Universal Technical Institute Inc: Form 10-Q for the period ended Dec 31, 2024

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and those in our 2024 Annual Report on Form 10-K. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under “Risk Factors” in our 2024 Annual Report on Form 10-K and included in Part II, Item 1A of this Quarterly Report on Form 10-Q. See also “Cautionary Note Regarding Forward-Looking Statements” on page ii of this Quarterly Report on Form 10-Q.

Company Overview

Universal Technical Institute, Inc., which together with its subsidiaries is referred to as the “Company,” “we,” “us” or “our,” was founded in 1965 and is a leading workforce solutions provider of transportation, skilled trades and healthcare education programs, whose mission is to serve students, partners, and communities by providing quality education and support services for in-demand careers across a number of highly-skilled fields. We offer the majority of our programs in a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.

Universal Technical Institute (“UTI”): UTI operates 15 campuses located in nine states and offers a wide range of degree and non-degree transportation and skilled trades technical training programs under brands such as Universal Technical Institute, Motorcycle Mechanics Institute, Marine Mechanics Institute, NASCAR Technical Institute, and MIAT College of Technology (“MIAT”). UTI also offers manufacturer specific advanced training programs, which include student-paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers. Lastly, UTI provides dealer technician training or instructor staffing services to manufacturers. UTI works closely with multiple original equipment manufacturers and industry brand partners to understand their needs for qualified service professionals.

Concorde Career Colleges (“Concorde”): Concorde operates across 17 campuses in eight states, offering degree, non-degree, certificate and continuing education programs in the allied health, dental, nursing, patient care and diagnostic fields. The Company has designated campuses that offer degree granting programs as “Concorde Career College” where allowed by state regulation. The remaining campuses are designated as “Concorde Career Institute.” Concorde believes in preparing students for their health care careers with practical, hands-on experiences including opportunities to learn while providing care to real patients. Prior to graduation, students will complete a number of hours in a clinical setting or externship, depending upon their program of study.

“Corporate” includes corporate related expenses that are not allocated to the UTI or Concorde reportable segments. See Note 16 of the notes to the condensed consolidated financial statements herein for additional details on our segments.

All of our campuses are accredited and are eligible for federal student financial assistance funds under the Higher Education Act of 1965, as amended, commonly referred to as Title IV Programs, which are administered by the U.S. Department of Education. Our programs are also eligible for financial aid from federal sources other than Title IV Programs, such as the programs administered by the U.S. Department of Veterans Affairs and under the Workforce Innovation and Opportunity Act.

We believe that our industry-focused educational model and national presence has enabled us to develop valuable industry relationships, which provide us with significant competitive advantages and supports our market leadership, along with enabling us to provide highly specialized education to our students, resulting in enhanced employment opportunities and the potential for higher wages for our graduates.

Overview of the Three Months Ended December 31, 2024

Student Metrics

For the three months ended December 31, 2024, the increase in consolidated total and segment new student starts, average full-time active students and end of period full-time active students was primarily due to new program rollouts and increased student demand for existing programs across both segments as compared to the prior year. In the UTI segment, increases to our student population during the three months ended December 31, 2024 were driven by the successful launch of three new HVAC and refrigeration programs launched in the second half of fiscal 2024. The Concorde segment benefited from the launch of five new programs at three campuses during fiscal 2024, and the introduction of new cash pay “short programs” at a number of campuses.

Our ability to start new students can be influenced by various factors including: the state of the general macro-economic environment and its impact on price sensitivity and the ability and willingness of students and their families to incur debt to fund their education; unemployment rates; competition; adverse media coverage, legislative, or regulatory actions and investigations by attorneys general and various agencies related to allegations of wrongdoing on the part of other companies within the education and training services industry, which can cast the aggregate “for-profit” education industry in a negative light; and pandemics and or other national, state or local emergencies as declared by various government authorities.

