Company Overview

Universal Technical Institute, Inc. (UTI) is a leading workforce solutions provider of transportation, skilled trades and healthcare education programs. The company operates two reportable segments:

1. Universal Technical Institute (UTI): UTI operates 16 campuses in 9 states, offering a wide range of transportation and skilled trades technical training programs. UTI also provides manufacturer-specific advanced training programs and dealer technician training services.

2. Concorde Career Colleges (Concorde): Concorde, which UTI acquired in December 2022, operates 17 campuses in 8 states and online, offering degree, non-degree, and continuing education programs in allied health, dental, nursing, patient care and diagnostic fields.

All of UTI’s and Concorde’s campuses are accredited and eligible for federal student financial assistance. The company believes its industry-focused educational model and national presence have enabled it to develop valuable industry relationships, providing significant competitive advantages.

Revenues

UTI’s revenues consist primarily of student tuition and fees, supplemented by revenues from textbook/supply sales and other sources. Tuition revenue is recognized ratably over the term of the course or program. UTI offers a proprietary loan program where it provides students with extended payment terms for a portion of their tuition.

Student enrollment and tuition rates are influenced by various factors, including the attractiveness of program offerings, effectiveness of marketing efforts, strength of employment markets, quality of instruction and student services, and availability of federal/alternative funding.

Approximately 78% of UTI’s revenues are collected from funds distributed under Title IV federal student aid and veterans’ benefit programs. The company bears credit and collection risk for the portion of tuition funded through its proprietary loan program.

Operating Expenses

UTI categorizes operating expenses as:

1. Educational services and facilities: Includes faculty/campus administration compensation, facility rent, maintenance, depreciation, tools, training aids, and other costs directly associated with educational services.

2. Selling, general and administrative: Includes compensation and benefits of non-instructional employees, marketing/enrollment expenses, professional services, provision for credit losses, and other corporate overhead.

2024 Overview

In fiscal 2024, UTI and Concorde saw strong growth in new student starts, average full-time active students, and end-of-period full-time active students. This was driven by new program rollouts, increased student demand, and the inclusion of two additional months of Concorde results following the December 2022 acquisition.

Consolidated revenues grew 20.6% to $732.7 million, with UTI up 13.3% and Concorde up 38.3%. Operating expenses increased 15.0%, resulting in operating income of $58.9 million, a 175.2% increase over the prior year. Net income was $42.0 million, compared to $12.3 million in 2023.

The company executed on its growth, diversification and optimization strategy during the year, including:

• Concorde launching new dental hygiene and sonography programs
• UTI expanding HVAC and refrigeration programs
• UTI consolidating its two Houston campuses
• UTI obtaining FAA approval for an Airframe and Powerplant Technician program
• UTI integrating Electric Vehicle curriculum into a manufacturer training program

Results of Operations

Revenues:

• Consolidated revenues grew 20.6% to $732.7 million, with UTI up 13.3% and Concorde up 38.3%.
• The increases were driven by higher average full-time active students at both segments.

Educational Services and Facilities Expenses:

• Increased 16.6% to $384.5 million, primarily due to higher student volumes and the inclusion of two additional months of Concorde results.
• Key drivers were increases in compensation, occupancy costs, supplies/maintenance, and depreciation/amortization.

Selling, General and Administrative Expenses:

• Increased 12.9% to $289.3 million, also due to higher student volumes and Concorde integration.
• Increases were seen in compensation, advertising/marketing, and professional services.

Other Expenses:

• Other expense was $2.7 million, down from $3.3 million in the prior year, primarily due to lower interest expense.

Income Taxes:

• Income tax expense was $14.2 million, or 25.3% of pre-tax income, compared to $5.8 million, or 31.9%, in the prior year.
• The decrease in effective tax rate was due to factors like non-deductible expenses, tax credits, and state/local taxes.

Net Income:

• Net income was $42.0 million, compared to $12.3 million in the prior year.
• The significant increase was driven by higher revenues, improved operating efficiency, and lower tax expense.

Liquidity and Capital Resources

As of September 30, 2024, UTI had total liquidity of $230.9 million, comprised of $161.9 million in cash/equivalents and $69.0 million in undrawn revolving credit facility capacity. This represents a $71.2 million increase from the prior year.

The company’s principal sources of liquidity are operating cash flows and existing cash/equivalents. A majority of revenues come from Title IV federal student aid and veterans’ benefits, which can impact the timing of cash receipts.

For the year ended September 30, 2024, net cash provided by operating activities was $85.9 million, up from $49.1 million in the prior year. This was driven by higher net income and changes in working capital.

Net cash used in investing activities was $24.0 million, primarily for purchases of property and equipment to support new program expansions. This compares to $44.1 million of net cash used in the prior year, which included the Concorde acquisition.

Net cash used in financing activities was $51.3 million, mainly for net payments on the revolving credit facility, repurchase of preferred stock, and other debt/dividend payments. This contrasts with $81.8 million of net cash provided by financing activities in the prior year.

UTI has a $35.0 million share repurchase program authorized, but did not repurchase any shares during the past three fiscal years.

Seasonality

UTI’s operating results fluctuate seasonally, with lower student populations in the third quarter due to fewer enrollments during the summer months. The fourth quarter typically has the highest student population as more students enroll during this period. Expenses do not vary significantly with changes in student population.

Critical Accounting Estimates

UTI’s significant accounting policies and critical estimates include:

• Revenue recognition
• Proprietary loan program
• Allowance for credit losses

The company bases its estimates on historical experience and various assumptions, with actual results potentially differing under different conditions.

Conclusion

In fiscal 2024, UTI delivered strong financial performance, with double-digit revenue growth, significant margin expansion, and a more than tripling of net income compared to the prior year. This was driven by successful execution of the company’s growth, diversification and optimization initiatives, as well as continued focus on operational efficiency.

Looking ahead, UTI appears well-positioned to build on this momentum, with a solid liquidity position, strategic investments in new programs and campuses, and an industry-leading educational model that provides valuable workforce solutions. However, the company will need to navigate industry regulations, economic conditions, and competitive dynamics that can impact student enrollment and funding sources. Overall, UTI demonstrated its ability to adapt and thrive in the current environment.