Vocational education Universal Technical Institute (NYSE:UTI) reported results ahead of analysts' expectations in Q2 CY2024, with revenue up 15.8% year on year to $177.5 million. It made a GAAP profit of $0.09 per share, improving from its loss of $0.05 per share in the same quarter last year.
Is now the time to buy Universal Technical Institute? Find out by accessing our full research report, it's free.
Universal Technical Institute (UTI) Q2 CY2024 Highlights:
- Revenue: $177.5 million vs analyst estimates of $172.9 million (2.7% beat)
- EPS: $0.09 vs analyst estimates of $0.07 (38.5% beat)
- Gross Margin (GAAP): 46.3%, down from 50.7% in the same quarter last year
- Adjusted EBITDA Margin: 11.7%, up from 7.5% in the same quarter last year
- Free Cash Flow of $3.01 million is up from -$8.40 million in the previous quarter
- New Students: 5,567, up 267 year on year
- Market Capitalization: $928.1 million
"Our momentum persisted as we moved into the second half of the fiscal year," said Jerome Grant, CEO of Universal Technical Institute, Inc.
Founded in 1965, Universal Technical Institute (NYSE: UTI) is a leading provider of technical training programs, specializing in automotive, diesel, collision repair, motorcycle, and marine technicians.
Education Services
A whole industry has emerged to address the problem of rising education costs, offering consumers alternatives to traditional education paths such as four-year colleges. These alternative paths, which may include online courses or flexible schedules, make education more accessible to those with work or child-rearing obligations. However, some have run into issues around the value of the degrees and certifications they provide and whether customers are getting a good deal. Those who don’t prove their value could struggle to retain students, or even worse, invite the heavy hand of regulation.
Sales Growth
A company’s long-term performance can indicate its business quality. Any business can put up a good quarter or two, but many enduring ones tend to grow for years. Luckily, Universal Technical Institute's sales grew at a decent 16.9% compounded annual growth rate over the last five years. This shows it was successful in expanding, a useful starting point for our analysis. 
Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Universal Technical Institute's annualized revenue growth of 32% over the last two years is above its five-year trend, suggesting its demand recently accelerated.
Universal Technical Institute also discloses its number of new students, which reached 5,567 in the latest quarter. Over the last two years, Universal Technical Institute's new students averaged 46.4% year-on-year growth. Because this number is higher than its revenue growth during the same period, we can see the company's monetization has fallen. 
This quarter, Universal Technical Institute reported robust year-on-year revenue growth of 15.8%, and its $177.5 million of revenue exceeded Wall Street's estimates by 2.7%. Looking ahead, Wall Street expects sales to grow 10.4% over the next 12 months, a deceleration from this quarter.
Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.
Cash Is King
Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can't use accounting profits to pay the bills.
Universal Technical Institute has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 1.8%, lousy for a consumer discretionary business.
Universal Technical Institute's free cash flow clocked in at $3.01 million in Q2, equivalent to a 1.7% margin. This quarter's result was nice as its cash flow turned positive after being negative in the same quarter last year, but we wouldn't read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends carry greater meaning.
Over the next year, analysts predict Universal Technical Institute's cash conversion will improve. Their consensus estimates imply its free cash flow margin of 6.7% for the last 12 months will increase to 9.6%, giving it more money to invest.
Key Takeaways from Universal Technical Institute's Q2 Results
We were impressed by how significantly Universal Technical Institute blew past analysts' EPS expectations this quarter. We were also glad its revenue outperformed Wall Street's estimates. Zooming out, we think this was an solid quarter. The stock remained flat at $17.50 immediately following the results.
So should you invest in Universal Technical Institute right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.