UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)8

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2020~~March 31, 2021

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to ______

Commission File Number: 1-31923

UNIVERSAL TECHNICAL INSTITUTE, INC.

(Exact name of registrant as specified in its charter)

Delaware

86-0226984

(State or other jurisdiction of
incorporation or organization)

(IRS Employer Identification No.)

4225 East Windrose Drive, Suite 200

Phoenix, Arizona 85032

(Address of principal executive offices, including zip code)

(623) 445-9500

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, $0.0001 par value	UTI	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer ¨			Accelerated filer þ
Non-accelerated filer ¨			Smaller reporting company ☐
			Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No þ

At ~~July 31, 2020,~~May 3, 2021, there were ~~32,610,691~~32,813,845 shares outstanding of the registrant's common stock.

UNIVERSAL TECHNICAL INSTITUTE, INC.

INDEX TO FORM 10-Q FOR THE QUARTER ENDED ~~JUNE 30, 2020~~

MARCH 31, 2021


		Page
		Number
~~Special Note Regarding Forward-Looking Statements~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS			ii

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at ~~June 30~~March 31 , ~~2020~~202 1 and September 30, ~~2019~~2020 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~June 30~~,March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	2
	Condensed Consolidated Statements of Shareholders’ Equity as of JuMarch ~~ne 30~~ 31, 202 ~~, 2020~~1 and ~~2019~~20 20 (Unaudited)	3
	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~ Six Months Ended ~~June 30~~March ~~, 2020~~ 31, 202 1 and ~~2019~~20 20 (Unaudited)	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2824
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4035
Item 4.	Controls and Procedures	4035

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	4236
Item 1A.	Risk Factors	4236
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4336
Item 3.	Defaults upon Senior Securities	36
Item 4.	Mine Safety Disclosures	36
Item 5.	Other Information	36
Item 6.	Exhibits	4337

SIGNATURES			4438

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~~Special Note Regarding Forward-Looking Statements~~CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q ~~contains~~and the documents incorporated by reference herein contain forward-looking statements within the meaning of the safe harbor from civil liability provided for such statements by the Private Securities Litigation Reform Act of 1995 (set forth in Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”), and Section 27A of the Securities Act of 1933, as amended (“Securities Act”), which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of ~~resources.~~resources and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. From time to time, we also provide forward-looking statements in other materials we release to the public as well as verbal forward-looking statements. ~~These~~

In some cases, you can identify forward-looking statements include, without limitation, statements regarding: proposed new programs; scheduled openings of new campuses and campus expansions; expectations that regulatory developments or agency interpretations of such regulatory developments or other matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity and anticipated timing for ongoing regulatory initiatives; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; and statements of management’s goals and objectives and other similar expressions. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Wordsby terms such as “may,” “will,” “should,” “could,” “would,” ~~“predicts,” “potential,” “continue,”~~ “expects,” ~~“anticipates,~~“plans,” ~~“future,” “intends,” “plans,~~“anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions ~~as well as statements in future tense,~~(including the negative form of such expressions) intended to identify forward-looking ~~statements. However,~~statements, although not all ~~forward-looking~~forward looking statements contain these identifying words. Forward-looking statements are based on our current expectations and assumptions, do not strictly relate to historical or current facts, any of which may not prove to be accurate. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Important factors that could cause actual results to differ from those in our forward-looking statements include, without limitation:

•failure of our schools to comply with the extensive regulatory requirements for school operations;

•our failure to maintain eligibility for federal student financial assistance funds;

•continued Congressional examination of the for-profit education sector;

•a disruption in our ability to process student loans under the Federal Direct Loan Program;

•regulatory investigations of, or actions commenced against, us or other companies in our industry;

•the effect of public health pandemics, epidemics or outbreak, including COVID-19;

•changes in the state regulatory environment or budgetary constraints;

•our failure to improve underutilized capacity at certain of our campuses;

•enrollment declines or challenges in our students’ ability to find employment as a result of macroeconomic conditions;

•our failure to maintain and expand existing industry relationships and develop new industry relationships with our industry customers;

•our ability to update and expand the content of existing programs and develop and integrate new programs in a cost-effective manner and on a timely basis;

•our failure to effectively identify, establish and operate additional schools, programs or campuses;

•the effect of our principal stockholder owning a significant percentage of our capital stock, and thus being able to influence certain corporate matters and the potential in the future to gain substantial control over our company;

•the impact of certain holders of our Series A Preferred Stock owning a significant percentage of our capital stock, their ability to influence and control certain corporate matters and the potential for future dilution to holders of our common stock;

•loss of our senior management or other key employees; and

•risks related to other factors discussed in our 2020 Annual Report on Form 10-K, including those described in Item 1A. “Risk Factors.”

The factors above are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. We cannot guarantee that any forward-looking statement will be ~~realized, although we believe we have been prudent in our plans and assumptions.~~realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. Among the factors that could cause actual results to differ materially are the factors discussed under Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You should bear this in mind as you consider forward-looking statements.

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Also, these forward-looking statements represent our estimates and assumptions only as of the date of the document containing the applicable statement. Except as required by law, we undertake no obligation to ~~publicly~~ update ~~forward-looking~~or revise forward looking statements, whether as a result of new information, future events or otherwise. Thus, you should not assume that our silence over time means that actual events are bearing out as expressed or implied in such forward-looking statements. We qualify all of the forward-looking statements in this Quarterly Report on Form 10-Q, including the documents that we incorporate by reference herein, by these cautionary statements. You are advised, however, to consult any further disclosures we make on related subjects in our ~~Form 10-Q, 8-K~~reports and ~~10-K reports to~~filings with the Securities and Exchange Commission (“SEC”). ~~The~~

~~Annual Report on Form 10-K~~ that we filed with the SEC on December 6, 2019 listed various important factors that could cause actual results to differ materially from expected and historical results. We note these factors for investors within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Readers can find them under the heading “Risk Factors” in the Report on Form 10-K and in this Report on Form 10-Q, and investors should refer to them. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. Our filings with the SEC may be accessed at the SEC’s web site at www.sec.gov.

iiiii

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PART I. FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value and per share amounts)

(Unaudited)