Operations

Revenues for the three months ended December 31, 2024 were $201.4 million, an increase of $26.7 million, or 15.3%, from the comparable period in the prior year. UTI revenues increased by approximately $16.1 million, or 14.0%, and Concorde revenues increased by approximately $10.6 million, or 17.9%. Both segment increases were primarily driven by the higher average full-time active students.

Total income from operations was $27.5 million during the three months ended December 31, 2024, compared to $14.2 million for the three months ended December 31, 2023. The increase for the three months ended December 31, 2024 was primarily driven by the increased revenues from the larger student population. Additionally, productivity improvements and proactive cost reductions have been a key part of our operating model for the past several years, and we continue to identify and execute on optimization opportunities throughout our operations in both segments.

Business Strategy

Our business strategy, internally known as our “North Star strategy,” has three core tenets: (i) to grow the business by more deeply penetrating existing target markets and adding new markets; (ii) to diversify the business by adding new locations, programs, and offerings that maximize the lifetime value of our students; and (iii) to continually optimize the business by constantly enhancing operational efficiency.

During the three months ended December 31, 2024, we executed the following as part of our business strategy:

• Concorde signed a new lease agreement related to our partnership with Heartland Dental to construct a new co-branded campus in Fort Myers, Florida, which is expected to open in early fiscal 2026.
• UTI has announced the expansion of its successful Manufacturer Specific Advanced Training program by adding Tesla's START Collision Repair program. Tesla's START program is an intensive training program that prepares workers for successful careers at Tesla and will be will be available at the Long Beach, California campus beginning in Spring 2025.
• UTI has announced Atlanta, Georgia as the location of its next UTI division campus, continuing the company's execution of its North Star strategy. Pending regulatory approvals, the UTI-Atlanta campus will open in 2026, bringing the total number of UTI campuses nationwide to 16.
• UTI announced plans to launch its HVACR program at the Sacramento, California and Orlando, Florida campuses with the first cohort of students expected to start during the second quarter of 2025. The program will cover topics such as air handling, AC and DC circuits, sheet metal ductwork, and troubleshooting.
• UTI announced the expansion of its core automotive program to include new Battery Hybrid Electric Vehicle and Electric Vehicle (“EV”) courses with roll out completed during the first quarter of 2025 at the Avondale, Arizona and Orlando, Florida campuses. Further rollout at five additional campuses is expected during the second and third quarters of 2025. This expansion builds on existing EV training at UTI's California campuses and covers topics such as high-voltage vehicle operation, electric vehicle components, diagnosis, and service.

In addition, we continue to pursue other opportunities that align with our business strategy.

Regulatory Environment

See Note 17 of the notes to our condensed consolidated financial statements herein for a discussion of our regulatory environment.

Results of Operations: Three Months Ended December 31, 2024 Compared to Three Months Ended December 31, 2023

The following table sets forth selected statements of operations data as a percentage of revenues for each of the periods indicated.

Revenues

The following table presents revenue by segment (in thousands):

Revenues for the three months ended December 31, 2024 were $201.4 million, an increase of $26.7 million, or 15.3%, as compared to revenues of $174.7 million for the three months ended December 31, 2023.

UTI

Revenues for UTI for the three months ended December 31, 2024 were $131.5 million compared to $115.4 million in the prior period. Revenue increased primarily due to a 19.0% increase in new student starts and an 8.0% increase in average full-time active students from the prior period.

Concorde

Revenues for Concorde for the three months ended December 31, 2024 were $70.0 million compared to $59.3 million in the prior period. Revenues increased primarily due to a 26.0% increase new student starts and a 16.4% increase in average full-time active students from the prior period.

Educational services and facilities expenses

Educational services and facilities expenses were $100.1 million for the three months ended December 31, 2024, as compared to $92.4 million for the three months ended December 31, 2023. This increase was primarily due to the increased student volumes during the period and costs associated with execution of our business strategies, partially offset by cost savings from our operational initiatives.

