Universal Technical Institute Inc Q1 FY2024 Earnings Call

Good day, and welcome to the Universal Technical Institute First Quarter 2024 Earnings 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.

Hello, and welcome to Universal Technical Institute's fiscal first quarter 2024 earnings call. Joining me today are our 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 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 and investor presentation. With that, I will turn the call over to Jerome Grant, CEO of Universal Technical Institute, for his prepared remarks.

Thank you, Matt. Good afternoon, everyone. Our momentum continued into the first quarter of 2024 as the company's financial performance has continued to meet expectations. We achieved $174.7 million in revenue and $24.5 million in adjusted EBITDA. Student starts were 4,346, which was right in line with our expectations. Troy will spend some time in just a few minutes going a bit deeper into these impressive numbers. These results underscore the consistency with which we have delivered on our financial promises over the past several years. We have also made rapid progress on our growth and diversification objectives, and we have entered this fiscal year as a robust multi-divisional company poised for continued growth, with each division priding themselves on maintaining a strong track record of superior student graduation rates and employment outcomes. Our excellent performance is made possible by the dedication of our faculty, staff, and students across Concord and the UTI division, along with support from our corporate teams. I would like to thank them for their tireless commitment as we continue executing on our growth objectives and expanding the training and employment opportunities we provide our students across in-demand industries. As a key corporate update, I would like to highlight that effective December 2023, we satisfied the conditions that allowed us to fully convert our outstanding Series A preferred stock into common stock. In connection with the transaction, Coliseum Capital Management's Co-Founder and Managing Partner, Chris Shackleton, was appointed as a Class III Director to our Board. Troy will review the milestones more fully later in the call, but we would like to thank Chris and Coliseum for their support when we most needed it and for their continued investment in partnership. We have also continued to strengthen our corporate and divisional leadership teams. As we announced last month, we recently appointed Carolyn Frank as our first Corporate Chief Human Resource Officer. Carolyn brings tremendous experience in building and managing human resource organizations, including Finance of America and Guild Mortgage Company, both New York Stock Exchange-listed companies. I'm confident that she will contribute at a very high level to our mission, and I'm proud to welcome her to the company. I'm also happy to announce that Kevin Prehn has been appointed the President of Concorde Career Colleges. Since accepting this interim appointment in September, Kevin has made resounding contributions to both the division and our corporate leadership team. With Kevin at the helm, I'm confident that the Concorde division will quickly reach its fullest potential. We look forward to our continued work with Kevin and progressing Concorde's divisional goals. Let's turn our attention to the performance and notable highlights of each of our divisions, starting with Concorde. In the first quarter, we continued to make progress with new healthcare program rollouts. As we announced in December, we launched a cardiovascular sonography program and a diagnostic medical sonography program in Orlando and a dental hygiene program in Jacksonville and another cardiovascular sonography program in San Bernardino. This brings us to five new Concorde programs launched in the past six months. As we had previously launched an online respiratory therapy program in late fiscal 2023. Market demand for our healthcare programs remained strong through Q1. We also continue to work towards launching two other dental hygiene programs this year where we have maintained our progress by completing their necessary regulatory approvals. In addition, we're in the process of expanding the capacity of our dental hygiene program in our San Diego campus. We also remain focused on driving additional operational and organizational efficiencies with Concorde along with executing on further integration and synergy opportunities, while optimally supporting our current and incoming healthcare students. Our work to fine-tune the divisional infrastructure gives our healthcare offerings an even greater platform for growth. In the UTI division, we've continued to accelerate our year-over-year start growth in Q1 and ramp our newest programs. Significantly, we have now launched the aviation program in UTI's Miramar campus, which was the final launch from our 14 planned new programs last year. Demand for these newest programs has remained strong with almost 400 combined student starts across the 14 programs over the last two quarters. We're encouraged by the early returns from these programs, and we're making good progress growing the enrollments and pipeline. We anticipate at least 1,000 new student starts with these programs this fiscal year. The division's most recent program launches are just our first steps towards expanding the MIAT sourced aviation skilled trades and energy programs more broadly across the UTI campus footprint. We continue to evaluate additional program expansion opportunities in the UTI division. In fact, we've already started the second phase of the program expansions, and we are currently on track to launch three additional heating, ventilation, and air conditioning programs this year, with a fourth HVAC program expected to launch in early fiscal 2025. In another strategic step related to the MIAT acquisition, we recently announced our plans to consolidate the UTI division's Houston operations into a single campus. Through this transition, the MIAT Houston campus will start operating under the UTI brand and implementing a phased transition beginning this May. The consolidation is meant to streamline operations and standardize our educational delivery model in Houston by aligning our campus' curriculum, student-facing systems, and their educational and career support services to better serve students seeking careers in in-demand fields. This process will also help future students complete certain programs more quickly and strengthen UTI's position as a dominant provider of Career and Technical Education solutions in the Houston market, a market in which we've operated for over 40 years. We're working to ensure that the current MIAT students have a seamless and positive experience through the transition, and we expect the transition process to be fully completed in early fiscal 2025. Our division-level initiatives all support our core commitment to driving superior student outcomes across diversified in-demand fields. We deliver on this commitment not only through expanding our program offerings and optimizing our campuses, but also through prioritizing top-quality partnerships and instruction. In both divisions, our industry partners continue to invest in our programs and students. For example, Standard Motor Products, or SMP, is a long-time UTI division partner that manufactures and distributes premium automotive and truck parts. SMP's products are deeply integrated into the hands-on portion of our automotive and diesel programs. SMP recently extended its partnership with UTI to provide a product allowance at our UTI campuses, an investment of up to $80,000 per year. In addition, we recently secured a partnership with the United Service Organizations, commonly known as the USO. This partnership will offer specialized training programs and resources to help military personnel with their transition to civilian life and careers in transportation, motorsports, renewable energy, and aviation industries. In terms of our healthcare partnerships, we announced last week that our partners at Jefferson Dental and Orthodontics recently donated two cutting-edge iTero intraoral 3D scanners to our campuses in Dallas and San Antonio, Texas. iTero 3D scanners use a handheld wand to capture thousands of images of patients' mouths in just seconds. This enhanced visualization enables higher quality dental services and patient experiences. Through using the scanners in their clinical work, our dental students will access innovative, state-of-the-industry technology that prepares them for the future of dentistry. We extend our deep gratitude to our partners at Jefferson Dental for their generous donation and dedication to our students. Also at Concorde, Heartland Dental, one of the top dental service organizations in the nation with more than 1,700 supported practices nationwide, recently extended their commitment to provide scholarship offerings to students in our Dental Hygiene program. This is the third year that Heartland has invested in our Dental Hygiene students. Now looking ahead to 2024, we continue to have high confidence in the trajectory of our student starts and the guidance we set in November of 24,500 to 25,500 starts. That said, with the strength of our first quarter results and continued progress on our growth, diversification, and optimization strategy, we are raising our full-year revenue and profitability guidance for fiscal 2024. Notably, we now expect to generate annual revenue between $710 million and $720 million and adjusted EBITDA of between $100 million and $103 million. Troy will cover these updates in more detail in just a few moments. To support our broader revenue, profitability, and cash generation objectives, we also continue to focus on our key operational focus areas for 2024, which include increasing enrollment revenue and profit growth from our fiscal 2023 and 2024 program launches, ramping the yield of our marketing and admissions investments to further optimize lead generation and inquiry conversion in both divisions, and continuing to optimize our workforce strategies, hiring practices, and facility utilization to drive greater capital and operating cost efficiencies, both of which propel our program and margin expansion. Our focus in these areas will also give us an even greater foundation from which to drive strong student outcomes. We've already laid much of the foundation over the past two years and we expect to make additional progress throughout fiscal 2024. I'd now like to turn the call over to Troy to review our first quarter financial results.

