Universal Technical Institute, Inc. — Form 10-Q Summary
Business context and reporting period
For the second quarter and six months ended March 31, 2020. UTI provides postsecondary technical education through 13 U.S. campuses, alongside manufacturer-sponsored training. Financial statements are unaudited. Amounts below are in millions except per-share data.
Financial performance and position
| Metric | Three months ended Mar. 31, 2020 | Prior-year quarter | Six months ended Mar. 31, 2020 | Prior-year six months |
|---|---|---|---|---|
| Revenue | $82.7 | $81.7 | $170.0 | $164.8 |
| Operating income (loss) | $(0.5) | $(5.6) | $3.8 | $(12.8) |
| Net income (loss) | $10.1 | $(5.3) | $14.8 | $(13.0) |
| Operating margin | (0.6)% | (6.9)% | 2.2% | (7.8)% |
| Basic and diluted EPS | $0.18 | $(0.26) | $0.25 | $(0.61) |
| Operating cash flow | Not stated separately | $10.9 | $2.8 |
The large net income improvement included an unusually substantial income tax benefit: $10.8 million for the quarter and $10.7 million for the six months, primarily associated with CARES Act NOL carrybacks and lease-accounting adoption. The six-month tax benefit reflects a $11.2 million expected refund. EBITDA, a non-GAAP measure, was $2.2 million for the quarter and $10.0 million for the six months, versus losses of $0.3 million and $3.2 million, respectively.
Cash and cash equivalents were $76.6 million, restricted cash $14.2 million, and short-term held-to-maturity investments $41.5 million at March 31. Together these totaled approximately $132.4 million, including restricted cash. UTI reported no bank debt. Operating lease liabilities totaled $150.3 million, including $25.5 million current. Total assets were $433.1 million and shareholders’ equity $185.1 million.
Six-month investing cash outflow was $46.6 million, mainly purchases of held-to-maturity securities; financing cash inflow was $45.9 million, chiefly equity-offering proceeds. Operating cash flow included significant cash uses for lease payments, income-tax receivable growth and lower deferred revenue.
Material changes versus prior period
- Quarterly revenue rose 1.2%; six-month revenue rose 3.1%. Tuition increases and higher six-month average enrollment supported growth. In the quarter, average undergraduate full-time enrollment fell 3.1% to 10,246, while student starts increased 6.6% to 2,093, excluding Norwood.
- Operating results improved substantially, reflecting revenue growth, lower expenses and the absence of a $4.0 million consultant termination fee recorded in the prior-year six-month period.
- UTI raised approximately $49.5 million net in a February common-stock offering, issuing 6.78 million treasury shares. Part of the proceeds was invested in short-term securities.
- UTI adopted ASC 842 on October 1, 2019, recognizing operating lease assets and liabilities; comparative periods were not recast. The adoption materially increased reported assets and liabilities but did not materially affect the statements of operations or cash flows.
Outlook, commentary, risks and unusual items
- On March 19, UTI suspended in-person classes at all campuses; classroom instruction moved online beginning March 25, while hands-on labs were delayed. Management believed most students could still complete programs on their usual timetable but could not predict campus closure durations. A $0.3 million revenue deferral related to students unable to complete final lab work was recorded.
- Management said cash, investments and operating cash flows should meet working-capital needs, commitments and planned expansion requirements for the next 12 months. No formal numerical earnings or revenue guidance was provided.
- As of May 4, more than 8,000 students were active in online training. In-person clinical instruction resumed at two Texas campuses on May 4 with modified capacity and safety procedures. This is a post-quarter update.
- UTI reported an allocation of approximately $33.0 million in CARES Act Higher Education Emergency Relief Fund support: about $16.5 million for student grants and $16.5 million for instructional-delivery costs. Receipt and use are subject to program requirements; noncompliant use could create repayment exposure.
- Key risks include prolonged COVID-19 disruption to enrollment, student progression, graduation timing and cash generation; dependence on federal student aid and veterans’ benefits; and regulatory, accreditation and financial-responsibility requirements. The planned Norwood, Massachusetts campus closure may prompt Department of Education review or financial-protection requirements. UTI had not received a closed-school loan-discharge assessment letter.
- Management reported no identified goodwill impairment indicators at March 31. The fiscal 2019 graduate employment rate was 2.0% below the prior-year comparable rate. Ordinary-course legal matters remain pending; the filing says potential losses cannot currently be estimated.
Most important facts for investors to verify
- Whether COVID-related campus operations, lab access, student starts, leaves of absence and graduation timing affected subsequent revenue and enrollment.
- Whether the expected $11.2 million tax refund and approximately $33.0 million HEERF allocation were received, and how relief funds were used.
- Whether operating cash flow and liquidity remain adequate after considering restricted funds and $150.3 million of lease liabilities.
- Whether the operating improvement is sustainable apart from the large tax benefit, prior-year consultant fee and lease-accounting changes.
- Progress and any Department of Education or accreditor actions concerning the Norwood closure, campus authorizations, and other regulatory requirements.