The following tables set forth the significant components of our educational services and facilities expenses by segment (in thousands):

UTI

Compensation and related costs increased by $4.0 million for the three months ended December 31, 2024, primarily due to instructors and other personnel hired to support the new programs added and overall growth in the student population.

Supplies, maintenance and student expense decreased by $2.7 million for the three months ended December 31, 2024, primarily due to a decrease of $2.9 million in student housing expenses.

Depreciation and amortization expense increased by $0.5 million for the three months ended December 31, 2024, primarily due to capital expenditures related to new equipment for the program expansions.

Concorde

Compensation and related costs increased by $4.4 million for the three months ended December 31, 2024, primarily due to instructors and other personnel hired to support overall student growth and the launch of additional programs.

Other educational services and facilities expense increased during the three months ended December 31, 2024 by $0.6 million primarily due to higher expense for teaching aids in the current period.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended December 31, 2024 were $73.8 million, as compared to $68.1 million for the three months ended December 31, 2023. This increase was primarily due to costs associated with our business strategies.

The following tables set forth the significant components of our selling, general and administrative expenses by segment (in thousands):

UTI

Compensation and related costs increased by $1.7 million for the three months ended December 31, 2024 primarily due to additional headcount hired to support the UTI segment and execution of our business strategies.

Advertising and marketing expense remained relatively flat year over year. UTI advertising and marketing expense as a percentage of revenues decreased to 10.4% for the three months ended December 31, 2024 as compared to 11.6% in the prior year.

Other selling, general and administrative expenses increased by $1.3 million primarily due to higher allocated corporate expenses related to human resources and information technology. This increase is aligned with the growth in headcount to support the UTI segment and our business strategies.

Concorde

Compensation and related costs decreased by $0.5 million for the three months ended December 31, 2024 primarily due to the centralization of more processes at Corporate.

Advertising and marketing increased year over year by $1.3 million. Concorde advertising and marketing expense as a percentage of revenues for the three months ended December 31, 2024 and 2023 was 10.5% and 10.3%, respectively.

Professional and contract services expense decreased by $0.6 million for the three months ended December 31, 2024 primarily due to a reduction of outside service expenses as much of the integration activities were completed in the prior year.

Other selling, general and administrative expenses increased by $1.0 million for the three months ended December 31, 2024 primarily related to an increase in software expenses of $0.3 million and an increase in depreciation of $0.4 million due to capital expenditures for integration related items in the prior year.

Corporate

Compensation and related costs increased by $1.1 million three months ended December 31, 2024 primarily due to additional headcount hired to support the execution of our business strategies.

Professional fees and contract services increased by $1.2 million for the three months ended December 31, 2024 primarily due to higher legal expenses of $1.1 million.

Other selling, general and administrative expenses decreased by $1.3 million for the three months ended December 31, 2024 primarily due to higher corporate expenses allocated to the UTI and Concorde segments due to overall increase in expenses compared to the prior period.

Income taxes

Income tax expense for the three months ended December 31, 2024 was $5.4 million, or 19.5% of pre-tax income, compared to $3.2 million, or 23.3% of pre-tax income, for the three months ended December 31, 2023. The effective income tax rate for the three months ended December 31, 2024 differed from the federal statutory rate of 21% primarily due to non-deductible executive compensation, stock-based compensation expense, federal research and development tax credits and state and local income and franchise taxes. The effective income tax rate for the three months ended December 31, 2023 differed from the federal statutory rate of 21% primarily due to non-deductible executive compensation, federal research and development tax credits and state and local income and franchise taxes. See Note 11 of the notes to the condensed consolidated financial statements herein for additional details.

Preferred stock dividends

As of December 31, 2024, no shares of Series A Convertible Preferred Stock, (the “Series A Preferred Stock”) remained outstanding and all rights of the holders to receive future dividends have been terminated due to the combination of the repurchase and conversion of all outstanding preferred shares as of December 18, 2023. See Note 18 included in our 2024 Annual Report on Form 10-K for additional details on the conversion of our Series A Preferred Stock.

