Universal Technical Institute, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended June 30, 2023. Financial amounts are in millions unless noted. Results are unaudited. UTI provides transportation and skilled-trades education; results now also include Concorde Career Colleges, acquired December 1, 2022.
Financial performance
| Metric | Three months ended June 30, 2023 | Prior-year quarter | Nine months ended June 30, 2023 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $153.3 | $101.0 | $437.1 | $308.1 |
| Operating income | $0.7 | $2.0 | $11.1 | $18.9 |
| Net income (loss) | $(0.5) | $0.8 | $5.6 | $23.0 |
| Net income (loss) per diluted share | $(0.05) | $(0.01) | $0.03 | $0.35 |
| Operating margin | 0.4% | 1.9% | 2.5% | 6.1% |
| EBITDA (non-GAAP) | $7.4 | $6.2 | $30.2 | $30.7 |
Quarterly revenue increased 51.8%, principally because Concorde contributed $52.4 million. UTI revenue was roughly flat year over year. For the nine months, revenue grew 41.9%, including $123.1 million from Concorde; UTI revenue rose 1.9%. UTI’s average active students declined 4.0% in the quarter and 2.8% for the nine months, while UTI new starts increased 5.3% and 3.7%, respectively. Consolidated growth in student metrics also reflects Concorde.
Operating expenses rose faster than revenue: quarterly operating expenses were $152.6 million versus $99.0 million, and nine-month expenses were $426.1 million versus $289.2 million. Management attributed the increase primarily to Concorde, new campuses and program rollouts, and ongoing and one-time growth and diversification costs. Higher interest expense also weighed on results: $3.0 million for the quarter and $7.0 million for the nine months, versus $0.6 million and $1.3 million in the comparable periods. Nine-month tax expense was $3.2 million, compared with a $5.6 million tax benefit in the prior year, which included a significant valuation-allowance release.
Cash flow, liquidity and debt
- Cash and cash equivalents were $110.5 million at June 30, 2023, compared with $66.5 million at September 30, 2022; restricted cash was $3.6 million. Current assets were $164.5 million and current liabilities $150.9 million.
- Nine-month operating cash flow was a use of $4.7 million, versus $7.9 million provided in the prior-year period. Management cited cash uses from deferred revenue, lease payments, lower accounts payable and accrued expenses, prepaid costs and receivables.
- Investing cash outflow was $36.2 million, including $48.8 million of capital expenditures and $16.4 million of acquisition cash paid net of cash acquired, partly offset by $29.0 million of investment maturities. Financing cash inflow was $85.0 million, mainly from $90.0 million drawn on the revolver.
- Total debt, net of issuance costs, was $162.7 million ($160.2 million long-term and $2.5 million current), compared with $67.5 million at September 30, 2022. The increase primarily reflects the revolver used to fund Concorde. The $100 million facility had $90 million drawn and $1.8 million in letters of credit; reported remaining availability was $8.2 million.
- Debt includes floating-rate borrowings. Swaps fix the rate on half of each Avondale and Lisle term loan at 3.45% and 4.69%, respectively. The filing estimates a hypothetical 10% change in unhedged variable rates would change annual interest expense by $12.4 million, assuming debt terms remain unchanged.
Outlook, risks and notable items
- Management believes operating cash flow and cash on hand will meet working-capital needs, capital expenditures, commitments and announced growth initiatives over the next 12 months and beyond. No specific full-year revenue or earnings guidance is provided in the filing.
- Management expects additional program launches through the fourth quarter of fiscal 2023 and into fiscal 2024. Several new programs began in July 2023; planned growth also includes campus and program expansion and potential strategic acquisitions.
- Key risks include maintaining Title IV and other student-aid eligibility, extensive federal and state education regulation, student enrollment and affordability, execution and integration of acquisitions and growth initiatives, and interest-rate exposure. The Department of Education’s proposed rules on gainful employment, financial responsibility, administrative capability and related matters were awaiting finalization. UTI also said it had provided information requested by the CFPB regarding student lending and was awaiting further guidance, if any.
- The Concorde acquisition’s purchase-price allocation remained preliminary and subject to completion. Concorde contributed to higher lease assets and liabilities; the company also bought its Orlando campus buildings and land for approximately $26.2 million, including costs.
- The company reported compliance with its revolving-credit and term-loan covenants at June 30, 2023. It reported no material legal proceedings at that time, while noting ordinary-course claims and that outcomes of pending matters cannot be predicted with certainty.
- Series A preferred dividends were $1.3 million for the quarter and $3.8 million for the nine months. The preferred stock has a 7.5% annual cash-dividend rate; unpaid dividends can increase its liquidation preference. Common-stock dividends are not currently paid.
Important facts for investors to verify
- How much of reported revenue growth and future profitability comes from Concorde versus organic growth at UTI, and whether UTI’s active-student trend improves.
- Whether operating cash flow recovers after the nine-month outflow, given the timing-related cash uses and continued investment requirements.
- Revolver availability, refinancing and repayment requirements, covenant headroom, and the sensitivity of interest expense to floating rates.
- Progress on integration, program launches and campus utilization, including whether growth-related costs translate into improved operating margins.
- Developments in federal and state regulation, Title IV eligibility, the CFPB’s review, and completion of Concorde’s preliminary acquisition accounting.