Universal Technical Institute, Inc. — Form 10-Q Summary
Reporting period: Fiscal first quarter ended December 31, 2019; compared with the three months ended December 31, 2018. Unless otherwise noted, dollar amounts are in millions. The company provides postsecondary technical education through 13 U.S. campuses, along with manufacturer-specific training programs.
Financial and operating performance
| Metric | Q1 FY2020 | Q1 FY2019 |
|---|---|---|
| Revenue | $87.2 | $83.1 |
| Operating income (loss) | $4.3 | $(7.2) |
| Operating margin | 4.8% | (8.7%) |
| Net income (loss) | $4.7 | $(7.7) |
| Net income (loss) per diluted share | $0.07 | $(0.36) |
| Net cash provided by operating activities | $7.1 | $4.4 |
| Capital expenditures | $1.8 | $2.8 |
- Revenue increased 5.0%. Average undergraduate full-time enrollment rose 3.3% to 11,600, and new student starts increased 7.7% to 1,594, excluding Norwood. Tuition increases of up to 3.0%, depending on program, also contributed.
- Operating expenses fell to $83.0 million from $90.3 million. Educational services and facilities expense declined $2.8 million; SG&A declined $4.4 million.
- Management reported EBITDA, a non-GAAP measure, of $7.8 million versus a loss of $2.9 million. This measure is not a substitute for GAAP results.
- Cash and cash equivalents were $70.5 million at quarter-end, up from $65.4 million at September 30, 2019. Restricted cash was an additional $14.9 million; combined cash, cash equivalents and restricted cash were $85.5 million.
- Current assets were $116.6 million and current liabilities $117.0 million. The company reported no bank debt or credit facility. Operating lease liabilities totaled $156.7 million, including $25.9 million current, following adoption of ASC 842.
- Preferred stock dividends were $1.3 million for the quarter. Income available for distribution after those dividends was $3.4 million.
Material changes and notable items
- Results improved from a prior-year loss to profit. The comparison benefited in part from a $4.0 million consultant termination fee recorded in Q1 FY2019.
- Bloomfield, New Jersey, contributed $4.1 million of revenue and $1.8 million of net income, compared with $1.9 million revenue and an operating loss of less than $0.1 million in the prior-year quarter.
- Norwood, Massachusetts, revenue fell to $0.8 million from $2.5 million; its net loss was $0.8 million. The campus stopped accepting new applications, and closure was expected before the end of fiscal 2020.
- ASC 842 adoption on October 1, 2019 added substantial lease assets and liabilities to the balance sheet. The company recorded a $9.1 million increase to equity from transition adjustments; comparative periods were not recast. The company said adoption did not materially affect the income statement or cash flows.
- CEO Kimberly J. McWaters retired effective October 31, 2019. The company recorded $1.5 million in postemployment benefit charges and paid $1.0 million during the quarter.
- Fiscal 2019 graduate employment was modestly lower than at the comparable point in the prior year; results varied by program.
Outlook, risks and contingencies
- No specific earnings or revenue guidance is provided. Management said operating cash flows and cash on hand should meet working-capital, capital-expenditure, liquidity and existing-operations needs over the next 12 months, including expansion of programs at existing campuses.
- Management continues to pursue its transformation plan, including market and program expansion, OEM and employer relationships, student affordability initiatives, and real-estate optimization. Seasonal enrollment patterns may cause quarterly fluctuations; the first quarter also included a week-long holiday campus closure.
- A substantial portion of revenue depends on federal Title IV financial aid and veterans’ benefits. Regulatory developments, accreditation and state authorization requirements, or a campus losing authorization could affect operations. The Department of Education’s regulations effective July 1, 2020 could create financial-protection or other requirements; the company said it was reviewing their potential impact.
- The Norwood closure may trigger Department of Education review of financial-responsibility measures, potentially including a letter of credit or other conditions. The company reported that it had notified the Department but had received no further response. It intends to teach out enrolled students; potential closed-school loan discharges remain uncertain.
- Legal proceedings and claims arise in the ordinary course of business. The filing says the ultimate outcome could materially affect results or financial condition, but a loss estimate was not provided.
- The company maintained a full valuation allowance against deferred tax assets. The effective tax rate was 1.8% despite the 21% federal statutory rate, principally reflecting state taxes and valuation-allowance changes.
Important facts for investors to verify
- Whether enrollment growth, student starts and program expansion continue to support revenue and operating profitability.
- The financial and regulatory consequences, timing and student teach-out progress of the Norwood closure.
- The effect of July 2020 federal regulatory changes on Title IV participation, financial-responsibility measures and any required letters of credit.
- Cash generation and liquidity in light of lease payments, preferred dividends, student-loan collection risk and seasonal cash-flow timing.
- Graduate employment outcomes by program and any effect on student demand, retention or regulatory standing.
- That reported lease liabilities reflect ASC 842 accounting and are not bank borrowings; assess the company’s contractual lease-payment schedule separately.