Universal Technical Institute, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended March 31, 2014. Financial statements are unaudited; amounts below are in millions unless otherwise noted.
Business context
UTI operates 11 U.S. campuses offering postsecondary technical education, alongside manufacturer-specific training programs. Student tuition is the primary revenue source, and many students rely on federal financial aid and veterans’ benefits.
Financial results and liquidity
| Metric | Three months ended March 31, 2014 | Six months ended March 31, 2014 |
|---|---|---|
| Revenue | $94.7 | $191.7 |
| Operating income (loss) | $(1.5); margin (1.6)% | $1.5; margin 0.8% |
| Net income (loss) | $(1.5) | $0.2 |
| Diluted earnings (loss) per share | $(0.06) | $0.01 |
| EBITDA, non-GAAP | $4.3 | $13.1 |
- For the six months, operating cash flow was $15.9, investing cash flow $(11.6), and financing cash flow $(5.6); cash and cash equivalents ended at $34.3.
- At March 31, cash and cash equivalents plus current investments totaled $89.9. Total investments, current and non-current, were $67.6. Current assets were $127.8 and current liabilities $95.4.
- Total liabilities were $149.5. The Lisle campus arrangement is recorded as a financing obligation: $33.3 net present value, including $0.5 current and $32.8 non-current.
- UTI paid $4.9 in dividends during the six months, or $0.20 per share, and repurchased $0.4 of shares.
Changes versus prior comparable periods
- Quarterly revenue declined 0.4% from $95.1; six-month revenue declined 0.9% from $193.5. Average full-time undergraduate enrollment fell 2.0% in the quarter and 4.5% for the six months.
- Quarterly student starts increased 6.9% year over year to approximately 3,100, but starts for the six months fell 5.4% to approximately 5,300.
- Quarterly operating loss narrowed from $1.9 to $1.5, while quarterly net loss widened from $0.9 to $1.5. Six-month operating income fell from $4.1 to $1.5 and net income from $2.6 to $0.2.
- Six-month SG&A decreased $0.8, partly offset by a $1.6 increase in educational services and facilities costs. Advertising expense rose $2.0 for the six months; compensation and related costs declined.
- Six-month operating cash flow rose from $7.6 to $15.9, principally reflecting less adverse working-capital movements than in the prior period.
Outlook, risks, and unusual items
- Management expected second-half starts to be slightly below the prior year despite quarterly start growth. It expected third-quarter results to be close to break-even and second-half operating results to be significantly better than the prior year. Management also expected absolute operating expenses to decline on a linked-quarter and year-over-year basis.
- Management anticipated $11.4–$11.7 of additional capital expenditures for fiscal 2014. Planned curriculum integration was expected to require a further $3.0–$3.4 of capital investment and $1.6–$1.8 of operating expense during the rest of the fiscal year.
- Federal proposed gainful-employment rules could affect program eligibility for Title IV aid; the company could not estimate their potential impact. Other regulatory topics under discussion included PLUS-loan adverse-credit definitions, clock-to-credit-hour conversion, and Title IV cash management.
- The proprietary student-loan program leaves UTI with credit and collection risk. At March 31, loans and related accrued amounts not recorded on the balance sheet totaled $71.5; six-month tuition and interest revenue excluded under the program was $12.8, while $4.3 was written off during the period.
- A Massachusetts Attorney General investigation concerning alleged claims related to student aid remained unresolved; UTI recorded no liability and said it could not predict the outcome or costs. The DOJ had closed its investigation of previously disclosed False Claims Act claims, and the accreditor closed its inquiry in March 2014.
- Expiration of certain stock awards caused non-cash deferred-tax-asset write-offs, adding $0.5 to six-month income tax expense. Management said the annual effective tax rate could not be reliably estimated and tax expense could vary materially.
- Construction of the Lisle campus was completed and the campus opened in December 2013. Orlando campus expansion construction was anticipated to finish in late calendar 2014; related project costs were estimated at $2.0–$2.3.
Important facts for investors to verify
- Whether student-start and enrollment trends improve, and whether management’s second-half operating outlook is achieved.
- Collections, defaults, and regulatory compliance in the proprietary loan program, including the $71.5 of unrecognized loan-related balances.
- The final form and effect of gainful-employment and other Department of Education rules on Title IV eligibility and student financing.
- The status and potential cost of the Massachusetts investigation, which had no recorded liability.
- Actual capital spending and operating costs for curriculum integration and campus projects, and the effect of financing-obligation accounting on expense and cash flows.