Student Growth Up, Revenues Down in 2017 for UTI

Aug. 7, 2017—Universal Technical Institute both revenues and full-time student enrollment were down for the fiscal 2017 third quarter.

While third quarter student starts grew 12.5 percent and our show rate improved by 180 basis points over the prior year third quarter, the average number of students enrolled full-time decreased from 11,100 to 10,000 between 2016 and 2017.

In addition, revenues for the quarter were $76.3 million, compared to $82.3 million for the prior year period.

"By expanding our core course offerings into these high-growth industries, we are further differentiating UTI among our peer group and positioning ourselves to capture additional market share," Kim McWaters, UTI's chairman and CEO, stated.

"Looking ahead," she continued, "we remain committed to achieving our goal of growing student starts for the second half of fiscal 2017, delivering annualized cost savings at the higher end of between $30 million and $40 million in fiscal 2017, and generating significantly improved EBITDA year-over-year. We are continuing to optimize our business model through the execution of our strategies to drive new student start growth, expand our course offerings, open additional smaller campuses, optimize our marketing mix, and maintain a prudent cost structure to support our path to long-term growth and profitability."

Financial Results for the Three-Month Period Ended June 30: 2017 Compared to 2016

Revenues for the quarter were $76.3 million, compared to $82.3 million for the prior year period. Revenues exclude tuition related to students participating in the company's proprietary loan program, which were $4.0 million and $4.2 million for the third fiscal quarter of 2017 and 2016, respectively. This tuition will be recognized as revenues when payments are received.
Operating expenses for the quarter were $79.0 million, compared to $87.7 million for the prior year period. The $8.7 million decrease is largely due to lower compensation expense and improved operating efficiencies pursuant to the implementation of the Financial Improvement Plan.
Operating loss for the quarter was $2.8 million, compared to $5.5 million for the prior year period. The improvement reflects the aforementioned significant cost reductions and incremental operating income of $1.1 million from the Long Beach campus, which opened in August 2015.
Income tax expense was $1.0 million for the quarter, reflecting a full valuation allowance on deferred tax assets, compared to an income tax benefit of $1.1 million for the prior year period.
Net loss for the quarter was $3.9 million, compared to a net loss of $5.1 million for the prior year period.
Net loss available for distribution to common shareholders was $5.2 million, or $0.21 per diluted share, for both the quarter and the prior year period.
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the three months ended June 30, 2017was $2.1 million, compared to a loss of $0.6 million for the prior year period. (See "Use of Non-GAAP Financial Information" below.)

Financial Results for the Nine-Month Period Ended June 30: 2017 Compared to 2016

Revenues were $242.9 million, compared to $260.2 million, and excluded $13.4 million and $14.5 million, respectively, of tuition related to students participating in the proprietary loan program.
Operating expenses were $243.6 million, compared to $273.6 million for the prior year period.
Operating loss was $0.7 million, compared to $13.4 million for the prior year period.
Income tax expense was $5.7 million for the year-to-date period, compared to $23.7 million for the prior year period, reflecting a full valuation allowance on deferred tax assets during both periods.
Net loss for the year-to-date period was $7.4 million, compared to a net loss of $38.8 million for the prior year period.
Net loss available for distribution to common shareholders for the year-to-date period was $11.3 million, or $0.46 per diluted share, compared to $38.9 million, or $1.60 per diluted share, for the prior year period.
UTI recorded a preferred stock cash dividend of $3.9 million for the nine months ended June 30, 2017 in accordance with the company's Series A Preferred Stock purchase agreement.
Cash, cash equivalents and investments totaled $84.5 million at June 30, 2017, compared to $120.7 million at September 30, 2016. The decrease was primarily attributable to collateral requirements for surety bonds renewed during the second quarter of fiscal 2017 and changes in working capital.
EBITDA was $14.1 million, compared to $1.7 million for the prior year period. (See "Use of Non-GAAP Financial Information" below.)

Fiscal 2017 Outlook

UTI reaffirms its goal to grow student starts in the second half of fiscal 2017. The company expects the majority of this growth will have been reflected in the third quarter, and that its fourth quarter will range from slightly up to slightly down. New student starts are now expected to decline by mid-to-high single digits for the full year versus previous guidance of a high single-digit decline in new student starts.
Combined with the number of students currently in school and the timing of the anticipated start growth, the average student population is projected to be down in the low-double digits as a percentage compared with the prior year.
UTI continues to expect revenue to be down in the mid-to-high single digits in fiscal 2017.
UTI reaffirms its expectation that its Financial Improvement Plan implemented in September 2016 will deliver annualized cost savings at the higher end of between $30 million and $40 million in fiscal 2017.
UTI continues to expect annual operating results to range between operating income of $1 million and an operating loss of $1 million. The company is evaluating its institutional grant program and continuing to invest in success-based marketing and show rate improvement initiatives; each of these three factors could positively or negatively impact year-end operating income.
UTI reaffirms previous expectations of significantly improved EBITDA for fiscal 2017 as compared to the prior year.
Capital expenditures are now be approximately $10.5 million to $11.5 million for the 2017 fiscal year, versus previous guidance of $10.0 million to $11.0 million for the fiscal year, as the company expects to invest in its second welding program and internally developed software to support marketing.