Universal Technical (UTI) Q4 Earnings Beat, Stock Declines
Universal Technical Institute, Inc. UTI shares plunged 17.48% on Dec 12 after it reported fiscal fourth-quarter 2022 results. Despite surpassing the Zacks Consensus Estimate for earnings and revenues, the stock declined due to a significantly low adjusted net income projection for fiscal 2023.
The lower projection is mainly due to lower new student starts in fiscal 2022, increased costs related to growth investments and inflationary pressures. Also, lower margin profile of Concorde and transitionary investments, to operate that business in a public company environment ahead of realizing operating synergies, mar the prospects.
Pertaining to its long-term goals, Jerome Grant, CEO of UTI, said, "As we move into 2023, we are strategically positioned to not only execute on our previously established longer-term targets for our growth and diversification strategy, but also expand the scope of this strategy going forward. The addition of Concorde is a transformational move in our evolution as a workforce solutions provider and drastically increases our future growth prospects. With our plan in place for 2023, we expect to have great momentum heading into 2024 and beyond, and we are excited about the opportunities that we have in front of us."
Inside the Numbers
Adjusted earnings of 18 cents per share were down from the year-ago level of 25 cents but surpassed the consensus mark of breakeven.
Universal Technical Institute Inc Price, Consensus and EPS Surprise
Universal Technical Institute Inc price-consensus-eps-surprise-chart | Universal Technical Institute Inc Quote
Quarterly revenues of $110.6 million missed the consensus mark of $112 million by 1.4%. Nonetheless, revenues increased 13.5% from the prior-year quarter, attributable to the increase in average undergraduate full-time active students driven by the addition of MIAT and higher revenue earned per student.
Total new student starts declined to 5,965 during the quarter, down 3.2% from 6,165 students a year ago.
Operating Highlights
Operating expenses of $107.2 million grew 26.5% from a year ago due to the incremental cost of delivery associated with growth in the average student population, including the addition of MIAT. Also, start-up costs for the new campuses, acquisition-related costs, integration-related costs and an increase in advertising costs added to the woes.
Adjusted EBITDA was $14 million, down from $18.3 million reported a year ago.
Financial Highlights
At the end of fiscal 2022, the company had cash and cash equivalents of $66.5 million compared with $133.7 million on Sep 30, 2021. Long-term debt is now $66.4 million, up from $29.9 million a year ago.
Net cash used in operations came in at $46.03 million in fiscal 2022 compared with $55.2 million recorded a year ago. Adjusted free cash flow at September-end was $34.9 million versus $37.4 million at fiscal 2021-end.
Fiscal 2022 Highlights
Universal Technical reported revenues of $418.8 million, which increased 25% year over year, backed by an increase in average undergraduate full-time active students, higher revenue earned per student and the addition of MIAT.
Earnings came in at 38 cents per share, up from 17 cents generated in fiscal 2021. Adjusted net income of $35.5 million was nearly double the year ago figure of $17.5 million. New student starts increased to 13,374 from the prior-year level of 13,028.
Adjusted EBITDA in the fiscal year was $55.9 million compared with $32.5 million a year ago.
Fiscal 2023 Outlook
Universal Technical expects new student starts in the 22,000-23,500 range. Fiscal 2023 revenues are expected in the range of $595-$610 million. Adjusted net income is projected in the range of $14-$18 million. Universal Technical expects adjusted EBITDA (considering stock-based compensation expense) in the range of $58-$62 million and adjusted free cash flow between $40 million and $45 million. This compares favorably with the fiscal 2022 figures of $60.2 million and $34.9 million, respectively.
“As we progress through 2023 and into 2024 with our currently announced initiatives, including Concorde, we expect to see accelerating organic revenue growth and overall margin expansion. With that, we now see the potential to deliver revenue in excess of $700 million and adjusted EBITDA approaching $100 million in fiscal 2024," said Troy Anderson, CFO of UTI.
Zacks Rank & Key Picks
RH currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Some better-ranked stocks in the same space are Grand Canyon Education, Inc. LOPE, TAL Education Group TAL and Perdoceo Education Corporation PRDO, each carrying a Zacks Rank #2 (Buy).
Grand Canyon Education: This Phoenix, AZ-based company is an education services provider to colleges and universities in the United States and has developed key technological solutions, infrastructure and operational processes to deliver superior services in these areas on a large scale. The company has been benefiting from an increase in the Grand Canyon University (GCU) traditional campus enrollments and higher revenue per student. Also, the company has been working with GCU on two main strategies (B2B and the rollout of new and relevant programs) to offset the downturn in online enrollment.
Grand Canyon Education’s earnings estimate for 2023 has increased to $6.35 per share from $6.21. The estimated figure is expected to register 8.6% growth from a year ago.
Perdoceo Education: Headquartered in Schaumburg, IL, this company offers bachelor's, associate and non-degree programs in information technologies, visual communication and design technologies, business studies as well as culinary arts. The company’s focus on increased investments in technology and student-serving processes as well as the acquisition of California Southern University bodes well. Also, a meaningful improvement in student retention and engagement is expected to drive growth.
Perdoceo Education’s earnings estimate for 2023 has increased to $1.42 per share from $1.37.
TAL Education: Based in Beijing, the company provides tutoring services to K-12 students in the People's Republic of China.
TAL Education’s earnings estimate for fiscal 2023 and 2024 has improved to a loss of 21 cents and 1 cent per share from a loss of 29 cents and 7 cents, respectively, in the past 60 days. The estimated figures reflect 85.9% and 95.2% growth from a year ago period, respectively.
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