		June 30, 2020		September 30, 2019			March 31, 2021		September 30, 2020
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	59,956	$	65,442	Cash and cash equivalents	$	58,965	$	76,803
Restricted cash	Restricted cash	19,205		15,113		Restricted cash	12,817		12,116
Held-to-maturity investments	Held-to-maturity investments	31,578		—		Held-to-maturity investments	19,502		38,055
Receivables, net	Receivables, net	40,358		17,937		Receivables, net	19,809		35,411
Notes receivable, current portion	Notes receivable, current portion	5,220		5,227		Notes receivable, current portion	5,307		5,184
Prepaid expenses	Prepaid expenses	6,955		7,054		Prepaid expenses	8,262		6,121
Other current assets	Other current assets	6,928		7,331		Other current assets	6,431		6,489
Total current assets	Total current assets	170,200		118,104		Total current assets	131,093		180,179
Property and equipment, net	Property and equipment, net	72,592		104,126		Property and equipment, net	114,921		72,743
Goodwill	Goodwill	8,222		8,222		Goodwill	8,222		8,222
Notes receivable, less current portion	Notes receivable, less current portion	28,744		29,852		Notes receivable, less current portion	28,996		27,609
Right-of-use assets for operating leases	Right-of-use assets for operating leases	133,539		—		Right-of-use assets for operating leases	147,651		144,663
Other assets	Other assets	8,286		10,222		Other assets	9,462		8,565
Total assets	Total assets	$	421,583	$	270,526	Total assets	$	440,345	$	441,981
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	56,630	$	45,878	Accounts payable and accrued expenses	$	49,088	$	51,891
Dividends payable		1,309		—

Deferred revenue	Deferred revenue	32,913		42,886		Deferred revenue	40,954		40,694
Accrued tool sets	Accrued tool sets	3,391		2,586		Accrued tool sets	3,251		3,148
Operating lease liability, current portion	Operating lease liability, current portion	24,930		—		Operating lease liability, current portion	19,565		23,666
Financing obligation, current portion		—		1,554

Other current liabilities	Other current liabilities	1,634		3,940		Other current liabilities	1,901		2,241
Total current liabilities	Total current liabilities	120,807		96,844		Total current liabilities	114,759		121,640
Deferred tax liabilities, net	Deferred tax liabilities, net	674		329		Deferred tax liabilities, net	674		674
Deferred rent liability		—		10,326
Financing obligation		—		39,161

Operating lease liability	Operating lease liability	121,944		—		Operating lease liability	140,136		134,089
Other liabilities	Other liabilities	7,176		9,578		Other liabilities	8,318		9,056
Total liabilities	Total liabilities	250,601		156,238		Total liabilities	263,887		265,459
Commitments and contingencies (Note 14)
Commitments and contingencies (Note 13)						Commitments and contingencies (Note 13)	0		0
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, $0.0001 par value, 100,000 shares authorized, 32,693 and 32,499 shares issued		3		3
Common stock, $0.0001 par value, 100,000 shares authorized, 32,896 and 32,730 shares issued						Common stock, $0.0001 par value, 100,000 shares authorized, 32,896 and 32,730 shares issued	3		3
Preferred stock, $0.0001 par value, 10,000 shares authorized; 700 shares of Series A Convertible Preferred Stock issued and outstanding, liquidation preference of $100 per share	Preferred stock, $0.0001 par value, 10,000 shares authorized; 700 shares of Series A Convertible Preferred Stock issued and outstanding, liquidation preference of $100 per share	—		—		Preferred stock, $0.0001 par value, 10,000 shares authorized; 700 shares of Series A Convertible Preferred Stock issued and outstanding, liquidation preference of $100 per share	0		0
Paid-in capital - common	Paid-in capital - common	140,589		187,493		Paid-in capital - common	142,383		141,002
Paid-in capital - preferred	Paid-in capital - preferred	68,853		68,853		Paid-in capital - preferred	68,853		68,853
Treasury stock, at cost, 82 and 6,865 shares		(365)		(97,388)
Treasury stock, at cost, 82 shares as of March 31, 2021 and September 30, 2020						Treasury stock, at cost, 82 shares as of March 31, 2021 and September 30, 2020	(365)		(365)
Retained deficit	Retained deficit	(38,098)		(44,673)		Retained deficit	(34,416)		(32,971)
Total shareholders’ equity	Total shareholders’ equity	170,982		114,288		Total shareholders’ equity	176,458		176,522
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	421,583	$	270,526	Total liabilities and shareholders’ equity	$	440,345	$	441,981

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)


		Three Months Ended						Nine Months Ended							Three Months Ended				Six Months Ended
		June 30,						June 30,							March 31,				March 31,
		2020		2019		2020		2019			2021		2020		2021		2020
Revenues	Revenues	$	54,483	$	79,042	$	224,434	$	243,838	Revenues	$	77,709	$	82,717	$	153,834	$	169,951
Operating expenses:	Operating expenses:									Operating expenses:
Educational services and facilities	Educational services and facilities	32,476		42,836		118,261		134,393		Educational services and facilities	40,480		42,909		79,811		85,785
Selling, general and administrative	Selling, general and administrative	35,786		36,661		116,197		122,685		Selling, general and administrative	38,890		40,307		74,909		80,411
Total operating expenses	Total operating expenses	68,262		79,497		234,458		257,078		Total operating expenses	79,370		83,216		154,720		166,196
Loss from operations		(13,779)		(455)		(10,024)		(13,240)
Other income:
(Loss) income from operations										(Loss) income from operations	(1,661)		(499)		(886)		3,755
Other income (expense):										Other income (expense):
Interest income	Interest income	218		358		901		1,153		Interest income	8		347		62		683
Interest expense	Interest expense	(2)		(802)		(5)		(2,424)		Interest expense	(1)		(3)		(3)		(3)
Equity in earnings of unconsolidated affiliate		—		100		—		298

Other income (expense), net	Other income (expense), net	316		465		(13)		1,121		Other income (expense), net	73		(507)		355		(329)
Total other income, net		532		121		883		148
Loss before income taxes		(13,247)		(334)		(9,141)		(13,092)
Income tax (expense) benefit		(21)		(31)		10,699		(253)
Total other income (expense), net										Total other income (expense), net	80		(163)		414		351
(Loss) income before income taxes										(Loss) income before income taxes	(1,581)		(662)		(472)		4,106
Income tax benefit										Income tax benefit	34		10,804		8		10,720
Net (loss) income	Net (loss) income	$	(13,268)	$	(365)	$	1,558	$	(13,345)	Net (loss) income	$	(1,547)	$	10,142	$	(464)	$	14,826
Preferred stock dividends	Preferred stock dividends	1,309		1,309		3,941		3,927		Preferred stock dividends	1,312		1,309		2,625		2,632
Loss available for distribution		$	(14,577)	$	(1,674)	$	(2,383)	$	(17,272)
Net (loss) income available for distribution										Net (loss) income available for distribution	$	(2,859)	$	8,833	$	(3,089)	$	12,194

