Universal Technical Institute(UTI) - 2020 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements The company achieved $4.7 million net income, reversing a $7.7 million loss, with asset growth driven by ASC 842 adoption Condensed Consolidated Balance Sheets The balance sheet reflects significant changes due to the adoption of ASC 842, increasing total assets and liabilities Balance Sheet Highlights (unaudited) | Balance Sheet Item | Dec 31, 2019 (In thousands) | Sep 30, 2019 (In thousands) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | $70,533 | $65,442 | +$5,091 | | Total current assets | $116,601 | $118,104 | -$1,503 | | Right-of-use asset | $142,869 | $— | +$142,869 | | Total assets | $382,061 | $270,526 | +$111,535 | | Total current liabilities | $116,974 | $96,844 | +$20,130 | | Lease liability | $130,813 | $— | +$130,813 | | Total liabilities | $255,788 | $156,238 | +$99,550 | | Total shareholders' equity | $126,273 | $114,288 | +$11,985 | - The significant increase in Total Assets and Total Liabilities is primarily due to the adoption of the new lease accounting standard ASC 842, resulting in the recognition of a $142.9 million Right-of-use asset and a corresponding $156.7 million total Lease liability (current and non-current portions)[13][31] Condensed Consolidated Statements of Income (Loss) The company achieved profitability in the quarter, driven by revenue growth and reduced operating expenses Income Statement Summary (unaudited) | Metric | Three Months Ended Dec 31, 2019 (In thousands) | Three Months Ended Dec 31, 2018 (In thousands) | YoY Change | | :--- | :--- | :--- | :--- | | Revenues | $87,234 | $83,050 | +5.0% | | Total operating expenses | $82,980 | $90,255 | -8.1% | | Income (loss) from operations | $4,254 | ($7,205) | +$11,459 | | Net income (loss) | $4,684 | ($7,717) | +$12,401 | | Net income (loss) per share - basic | $0.07 | ($0.36) | +$0.43 | | Net income (loss) per share - diluted | $0.07 | ($0.36) | +$0.43 | - The company achieved profitability with a net income of $4.7 million, a significant improvement from a $7.7 million net loss in the prior-year quarter, driven by a 5.0% increase in revenue and an 8.1% decrease in operating expenses[16] Condensed Consolidated Statements of Cash Flows Operating cash flow significantly improved year-over-year, primarily due to higher net income Cash Flow Summary (unaudited) | Cash Flow Activity | Three Months Ended Dec 31, 2019 (In thousands) | Three Months Ended Dec 31, 2018 (In thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $7,124 | $4,410 | | Net cash used in investing activities | ($1,719) | ($2,710) | | Net cash used in financing activities | ($497) | ($428) | | Net increase in cash, cash equivalents and restricted cash | $4,908 | $1,272 | - Cash from operating activities increased to $7.1 million from $4.4 million year-over-year, primarily driven by higher net income, adjusted for non-cash items like depreciation and amortization of the new right-of-use asset[20][137] Notes to Condensed Consolidated Financial Statements Notes detail new lease accounting impact, postemployment benefits, segment performance, and regulatory environment - The company adopted the new lease accounting standard, ASC 842, on October 1, 2019, resulting in the recognition of a $148.6 million operating lease Right-of-Use (ROU) asset and a $163.0 million operating lease liability on the balance sheet, and a net increase in stockholders' equity of approximately $9.1 million[31][33] - Postemployment benefits of $1.5 million were incurred during the quarter related to the retirement of President and CEO Kimberly J. McWaters[47] Segment Revenues and Operating Income (unaudited) | Segment | Revenues (Q1'20 vs Q1'19, in thousands) | Income (Loss) from Operations (Q1'20 vs Q1'19, in thousands) | | :--- | :--- | :--- | | Postsecondary education | $83,320 vs $79,224 | $4,601 vs ($6,231) | | Other | $3,914 vs $3,826 | ($347) vs ($974) | | Consolidated | $87,234 vs $83,050 | $4,254 vs ($7,205) | - The company is subject to extensive government regulation, particularly regarding federal student financial aid programs under Title IV, with recent regulatory changes effective July 1, 2020, and a planned campus closure reportable to the Department of Education (ED)[88][90][92] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes 5.0% revenue growth to enrollment and tuition, improving operating income and maintaining strong liquidity Results of Operations Revenue growth, driven by enrollment and tuition increases, combined with reduced operating expenses, significantly improved profitability - Revenues increased by $4.2 million (5.0%) YoY, driven by a 3.3% increase in average full-time student enrollment and tuition hikes of up to 3.0%[114] - Educational services and facilities expenses decreased by $2.8 million YoY, primarily due to a $1.7 million reduction in compensation costs from lower headcount and new benefit plans, and a $0.8 million decrease in depreciation following the adoption of ASC 842[115][116][117] - Selling, general and administrative (SG&A) expenses decreased by $4.4 million YoY, largely due to a $4.0 million consultant termination fee recognized in the prior-year period that did not recur[120][122] Non-GAAP Financial Measures EBITDA reconciliation provides insight into the company's operational performance before non-cash and financing impacts EBITDA Reconciliation (unaudited) | Metric | Three Months Ended Dec 31, 2019 (In thousands) | Three Months Ended Dec 31, 2018 (In thousands) | | :--- | :--- | :--- | | Net income (loss) | $4,684 | ($7,717) | | Interest income | ($336) | ($403) | | Interest expense | $— | $814 | | Income tax expense | $84 | $133 | | Depreciation and amortization | $3,342 | $4,258 | | EBITDA | $7,774 | ($2,915) | Liquidity and Capital Resources The company maintains strong liquidity, with increased cash and sufficient operating cash flow to meet future needs - The company's cash and cash equivalents increased by $5.1 million during the quarter to $70.5 million as of December 31, 2019[132] - Management believes cash flow from operations and cash on hand are sufficient to satisfy working capital needs, capital expenditures, and liquidity requirements for the next 12 months[132] - Net cash provided by operating activities was $7.1 million for the quarter, an increase from $4.4 million in the prior year period[137] Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes to its market risk exposure since September 30, 2019 - There have been no material changes to the company's market risk since September 30, 2019[145] Controls and Procedures Management concluded that disclosure controls were effective, with internal control changes implemented for the new lease accounting standard - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2019[147] - Changes in internal control over financial reporting were implemented during the quarter related to the adoption of the new lease accounting standard, ASC 842[148] PART II. OTHER INFORMATION Legal Proceedings The company is periodically subject to various legal proceedings in the ordinary course of business, with outcomes currently not estimable - The company is subject to lawsuits, investigations, and other claims in the ordinary course of business, where the ultimate outcome may have a material adverse effect, but a reasonable estimate of loss cannot currently be made[151] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K - The company refers investors to the risk factors discussed in its 2019 Annual Report on Form 10-K, noting no material changes[152] Unregistered Sales of Equity Securities and Use of Proceeds No shares were repurchased under the stock repurchase program, but shares were repurchased to settle employee tax liabilities - No shares were repurchased under the company's $25.0 million stock repurchase program during the quarter, with future repurchases requiring approval from Series A Preferred Stock holders[154] - In December 2019, 67,967 shares were repurchased at an average price of $5.61 per share to settle employee tax liabilities on vested stock awards[156] Exhibits The report includes required exhibits, such as CEO and CFO certifications and XBRL data files - Key exhibits filed with the report include CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL formatted financial statements[158]