Management expects full year operating expenses of

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Management expects full-year operating expenses of $348-$353 million, up from previous guidance of $340- $345 million, and capital spending of $24-$25 million. For all of FY18, management expects to generate an operating loss of $28-$33 million. We are widening our loss estimates to $1.38 per share from $1.00 per share for FY18, and to $0.78 per share from $0.50 per share for FY19. FINANCIAL STRENGTH & DIVIDEND Our financial strength rating for Universal Technical Institute is Medium-Low, as the company scores below average on our three main criteria of debt load, profitability, and interest coverage. At the end of the quarter, UTI’s total liabilities were $145.7 million. The total debt/total capitalization ratio was 22%, and the debt/equity ratio was 28%. As of the end of fiscal 2Q18, the company had cash, cash equivalents and investments of $83 million, down from $98 million a year earlier. In June 2016, the company issued 700,000 shares of Series A preferred stock to Coliseum Holdings I, LLC, receiving proceeds of $70 million. Neither Moody’s nor Standard & Poor’s rate the company’s credit. In FY15, UTI cut its quarterly dividend to $0.02 per share from $0.10, and in June 2016, it eliminated the dividend. The company recorded a $1.3 million preferred stock cash dividend in 4Q17, financed by a $70 million capital raise in June 2016. We do not expect the company to pay a common stock dividend in FY18 or FY19. RISKS The for-profit education industry faces a range of economic and competitive threats, though it could benefit from reduced regulation under the Trump administration. We note that the Obama administration had imposed rules designed to protect students from taking on excessive debt. Most for-profit education companies found it difficult to comply with these new rules. For-profit schools have also received unfavorable media coverage about their use of incentive-based pay for recruiters and the release of inaccurate financial statements. For-profit schools also operate in a competitive environment, and are facing higher costs related to expanded job placement services and increased financial aid. As noted above, they are also likely to have more difficulty attracting students as unemployment falls and the economy improves. COMPANY DESCRIPTION UTI is a provider of postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians. UTI offers certificate, diploma and undergraduate degree programs at 13 campuses across the United States under the banner of several well-known brands, including Motorcycle Mechanics Institute, Marine Mechanics Institute, and NASCAR Technical Institute. UTI has provided technical education for 52 years.
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M ARKET U PDATE - 18 - VALUATION UTI shares appear fully valued at current prices near $3.20. Although the shares are trading in the upper half of their 52-week range of $2.21-$3.80, we view them as unattractive based on the company’s challenging outlook.
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