Earnings per share (See Note 16):
Net loss per share - basic		$	(0.45)	$	(0.07)	$	(0.08)	$	(0.68)
Net loss per share - diluted		$	(0.45)	$	(0.07)	$	(0.08)	$	(0.68)
Earnings per share (See Note 15 ):										Earnings per share (See Note 15 ):
Net (loss) income per share - basic										Net (loss) income per share - basic	$	(0.09)	$	0.18	$	(0.09)	$	0.25
Net (loss) income per share - diluted										Net (loss) income per share - diluted	$	(0.09)	$	0.18	$	(0.09)	$	0.25

Weighted average number of shares outstanding:	Weighted average number of shares outstanding:									Weighted average number of shares outstanding:
Basic	Basic	32,607		25,498		28,871		25,410		Basic	32,762		28,379		32,709		27,013
Diluted	Diluted	32,607		25,498		28,871		25,410		Diluted	32,762		28,644		32,709		27,320

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(In thousands)

(Unaudited)


	Common Stock			Preferred Stock			Paid-in Capital - Common		Paid-in Capital - Preferred		Treasury Stock			Retained Deficit		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount						Shares	Amount
Balance as of September 30, 2020	32,730	$	3	700	$	0	$	141,002	$	68,853	(82)	$	(365)	$	(32,971)	$	176,522
Net income	—	—		—	—		—		—		—	—		1,083		1,083

Cumulative effect from adoption of ASC 326	—	—		—	—		—		—		—	—		1,644		1,644
Issuance of common stock under employee plans	66	—		—	—		—		—		—	—		—		—
Shares withheld for payroll taxes	(29)	—		—	—		(178)		—		—	—		—		(178)

Stock-based compensation	—	—		—	—		548		—		—	—		—		548


Preferred stock dividends	—	—		—	—		—		—		—	—		(1,313)		(1,313)

Balance as of December 31, 2020	32,767	$	3	700	$	0	$	141,372	$	68,853	(82)	$	(365)	$	(31,557)	$	178,306
Net loss	—	—		—	—		—		—		—	—		(1,547)		(1,547)
Issuance of common stock under employee plans	164	—		—	—		—		—		—	—		—		—
Shares withheld for payroll taxes	(35)	—		—	—		(223)		—		—	—		—		(223)

Stock-based compensation	—	—		—	—		1,234		—		—	—		—		1,234

Preferred stock dividends	—	—		—	—		—		—		—	—		(1,312)		(1,312)
Balance as of March 31, 2021	32,896	$	3	700	$	0	$	142,383	$	68,853	(82)	$	(365)	$	(34,416)	$	176,458

Common Stock Preferred Stock Paid-in
Capital - Common Paid-in
Capital - Preferred Treasury Stock Retained Deficit Total
Shareholders’
Equity
Shares Amount Shares Amount Shares Amount
Balance as of September 30, 2019 32,499 $ 3 700 $ — $ 187,493 $ 68,853 (6,865) $ (97,388) $ (44,673) $ 114,288
Net income — — — — — — — — 4,684 4,684
Cumulative effect from adoption of ASC 842 — — — — — — — — 9,107 9,107
Issuance of common stock under employee plans 179 — — — — — — — — —
Shares withheld for payroll taxes (68) — — — (497) — — — — (497)
Stock-based compensation — — — — 14 — — — — 14
Preferred stock dividends — — — — — — — — (1,323) (1,323)
Balance as of December 31, 2019 32,610 $ 3 700 $ — $ 187,010 $ 68,853 (6,865) $ (97,388) $ (32,205) $ 126,273
Net income — — — — — — — — 10,142 10,142
Adjustment for the adoption of ASC 842 — — — — — — — — (149) (149)
Issuance of common stock under employee plans 81 — — — — — — — — —
Shares withheld for payroll taxes (4) — — — (30) — — — — (30)
Stock-based compensation — — — — 992 — — — — 992
Shares issued for equity offering — — — — (47,886) — 6,783 97,023 — 49,137
Preferred stock dividends — — — — — — — — (1,309) (1,309)
Balance as of March 31, 2020 32,687 $ 3 700 $ — $ 140,086 $ 68,853 (82) $ (365) $ (23,521) $ 185,056
Net loss — — — — — — — — (13,268) (13,268)
Issuance of common stock under employee plans 6 — — — — — — — — —
Stock-based compensation — — — — 503 — — — — 503
Preferred stock dividends — — — — — — — — (1,309) (1,309)
Balance as of June 30, 2020 32,693 $ 3 700 $ — $ 140,589 $ 68,853 (82) $ (365) $ (38,098) $ 170,982

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)

(In thousands)

(Unaudited)


	Common Stock			Preferred Stock			Paid-in Capital - Common		Paid-in Capital - Preferred		Treasury Stock			Retained Deficit		Total Shareholders’ Equity
	Shares	Amount		Shares	Amount						Shares	Amount
Balance as of September 30, 2019	32,499	$	3	700	$	0	$	187,493	$	68,853	(6,865)	$	(97,388)	$	(44,673)	$	114,288
Net income	—	—		—	—		—		—		—	—		4,684		4,684

Cumulative effect from adoption of ASC 842	—	—		—	—		—		—		—	—		9,107		9,107
Issuance of common stock under employee plans	179	—		—	—		—		—		—	—		—		—
Shares withheld for payroll taxes	(68)	—		—	—		(497)		—		—	—		—		(497)

Stock-based compensation	—	—		—	—		14		—		—	—		—		14


Preferred stock dividends	—	—		—	—		—		—		—	—		(1,323)		(1,323)

Balance as of December 31, 2019	32,610	$	3	700	$	0	$	187,010	$	68,853	(6,865)	$	(97,388)	$	(32,205)	$	126,273
Net income	—	—		—	—		—		—		—	—		10,142		10,142
Adjustment for the adoption of ASC 842	—	—		—	—		—		—		—	—		(149)		(149)
Issuance of common stock under employee plans	81	—		—	—		—		—		—	—		—		—
Shares withheld for payroll taxes	(4)	—		—	—		(30)		—		—	—		—		(30)
Stock-based compensation	—	—		—	—		992		—		—	—		—		992
Shares issued for equity offering	—	—		—	—		(47,886)		—		6,783	97,023		—		49,137
Preferred stock dividends	—	—		—	—		—		—		—	—		(1,309)		(1,309)
Balance as of March 31, 2020	32,687	$	3	700	$	0	$	140,086	$	68,853	(82)	$	(365)	$	(23,521)	$	185,056

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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~~UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES~~

