Universal Technical Institute, Inc's
) second-quarter fiscal 2013 adjusted loss of 4 cents per share
largely missed the Zacks Consensus Estimate of earnings of 2
cents and the prior-year earnings of 8 cents. Once again, weak
revenues and high fixed costs hurt earnings in the quarter.
Net revenue for the quarter declined 10.5% to $95.1 million
from the prior-year quarter due to a decline in enrollments.
Revenues also missed the Zacks Consensus Estimate of $98.0
million. Revenues excluded $5.2 million related to unrecognized
proprietary student loans, up from $3.7 million last year.
Quarter in Detail
The mechanical training institute reported a 10.2% decline in
average undergraduate full-time enrollment to 15,000 in the
second quarter. New student starts also declined more than 15% to
2,900 due to a 60 basis point shortfall in show rate.
Enrollment has been trending down consistently over the past
few quarters as a result of persistent macroeconomic headwinds;
sluggish demand due to reluctance in taking on debt and continued
challenges in obtaining student financing; changing regulatory
requirements; and increased competition. Moreover, the company is
finding it difficult to convert its high volume of enquiries into
new student starts.
Applications continue to remain under pressure as total new
applications declined 9% in the quarter. Decline in applications
from high school students (4%) and adults (17%) offset the 14%
growth in military applications. Revenue per student was flat in
Though management saw some positive application trends in the
month of April, it expects the challenges to continue for the
rest of 2013 as well.
Universal Technical's earnings before interest, taxes,
depreciation, and amortization (EBITDA) in the quarter declined
55.8% to $4.2 million. In the quarter the company reported an
operating loss of $1.9 million against an operating income of $3
million in the prior year quarter. Despite the decrease in
advertising and compensation expenses, operating income declined
due to lower top line growth and high fixed costs. Advertising
expenses declined close to 8% in the quarter as the company is
trying to lower as well as better align its marketing
Initiatives to Improve
In order to improve student population and market share,
Universal Technical is shifting focus from its prior marketing
strategy of generating higher volume of student inquiry to
improving the number of new student starts. The company hopes to
improve its new student starts at a lower cost by simplifying
work and reducing waste, while at the same time attracting
students who are likely to have a successful career at Universal
It is also modifying programs according to the needs of the
employers, thus providing relevant training that leads to quality
student outcomes, thereby offering more value. Universal
Technical is also making its loan programs more accessible to
students and also easing some eligibility restrictions.
Alongside, Universal Technical is working toward controlling
costs to better align it with lower enrollments.
However, these efforts will take time to show effective
results, which combined with worsening market environment and the
difficulty in converting enquiries to enrollments is taking a
toll on new student starts.
Other Financial Details
Universal Technical ended the second quarter with cash and
cash equivalents of $94.3 million better than $89.3 million at
the end of first quarter. In the quarter, the company paid a
dividend of 10 cents per share but did not re-purchase any
2013 Outlook Retained
The company retained its previously provided revenue guidance.
It expects revenues to dip in the high single-digits in 2013 as
new student starts will decline in mid-to-high single digits. The
company expects new student starts to decline in the third
quarter due to poor show rates. New student starts could possibly
show some improvement in the fourth quarter. Moreover, Universal
Technical expects overall contraction in the operating margin and
lower net income from the prior-year levels despite significantly
lower costs expected in the second half.
Universal Technical provides professional automotive, diesel,
collision repair, motorcycle and marine programs. The company
works closely with leading original equipment manufacturers (OEM)
in the automotive, diesel, motorcycle and marine industries such
Ford Motor Co.
Honda Motor Co., Ltd.
Harley Davidson, Inc.
) and many more. Universal Technical carries a Zacks Rank #4
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