Universal Technical Institute, Inc. — FY2019 Form 10-K Summary
Business context and reporting period
The filing covers the fiscal year ended September 30, 2019; it is an annual report, not a standalone fourth-quarter filing. UTI provides postsecondary technical education and manufacturer training through 13 U.S. campuses. Average full-time enrollment was 10,674, up 2.5% from FY2018.
Financial and operating performance
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $331.5 million | $317.0 million |
| Operating expenses | $339.3 million | $352.2 million |
| Operating loss | $7.8 million | $35.3 million |
| Operating margin | (2.4)% | (11.1)% |
| Net loss | $7.9 million | $32.7 million |
| Net loss per share | $0.52 | $1.51 |
| EBITDA, non-GAAP | $11.4 million | $(16.7) million |
| Cash from operating activities | $21.7 million | $(13.4) million |
FY2019 revenue increased 4.6%, supported by higher enrollment, tuition increases and an additional earning day. Cost controls and lower advertising and professional-services spending helped reduce operating expenses. The company reported positive operating income of $5.4 million and net income of $5.5 million in FY2019’s fourth quarter; annual results nevertheless remained at a loss.
At September 30, 2019, cash and cash equivalents were $65.4 million, restricted cash was $15.1 million, working capital was $21.3 million and shareholders’ equity was $114.3 million. UTI reported no short- or long-term borrowings or bank debt. It had $40.7 million of financing obligations associated with campus facilities and $132.5 million in net future operating-lease commitments. FY2019 investing cash outflow was $6.2 million and financing cash outflow was $7.2 million, including $5.25 million of preferred dividends.
Material changes versus the prior comparable period
- Average full-time enrollment rose 2.5%; student starts increased 8.8% to 11,652, while ending enrollment grew 3.6% to 12,363.
- Operating loss narrowed by $27.5 million and net loss by $24.8 million year over year. FY2018 included a $3.0 million income-tax benefit; FY2019 had $0.2 million of tax expense.
- Operating cash flow improved by $35.1 million to $21.7 million, helped by working-capital movements, including higher deferred revenue and accounts payable.
- Bloomfield, New Jersey, contributed $10.9 million of FY2019 revenue and $8.7 million of direct costs. The Norwood, Massachusetts campus stopped accepting new applications and is expected to close before FY2020 ends.
- Consolidated student retention/completion increased to 69% from 68%. Employment within one year for graduates available for work was 86% for 2018 graduates, versus 84% for 2017 graduates.
Outlook, management commentary, risks and unusual items
Management said operating cash flows and cash on hand should meet working-capital, capital-expenditure and liquidity needs for at least the next 12 months. The company provided no specific financial guidance. Its strategy emphasizes enrollment growth, metro-campus expansion, new and expanded programs, affordability initiatives, industry partnerships and campus right-sizing. The Exton campus is expected to reduce its space by about 71,000 square feet in December 2020.
- Funding and regulation: Approximately 71% of revenue under the ED 90/10 cash-basis calculation came from Title IV programs; about 15% came from veterans’ benefits. Loss or restriction of these funding sources, or changes in regulatory requirements, could materially affect enrollment, cash flows and operations. UTI calculated a 1.8 financial-responsibility composite score, subject to ED review.
- Campus closure and contingencies: UTI intends to teach out Norwood students; some may withdraw and potentially qualify for loan discharges. The filing says the ultimate outcome of pending legal matters cannot be estimated clearly and could have a material adverse effect.
- Student financing: UTI bears collection risk on its proprietary student loans. The loans carry rates of approximately 7%–10%, and revenue estimates depend on management’s collection assumptions.
- Other exposures: Risks include competition and economic conditions, underutilized campus capacity, dependence on OEM relationships, student loan defaults, cybersecurity and systems disruptions, and potential changes to federal and state aid rules.
- Notable accounting and other items: UTI early implemented the gainful-employment rule rescission. New lease accounting was expected to add approximately $144–$154 million of operating lease assets and $156–$166 million of lease liabilities from October 1, 2019. The company recorded $1.6 million of severance charges in FY2019 and expected about $1.0 million of additional Norwood postemployment benefits upon closure. FY2019 goodwill testing found no impairment; FY2018 included $1.2 million of impairment charges for BrokenMyth Studios.
Important facts for investors to verify
- Whether the enrollment increase and improved cost structure can be sustained, and whether annual operations can reach profitability.
- ED’s final assessment of UTI’s 1.8 composite score and the potential effect of regulatory changes or the Norwood closure on Title IV participation or financial-protection requirements.
- Cash collection performance and assumptions for the proprietary loan portfolio, including the resulting receivable and bad-debt exposure.
- The eventual costs and student outcomes of the Norwood teach-out, and execution of campus right-sizing and expansion plans.
- Preferred-stock economics: $5.25 million of FY2019 dividends, a stated 7.5% annual cash-dividend rate, and potential dividend-rate increases under specified approval conditions.