~~CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (CONTINUED)~~

~~(In thousands)~~

~~(Unaudited)~~

Common Stock Preferred Stock Paid-in
Capital - Common Paid-in
Capital - Preferred Treasury Stock Retained Deficit Total
Shareholders’
Equity
Shares Amount Shares Amount Shares Amount
Balance as of September 30, 2018 32,169 $ 3 700 $ — $ 186,732 $ 68,853 (6,865) $ (97,388) $ (31,555) $ 126,645
Net loss — — — — — — — — (7,717) (7,717)
Issuance of common stock under employee plans 99 — — — — — — — — —
Shares withheld for payroll taxes (38) — — — (118) — — — — (118)
Stock-based compensation — — — — 694 — — — — 694
Preferred stock dividends — — — — — — — — (1,323) (1,323)
Balance as of December 31, 2018 32,230 $ 3 700 $ — $ 187,308 $ 68,853 (6,865) $ (97,388) $ (40,595) $ 118,181
Net loss — — — — — — — — (5,263) (5,263)
Issuance of common stock under employee plans 134 — — — — — — — — —
Shares withheld for payroll taxes (2) — — — (7) — — — — (7)
Stock-based compensation — — — — 618 — — — — 618
Preferred stock dividends — — — — — — — — (1,295) (1,295)
Balance as of March 31, 2019 32,362 $ 3 700 $ — $ 187,919 $ 68,853 (6,865) $ (97,388) $ (47,153) $ 112,234
Net loss — — — — — — — — (365) (365)
Issuance of common stock under employee plans 2 — — — — — — — — —
Shares withheld for payroll taxes — — — — (2) — — — (2)
Stock-based compensation — — — — 169 — — — 169
Preferred stock dividends — — — — — — — — (1,309) (1,309)
Balance as of June 30, 2019 32,364 3 700 — 188,086 68,853 (6,865) (97,388) (48,827) 110,727

~~The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.~~

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


		Nine Months Ended June 30,							Six Months Ended March 31,
		2020		2019			2021		2020
Cash flows from operating activities:	Cash flows from operating activities:					Cash flows from operating activities:
Net income (loss)		$	1,558	$	(13,345)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Net (loss) income						Net (loss) income	$	(464)	$	14,826
Adjustments to reconcile net (loss) income to net cash provided by operating activities:						Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	8,821		9,945		Depreciation and amortization	6,851		5,894
Amortization of assets subject to financing obligation		—		2,012

Amortization of right-of-use assets for operating leases	Amortization of right-of-use assets for operating leases	18,163		—		Amortization of right-of-use assets for operating leases	8,117		11,840

Bad debt expense	Bad debt expense	1,138		887		Bad debt expense	415		571
Stock-based compensation	Stock-based compensation	1,509		1,481		Stock-based compensation	1,782		1,006
Deferred income taxes	Deferred income taxes	345		—		Deferred income taxes	0		345
Equity in earnings of unconsolidated affiliate		—		(298)

Training equipment credits earned, net	Training equipment credits earned, net	503		440		Training equipment credits earned, net	155		419
Other losses, net	Other losses, net	8		143		Other losses, net	(135)		227
Changes in assets and liabilities:	Changes in assets and liabilities:					Changes in assets and liabilities:
Receivables	Receivables	(13,917)		3,795		Receivables	12,277		3,058
Prepaid expenses	Prepaid expenses	(1,591)		571		Prepaid expenses	(2,987)		(1,347)
Other assets	Other assets	40		1,270		Other assets	(535)		16
Notes receivable	Notes receivable	1,115		1,630		Notes receivable	134		652
Accounts payable and accrued expenses	Accounts payable and accrued expenses	12,494		(3,793)		Accounts payable and accrued expenses	(1,480)		4,784
Deferred revenue	Deferred revenue	(9,973)		(10,564)		Deferred revenue	260		(6,132)
Income tax (receivable) payable		(11,070)		198
Income tax receivable						Income tax receivable	2,685		(10,893)
Accrued tool sets and other current liabilities	Accrued tool sets and other current liabilities	1,030		441		Accrued tool sets and other current liabilities	244		11
Deferred rent liability		—		(2,076)

Operating lease liability	Operating lease liability	(19,264)		—		Operating lease liability	(9,159)		(12,734)
Other liabilities	Other liabilities	(1,026)		139		Other liabilities	(633)		(1,646)
Net cash used in operating activities		(10,117)		(7,124)
Net cash provided by operating activities						Net cash provided by operating activities	17,527		10,897
Cash flows from investing activities:	Cash flows from investing activities:					Cash flows from investing activities:
Purchase of held-to-maturity securities	Purchase of held-to-maturity securities	(41,562)		—		Purchase of held-to-maturity securities	0		(41,562)
Proceeds from maturities of held-to-maturity securities	Proceeds from maturities of held-to-maturity securities	9,761		—		Proceeds from maturities of held-to-maturity securities	18,189		0
Purchase of property and equipment	Purchase of property and equipment	(7,190)		(5,301)		Purchase of property and equipment	(49,919)		(5,164)
Proceeds from insurance policy		1,566		—

Proceeds from disposal of property and equipment	Proceeds from disposal of property and equipment	48		8		Proceeds from disposal of property and equipment	6		32
Return of capital contribution from unconsolidated affiliate	Return of capital contribution from unconsolidated affiliate	190		200		Return of capital contribution from unconsolidated affiliate	150		142
Net cash used in investing activities	Net cash used in investing activities	(37,187)		(5,093)		Net cash used in investing activities	(31,574)		(46,552)
Cash flows from financing activities:	Cash flows from financing activities:					Cash flows from financing activities:
Proceeds from equity offering	Proceeds from equity offering	49,137		—		Proceeds from equity offering	0		49,137
Payment of preferred stock cash dividend	Payment of preferred stock cash dividend	(2,632)		(2,618)		Payment of preferred stock cash dividend	(2,625)		(2,632)
Payment of financing obligation and finance leases		(68)		(974)
Payment of finance leases						Payment of finance leases	(64)		(37)
Payment of payroll taxes on stock-based compensation through shares withheld	Payment of payroll taxes on stock-based compensation through shares withheld	(527)		(127)		Payment of payroll taxes on stock-based compensation through shares withheld	(401)		(527)

