Universal Technical Institute, Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended September 30, 2021. This is an annual report, not a calendar-quarter filing. UTI provides transportation and technical training through 12 U.S. campuses, with revenue primarily from tuition. The financial statements received an unqualified audit opinion; management and the auditor reported effective internal control over financial reporting.
Key financial results
| Metric | FY2021 | FY2020 |
|---|---|---|
| Revenue | $335.1 million | $300.8 million |
| Operating income (loss) | $14.9 million | ($3.9 million) |
| Operating margin | 4.4% | (1.3%) |
| Net income | $14.6 million | $8.0 million |
| Net margin | 4.3% | 2.6% |
| Income available for distribution, after preferred dividends | $9.3 million | $2.7 million |
| EBITDA (non-GAAP) | $29.5 million | $9.4 million |
| Cash from operating activities | $55.2 million | $11.0 million |
Revenue rose 11.4%; operating expenses increased 5.1%. Cash and cash equivalents were $133.7 million at year-end, plus $12.3 million restricted cash; the company had no held-to-maturity investments. Current assets were $183.4 million and current liabilities $132.7 million. Long-term debt was $30.9 million, primarily a seven-year loan financing the Avondale campus purchase; the loan is secured by that property. Half the principal is effectively fixed at 3.5% through an interest-rate swap. UTI reported compliance with loan covenants.
Business and material changes
- Average full-time active enrollment increased 9.8% to 11,489; new student starts rose 15.5% to 13,028. Year-end active enrollment increased 9.2% to 13,682.
- Operating performance recovered from FY2020, when COVID-related campus interruptions, leaves of absence and delayed lab work affected revenue. All campuses were operating during FY2021, and fewer than 1% of students had catch-up lab work outstanding at year-end. COVID-related deferred revenue fell from $6.1 million to none.
- FY2020 net income included a $10.6 million income-tax benefit, primarily associated with CARES Act net operating loss carrybacks; FY2021 recorded $0.6 million of tax expense. The prior-year tax benefit helped support the net-income comparison.
- Capital spending was $61.6 million, including the $45.2 million Avondale property purchase. The company borrowed $31.2 million against the property in May 2021.
- After year-end, on November 1, 2021, UTI completed its $26.0 million cash acquisition of MIAT College of Technology. MIAT adds campuses in Michigan and Texas and programs including aviation maintenance, energy technology, robotics, HVACR and welding.
Outlook, risks and unusual items
UTI did not provide specific financial guidance in the filing. Management said available cash, operating cash flows and investments were expected to cover working capital, capital expenditures, commitments and announced initiatives through at least the next fiscal year. Plans included opening campuses in Austin, Texas, and Miramar, Florida, expanding welding and manufacturer-specific training, and consolidating certain Arizona and Florida facilities. These plans and expected acquisition benefits are subject to execution and approval risks.
- Dependence on public aid: Approximately 68% of FY2021 revenue, on the Department of Education’s cash basis, came from Title IV programs; approximately 14% came from veterans’ benefits. Regulatory or eligibility changes could materially affect enrollment, revenue and liquidity. ARPA changes to the 90/10 rule may apply no earlier than fiscal years beginning January 1, 2023; management was assessing the impact.
- Student financing and estimates: UTI bears credit and collection risk on its proprietary student loans. Notes receivable totaled $36.1 million, and revenue recognition depends on estimated collections. The auditor identified this estimate as a critical audit matter. About 23% of active students received proprietary-loan funding.
- COVID-19 and blended instruction: Renewed disruptions could affect student progress, starts and revenue. UTI had permanent accreditor and state approvals for blended formats but was still seeking Florida veterans-agency approval for certain blended MMI programs.
- Other operating and financial risks: Competition, underused campus capacity, student affordability and employment outcomes, dependence on industry partners, acquisition integration, and variable-rate debt could pressure results. The company reported that only the Texas institution faced a 30-day delay in first federal-loan disbursements for first-time borrowers because of a cohort default rate.
- Preferred stock and contingencies: Series A preferred stock carries $5.25 million of annual cash dividends in FY2021 and potential common-stock dilution, subject to conversion limitations. UTI disclosed ordinary-course legal and regulatory matters but said it could not estimate potential losses. Surety bonds had a face amount of approximately $15.3 million.
Important facts for investors to verify
- Whether enrollment growth, student retention and graduate employment outcomes continue to support revenue growth; the reported employment rate was 80% for 2020 graduates versus 84% for 2019 graduates.
- Collections and credit-loss assumptions for the $36.1 million proprietary-loan receivable balance, and any resulting effects on recognized tuition revenue.
- Actual costs, regulatory approvals, enrollment ramp and financial contribution from MIAT and the planned Austin and Miramar campuses.
- Future Title IV and veterans’ benefit eligibility, the effect of the revised 90/10 rule, and any changes to blended-learning approvals.
- Debt repayment, interest-rate exposure and covenant compliance, as well as the terms and potential dilution associated with Series A preferred stock.