-on labs to graduate from the program.
There are approximately 2,500 other students currently on LOA versus approximately 300 at the same time last year.
While we cannot be certain, based upon their scheduled return dates and feedback we have gathered to-date, we would expect that a significant majority of these students will elect to resume their education over the coming months, as we resume hands-on labs on our campuses and the overall COVID-19 situation further stabilized.
Operating expenses decreased by 4.7% to $83.2 million, for our fifth straight quarter of year-over-year expense declines, while growing revenue.
The year-over-year decrease in the quarter is primarily due to lower costs related to compensation and benefits, as a result of reduced headcount and benefit plan savings.
Compensation and related costs were 52% of revenue in the quarter and down 450 basis points as a percent of revenue year-over-year.
Headcount was 1,645 as of March 31st, a decrease of 70 versus the end of the prior-year quarter.
Also of note, when you look at the P&L line items, you continue to see the impact of the lease standard implementation this fiscal year, with higher year-over-year occupancy costs offset by lower depreciation costs, due to the change in treatment for build-to-suit leases.
First half 2020 expenses of $166.2 million are down 6.4% year over year.
Specific to COVID, we incurred expenses from increased cleaning and related supplies throughout March, as well as costs related to our online learning transition and disrupted campus operations in the last two weeks of the month.
We're quantifying all the COVID cost impacts, beginning in March and continuing through the duration of the crisis, so we can better understand run rate impacts, and also ensure we have appropriate details to support available cost offset opportunities afforded with the CARES Act.
As we think about our cost structure and our employee-related costs on our campuses, the introduction of the online curriculum enables significant efficiency opportunities.
Our student-to-on-campus instructor ratio is typically 27:1, while a typical online learning ratio is much higher.
As we begin to resume hands-on labs on our campuses in the near term, we will have some inefficiencies, as the student-to-instructor ratio will be 9:1.
However, we will maintain a blended model, with online learning for the classroom component, and we'll look to integrate this more permanently over time, along with other efficiencies we develop through our current remote operation.
Net income for Q2 was $10.1 million, translating to basic and diluted earnings per share of $0.18.
We had 32.7 million basic shares outstanding as of the end of the quarter, which reflects the 6.8 million shares transferred from treasury stock for our February equity offering.
Q2 net income improved $15.4 million from the prior-year quarter and included a $10.8 million income tax benefit resulting from net operating loss carryback revisions within the CARES Act.
Assuming the IRS is able to process the refund request in a reasonable timeframe, we would expect to receive the cash refunds by the end of the fiscal year.
First half 2020 net income is $14.8 million, up $27.8 million year over year, and also includes the income tax benefit.
Operating cash flow of $10.9 million for the first half of 2020 increased $8.1 million year-over-year and reflects our improved profitability in cash management, as well as working capital timing.
As I spend a moment on our adjusted results, a quick reminder that our adjustments for FY '20 reflect costs associated with the Norwood campus closure and with our CEO transition, while in FY '19, they reflect costs associated with the termination of our transformation consultant agreement and with the Norwood campus closure.
Adjusted operating income for the quarter was $500,000, a $4.7 million increase year-over-year, and $7 million for the first half of 2020, a $14.2 million year-over-year improvement.
Adjusted EBITDA was $3.1 million in Q2, a $2.3 million year-over-year increase, and $13.1 million for the first half, an $11 million year-over-year improvement.
Both the Q2 and first half results include the $1.3 million per quarter negative year-over-year impact, due to the leasing standard implementation this fiscal year.
Adjusted free cash flow was $6.7 million for the first half of 2020 and increased $3.7 million versus the prior year.
Capex was $5.2 million for the first half of 2020, up slightly versus the prior year, and reflects spend associated with our welding program expansion investments, the Exton, Pennsylvania facility rightsizing, and other spending.
Through our February equity raise, we significantly strengthened our balance sheet to enable further steps in our long-term strategy of growth, diversification, and scale.
Our available liquidity as of March 31st was $118.1 million, which includes $76.6 million of unrestricted cash and cash equivalent, and $41.5 million of short-term held-to-maturity securities.
These consist of Treasury securities and high-quality corporate bonds, and provide us incremental yield benefits.
In addition to the cash preservation, operational and cost efficiencies, and working capital management actions I've mentioned, there are further opportunities resulting from potential applicability of the CARES Act.
As we announced previously, we expect to receive approximately $33 million in grant funds through the CARES Act Higher Education Emergency Relief Fund.
Per the Department of Education's guidelines, at least 50% of these funds will be used to grant emergency financial aid to students impacted by COVID-19.
The company also intends to use a portion of these funds to offset costs that have arisen as a result of the COVID-19 crisis, for the operations and infrastructure investments needed to support our students' education and curriculum needs during this time.
We are expecting additional guidelines from the Department of Education that will give us better clarity on what costs and investments these grant funds can be used to offset.
There may also be opportunities for us to leverage the employee retention credit.
We are currently reviewing the updated guidelines released by the IRS late last week for potential applicability.