Net cash provided by (used in) financing activities		45,910		(3,719)
Net cash (used in) provided by financing activities						Net cash (used in) provided by financing activities	(3,090)		45,941
Change in cash, cash equivalents and restricted cash	Change in cash, cash equivalents and restricted cash	(1,394)		(15,936)		Change in cash, cash equivalents and restricted cash	(17,137)		10,286
Cash and cash equivalents, beginning of period	Cash and cash equivalents, beginning of period	65,442		58,104		Cash and cash equivalents, beginning of period	76,803		65,442
Restricted cash, beginning of period	Restricted cash, beginning of period	15,113		14,055		Restricted cash, beginning of period	12,116		15,113
Cash, cash equivalents and restricted cash, beginning of period	Cash, cash equivalents and restricted cash, beginning of period	80,555		72,159		Cash, cash equivalents and restricted cash, beginning of period	88,919		80,555
Cash and cash equivalents, end of period	Cash and cash equivalents, end of period	59,956		42,689		Cash and cash equivalents, end of period	58,965		76,606
Restricted cash, end of period	Restricted cash, end of period	19,205		13,534		Restricted cash, end of period	12,817		14,235
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	79,161	$	56,223	Cash, cash equivalents and restricted cash, end of period	$	71,782	$	90,841

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

(Unaudited)

Nine Months Ended June 30,
2020 2019
Supplemental disclosure of cash flow information:
Taxes (refunded) paid $ (172) $ 56
Interest paid 5 2,424
Training equipment obtained in exchange for services 279 520
Depreciation of training equipment obtained in exchange for services 1,011 1,066
Change in accrued capital expenditures during the period 313 1,173
CARES Act funds received for student emergency grants (See Note 19) 16,565 —
CARES Act funds disbursed for student emergency grants (See Note 19) 11,012 —
CARES Act funds for institutional costs included in Receivables, net (See Note 19) 5,931 —


	Six Months Ended March 31,
	2021		2020
Supplemental disclosure of cash flow information:
Income taxes refunded	$	(2,693)	$	(172)
Interest paid	3		3
Training equipment obtained in exchange for services	227		250
Depreciation of training equipment obtained in exchange for services	646		678
Change in accrued capital expenditures during the period	1,098		111









CARES Act funds received for institutional costs (See Note 18)	880		0

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 1 - Nature of the Business

We are the leading provider of postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians as ~~well as welders and computer numerical control (“CNC”) machining technicians as~~ measured by total average undergraduate full-time enrollment and graduates. We also provide programs for welders and computer numeric control (“CNC”) machining technicians. We offer certificate, diploma or degree programs at 12 campuses across the United States under the banner of several well-known brands, including Universal Technical Institute, Motorcycle Mechanics Institute, Marine Mechanics Institute and NASCAR Technical Institute. ~~This excludes the Norwood, Massachusetts campus that was closed on July 31, 2020.~~ We also offer manufacturer specific advanced training (“MSAT”) programs, including student-paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers. WeFounded in 1965, we have provided technical education for more than 55 ~~years.~~years and have graduated more than 220,000 technicians.

We work closely with ~~leading~~over 35 original equipment manufacturers ~~(“OEMs”)~~ and ~~employers~~industry brand partners to understand their needs for qualified service professionals. Revenues generated from our schools consist primarily of tuition and fees paid by students. To pay for a substantial portion of their tuition, the majority of students rely on funds received from federal financial aid programs under Title IV Programs of the Higher Education Act of 1965, as amended (“HEA”), as well as from various veterans benefits programs. For further discussion, see Note 2 on “Summary of Significant Accounting Policies - Concentration of Risk” and Note 1820 on “Government Regulation and Financial Aid” included in our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on December ~~6, 2019.~~3, 2020.

During fiscal 2020, we transitioned our on-campus, in-person education model to a blended training model that combines instructor-facilitated online teaching and demonstrations with hands-on labs. This new blended learning format allowed us to continue to offer our programs to our students during the COVID-19 pandemic and aligns with an increasing trend of online education now being offered as individuals seek life-long learning opportunities. We intend to offer our Automotive, Diesel, Automotive/Diesel, Motorcycle and Marine programs in a blended learning format on a permanent basis.

Note 2 - Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, our condensed consolidated financial statements do not include all the information and footnotes required by GAAP for complete financial statements. Normal and recurring adjustments considered necessary for a fair statement of the results for the interim periods have been included. Operating results for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for the year ending September 30, ~~2020.~~2021. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on December ~~6, 2019.~~3, 2020.

The unaudited condensed consolidated financial statements include the accounts of Universal Technical Institute, Inc. and our wholly owned subsidiaries. All significant intercompany transactions and balances have been eliminated.

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 3 - Recent Accounting Pronouncements

Effective the First Quarter of Fiscal ~~2020~~

~~Leases~~2021

In ~~February~~June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU ~~2016-02,~~ ~~Leases (Topic 842)~~ ~~(“ASU 2016-02”)~~, which amended the FASB Accounting Standards Codification (“ASC”) by creating ASC 842 to replace ASC 840. ASU 2016-02 requires lessees to recognize a right-of-use (“ROU”) asset and a lease liability on the balance sheet for substantially all leases, with the exception of short-term leases. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. In July 2018, the FASB issued ASU 2018-11, ~~Leases (Topic 842)~~ ~~to provide entities with relief from the costs of implementing certain aspects of the new leasing~~

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~~UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

~~standard. It also allows lessors to elect not to separate lease and non-lease components when certain conditions are met. In March 2019, the FASB issued ASU 2019-01,~~ ~~Lease (Topic 842): Codification Improvements~~ ~~(“ASU 2019-01”). ASU 2019-01 clarifies certain items regarding lessor accounting. It also clarifies the interim disclosure requirements during transition.~~

The new guidance in ASC 842 also provides a package of transition practical expedients that allow an entity to not reassess (1) whether any expired or existing contracts contain a lease, (2) the lease classification of any expired or existing lease, and (3) initial direct costs for any existing lease. We adopted ASC 842 effective October 1, 2019, and elected the package of transition practical expedients. We also elected additional transitional practical expedients that allow an entity to not reassess land easements not previously addressed under ASC 840 and to not recognize on the balance sheet leases with terms of less than 12 months. We are using the modified retrospective method without the recasting of comparative periods’ financial information. We did not elect the practical expedient to use hindsight in determining a lease term of the ROU assets at the adoption date. As a result of adopting the new standard, we recognized an operating lease liability of $163.0 million and an operating lease ROU asset of $148.6 million on October 1, 2019. The change resulted in the de-recognition of approximately $0.9 million of other assets and $15.3 million of other liabilities. The standard did not materially impact our condensed consolidated statements of operations and cash flows.