Thank you, Jerome. We outperformed our revenue and profitability expectations once again in the first quarter, reflecting a robust full-quarter contribution from Concorde and new student start growth in both divisions. Consistent with last year's presentation, our results include both consolidated and segment views as well as corporate unallocated costs. Unless stated otherwise, the year-over-year comparisons remain on an as-reported basis, as the year-ago period only includes one month of Concorde contributions from the acquisition date of December 1, 2022. To summarize our operational performance, we recorded 4,346 total new student starts, which was in line with our expectations and reflects year-over-year start growth across both divisions. In the UTI division, starts increased 17.2% year-over-year, and we continue to see improved same campus, same program growth consistent with the past few quarters. The divisional start growth also reflects contributions from our most recent program expansions, as Jerome already commented on. On a pro forma basis, Concorde core starts grew a healthy 14.4%, with total starts growing 12.5%. The core starts reflected additional marketing investments and continued success with the grant programs implemented last year. Note clinical start growth rates are highly variable on both the quarter-over-quarter and year-over-year basis due to varying program lengths and available starts, which can be limited by programmatic accreditation standards. Moving to our financial performance, our first-quarter revenue of $174.7 million on a consolidated basis exceeded our expectations, increasing 45.6% versus the prior year. The full quarter of Concord contributed $59.3 million, which increased $44.9 million versus the prior year, while the UTI division saw 9.3% year-over-year growth. From a profitability standpoint, consolidated net income for the first quarter was $10.4 million or $0.17 per diluted share, while adjusted EBITDA was $24.5 million. These all reflect measurable year-over-year growth due to the full quarter contribution from Concord along with improved operating leverage and cost efficiencies as we generate yield from our growth investments and optimization efforts. Note our EBITDA adjustments are largely consistent with last fiscal year. We expect less of an impact from new campus and program start-up costs and limited impact from acquisition-related costs. A potential new item this year is restructuring costs related to the UTI and MIAT Houston Campus consolidation efforts. To the extent there are costs for this, they will be recognized in the period they have occurred. As Jerome mentioned, in December, we satisfied the conditions that allowed us to fully convert the outstanding Series A preferred stock into common stock. This increased our total common shares outstanding by 19.3 million shares. Immediately prior to the conversion, we purchased 33,300 shares of Series A preferred stock convertible into 1 million shares of common stock owned by Coliseum and an affiliate for $11.3 million. Through the repurchase, their combined ownership percentage post-conversion is below 25%, thus eliminating the need for further regulatory approval. As of December 31, 2023, we had 53.7 million shares of common stock outstanding. Of note, given the partial quarter with the preferred shares in place, our earnings per share calculation for the first quarter reflects the two-class method we had used previously with the associated effects of the preferred dividend and the earnings allocation to the participating securities. Going forward, our year-to-date and full-year EPS calculations will also reflect the two-class method, while the remaining quarters will reflect the more traditional basic and diluted EPS calculations. We saw a favorable effective tax rate in the quarter versus more recent quarters and the year-ago period due to the impact of various discrete items. Following these benefits throughout the full year, we now expect a full-year effective tax rate of approximately 27% versus our initial 30% expectation. Total available liquidity at the end of the quarter was $143.6 million, which includes the $90 million drawdown of our revolving credit facility. We ended the quarter with excess working capital, while our target going forward is to maintain a modest level of working capital. As such, we will be actively managing the amount of the draw we have against the revolver to achieve this target and minimize interest expense as much as possible. Total debt was approximately $162 million, while net debt was approximately $18 million. Our first-quarter operating cash flow was $10.8 million, and adjusted free cash flow was $10.2 million. Our cash CapEx of $3.8 million for the quarter was a bit lighter than we expected due to spending timing, but we still expect approximately $30 million of CapEx for the full year. Consistent with our guidance, we currently have lower levels of new growth investment planned for fiscal 2024 relative to recent prior years. Thus, we continue to anticipate having fewer adjustments and expect to generate strong unadjusted free cash flow for the fiscal year. With our positive first-quarter performance and current visibility into the remainder of the year, we are raising our revenue and profitability guidance ranges for fiscal 2024. Our updated guidance ranges are as follows: Revenue of $710 million to $720 million, an increase of $5 million, net income of $36 million to $40 million, an increase of $2 million, diluted earnings per share of $0.67 to $0.72, an increase of $0.14 with approximately $0.10 driven by the combined impact of the preferred conversion and repurchase, and adjusted EBITDA of $100 million to $103 million, which increases the bottom end by $2 million and narrows the range by $1 million. We continue to have high confidence in our prior adjusted free cash flow guidance of $62 million to $66 million, as well as our prior new student start guidance of $24,500 to $25,500. As always, we will evaluate our guidance throughout the year as we gain further insight into our actual and expected performance and make adjustments as needed. In terms of revenue phasing, we continue to expect upper single-digit to low double-digit revenue growth over the remaining quarters. These expectations are driven by the ongoing ramp of our recent program expansions and student start growth momentum in both divisions. For new student starts, we continue to expect double-digit growth in the second quarter and then stabilization in the low to mid-single digits in the second half of the year as we complete the initial ramp phase of our prior new program investments and mature the proactive grain enhancements and other initiatives we put in place in fiscal 2023. Moving to adjusted EBITDA, we continue to expect solid growth each quarter, with higher growth and profitability in the second half of the year given the revenue growth, higher yields from our program expansion investments, and greater operating leverage for SG&A and fixed costs. For GAAP net income and diluted EPS, we expect significant year-over-year growth each quarter given the improvement in overall profitability and the relatively smaller numbers in the prior year along with the benefits of the preferred share conversion. As we look ahead, across both divisions, we will be focused on optimizing their cost structures in facility and resource utilization and driving increased yield from the growth investments we have made in the past few years. We will also continue working to identify additional growth opportunities where we can efficiently deploy capital to further our growth and diversification objectives. We encourage everyone to review our press release, financial supplement, and investor presentation as these materials include the most current information on our consolidated and segment actual results, our strategic roadmap, and our guidance. I'd like to thank our team, students, and partners for their continued support as we progress further into 2024. I'll now turn the call back over to Jerome for closing remarks.

