Universal Technical Institute, Inc. — Q2 FY2023 10-Q
Reporting period: Three and six months ended March 31, 2023. Financial statements are unaudited. Amounts below are USD millions except per-share data and student counts.
Business context
UTI provides transportation and skilled-trades education; its December 1, 2022 acquisition of Concorde Career Colleges added healthcare education. UTI and Concorde operated 16 and 17 campuses, respectively. Because Concorde was acquired during the six-month period, comparisons with prior-year consolidated results include a significant acquisition effect.
Financial and operating results
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Revenue, 2023 / 2022 | $163.8 / $102.1 | $283.8 / $207.2 |
| Operating income, 2023 / 2022 | $5.9 / $3.4 | $10.4 / $17.0 |
| Operating margin, 2023 / 2022 | 3.6% / 3.3% | 3.7% / 8.2% |
| Net income, 2023 / 2022 | $3.5 / $7.4 | $6.1 / $22.2 |
| Net income per diluted share, 2023 / 2022 | $0.04 / $0.11 | $0.07 / $0.36 |
| Operating cash flow, 2023 / 2022 | Not presented quarterly | $(4.3) / $10.4 |
- Q2 revenue rose 60.5%; Concorde contributed $56.3 million. UTI revenue increased 5.4%, while average UTI active students declined 3.0% year over year.
- For the six months, revenue rose 37.0%; Concorde contributed $70.7 million for its four months under UTI ownership. UTI revenue increased 2.9%, while average active students declined 2.3%.
- Six-month operating income and net income fell despite higher revenue. Management cited new campus and program rollout costs, ongoing and one-time growth and diversification costs, and acquisition-related expenses. Prior-year results included a significant tax benefit from releasing much of a deferred-tax valuation allowance; 2023 had tax expense.
- Q2 educational services and facilities expenses were $86.9 million and SG&A was $70.9 million. Six-month amounts were $148.3 million and $125.1 million, respectively.
- Six-month EBITDA, a non-GAAP measure, was $22.8 million versus $24.5 million. The filing cautions that EBITDA is not a substitute for GAAP results.
Liquidity, debt and capital spending
- At March 31, 2023, cash and cash equivalents were $120.6 million, restricted cash was $4.0 million, and current assets and current liabilities were $174.6 million and $154.5 million.
- Gross debt was $163.7 million, including $90.0 million drawn on a $100.0 million revolving facility, $29.7 million on the Avondale term loan, $38.0 million on the Lisle term loan, and finance leases. Revolver availability was $8.2 million after a $1.8 million letter of credit. The revolver matures in November 2025.
- Six-month investing cash use was $26.6 million, including $38.6 million of property and equipment purchases and $17.0 million of acquisition cash paid net of cash acquired; $29.0 million of investment maturities partly offset outflows. The Orlando campus property purchase cost approximately $26.2 million.
- Management said cash on hand and expected operating cash flows should meet working-capital, capital-expenditure, commitment and other liquidity needs for the next 12 months and beyond. The company reported compliance with its debt covenants at quarter-end.
Changes, outlook and risks
- Concorde was acquired for $48.7 million cash consideration, subject to customary adjustments. The preliminary purchase-price allocation includes $11.6 million of goodwill and remains subject to revision.
- Management reported full regulatory approval for nearly all of 15 planned new programs, with initial launches projected for Q4 FY2023. It also cited the Concorde acquisition, campus expansion and new programs as parts of its growth and diversification strategy. No specific full-year revenue or earnings guidance is provided in the filing text.
- Enrollment and cash flow are seasonal. Management expects quarterly operating results to continue fluctuating with student starts, graduations, attrition, campus openings and program timing.
- Key risks include continued eligibility for Title IV and other student aid, extensive education regulation and accreditation requirements, enrollment and student financing conditions, execution and integration of acquisitions and growth initiatives, and the ability to improve campus utilization.
- The CFPB had requested information about UTI student lending and the company was awaiting further guidance. A general FTC notice sent to UTI and other proprietary institutions did not allege specific misconduct. The company said it was not currently party to material legal proceedings, while noting that claims and regulatory matters could adversely affect results.
- After quarter-end, on April 3, 2023, the Avondale loan reference rate was converted from LIBOR to SOFR and a replacement swap was entered into. The filing reported effective disclosure controls as of March 31, 2023.
Investor facts to verify
- How much of consolidated growth and profitability is attributable to Concorde versus UTI on a comparable, standalone basis.
- Whether UTI’s lower active-student counts and negative six-month operating cash flow improve, considering Title IV disbursement timing and seasonal enrollment.
- Progress, costs and enrollment outcomes for the planned program launches and other growth initiatives.
- Debt service, covenant headroom, floating-rate exposure and refinancing needs, including the revolving facility and scheduled principal payments.
- Concorde purchase-accounting adjustments, integration costs, student receivable collections and acquisition performance.
- Developments in CFPB oversight, education regulation, accreditation and student-aid eligibility, as well as the recurring preferred-stock dividend obligation.