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Letter to the Editor

Universal Technical Institute Reports 24% Revenue Growth and 32% Net Income Improvement in Q1

Revenues for the first quarter were $73.3 million, a 24.2 percent increase from the same quarter last year. The primary driver of the growth was higher average student enrollment combined with tuition increases.

Income from operations for the first quarter of fiscal 2005 was $15.5 million, a 10.4 percent increase from $14.0 million for the first quarter of fiscal 2004. The increase primarily relates to growth in overall revenue partially offset by educational services and facilities and selling, general and administrative costs.

Operating margin for the first quarter of fiscal 2005 was 21.1 percent, down from 23.7 percent for the same quarter last year. This is due to the company expanding its capacity by more than twenty percent during the fourth quarter of fiscal 2004, to allow for future growth of the business. As a result, occupancy cost in the first quarter of 2005, represents a higher percentage of revenue as compared to the prior year quarter. In addition, tool expense for the first quarter of fiscal 2004 was reduced by a change in estimate of approximately $800,000.

Net income for the first quarter of fiscal 2005 was up 31.9 percent to $9.8 million. The company's number of weighted average diluted shares outstanding increased in the first quarter of fiscal 2005 to 28.5 million shares from 25.0 million shares for the first quarter of fiscal 2004, primarily as a result of the issuance of 3.3 million shares in connection with the company's initial public offering completed in December 2003.

"We are excited to announce another strong quarter of top line growth and solid bottom line results," said Kimberly McWaters, President and Chief Executive Officer of Universal Technical Institute, Inc. "Our favorable financial results provide the fuel to invest in our strategy, our people and our infrastructure. During our fourth quarter of fiscal 2004 we increased capacity by more than 20 percent to support our growth plans for our 2005 fiscal year. We are committed to further strengthening our market leadership position as the largest provider of higher education serving the automotive, diesel, motorcycle and marine industries with the highest level of integrity," concluded McWaters.

At December 31, 2004, the company had $45.8 million in cash and cash equivalents, compared with $42.6 million at the end of fiscal 2004 ended September 30, 2004. In addition, the company had a restricted investment securing a letter of credit with the Department of Education of approximately $15.9 million at December 31, 2004 and $10.4 million of restricted cash at September 30, 2004.

At December 31, 2004, the company had shareholders' equity of $66.0 million, compared with shareholders' equity of $55.0 million at September 30, 2004. Cash flow provided from operations was $21.5 million for the first quarter of fiscal 2005, compared with $21.3 million generated for the same quarter last year.

Average undergraduate enrollment for the three months ended December 31, 2004 was 15,525 students, representing an increase of 20.8 percent from 12,856 students for the same period a year ago. Sequentially, average undergraduate enrollment grew 10.5 percent from 14,048 students for the fourth quarter of fiscal 2004.

Undergraduate enrollment at the end of the first quarter of fiscal 2005 was 14,809 students, compared with 12,282 students at the end of the first quarter of fiscal 2004.

The company is targeting a 21 to 23 percent increase in net revenue for the year ending September 30, 2005. The company is currently planning to open one new campus in Norwood, MA during the fourth quarter of fiscal 2005 with an additional campus in Sacramento, CA opening in the first half of fiscal 2006. A full year of pre-opening costs are anticipated to be incurred for the Norwood facility and a partial year of costs are anticipated to be incurred related to the Sacramento facility. A significant portion of these costs relate to sales and marketing efforts in support of the planned new campus openings. The company expects to report net income margins for fiscal 2005 ranging from 11.0 to 11.5 percent. The company is raising guidance primarily due to favorable first quarter results combined with a favorable average student population and a better than planned effective tax rate.

Looking further ahead, the company expects to sustain revenue growth over the next two years in the 20 to 25 percent range. The company anticipates this growth will come from three primary sources:

• Enrollment growth in the mid to high teens per year;
• Program extension and new elective growth; and
• Tuition increases of approximately 3 to 5 percent per year.

The company has typically experienced seasonality during the year. The company expects quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change, however, as a result of new school openings, new program introductions and increased enrollments of adult students.

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