Pursuant to the Certificate of Designations of the Series A Preferred Stock, we recorded a preferred stock cash dividend of $1.1 million for the three months ended December 31, 2023.

Income available for distribution

Income available for distribution refers to net income reduced by dividends on our Series A Preferred Stock. As a result of the foregoing, we reported income available for distribution of $22.2 million for the three months ended December 31, 2024 and income available for distribution of $9.3 million for three months ended December 31, 2023.

Income allocated to participating securities

Series A Preferred Stock was considered a participating security because, in the event that we paid a dividend or make a distribution on the outstanding common stock, we should also pay each holder of the Series A Preferred Stock a dividend on an as-converted basis. The two-class method is an earnings allocation formula that determines earnings per share for common stock and participating securities according to dividend and participation rights in undistributed earnings. Under this method, all earnings, distributed and undistributed, are allocated to common shares and participating securities based on their respective rights to receive dividends.

As noted above, no shares of the Series A Preferred Stock remain outstanding and all rights of the holders to receive future dividends have been terminated as of the December 18, 2023 conversion date. As such, there was no income allocated to participating securities for the three months ended December 31, 2024. For the three months ended December 31, 2023, there was $2.9 million of income allocated to participating securities.

Net income available to common shareholders

We had net income of $22.2 million and $6.4 million available to common shareholders for the three months ended December 31, 2024 and 2023, respectively.

Non-GAAP Financial Measures

Our earnings before interest, income taxes, depreciation and amortization (“EBITDA”) for the three months ended December 31, 2024 were $35.4 million, compared to $21.4 million for the three months ended December 31, 2023. We define EBITDA as net income (loss), before interest (income) expense, income tax expense (benefit), and depreciation and amortization.

EBITDA is a non-GAAP financial measure which is provided to supplement, but not substitute for, the most directly comparable GAAP measure. We choose to disclose this non-GAAP financial measure because it provides an additional analytical tool to clarify our results from operations and helps to identify underlying trends. Additionally, this measure helps compare our performance on a consistent basis across time periods. Management also utilizes EBITDA as a performance measure internally. To obtain a complete understanding of our performance, this measure should be examined in connection with net income determined in accordance with GAAP. Since the items excluded from this measure should be examined in connection with net income in determining financial performance under GAAP, this measure should not be considered an alternative to net income as a measure of our operating performance or profitability. Exclusion of items in our non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure across companies. Investors are encouraged to use GAAP measures when evaluating our financial performance.

EBITDA reconciles to net income, as follows (in thousands):

Liquidity and Capital Resources

Overview of Liquidity

Based on past performance and current expectations, we believe that our cash flows from operations, cash on hand and investments, and the Revolving Credit Facility will satisfy our working capital needs, capital expenditures, commitments and other liquidity requirements associated with our existing operations, as well as announced growth, diversification and optimization initiatives throughout the fiscal year and beyond. Our cash position is available to fund strategic long-term growth initiatives, including opening additional campuses in new markets and the creation and expansion of new programs in existing markets where we continue to optimize utilization of our campus facilities.

Our aggregate cash and cash equivalents were $172.0 million as of December 31, 2024, an increase of $10.1 million from September 30, 2024 due primarily to cash provided by operating activities of $23.0 million, offset by cash used for purchases of property and equipment of $3.3 million, net repayments of $5.0 million to the revolving credit facility and payment of payroll taxes on stock-based compensation of $4.3 million. We also had available liquidity under the Revolving Credit Facility of $74.0 million as of December 31, 2024.

