Universal Technical Institute, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended September 30, 2023. This is an annual report, not a standalone fourth-quarter filing. UTI provides transportation and skilled-trades education; its results include Concorde Career Colleges from the December 1, 2022 acquisition, so consolidated year-over-year comparisons are not fully like-for-like.
Financial and operating highlights
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $607.4 million | $418.8 million |
| Operating income | $21.4 million; 3.5% margin | $22.4 million; 5.3% margin |
| Net income | $12.3 million | $25.8 million |
| Net income available to common shareholders | $4.5 million; diluted EPS $0.13 | $12.8 million; diluted EPS $0.38 |
| EBITDA (non-GAAP) | $47.1 million | $38.8 million |
| Cash provided by operating activities | $49.1 million | $46.0 million |
- Revenue and enrollment: Revenue rose 45.0%, including $178.1 million from Concorde for ten months. UTI revenue increased 2.5%; UTI new student starts rose 6.0%, while average active students declined 1.7%. Consolidated new starts were 22,613, up 69.1%, primarily reflecting the acquisition.
- Costs and margins: Operating expenses increased 47.8% to $586.0 million. Educational services and facilities costs were $329.9 million; selling, general and administrative costs were $256.1 million. Operating margin fell to 3.5% from 5.3%, with management citing acquisition-related costs, growth investments and increased compensation.
- Cash flow and capital spending: Operating cash flow was $49.1 million. Investing activities used $44.1 million, including $56.7 million of property and equipment purchases, partly offset by $29.0 million of investment maturities. Financing activities provided $81.8 million, principally from $90.0 million drawn on the revolving facility.
- Liquidity and debt: Cash and cash equivalents were $151.5 million; reported aggregate liquidity was $159.7 million, including $8.2 million of available revolver capacity. Total debt was $162.6 million, including $90.0 million drawn under a $100.0 million revolver, term loans and a finance lease. The company reported compliance with debt covenants at year-end.
- Other financial items: FY2023 income tax expense was $5.8 million, versus a $5.4 million tax benefit in FY2022; the prior-year result included a $12.1 million valuation-allowance release. Preferred-stock dividends were $5.1 million in FY2023. The filing reports no common-stock dividend and no FY2023 share repurchases.
Material changes and management outlook
- The December 2022 Concorde acquisition diversified the business into healthcare education and added 17 campuses and online programs. Cash consideration was $48.1 million; the acquisition was financed through the revolver. Concorde contributed $10.5 million of operating income during the ownership period.
- UTI purchased its Orlando campus buildings and associated land for approximately $26.2 million and expanded programs at several campuses. Management described continued focus on growth, diversification, operational efficiency and student experience.
- Management said operating cash flows, cash on hand and investments should meet working-capital needs, capital expenditures, commitments and announced initiatives through the next fiscal year and beyond. The filing provides no quantified revenue or earnings guidance.
- Results are seasonal: student populations and revenues have historically been lower in the third fiscal quarter and higher in the fourth; quarterly comparisons may also be affected by acquisitions, campus openings and program launches.
Risks, contingencies and unusual items
- Regulation and funding concentration: Approximately 67% of FY2023 revenue on the stated cash basis came from Title IV programs and approximately 10% from veterans’ benefits. Loss or restriction of eligibility, changing rules, accreditation issues or compliance failures could materially affect enrollment, cash flow and operations. Institution-level 90/10 percentages ranged from approximately 57% to 86%.
- Rule changes and oversight: New federal financial-value transparency and gainful-employment rules, along with financial-responsibility and administrative-capability rules, were scheduled to take effect July 1, 2024. Several acquired or Concorde institutions had accreditation renewals in process. A CFPB inquiry into UTI’s student lending was awaiting further guidance; the FTC notice cited in the filing was not an assessment of wrongdoing.
- Student lending and collection estimates: UTI bears collection risk on its proprietary loan program; notes receivable were $36.7 million. The expected collection rate depends on management estimates and was identified as a critical audit matter. Concorde also offers retail installment contracts, creating credit and regulatory exposure.
- Debt and interest rates: Revolving borrowings and portions of term loans bear variable rates. Half of each term loan’s principal was effectively hedged; the company estimated a hypothetical 10% change in unhedged variable rates would change annual interest expense by $12.3 million, assuming other terms remained unchanged.
- Contingencies and acquisition integration: The company stated it was not party to any material legal proceeding, but could not estimate possible losses across legal and regulatory matters generally. Concorde’s inclusion in the Sweet v. Cardona settlement applied to eligible borrowers and, the filing says, was not a finding of misconduct. FY2023 included $2.3 million of Concorde transaction costs; total transaction costs across FY2022 and FY2023 were $5.3 million.
- Preferred-stock dilution and control: Series A preferred stock may convert into approximately 20.3 million common shares, subject to stated caps and approvals, compared with approximately 34.1 million common shares outstanding at September 30, 2023. The preferred holders also have voting and approval rights over certain corporate actions.
- Controls and audit: The auditor issued unqualified opinions on the financial statements and on internal control over financial reporting. Management and the auditor excluded Concorde’s internal controls from the FY2023 assessment; Concorde represented approximately 29% of revenue and 18% of assets.
Most important facts for investors to verify
- How much of reported growth and future performance reflects Concorde versus organic enrollment, pricing and student retention at UTI.
- Whether the company can improve operating margins as it integrates Concorde and funds new campuses and programs.
- Trends in student starts, active enrollment, completion, graduate employment and licensure outcomes by segment.
- Title IV and veterans’ funding exposure, institution-level 90/10 headroom, accreditation renewals and the effects of rules taking effect in 2024.
- Actual collections and loss assumptions for UTI proprietary loans and Concorde installment contracts, including the $36.7 million proprietary-loan receivable balance.
- Revolver repayment and refinancing plans, interest-rate exposure, covenant headroom and the terms and potential dilution of Series A preferred stock.
- Progress integrating Concorde’s internal controls, and developments in the CFPB inquiry and any legal or regulatory matters.