Universal Technical Institute, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended September 30, 2015. The filing is an annual report, not a standalone fourth-quarter report; quarterly figures are noted where relevant. UTI operates 12 U.S. campuses offering technical education and manufacturer-sponsored training. Average undergraduate enrollment was approximately 13,200.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $362.7 million | $378.4 million |
| Operating income (loss) | $(9.2) million; (2.5)% margin | $6.3 million; 1.7% margin |
| Net income (loss) | $(9.1) million; $(0.38) per diluted share | $2.0 million; $0.08 per diluted share |
| Adjusted EBITDA (non-GAAP) | $24.1 million | $29.1 million |
| Cash from operating activities | $8.2 million | $27.1 million |
| Cash and cash equivalents | $29.4 million | $39.0 million |
| Working capital | $11.6 million | $25.2 million |
| Total assets / shareholders’ equity | $274.3 million / $113.5 million | $288.1 million / $133.2 million |
Revenue was approximately 98% tuition. Cash and current investments totaled $57.5 million at year-end; restricted cash was an additional $5.8 million. UTI reported no short- or long-term borrowings, but had $44.8 million of financing obligations, principally for its Lisle and Long Beach facilities. Future operating-lease commitments were $176.9 million, net of sublease income.
Changes versus the prior year
- Revenue decreased 4.2%, while average undergraduate enrollment fell 8.3% to about 13,200. Tuition increases partially offset lower enrollment.
- Operating results shifted from $6.3 million of income to a $9.2 million loss. The FY2015 result included a $12.4 million non-cash goodwill impairment for the MMI Phoenix campus; without this charge, the reported operating loss would have been substantially smaller.
- Adjusted EBITDA declined to $24.1 million from $29.1 million. Operating cash flow fell to $8.2 million from $27.1 million, with a significant use of cash from higher receivables and other working-capital movements.
- Cash and current investments declined from $84.9 million to $57.5 million. The company cited dividends, share repurchases, capital spending, and the Houston property purchase among cash uses.
Outlook, management commentary, and risks
- For FY2016, management expected new student starts to rise in the low single digits, but average student population to decline in the mid-to-high single digits. Revenue was expected to decline approximately 2%; operating income was expected to be lower, with minimal EBITDA. Planned capital expenditures were $19.5–$20.5 million.
- Management expected the new Long Beach campus, opened in August 2015, to become profitable in 2016. It generated $0.7 million of revenue and incurred $7.6 million of operating expenses in FY2015, including corporate allocations.
- Student affordability, competition, regulatory changes, and recruiting challenges weighed on enrollment. Advertising expense rose to $44.7 million, or about 12.3% of revenue; management expected advertising to remain 12%–13% of revenue in FY2016.
- Funding concentration is material: approximately 73% of revenue under the cash-basis 90/10 calculation came from Title IV programs, and approximately 20% from veterans’ benefits. UTI’s estimated FY2015 financial-responsibility composite score was 1.4; the company anticipated ED might require the “Zone Alternative,” subject to ED review.
- Gainful-employment debt-to-earnings rules could affect program eligibility, but UTI said it could not reliably project program performance using the available data. The company also identified potential changes to the 90/10 rule and limits on military-base recruiting as risks.
- Regulatory and legal matters include a Massachusetts Attorney General inquiry and a U.S. Attorney’s Office subpoena relating to the Mooresville campus, 90/10 compliance, and other practices. Outcomes and costs were uncertain, and no liability was recorded for these inquiries. A software-vendor dispute could result in a loss of up to $1.4 million; no liability was recorded.
- The proprietary student loan program leaves UTI with credit and collection risk. Loans outstanding, including accrued interest and fees, totaled $74.7 million off balance sheet at year-end; $12.5 million was written off during FY2015.
- Fourth-quarter FY2015 revenue was $90.7 million; operating loss was $13.2 million and net loss was $9.8 million, including the $12.4 million goodwill impairment. Results also vary seasonally.
Most important facts for investors to verify
- Whether enrollment and student starts recover, and whether FY2016 revenue and EBITDA track management’s outlook.
- ED’s final composite-score determination and any cash-monitoring or other Title IV participation requirements.
- Program-level outcomes under gainful-employment rules and the potential impact on tuition, enrollment, and Title IV eligibility.
- Developments and potential financial consequences of the Massachusetts and North Carolina inquiries and the software-vendor dispute.
- Collection performance and write-offs in the proprietary loan program, alongside the decline in operating cash flow and liquidity.
The filing reports unqualified independent auditor opinions on the FY2015 financial statements and internal control over financial reporting.