Universal Technical Institute, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended December 31, 2021, compared with the three months ended December 31, 2020. Dollar amounts are in millions unless otherwise noted. UTI provides transportation and technical training through 14 U.S. campuses and multiple brands; most revenue comes from tuition and fees.
Key financial results
| Metric | Q1 FY2022 | Q1 FY2021 | Change |
|---|---|---|---|
| Revenue | $105.1 | $76.1 | +38.0% |
| Operating income | $13.6 | $0.8 | Up $12.8 |
| Operating margin | 12.9% | 1.0% | +11.9 percentage points |
| Net income | $14.8 | $1.1 | Up $13.7 |
| Net income per diluted share | $0.25 | $(0.01) | Improved |
| Operating cash flow | $2.5 | $7.8 | Down $5.3 |
| Capital expenditures | $10.8 | $47.3 | Down $36.5 |
| Cash and cash equivalents, period-end | $99.5 | $44.2 | Up year over year |
Operating expenses were $91.5 million, or 87.1% of revenue, versus $75.4 million, or 99.0%, a year earlier. Management-reported EBITDA, a non-GAAP measure, was $17.4 million versus $4.3 million.
At December 31, 2021, total assets were $533.5 million and current assets were $147.3 million. Current liabilities were $123.2 million. Debt, net of issuance costs, was $30.5 million, including $29.6 million long term; operating lease liabilities totaled $187.7 million. The $31.2 million term loan bears interest at LIBOR plus 2.0%; a swap fixes the rate on half its principal at 3.5%. UTI reported compliance with debt covenants. Cash, cash equivalents and restricted cash together totaled $111.1 million.
Changes and business developments
- Revenue growth reflected higher average student enrollment, improved revenue per student compared with the pandemic-affected prior-year period, and the MIAT acquisition. Average undergraduate full-time active students increased 16.2% to 13,729; period-end enrollment rose 22.0% to 13,129. New starts increased 2.3% to 1,972.
- UTI acquired MIAT College of Technology on November 1, 2021, paying $28.4 million in cash, including a working-capital surplus; cash flow from investing reports $26.1 million net of acquired cash. The acquisition added aviation, energy, wind, robotics, HVACR and other technical programs. MIAT’s two-month results were not material to the quarter. Purchase-price allocation remains preliminary and includes $9.8 million of goodwill and $16.2 million of acquired intangible assets.
- Operating cash flow declined despite higher earnings, principally reflecting cash uses from lower accounts payable and accrued expenses and lower deferred revenue. Investing cash outflow was $36.9 million, mainly for MIAT and capital spending.
- UTI launched electric-vehicle technician coursework and formed a strategic alliance with NAPA Auto Parts.
Outlook, risks and unusual items
- Management said cash on hand and expected operating cash flows should meet working-capital needs, capital expenditures, commitments and announced growth initiatives for at least the next 12 months. No quantified revenue or earnings guidance was provided.
- Planned campus openings in Austin, Texas, and Miramar, Florida, were expected in the second half of 2022. Management also cited further campus, program and acquisition growth opportunities. Results remain subject to seasonal enrollment fluctuations.
- UTI recorded a $1.3 million income-tax benefit, primarily related to the MIAT acquisition’s deferred tax liabilities and the valuation allowance. It maintained a full valuation allowance against deferred tax assets, but said sufficient future earnings could support release of a significant portion within 12 months; timing and amount are uncertain.
- Key risks include continued eligibility for Title IV and other student aid, extensive federal and state regulation, and potential changes to the 90/10 rule. UTI was monitoring the ARPA-related rule change, which could apply to institutional fiscal years beginning on or after January 1, 2023. UTI Texas was subject to a 30-day delay in first federal loan disbursements for first-time borrowers due to a cohort default rate of at least 15% in one of the three most recent years.
- Other risks include COVID-19 effects, student enrollment and employment outcomes, integration of MIAT, underutilized campus capacity, and compliance with credit-agreement covenants. Pending legal matters are described generally; the filing says potential losses cannot currently be estimated. UTI reported no goodwill or indefinite-lived intangible-asset impairment indicators at quarter-end.
Investor verification points
- Track enrollment, starts and revenue per student to assess whether growth continues beyond acquisition contribution and prior-year pandemic comparisons.
- Review MIAT integration, final purchase-price allocation, realized synergies and the performance of its acquired goodwill and intangibles.
- Monitor operating cash conversion, deferred revenue, capital spending, liquidity and debt covenant compliance.
- Verify developments in Title IV eligibility, the 90/10 rule, UTI Texas’s loan-disbursement delay and other regulatory requirements.
- Assess the sustainability of earnings given the tax benefit and full deferred-tax-asset valuation allowance, and check future disclosures for any release.