Universal Technical Institute, Inc. — Q2 FY2021 Form 10-Q
Business context and period. The filing covers the three and six months ended March 31, 2021. UTI operates 12 U.S. campuses offering technical education and manufacturer training. Its principal revenue source is student tuition and fees; many students rely on federal financial aid and veterans’ benefits. All amounts below are U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Three months ended March 31 | Six months ended March 31 |
|---|---|---|
| Revenue | 2021: $77.7; 2020: $82.7 (down 6.1%) | 2021: $153.8; 2020: $170.0 (down 9.5%) |
| Operating income (loss) | 2021: $(1.7); 2020: $(0.5) | 2021: $(0.9); 2020: $3.8 |
| Operating margin | 2021: (2.1%); 2020: (0.6%) | 2021: (0.6%); 2020: 2.2% |
| Net income (loss) | 2021: $(1.5); 2020: $10.1 | 2021: $(0.5); 2020: $14.8 |
| Net income (loss) per share, diluted | 2021: $(0.09); 2020: $0.18 | 2021: $(0.09); 2020: $0.25 |
| EBITDA, non-GAAP | 2021: $2.0; 2020: $2.2 | 2021: $6.3; 2020: $10.0 |
For the six-month period, operating cash flow was $17.5 million, versus $10.9 million a year earlier. Investing activities used $31.6 million, primarily reflecting $49.9 million of property and equipment purchases, including the $45.2 million Avondale campus purchase, partly offset by $18.2 million of investment maturities. Financing activities used $3.1 million, including $2.6 million of preferred dividends. Cash and cash equivalents were $59.0 million at March 31, 2021; restricted cash was $12.8 million and held-to-maturity investments were $19.5 million. UTI reported no long-term debt.
Current assets were $131.1 million and current liabilities $114.8 million. Operating lease liabilities totaled $159.7 million, including $19.6 million current. Total shareholders’ equity was $176.5 million. Management said cash, investments and operating cash flows should cover working capital, capital expenditures, commitments and announced growth initiatives for at least the next 12 months.
Changes versus prior comparable periods
- Despite stronger enrollment, revenue fell as students progressed more slowly, retook courses and completed delayed in-person labs. Average undergraduate full-time enrollment rose 10.8% in Q2 and 6.1% for the half-year; new student starts rose 14.9% and 17.5%, respectively.
- Lower revenue outweighed expense reductions: six-month operating results moved from $3.8 million income to a $0.9 million loss. Cost reductions included lower occupancy, advertising, travel and other expenses.
- Prior-year net income included unusually large income tax benefits of $10.8 million for Q2 and $10.7 million for the half-year, principally related to CARES Act NOL carrybacks and other tax items. 2021 tax benefits were minimal.
- Cash and cash equivalents declined $17.8 million from September 30, 2020, mainly reflecting the Avondale property acquisition and other cash uses. Property and equipment, net, increased to $114.9 million from $72.7 million.
Outlook, developments and risks
- UTI provided no specific revenue or earnings guidance. Management expects seasonal enrollment-related fluctuations and cautioned that COVID-related leaves, withdrawals or delayed lab completion could affect 2021 revenue and operating cash flow. At quarter-end, about 10% of students had catch-up lab work outstanding and less than 1% remained exclusively online; approximately $0.8 million of revenue was deferred in connection with these circumstances.
- The company entered a definitive agreement to acquire MIAT College of Technology for up to $26.0 million in cash, subject to adjustments and customary closing conditions, including specified Department of Education and accreditation approvals. Management intends to fund the purchase with cash on hand.
- Growth plans include opening campuses in Austin and Miami in fiscal 2022, expanding welding programs, and consolidating campus facilities. UTI purchased its Avondale, Arizona campus for approximately $45.2 million and was exploring financing options for the property.
- UTI said its blended learning format would continue, with permanent approvals received from ACCSC and most state agencies. Permanent state approval remained pending for Motorcycle and Marine programs in Orlando, Florida.
- Regulatory risks include continued eligibility for Title IV and other student aid, accreditation and state authorization requirements, and the revised 90/10 rule under ARPA, which may apply to fiscal years beginning on or after January 1, 2023. UTI was assessing the change’s potential impact.
- UTI had been granted approximately $16.8 million under HEERF II for student grants but had not yet awarded grants or drawn funds by March 31, 2021. It expected a HEERF III allocation but had not received one by that date.
- Legal claims and proceedings arise in the ordinary course. The company said it could not estimate potential losses; an adverse outcome could materially affect business, cash flows or results.
Important facts for investors to verify
- Whether enrollment growth converts into higher revenue as students complete delayed labs and progress through programs.
- The MIAT acquisition’s closing conditions, final consideration, funding and expected contribution to results.
- The implications of the ARPA 90/10 rule, Department of Education oversight and pending Florida approvals for continued aid eligibility.
- Cash available after the Avondale purchase, planned campus investments, preferred dividends and any acquisition spending; also review the company’s substantial lease obligations.
- The sustainability of operating cash flow and cost reductions while revenue and operating margins remain below prior-year levels.
- The status and potential impact of legal matters, student aid grants, and the remaining $4.3 million CARES Act tax refund receivable.