In addition, we have 2 build-to-suit leases that were accounted for as financing obligations and related assets because we had continued involvement in the related facility after the construction period was completed. The financing obligations are now classified as operating leases in accordance with the new standard as of the transition date, including recognition of operating lease ROU assets and lease liabilities. The change resulted in the de-recognition of approximately $40.7 million existing deferred financing obligations and $31.6 million in related assets. The net impact of the de-recognition and the adoption of ASC 842 as of October 1, 2019 was an increase in stockholders’ equity of approximately $9.1 million, with a subsequent adjustment during the three months ended March 31, 2020, which reduced the impact to stockholders’ equity by $0.1 million. The transition also resulted in the recognition of rent expense, which was previously reported as interest expense under the former guidance.

~~Fair Value Measurement~~

~~In August 2018, the FASB issued ASU 2018-13,~~ ~~Fair Value Measurement (Topic 820)~~ (“ASU 2018-13”). ASU 2018-13 amends the disclosure requirements of ASC 820, changing the fair value measurement disclosure requirements of ASC 820 by adding new disclosure requirements, modifying existing disclosure requirements and eliminating other disclosure requirements. We adopted ASU 2018-13 as of October 1, 2019. There was no impact to our financial statements or disclosures.

~~Cloud Computing Arrangements~~

~~In August 2018, the FASB issued ASU 2018-15,~~ ~~Intangibles—Goodwill and other Internal-use Software (Subtopic 350-40)~~ (“ASU 2018-15”). ASU 2018-15 aligns the accounting for costs incurred to implement a cloud computing arrangement (“CCA”) that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software. Specifically, ASU 2018-15 amends ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract. Early adoption was permitted. The effect of this new standard on our consolidated financial statements will be dependent on our entry into any future cloud computing arrangements.

~~Effective the First Quarter of Fiscal 2021~~

~~In June 2016, the FASB issued ASU~~ 2016-13, Financial Instruments—Credit ~~Losses (Topic 326):~~Losses: Measurement of Credit Losses on Financial Instruments (Topic 326)~~(“ASU 2016-13”)~~. ~~ASU 2016-13 includes~~This update significantly changes the way that entities measure credit losses. The new standard requires that entities estimate credit losses based upon an ~~impairment model known as the current expected~~“expected credit ~~loss model that is based on expected losses~~loss” approach rather than ~~incurred losses. Under~~ the historical “incurred loss” approach. The new ~~guidance, an entity recognizes as an allowance its estimate of~~approach requires entities to measure all expected credit losses ~~which~~for financial assets based on historical experience, current conditions and reasonable forecasts of collectability. The change in approach impacts the ~~FASB believes will result in more timely~~timing of recognition of ~~such~~credit losses. ~~In April 2019,~~This standard is effective for financial statements issued by public companies for annual and interim periods beginning after December 15, 2019. These changes became effective for our fiscal year beginning October 1, 2020. Upon adoption on October 1, 2020, we recorded an increase in our receivables balance related to our proprietary loan program of $1.6 million, with the ~~FASB issued ASU 2019-05,~~ ~~Targeted Transition Relief,~~ ~~which provides~~

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~~UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

~~transition relief~~corresponding amount recorded as an increase to ~~entities adopting ASU 2016-13. We are currently evaluating the impact ASU 2016-13 will have on our results of operations, financial condition and financial statement disclosures.~~retained earnings. No other adjustments were deemed necessary in applying this new guidance.

Effective the First Quarter of Fiscal 2022

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes~~(“ASU 2019-12”)~~. The amendments in ~~ASU 2019-12~~this standard simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. We are currently evaluating the impact that the update will have on our results of operations, financial condition and financial statement disclosures.

Note 4 - Revenue from Contracts with Customers

Nature of Goods and Services

Postsecondary Education

Revenues consist primarily of student tuition and fees derived from the programs we provide after reductions are made for discounts and scholarships that we sponsor and for refunds for students who withdraw from our programs prior to specified dates. We apply the five-step model outlined in ASC 606, Revenue from Contracts from Customers. Tuition and fee revenue is recognized ratably over the term of the course or program offered. The majority of our programs are designed to be completed in 36 to 90 weeks, and our advanced training programs range from 12 to 23 weeks in duration. We supplement our revenues with sales of textbooks and program supplies and other revenues, which are recognized as the transfer of goods or services occurs. Deferred revenue represents the excess of tuition and fee payments received as compared to tuition and fees earned and is reflected as a current liability in our condensed consolidated balance sheets because it is expected to be earned within the next 12 months.

Additionally, certain students participate in a proprietary loan program that extends repayment terms for their tuition. We purchase said loans from the lender and, based on historical collection rates, believe a portion of these loans are collectible. Accordingly, we recognize tuition and loan origination fees financed by the loan and any related interest revenue under the effective interest method required under the loan based on the amount we expect to collect, and we recognize these revenues ratably over the term of the course or program offered.

Other

We provide dealer technician training or instructor staffing services to manufacturers. Revenues are recognized as transfer of the services occurs.

We provide postsecondary education and other services in the same geographical market, the United States. The impact of economic factors on the nature, amount, timing and uncertainty of revenue and cash flows is consistent among our various postsecondary education programs. See Note 1716 for disaggregated segment revenue information.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Contract Balances

Contract assets primarily relate to our rights to consideration for a student’s progress through our training program in relation to our services performed but not billed at the reporting date. The contract assets are transferred to the receivables when the rights become unconditional. Currently, we do not have any contract assets that have not transferred to a receivable. Our deferred revenue is considered a contract liability and primarily relates to our enrollment agreements where we received payments for tuition but we have not yet delivered the related training programs to satisfying the related performance obligations. The advance consideration received from students or Title IV funding is deferred revenue until the training program has been delivered to the students.

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~~UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

The following table provides information about receivables and deferred revenue resulting from our enrollment agreements with students:


		June 30, 2020		September 30, 2019			March 31, 2021		September 30, 2020
Receivables, which includes tuition and notes receivable	Receivables, which includes tuition and notes receivable	$	51,597	$	44,629	Receivables, which includes tuition and notes receivable	$	43,103	$	53,144
Deferred revenue	Deferred revenue	$	32,913	$	42,886	Deferred revenue	40,954		40,694

During the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, the deferred revenue balance included decreases for revenues recognized during the period and increases related to new students who started their training programs during the period.

Transaction Price Allocated to the Remaining Performance Obligations

Tuition and fee revenue is recognized ratably over the term of the course or program offered. The majority of our undergraduate programs are designed to be completed in 36 to 90 weeks, and our advanced training programs range from 12 to 23 weeks in duration.