From a cash perspective, we are electing to defer our payroll tax payments starting with April 2020 through the end of calendar 2020, and expect a quarterly cash benefit of approximately $1.5 million to $2 million.
Note, we are not eligible for the Payroll Protection Program, due to our size, and are not currently applying for any other loan programs, but do not completely rule out doing so if we deem it beneficial or necessary.
Turning briefly to our real estate footprint optimization efforts, for the Norwood campus closure, we were running ahead of schedule, prior to the suspension of in-person instruction at the campus.
We are still pushing to have the campus fully closed before the end of this fiscal year, dependent upon the timing of the campus resuming hands-on labs, and potential delays to those students' graduation date.
Our headquarters relocation and downsizing remains on track for completion by June 30th.
As noted previously, this action will save approximately $1.3 million annually.
We also have longer-term opportunities across a number of our campuses for consolidation and rightsizing, and are actively engaged with landlords on these discussions.
The introduction of the blended learning environment may afford us new efficiency opportunities in the future and is something we will incorporate into these discussions.
We expect to have more details on these actions in the coming quarters.
As we announced in our business update on April 22nd, we have withdrawn our guidance for fiscal 2020.
As we noted then and I've touched on today, there are multiple variables related to COVID-19 that can impact our business.
The five key variables we are closely tracking, continued engagement of students in the online curriculum; timing of resuming hands-on labs at our campuses; timing of students returning from LOAs; potential cost recovery opportunities associated with the CARES Act, and Q4 and post-COVID-19 student demand.
Assuming by the end of the third fiscal quarter all of our campuses are open for hands-on labs, and a significant portion of the current student LOAs return without material new LOAs, we estimate that the overall negative impact from COVID-19 would primarily be realized in the fiscal third quarter.
In this type of scenario, we estimate full-year revenue could be roughly flat to FY '19.
However, if any of these are not the case, or we see deterioration in our current Q4 start expectations as a result of COVID-19, then we will likely see negative financial impacts extending into Q4 and an overall greater impact to the fiscal year.
Regarding cash, as we look to the third quarter under the same scenario, we expect we will be a measurable cash user.
The seasonality of our business would normally have us consume cash in the quarter, given Q3 is our lowest-revenue quarter in the fiscal year.
This will be heightened in the quarter, due to the expected Q3 COVID impact, and also, the delay in receipt of Title IV funds for existing students, until they complete their current hands-on labs.
Under this scenario, we estimate that the net cash burn in Q3 could range between $25 million and $35 million, and that we could fully recover it in Q4.
However, while we normally generate most of our full-year cash flow in the fourth quarter, we will need to see how these factors play out, along with a more complete view of Q4 starts, before we can understand how the year will look from a cash and total liquidity perspective.
We will continue working to minimize impacts to profitability and cash flow under any scenario.
Note, these are only estimates around potential scenarios and should not be considered revised guidance.
As leading indicators, we are very encouraged by the fact we were able to start over 500 students directly into the online curriculum in April.
We started resuming hands-on labs at several of our campuses, and that we are pacing ahead of last year and are within a few percentage points of our original goal for FY '20 new student enrollments.
We still have a few months to make up the gap caused by COVID-19, which is not out of the question, given the momentum we've regained with our marketing and admissions activity.
We will also be looking to attract a broader audience of potential students, given the macroeconomic circumstances.
We are working as diligently as possible across all the dimensions I've discussed to minimize financial impacts, while ensuring the health and safety of our students and employees.
Success on near-term student retention and cash preservation will ensure that UTI's long-term growth agenda can be maintained, and the company could possibly emerge even stronger on the other side of the COVID-19 disruption.
Before closing, I want to commend all of our UTI employees for their amazing efforts over the past two months, overcoming every challenge put in front of them.
We are fortunate to have such a dedicated and talented workforce, which is one of our key competitive advantages.
As we continue to support our students and team through this uncertain time, we remain confident in our ability to attract and train the technicians this industry needs.
In times of weak economy, like what we are facing today, there will be fewer jobs available that offer competing entry-level wages, which drives interest in the technical trade skills education and the student value proposition that UTI provides.
We anticipate seeing benefits gained by the new marketing and admissions and blended learning approaches we are using, which have potential to accelerate timelines and speed and increase capacity.
Online instruction is more efficient in terms of number of students per teacher, and the format could help reach new students, for whom the program format, in particular the length, did not work for them in the past.
The new blended learning offering would help increase capacity, for example, at Dallas and Bloomfield, and will help us allow to have staggered lab starts.
It can also help us reevaluate our real estate footprint moving forward, as a significant space is currently used in in-person classroom instruction.
We are moving ahead, while deliberately being cautious on identifying longer-term organic and inorganic growth opportunities.
Now, the lead times on these opportunities vary in length, none with an immediate turnaround, and some that can be very long.
We look forward to providing updates as appropriate on those.

user
compname reports q2 earnings per share of $0.18.
q2 earnings per share $0.18.
q2 revenue $82.7 million versus refinitiv ibes estimate of $83.5 million.

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