Thank you, Troy. As our first quarter performance demonstrates, we've continued to deliver on and exceed expectations across our key financial metrics while expanding the top-quality training and career opportunities we facilitate for our students in high-growth markets. Our execution has remained strong and consistent over the past several years, giving us much of the runway needed to achieve our updated fiscal year 2024 targets. We are at least a year ahead of our originally stated plan, and our revised targets exceed even this long-term view. They are a testament to the robust multi-divisional foundation we have built and continue to refine. Upon this foundation, we will continue providing premier, diversified career pathways for our students, but at an even greater scale and caliber. Over the coming quarters, we will be working to ramp the most recent program launches in both divisions, enhance the yield of our marketing and admission investments, and optimize our workforce and facilities utilization to drive greater margin expansion and improved operating leverage. This work enhances the benefits of the initiatives we put into place over the past year, as well as the overall strength and efficiency of our growing platform. In closing, I'd like to reemphasize that this is not the endpoint of our growth trajectory. We have conquered as the cornerstone of our healthcare operations and remain focused on ramping our presence and offerings for this rapidly growing industry, as well as expanding our program offerings and corporate partnerships across both of our businesses. These focus areas make us well-positioned to evaluate further pathways toward deepening and diversifying our footprint. We are proud of our progress and look forward to continuing and building on our momentum for UTI Inc., in fiscal 2024 and beyond. I'd now like to turn the call over to the operator for Q&A.