Impacts of COVID-19

~~On March 19, 2020, we suspended all in person classes at all of our campuses for~~As previously noted, during the safety and protection of our students and staff, to help slow the spread of COVID-19 and to comply with state and local orders and restrictions. Upon the suspension of all in person classes, we provided all students with the opportunity to take a leave of absence or to continue their education via an online curriculum. On March 25, 2020, we began offering the classroom portion of our training online so that the more than 8,000 students who elected to remain active in the program could continue their education remotely. As our training is a combination of classroom lectures and hands-on labs, there is a portion of most classes that cannot be delivered online and needs to be completed in-person at the campus lab.

~~During the three months~~year ended ~~June~~September 30, 2020, ~~as campuses were able to reopen,~~ we transitioned our on-campus, in-person education model to a blended training model that combines instructor-facilitated online ~~instructor-delivered~~ teaching and demonstrations with hands-on ~~labs.~~ ~~In May of 2020, we resumed in-person~~ labs ~~at 8 of~~so that our ~~campus locations. NaN of our campuses resumed in-person labs in June of 2020, and our final campus to resume in-person labs in Bloomfield, New Jersey opened on July 1, 2020.~~ students could continue their education during the COVID-19 pandemic. On-campus labs have been re-designed to meet the health, safety and social distancing guidelines ~~imposed~~recommended or required by the Centers for Disease Control (“CDC”) and state and local jurisdictions, while still meeting our accreditation and curriculum requirements.

~~Now that all~~All of our campuses ~~have reopened, once a student returns to campus for in-person labs, under~~remained open during the ~~new guidelines it takes on average approximately~~ six ~~to nine weeks for that student to catch up on the~~months ended March 31, 2021, however, as of March 31, 2021, there were students with catch-up lab work outstanding and a small number of others that ~~he was unable to complete during the campus closure and prior to his return.~~ remained exclusively online. As ~~a result, the graduation dates for many~~ of ~~the~~March 31, 2021, approximately 10% of students ~~who would have completed their programs between March and September~~were completing catch-up lab work, but over an extended period of ~~2020 have been delayed. Additionally, some~~time, while less than 1% of students ~~have~~had not returned to campus to complete the in-person labs and ~~remain only~~remained exclusively in the online portion of the curriculum, essentially only completing half of each ~~course, while others are completing catch up labs, but over an extended period of time.~~course. We continue to recognize revenue ratably over the term of the course or program offered, taking into consideration those only completing the online curriculum, and the ~~catch up~~catch-up period for active students and the impact it has on expected graduation dates. As a result, as of March 31, 2021, we had deferred revenue of $10.8 million during the three months ended June 30, 2020. Of the $0.3 million revenue deferred during the three months ended March 31, 2020, $0.2 million was recognized during the three months ended June 30, 2020, as those students were able to complete their in-person labs and graduate.

~~Note 5~~ - ~~Postemployment Benefits~~

On February 18, 2019, we announced that our campus in Norwood, Massachusetts is no longer accepting new student applications. The last group of students started on March 18, 2019 and completed the curriculum in July 2020, with the campus closing on July 31, 2020. The total postemployment benefits incurred due to the campus closure were approximately ~~$1.1~~$0.8 million.

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~~UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

Additionally, we periodically enter into agreements that provide postemployment benefits to personnel whose employment is terminated. On October 21, 2019, we announced the retirement of our President and Chief Executive Officer, Kimberly J. McWaters, effective October 31, 2019. During the nine months ended June 30, 2020, we incurred postemployment benefit charges of ~~$1.5 million~~ ~~and paid cash of $1.1 million, in accordance with Ms. McWaters’ Retirement Agreement and Release of Claims, dated October 31, 2019.~~

The postemployment benefit liability, which is included in “Accounts payable and accrued expenses” on the accompanying condensed consolidated balance sheets, is generally paid out ratably over the terms of the agreements, which range from 1 month to 24 months, with the final agreement expiring in 2021.

~~The activity for the postemployment benefit liability for the nine months ended June 30, 2020 was as follows:~~

Severance Other Total
Balance accrued at beginning of period $ 721 $ 32 $ 753
   Postemployment benefit charges 2,087 48 2,135
   Cash paid (1,623) (184) (1,807)
   Other non-cash adjustments (a) 109 (21) 88
Balance accrued at end of period $ 1,294 $ (125) $ 1,169

~~(a) Primarily relates to the reclassification of benefits between severance and other benefits.~~

Note 65 - Investments

During the second quarter of 2020, we raised approximately $49.5 million in net proceeds from an underwritten public offering of shares of our common stock. See Note 15 on “Shareholders’ Equity - Equity Offering” included in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020 for further details on the equity offering. We invested a portion of the proceeds from the equity offering in held-to-maturity securities, which primarily consist of corporate bonds from large cap industrial and selected financial companies with a minimum credit rating of A. We have the ability and intention to hold these investments until maturity and therefore have classified these investments as held-to-maturity and recorded them at amortized cost.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

The amortized cost, gross unrealized gains or losses, and fair value of investments classified as held-to-maturity at ~~June~~March 31, 2021 and September 30, 2020 were as follows:

Gross Unrealized Estimated Fair
Due in less than 1 year: Amortized Cost Gains Losses Market Value
Corporate bonds $ 31,578 $ 24 $ (8) $ 31,594
Total as of June 30, 2020 $ 31,578 $ 24 $ (8) $ 31,594


	March 31, 2021
			Gross Unrealized				Estimated Fair
Due in less than 1 year:	Amortized Cost		Gains		Losses		Market Value
Corporate and municipal bonds	$	19,502	$	1	$	(7)	$	19,496


	September 30, 2020
			Gross Unrealized				Estimated Fair
Due in less than 1 year:	Amortized Cost		Gains		Losses		Market Value
Corporate and municipal bonds	$	38,055	$	10	$	(33)	$	38,032

Investments are exposed to various risks, including interest rate, market and credit risk. As a result, it is possible that changes in the values of these investments may occur and that such changes could affect the amounts reported in the condensed consolidated financial statements.

Note 76 - Fair Value Measurements

The accounting framework for determining fair value includes a hierarchy for ranking the quality and reliability of the information used to measure fair value, which enables the reader of the financial statements to assess the inputs used to develop those measurements. The fair value hierarchy consists of three tiers:

Level 1: Defined as quoted market prices in active markets for identical assets or liabilities.

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~~UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

Level 2: Defined as inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, model-based valuation techniques for which all significant assumptions are observable in the market or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3: Defined as unobservable inputs that are not corroborated by market data.

