Universal Technical Institute, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2018; comparative period ended December 31, 2017. Financial statements are unaudited. The company provides postsecondary technical education through 13 U.S. campuses, alongside manufacturer-sponsored training.
Financial results and liquidity
| Metric | Q1 FY2019 | Q1 FY2018 |
|---|---|---|
| Revenue | $83.1 million | $81.2 million |
| Operating loss | $(7.2) million | $(3.6) million |
| Net loss | $(7.7) million | $(1.1) million |
| Loss per share, basic and diluted | $(0.36) | $(0.10) |
| Operating margin | (8.7)% | (4.5)% |
| Net cash from (used in) operations | $4.4 million | $(2.6) million |
| Capital expenditures | $2.8 million | $2.6 million |
| EBITDA, non-GAAP | $(2.9) million | $0.8 million |
Revenue grew 2.3%, but operating expenses rose 6.5% to $90.3 million, exceeding revenue. Educational services and facilities costs were $45.7 million; selling, general and administrative costs were $44.5 million. Preferred dividends were $1.3 million, bringing loss available for distribution to $9.0 million versus $2.5 million in the prior-year quarter.
At December 31, 2018, cash and cash equivalents were $58.6 million and restricted cash was $14.8 million, totaling $73.4 million. Current assets were $108.3 million and current liabilities $91.3 million, for working capital of approximately $17.0 million. Total liabilities were $153.0 million. Financing obligations totaled approximately $41.7 million, including $1.4 million current and $40.3 million noncurrent; the filing does not identify conventional borrowings as a separate balance-sheet line. Total assets were $271.2 million and shareholders’ equity $118.2 million.
Changes and operating drivers
- Average undergraduate full-time enrollment declined 0.3% to 11,225, while 1,511 student starts increased 14.8% year over year. Management attributed higher starts to transformation initiatives and its metro-campus strategy.
- Revenue benefited from one additional earning day, adding approximately $1.3 million, and tuition increases of up to 2.5%. Lower average enrollment reduced revenue by approximately $0.3 million.
- The operating loss included a $4.0 million final payment to terminate the agreement with the transformation-plan consultant. Higher compensation costs and student-growth initiative expenses also contributed to increased costs.
- The prior-year quarter’s $2.8 million income tax benefit reflected a valuation-allowance reversal associated with the Tax Cuts and Jobs Act. The current quarter recorded $0.1 million of tax expense; the company continued to maintain a full valuation allowance on relevant deferred tax assets.
- Operating cash flow improved year over year, supported chiefly by receivables collections and higher deferred revenue. Prior-year investing cash flow was boosted by $40.9 million of proceeds from trading securities; current-quarter investing cash flow was a $2.7 million outflow.
Outlook, risks and notable items
- Management said operating cash flows and cash on hand were expected to meet working-capital, capital expenditure and other existing liquidity needs for at least the next 12 months.
- Fiscal 2019 capital expenditures were projected at $8.0 million to $10.0 million, including approximately $1.6 million for a welding program at the Dallas/Fort Worth campus and $1.0 million for course development.
- Management cited competition for students, labor-market conditions, adverse perceptions of the education sector, and students’ sensitivity to tuition and debt as challenges to enrollment. Results are seasonal, and management expects quarterly fluctuations to continue.
- Most students rely substantially on Title IV federal aid and veterans’ benefits. The Department of Education was developing proposed regulatory changes, but their final content, timing and effect were uncertain. The company also remained subject to monthly cash-flow projection reporting requested by the Department.
- Accreditation matters included a Houston campus noncompliance finding tied to collision-program benchmarks; the affected program was discontinued and the remaining program was reported above benchmarks. Reaccreditation consideration was pending. The Orlando campus evaluation report was also pending.
- The company described ordinary-course lawsuits, investigations and regulatory claims; it said the ultimate outcome could adversely affect results or financial condition, but a loss estimate was not currently possible.
- Series A preferred stock carried a $100-per-share liquidation preference and a 7.5% annual cash-dividend rate; $1.3 million of dividends was accrued for the quarter. Common-stock repurchases under the authorization were zero during the quarter.
Key facts for investors to verify
- Whether higher student starts translate into sustained enrollment growth and improved operating performance.
- How quickly expenses, including transformation and student-growth costs, moderate after the reported operating-loss deterioration.
- Whether projected capital spending and management’s liquidity expectations remain achievable, given student funding timing and proprietary-loan credit risk.
- The final outcome and financial implications of Department of Education rulemaking, campus accreditation reviews, and pending legal or regulatory matters.
- The continuing impact of preferred dividends and financing obligations on cash available for growth or other uses.