Universal Technical Institute, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Three and nine months ended June 30, 2022; fiscal year ends September 30. The company provides postsecondary transportation and technical training at 15 U.S. campuses, including MIAT, acquired in November 2021.
Financial performance
| Metric | Three months ended June 30 | Nine months ended June 30 |
|---|---|---|
| Revenue | $101.0 million, up 20.5% from $83.8 million | $308.1 million, up 29.7% from $237.6 million |
| Operating income / margin | $2.0 million / 1.9%; prior year $3.1 million / 3.6% | $18.9 million / 6.1%; prior year $2.2 million / 0.9% |
| Net income | $0.8 million; prior year $3.0 million | $23.0 million; prior year $2.5 million |
| Income available after preferred dividends | Loss of $0.5 million; prior year income of $1.7 million | Income of $19.1 million; prior year loss of $1.4 million |
| EPS | Basic and diluted loss of $0.01 | Basic income of $0.36; diluted income of $0.35 |
| Operating cash flow | Not presented for the quarter | $7.9 million; prior year $14.8 million |
- For the nine-month period, EBITDA, a non-GAAP measure, was $30.7 million versus $13.1 million. Q3 EBITDA was $6.2 million versus $6.8 million.
- Cash and cash equivalents were $70.7 million at June 30, down from $133.7 million at September 30, 2021; restricted cash was an additional $2.6 million. Current assets were $121.9 million and current liabilities $120.9 million.
- Debt totaled $68.3 million gross, or $67.8 million net of issuance costs, versus $31.0 million gross at September 30. The increase primarily reflects the $38.0 million Lisle term loan. Operating lease liabilities were $150.0 million.
- Investing cash outflow was $95.9 million, including $69.6 million of property and equipment purchases and $26.5 million paid for MIAT, net of acquired cash. Financing cash inflow was $15.4 million.
Changes and operating drivers
- Average undergraduate full-time active students rose 11.4% in the quarter and 14.2% for the nine months. New student starts increased 25.0% in the quarter and 7.9% year to date. Growth reflected student demand, MIAT, and comparisons affected by prior-year COVID-related disruption.
- MIAT contributed $6.2 million of Q3 revenue and $17.8 million for the nine months. Management attributed broader revenue growth to higher enrollment and revenue per student as well as the acquisition.
- Q3 operating income declined despite higher revenue. Management cited one-time growth and diversification costs; educational services and facilities costs increased, while SG&A rose with marketing, staffing and professional services.
- Nine-month results included a $5.6 million income tax benefit, primarily from releasing most of the valuation allowance on deferred tax assets. The benefit materially contributed to reported net income.
- The Lisle campus purchase generated a $1.6 million gain on settlement of its prior lease during the nine-month period. The company also completed the MIAT acquisition and opened its Austin campus.
Outlook, risks and contingencies
- Management said operating cash flows, cash on hand and investments should cover working capital, capital expenditures, commitments and announced growth initiatives for at least the next 12 months.
- The company agreed to acquire Concorde Career Colleges for a $50 million base cash price, subject to adjustments and customary closing conditions, including an ED pre-acquisition review. Management expected closing in the first half of fiscal 2023; funding was expected from cash on hand.
- Management plans 15 additional programs across campuses, with initial launches projected for Q2 fiscal 2023 and remaining launches by the end of 2024, subject to regulatory approvals. It also cited electric-vehicle technician training and continued blended-learning investment.
- Interest-rate exposure remains: both term loans bear floating rates, with swaps fixing rates on 50% of each loan. The company reported compliance with debt covenants at June 30. Title IV eligibility, evolving federal rules—including 90/10 changes expected to apply from July 2023—and reliance on federal student aid are important business risks.
- The CFPB requested information in January 2022 to assess whether UTI is subject to its supervisory authority regarding student lending; UTI provided the information and was awaiting further guidance. The filing does not provide a clear estimate of potential loss from pending legal matters.
- Seasonal enrollment patterns typically produce lower student populations in the third quarter and higher populations in the fourth. Management cautioned that actual results may differ because of regulatory, macroeconomic, enrollment, integration and execution risks.
Investor facts to verify
- Whether enrollment and student starts continue to grow, and whether the growth translates into sustained operating-margin improvement.
- The sustainability of earnings excluding the non-cash valuation-allowance release and the Lisle lease-settlement gain.
- Cash conversion and liquidity after substantial campus investment, debt service, preferred dividends and any Concorde acquisition payment.
- Concorde closing conditions, timing, integration costs and expected contribution to results.
- Developments in Title IV regulation, the CFPB review and compliance with loan covenants as floating-rate costs change.