Strategic Uses of Cash

We believe that uses of our cash resources may include consideration of additional strategic acquisitions and organic growth initiatives, the purchase of real estate assets, subsidizing funding alternatives for our students, and the repurchase of common stock, among others. To the extent that potential acquisitions are large enough to require financing beyond cash from operations, and cash and cash equivalents, or we need capital to fund operations, new campus openings or expansion of programs at existing campuses, we may enter into additional credit facilities, issue debt or issue additional equity.

Long-term Debt

As of December 31, 2024, we had $120.4 million of long-term debt outstanding, which is comprised of two term loans, a finance lease and a revolving credit facility. Of the $120.4 million outstanding, $28.2 million relates to a term loan that bears interest at the rate of Term SOFR plus 2.0% and a tranche rate adjustment of 0.046% over the seven-year term secured in connection with the Avondale, Arizona campus property purchased in December 2020. Approximately $36.7 million relates to a term loan that bears interest at the rate of Term SOFR plus 2.0% over the seven-year term, secured in connection with the Lisle, Illinois campus property. For each of the term loans, a derivative interest rate swap is in place that fixes the interest rate on 50% of the loan at a market rate at the time the derivative was initiated. Approximately $4.5 million relates to a finance lease for a campus within our Concorde segment. The remaining $51.0 million relates to funds drawn from the $125.0 million revolving credit facility that was initially secured in connection with the Concorde acquisition. See Note 9 of the notes to the condensed consolidated financial statements herein for additional details on the term loans and the Revolving Credit Facility.

Dividends

We currently do not pay a cash dividend on our common stock.

Principal Sources of Liquidity

Our principal source of liquidity is operating cash flows and existing cash and cash equivalents. A majority of our revenues are derived from Title IV Programs and various veterans’ benefits programs. Federal regulations dictate the timing of disbursements of funds under Title IV Programs. Students must apply for new funding for each academic year consisting of 30-week periods. Loan funds are generally provided in two disbursements for each academic year. The first disbursement for first-time borrowers is usually received 30 days after the start of a student’s academic year, and the second disbursement is typically received at the beginning of the 16th week from the start of the student’s academic year. Under our UTI proprietary loan program, we bear all credit and collection risk and students are not required to begin repayment until six months after the student completes or withdraws from his or her program. Similarly, we bear all credit and collection risk for students paying through cash payment plans and those under retail installment contracts. These factors, together with the timing of when our students begin their programs, affect the timing and seasonality of our operating cash flow.

Surety Bonds

Each of our campuses must be authorized by the applicable state education agency in which the campus is located to operate and to grant certificates, diplomas or degrees to its students. Our campuses are subject to extensive, ongoing regulation by each of these states. Additionally, our campuses are required to be authorized by the applicable state education agencies of certain other states in which our campuses recruit students. Our insurers issue surety bonds on behalf of our campuses and admissions representatives with multiple states to maintain authorization to conduct our business. We are obligated to reimburse our insurers for any surety bonds that are paid by the insurers. As of December 31, 2024, the total face amount of these surety bonds was approximately $22.8 million.

Operating Activities

Our net cash provided by operating activities was $23.0 million for the three months ended December 31, 2024, compared to $10.8 million for the three months ended December 31, 2023.

Net income, after adjustments for non-cash items, for the three months ended December 31, 2024 provided cash of $38.4 million. The non-cash items included $8.0 million for depreciation and amortization expense, $5.6 million for amortization of right-of-use assets for operating leases, $2.1 million for provision for credit losses expense and $0.7 million for stock-based compensation expense.

Changes in operating assets and liabilities used cash of $15.4 million primarily due to the following:

• The change in our operating lease liabilities used cash of $5.4 million primarily as a result of rent payments.
• The change in deferred revenue used cash of $4.2 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at December 31, 2024 as compared to September 30, 2024.
• The change in accounts payable and accrued expenses used cash of $3.8 million primarily related to the timing of payments to vendors and for payroll and bonus accruals.
• The change in notes receivable used cash of $3.3 million primarily due to higher utilization of UTI’s proprietary loan program.
• The change in prepaid expenses and other current assets used cash of $2.2 million primarily due to the timing of payments.
• The change in other assets used cash of $2.1 million and was primarily attributable to the increase in inventory of student laptops.
• The change in income tax payable/receivable provided cash of $6.4 million primarily due to the timing of tax payments.

