Universal Technical Institute, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2020. The company provides technical postsecondary education and manufacturer-specific training. It operated 12 campuses during the period; the Norwood, Massachusetts campus closed July 31, 2020.
Financial performance
| Metric | Three months ended June 30, 2020 | Nine months ended June 30, 2020 |
|---|---|---|
| Revenue | $54.5 million, down 31.1% year over year | $224.4 million, down 8.0% |
| Operating income (loss) | $(13.8) million; operating margin (25.3%) | $(10.0) million; operating margin (4.5%) |
| Net income (loss) | $(13.3) million; net margin (24.4%) | $1.6 million; net margin 0.7% |
| Net income (loss) available after preferred dividends | $(14.6) million | $(2.4) million |
| Basic and diluted EPS | $(0.45) | $(0.08) |
| EBITDA, company-reported non-GAAP | $(10.2) million | $(0.2) million |
For comparison, third-quarter 2019 revenue was $79.0 million, operating loss $0.5 million and net loss $0.4 million. Nine-month 2019 revenue was $243.8 million, operating loss $13.2 million and net loss $13.3 million. The nine-month 2020 net income included a $10.7 million income tax benefit, primarily associated with CARES Act net operating loss carrybacks and lease-accounting adoption; it did not translate into positive operating cash flow.
Third-quarter revenue decline reflected pandemic-related student leaves, delayed lab completion and graduation, and $10.8 million of revenue deferred for delayed student progress. Average undergraduate full-time enrollment fell 8.3% to 9,068; the company started 1,824 new students, up 8.4%, partly because of start-date timing. Nine-month average enrollment declined 3.3%. The company said cost reductions helped limit nine-month operating losses; the prior-year period also included a nonrecurring $4.0 million consultant termination fee.
Cash, liquidity and obligations
- At June 30, 2020, cash and cash equivalents were $60.0 million, restricted cash $19.2 million, and short-term held-to-maturity investments $31.6 million. Restricted cash included remaining student emergency-grant funds; the institutional HEERF allocation still held in the Department of Education’s G5 system was not included in company cash.
- Current assets were $170.2 million and current liabilities $120.8 million. The company reported no bank debt. Operating lease liabilities were $146.9 million, including $24.9 million current; these lease obligations are distinct from bank borrowings.
- Nine-month operating cash flow was $(10.1) million, investing cash flow $(37.2) million and financing cash flow $45.9 million. Financing included approximately $49.5 million of net proceeds from a February common-stock offering; investing included purchases of securities and $7.2 million of capital expenditures.
- The company paid $2.6 million in preferred-stock cash dividends during the nine months. The Series A preferred stock carries a 7.5% annual cash dividend rate, subject to its terms.
Material developments, outlook and risks
- COVID-19 operations: In-person classes were suspended March 19 and classroom instruction moved online March 25. Campus labs reopened in stages, with the final campus reopening July 1. The blended model and lab backlog delayed many expected March–September graduations; catch-up lab work typically takes six to nine weeks after students return. Some students remained on leave or continued online without completing required labs.
- Federal relief: The company received approximately $33.0 million in HEERF awards: $16.5 million for student grants and $16.5 million for institutional costs. By June 30, it had awarded approximately $11.0 million to more than 6,900 students. It recorded a $5.9 million receivable and offset operating expenses for costs it believed eligible under the institutional allocation. Use of funds is subject to documentation, reporting and audit requirements, and failure to comply could create repayment exposure.
- Management outlook: Management said cash flows, cash on hand and investments were expected to meet working-capital, capital-expenditure and other requirements for existing operations and planned program expansion over the next 12 months. The filing gives no numerical earnings or revenue guidance. Management cautioned that continued leaves, withdrawals or delays in completing labs could affect revenue and operating cash flow for the remainder of 2020.
- Strategic plans: The company continued to pursue new markets and programs, expansion of employer and OEM relationships, affordability initiatives, and real-estate optimization. The offering proceeds were intended for working capital, capital expenditures and general corporate purposes, potentially including campuses, programs or acquisitions.
- Regulatory and other exposures: A substantial portion of revenue depends on federal Title IV aid and veterans’ benefits. The company faces extensive education, accreditation and state authorization requirements, including changing rules for distance education and borrower defense. It disclosed that pending legal matters could adversely affect results or financial condition, but said it could not estimate possible losses. Norwood’s closure and possible student loan discharges are also relevant; the company reported that it had not received an ED assessment letter for closed-school discharge liabilities.
- Accounting and unusual items: Adoption of ASC 842 added operating lease assets and liabilities to the balance sheet and reclassified certain former financing obligations as operating leases. The company also recorded $1.5 million of postemployment benefit charges during the nine months related to the former CEO’s retirement, among other employee separation costs.
Important facts for investors to verify
- Whether students return to campus, complete required labs and graduate on schedule, and how this affects enrollment, deferred revenue and cash receipts.
- Whether the $10.7 million tax benefit and expected CARES Act refund are realized as reported, and how much of the HEERF institutional allocation is ultimately drawn and accepted as eligible.
- The adequacy of liquidity after operating cash outflows, preferred dividends and capital spending; distinguish available cash and investments from restricted cash and undrawn grant funds.
- The scale and duration of lease commitments, which totaled $146.9 million in operating lease liabilities, despite no bank debt.
- Continuing Title IV, accreditation and state-authorization compliance, including potential consequences from new regulations and any Norwood-related student loan discharge claims.