Our first question comes from Mike Grondahl with Northland Securities.

Jerome, could you maybe highlight what is working on the marketing side and some of those investments you've made, whether that's high school or military? Just maybe expand on that a little bit, like what's working on the marketing side and getting people into school?

Sure. Well, a couple of things. Our adult population, which includes military, interest is driven primarily through digital means. And we've begun to use more sophisticated tools along with our social media vendors and Google, which is doing a much better job of utilizing new AI tools to isolate the population that's most likely to be interested in our offerings. So, the way we attract interest nowadays, whether it's geographically, by age, or by social media preferences and things along those lines, is actually giving us a better quality lead, which is great to see. It's also helping us discern between those who are less likely to convert and those who are more likely to convert, which helps our representatives spend more time with those more likely to convert. Consequently, we're seeing an uptick in conversion based on our enhanced ability to identify those interested in transportation, skilled trades, or healthcare fields. Furthermore, we significantly increased our presence this year in the high schools. In various high school organizations, much of the demand is driven by our representatives going into the high schools and delivering career presentations about 3 to 4 days a week, doing 5 to 6 presentations a day, which generates interest. In 2023, we added about 15 representatives in the high school channel, and they are now hitting their stride in their second year; their relationships are stronger, and they know more about the schools, faculty, and administration. We’re seeing them be significantly more effective and doing many more presentations, generating a lot more leads. I think those are the primary factors driving positive outcomes in lead generation.

And then just one more question. You've done a bunch of expansions at Concorde at UTI. Is there maybe one at each that really stands out or one or two at each that have performed exceptionally well? Any color there?

On the Universal Technical Institute division side of the aisle, I think the HVAC programs are performing as we typically expect, similar to how we've discussed welding programs in the past—they fill up pretty quickly due to the high demand for HVAC technicians. People understand what an HVAC technician does, requiring less market knowledge. We're really happy to see the positive outcomes from the HVAC implementations, which is why we're accelerating more of them on the UTI campus. Additionally, the aviation programs are performing very well, often exceeding our expectations for the initial cohorts. On the healthcare side, Concorde is doing particularly well in the dental fields, which is why we decided to move forward aggressively with implementing some dental hygiene programs that had been approved prior to the acquisition. These dental hygiene programs sell out quickly, so we have to be selective in who we admit due to limited seating, which can create waiting lists for subsequent cohorts. Thus, HVAC and dental are currently the shining stars, with aviation not far behind. Other programs, such as robotics or wind energy, are doing well, but they require more outreach to educate prospective students about the careers available.