Net income, after adjustments for non-cash items, for the three months ended December 31, 2023 provided cash of $25.0 million. The non-cash items included $7.0 million for depreciation and amortization expense, $5.5 million for amortization of right-of-use assets for operating leases, $1.5 million for stock-based compensation expense, and $1.5 million for provision for credit losses.

Changes in operating assets and liabilities used cash of $14.2 million primarily due to the following:

• Changes in our operating lease liabilities, primarily as a result of rent payments, used cash of $4.7 million.
• The change in deferred revenue used cash of $4.3 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at December 31, 2023 as compared to September 30, 2023.
• The increase in prepaid expenses and notes receivable used cash of $4.1 million and $2.7 million, respectively, primarily due to the timing of payments.

Investing Activities

During the three months ended December 31, 2024, cash used in investing activities was $3.3 million for the purchase of property and equipment, primarily to support new program expansions at both UTI and Concorde.

During the three months ended December 31, 2023, cash used in investing activities was $3.8 million for the purchase of property and equipment primarily to support new program expansions at both UTI and Concorde.

Financing Activities

During the three months ended December 31, 2024, cash used in financing activities was $9.3 million which was primarily related to $5.0 million in payments on the Revolving Credit Facility. Other uses of cash included payroll taxes paid for stock-based compensation through shares withheld of $4.3 million, and the repayment of long-term debt of $0.7 million.

During the three months ended December 31, 2023, cash used in financing activities was $15.1 million which was primarily related to the repurchase of Series A Preferred Stock of $11.3 million. Additional uses of cash included payroll taxes paid for stock-based compensation through shares withheld of $2.1 million, the payment of dividends of $1.1 million, and the repayment of long-term debt of $0.6 million.

Seasonality and Trends

Our operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population and costs associated with opening or expanding our campuses. Our student population varies as a result of new student enrollments, graduations and student attrition. Historically, UTI has had lower student populations in the third quarter than in the remainder of the year because fewer students are enrolled during the summer months. Additionally, UTI has had higher student populations in the fourth quarter than in the remainder of the year because more students enroll during this period. Concorde typically has higher student populations in January and August through October for its core programs and in February for its clinical programs. UTI and Concorde core program expenses do not vary significantly with changes in student population and revenues. Concorde clinical program expenses fluctuate based on the academic calendar and season due to the timing of clinical starts. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. However, such patterns may change as a result of new school openings, new program introductions, increased enrollments of adult students or acquisitions.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP and management’s discussion and analysis of our financial condition and operating results require management to make judgments, assumptions and estimates that affect the amounts reported. There were no significant changes in our critical accounting policies and estimates in the three months ended December 31, 2024 from those previously disclosed in Part II, Item 7 of our 2024 Annual Report on Form 10-K.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 3 of the notes to the condensed consolidated financial statements herein.

There have been no material changes in our market risk exposure during the three months ended December 31, 2024. For a discussion of our exposure to market risk, refer to Part II Item 7A. “Quantitative and Qualitative Disclosures About Market Risk” contained in our 2024 Annual Report on Form 10-K.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Interim Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Interim Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2024 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) or 15d-15(d) that occurred during the three months ended December 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and our Interim Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors and instances of fraud, if any, within our company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks that internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.

In addition to the other information set forth in this Quarterly Report on Form 10-Q, including the information contained in Part I, Item 3, you should carefully consider the factors discussed in Part I, Item IA of our 2024 Annual Report on Form 10-K, which could materially affect our business, financial condition or operating results. There have been no material changes to the risk factors disclosed in Part I, Item IA of our 2024 Annual Report on Form 10-K. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.