Our next question comes from Steve Frankel with Rosenblatt.

One of the trends that has been going on for a while that has been beneficial to you is employers really battling for these students and upping their offers in terms of things like tuition reimbursement. Given where we are in terms of the overall employment market, has that battle turned the other way, or do you still see the stakes getting higher for someone to get to the table at UTI?

It's a great question. If anything, in many of the areas on the UTI side of the equation, the demand is even growing. If you look at BLS projections over the next 10 to 15 years, the demand for personnel in transportation, skilled trades, and energy is even rising. One of the things we've highlighted in the past that we are particularly proud of is the trip program we've implemented. Prior to this, we didn't have an organized way to document what the employment community would be offering our students. These trip agreements specify how much employers will provide in tuition reimbursement and other benefits like signing bonuses or even vehicles in some situations. They allow us to rank order the attractiveness of employers to our students while informing the employment community of what competitors are offering. We see employers putting together more competitive offers to gain access to our graduates. We want to provide our graduates with a high-quality industry-aligned education, and then we strive to secure them the best job opportunities. These trip agreements effectively heighten competition among employers who seek to hire our students. This has also benefited Concorde, as prior to our acquisition, they had already done an excellent job of cultivating local opportunities for their graduates. As we've mentioned, the healthcare opportunities available dwarf those in transportation trades and energy, and we're beginning to transition the Concorde organization to reflect this same successful approach.

Another challenge, especially when inflation was at its peak, was convincing students to relocate. Have the incentives that you are offering worked? Has the capacity situation at those larger campuses like Orlando changed?

Yes. Hey, Steve. This is Troy. We are still seeing good progress on the local side; our efforts have been moderated over the last few quarters. We haven't seen a downturn. We are still seeing strong progress in local penetrations, particularly with the new program offerings helping to drive relocations. We are generating good leads and believe things have stabilized, but we continue to look for the right balance of incentives to attract students to campuses with a high concentration of relocations.

Relative to the way I modeled it, the revenue per head at the core UTI or the legacy UTI business was a little lower than I thought. Was there anything that led to that that you would call out?

Well, we traditionally see Q1 dips due to the holidays; we close for a week in December. I apologize if we didn't convey that in any of our previous conversations. However, we do observe dips, which are followed by growth trajectories, typically growing a few points based on tuition increases.

The next question comes from Raj Sharma with B. Riley.

I wanted to understand better the starts; they are slightly higher than expected, is my understanding. Is most of the expected gain for the year in the second half still?

The guidance we provided back in November was for strong growth in the first half of the year with double digits and then expected moderate growth in the second half. I commented on that in my prepared remarks, and that remains our expectation. Specifically, we recorded a 17% growth for UTI in this quarter, with half of that coming from new programs and the remaining half from same campus, same program growth. Of course, Concorde's performance saw over 12% growth on a pro forma basis. Looking ahead, as we get into the second half of the year, we'll be anniversarying some of the improvements we implemented last year, such as grant programs and marketing initiatives.

And then just across the board with student starts, the high school and adults were pretty consistent. Military was higher than usual. Is that an anomaly or will that persist?

It’s a bit of small numbers. We've also seen improvements in the military sector, as Jerome previously mentioned with high schools. We increased our military representatives by almost 50%, including attrition in the last year or two. Our core group of financial aid representatives is also centralized, making the process more streamlined and efficient. While the military growth may fluctuate quarterly due to its smaller numbers, we've been pleased with the military growth over the past several quarters.

Regarding the numbers, I know that starts will be low to mid in the second half, but there is a big jump in the top line and also particularly in EBITDA in the second half. In Q1, there was a significant beat on EBITDA; where does this growth drive? Would you call this primarily from operational leverage?

Yes. About half of the benefit came from revenue growth, while the other half stemmed from expenses. There was some timing involved, as we didn't ramp expenses quite as quickly as initially anticipated. Some initiatives are expected to commence later this year than we initially thought. As such, we could increase our guidance due to the net benefit from this timing. Our revenue growth is supported by strong starts this quarter, with students potentially enrolled for a year ahead, which will continue to boost top line performance.

The overall increase in the EBITDA guidance for the year seems conservative given the significant beat in Q1?

Yes. Some of that conservativeness stems from shifting some expenses around in the timing for the year. We also shuffled a bit of revenue around as we reprojected the year, considering student starts and their timing. Normally, we wouldn't update guidance until the second or third quarter, but given our outlook this year, we're comfortable doing this early. We'll continue to monitor performance throughout the year and make further adjustments as necessary.

In terms of the regulatory front and composite score, where does the composite score currently stand? Is there a target you'd like to achieve? Does that play into how you consider capital allocation?

Sure. Yes, we focus heavily on regulatory metrics. We aim to stay above any thresholds that could affect our reporting with the Department of Education or any creditors. Student outcomes are also critically important. The composite score is determined on a scale of 0 to 3, with 1.5 serving as the pass threshold. We're comfortably above that, although we did notice a dip due to the acquisition of Concorde. Our past score was above 2, and we expect to return above 2 this year, which we consider temporarily low. Being above 1.5 ensures there are no repercussions with the Department of Education. This metric is the primary focus, and we take it seriously to ensure we're delivering positive results.

The next question comes from Eric Martinuzzi with Lake Street.

I wanted to confirm my understanding of the upward revision to fiscal '24. Obviously, with no change in new student starts, this pertains to the existing student base outperforming. Can you clarify if this is a function of better revenue per student or better retention within the student population?

Yes. A bit more accurately, it's related to improved performance of the existing population. Our starts were aligned with expectations and we're confident in our full-year guidance ranges. With 4,300 starts out of a 25,000 midpoint target, we have substantial work ahead to meet the other 21,000 starts, but we remain optimistic. We have noted better revenue monetization coming out of Q4 into Q1, with improved persistence and lower attrition within our existing student population.

Regarding cash priorities, you have numerous directions to consider. M&A has been a significant driver—can you discuss how you would prioritize them? Is share repurchase an option?

Our inclination is to continue pursuing growth initiatives that we have embarked upon over the last few years. We're at the tail end of the program expansions and new campus initiatives we've seen recently, yet we still have more growth opportunities ahead, both organic and inorganic. As we progress through the fourth quarter, we’ll see the majority of our cash flow materialize. Consequently, while we have the $62 million to $66 million in adjusted free cash flow guidance this year, our actual cash may be limited until we generate organic cash flow. We expect to manage our revolver down this year, but we will likely still need it as we exit the year, unless significant decisions are made in advance.

The next question comes from Alex Paris with Barrington Research.

Most of my questions have been asked and answered, but I'd like to dive deeper into Concord. You've owned it for over a year now; what are the next steps regarding integration? Additionally, what are the projected margins for that business? I think you mentioned margins were around 8% at the time of acquisition.

Thanks, Alex. We're still making great progress, and we are very pleased with Concord's performance. The integration efforts this year are focused on aspects such as payroll, benefits, and financial systems. We're delving more into organizational restructuring within key support areas like finance, IT, and HR. We're well-equipped to foster a growth mindset throughout the organization, and the team is actively bringing great ideas to the table. We still believe there's potential for mid-teens margins within this division. This year, we expect to approach 10%, having seen a modest 8-9% margin prior to our acquisition. Over the next 2-3 years, we anticipate achieving solid margins and continue to seek ways to drive growth and expand margins.

I would like to add that unlocking the growth potential of Concorde is paramount. During the selling process, our marketing investments were minimal. Now, we're unleashing the potential for marketing and demand generation, which is going well. The rollout of several new programs that weren't being funded during the selling process is gaining momentum. Additionally, we are enhancing relationships with industry partners, such as Heartland Dental, to provide our students with better opportunities. We're also working to expand online offerings, an area that Concorde had not previously capitalized on. There's significant growth potential within this sector over the next 24 to 36 months.

M&A has been a key driver for us, and while we have nothing to announce currently, we are still pursuing opportunities. We're particularly interested in the healthcare space as we see a need for further participation in nursing within the Concorde acquisition. We may also evaluate opportunities to enter new markets through acquisitions or new program areas.

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

Hey, thanks a lot. I’d like to thank everyone who attended today. As always, Troy and I will be available for follow-up questions over the next few days. We look forward to speaking with many of you then, and once again, we look forward to connecting with your audience in May when we present our second-quarter fiscal results. So thank you.

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