Any transfers of investments between levels occurs at the end of the reporting period. Assets measured or disclosed at fair value on a recurring basis consisted of the following:

Fair Value Measurements Using
June 30, 2020 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Money market funds (a) $ 60,098 $ 60,098 $ — $ —
Notes receivable (b) 33,964 — — 33,964
Corporate bonds (c) 31,594 31,594 — —
Total assets at fair value on a recurring basis $ 125,656 $ 91,692 $ — $ 33,964

Fair Value Measurements Using
September 30, 2019 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant
Other
Observable
Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
Money market funds and corporate bonds (d) $ 37,794 $ 37,794 $ — $ —
Notes receivable (b) 35,079 — — 35,079
Total assets at fair value on a recurring basis $ 72,873 $ 37,794 $ — $ 35,079

~~(a) Money market funds are reflected as “Cash and cash equivalents” in our condensed consolidated balance sheet as of June 30, 2020.~~

~~(b) Notes receivable relate to our proprietary loan program.~~

~~(c) Corporate bonds are reflected as “Held-to-maturity investments” in our condensed consolidated balance sheet as of June 30, 2020.~~

~~(d) Money market funds and corporate bonds are reflected as “Cash and cash equivalents” in our condensed consolidated balance sheet as of September 30, 2019.~~


			Fair Value Measurements Using
	March 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds(1)	$	42,351	$	42,351	$	0	$	0
Notes receivable(2)	34,303		0		0		34,303
Corporate bonds(3)	16,009		16,009		0		0
Municipal bonds and other(3)	3,487		3,487		0		0
Total assets at fair value on a recurring basis	$	96,150	$	61,847	$	0	$	34,303

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)


			Fair Value Measurements Using
	September 30, 2020		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds(1)	$	43,322	$	43,322	$	0	$	0
Notes receivable(2)	32,793		0		0		32,793
Corporate bonds(3)	33,119		33,119		0		0
Municipal bonds and other(3)	4,913		4,913		0		0
Total assets at fair value on a recurring basis	$	114,147	$	81,354	$	0	$	32,793

(1) Money market funds and other highly liquid investments with maturity dates less than 90 days are reflected as “Cash and cash equivalents” in our condensed consolidated balance sheet as of March 31, 2021 and September 30, 2020.

(2) Notes receivable relate to our proprietary loan program.

(3) Corporate bonds and municipal bonds and other are reflected as “Held-to-maturity investments” in our condensed consolidated balance sheet as of March 31, 2021 and September 30, 2020.

Note 87 - Property and Equipment, net

Property and equipment, net consisted of the following:


		Depreciable Lives (in years)	June 30, 2020		September 30, 2019			Depreciable Lives (in years)	March 31, 2021		September 30, 2020
Land(1)	Land(1)	—	$	3,189	$	3,189	Land(1)	—	$	8,355	$	3,189
Buildings and building improvements(1)	Buildings and building improvements(1)	3-35	28,019		82,653		Buildings and building improvements(1)	3-35	68,282		28,046
Leasehold improvements	Leasehold improvements	1-28	62,634		53,020		Leasehold improvements	1-28	64,232		62,899
Training equipment	Training equipment	3-10	95,316		96,737		Training equipment	3-10	92,250		91,731
Office and computer equipment	Office and computer equipment	3-10	34,639		35,927		Office and computer equipment	3-10	32,641		33,524
Curriculum development	Curriculum development	5	19,692		19,692		Curriculum development	5	19,692		19,692
Software developed for internal use	Software developed for internal use	1-5	11,916		11,354		Software developed for internal use	1-5	11,959		11,951
Vehicles	Vehicles	5	1,533		1,454		Vehicles	5	1,460		1,502
Right-of-use assets for finance leases	Right-of-use assets for finance leases	Various	359		—		Right-of-use assets for finance leases	2-3	359		359
Construction in progress	Construction in progress	—	1,891		1,631		Construction in progress	—	1,276		2,213
			259,188		305,657				300,506		255,106
Less: Accumulated depreciation and amortization	Less: Accumulated depreciation and amortization		(186,596)		(201,531)		Less: Accumulated depreciation and amortization		(185,585)		(182,363)
			$	72,592	$	104,126			$	114,921	$	72,743

~~As previously discussed in Note 3,~~(1) During the ~~adoption of ASC 842 as of October 1, 2019 resulted in~~six months ended March 31, 2021, land and buildings and building improvements increased due to the ~~de-recognition~~purchase of the ~~assets associated with~~building and land at our ~~financing obligations,~~Avondale, Arizona campus location. The total purchase price was approximately $45.2 million, of which ~~were previously included in “Buildings~~$5.1 million was allocated to land and $40.1 million was allocated to buildings and building ~~improvements.” In addition, certain items related to~~improvements based upon the build-to-suit leases in “Buildings and building improvements” were reclassified to “Leasehold improvements” as part of the adoption of ASC 842. The following amounts, which are included in the above table, represented assets financed by financing obligations as of September 30, 2019:

~~September 30, 2019~~

~~Assets financed by financing obligations, gross~~

~~45,816~~

~~Less accumulated depreciation and amortization~~

~~(14,208)~~

~~Assets financed by financing obligations, net~~

~~31,608~~

appraised values.

Note 98 - Goodwill

Our goodwill balance of $8.2 million as of ~~June 30, 2020~~March 31, 2021 resulted from the acquisition of our motorcycle and marine education business in Orlando, Florida in 1998 and relates to our Postsecondary Education segment. Goodwill represents the excess of the cost of an acquired business over the estimated fair values of the assets acquired and liabilities assumed. Goodwill is reviewed at least annually for impairment, which may result from the deterioration in the operating performance

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

of the acquired business, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. Any resulting impairment charge would be recognized as an expense in the period in which impairment is identified.

On As of March ~~19, 2020, we suspended all in person classes at all of our campuses, including our Orlando, Florida campus, for the safety and protection of our~~31, 2021, while some students ~~and staff,~~were taking longer than normal to help slow the spread of COVID-19, and to comply with state and local orders and restrictions. On March 25, 2020, we began offering the classroom portion of our training online so that students who elected to remain enrolled in the program could continuegraduate from their ~~education from home.~~ During May of 2020, our Orlando, Florida campus reopened for students to complete hands-on labs, which have been re-designed to meet CDC, state and local guidelines for health, safety and social distancing. While some student graduation dates have been delayedprograms due to the ~~closure, most~~impacts of the COVID-19 pandemic on our business, students enrolled at our Orlando, Florida campus ~~prior to the COVID-19 outbreak~~ continue to progress through their programs under the new blended training model. ~~Even with the impacts of COVID-19, our new student~~

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~~UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

~~enrollments for the nine months ended June 30, 2020 at the Orlando, Florida campus are higher than our expectations. As a result, there~~There were no indicators of goodwill impairment as of ~~June 30, 2020.~~March 31, 2021.

Note 109 - Investment in Unconsolidated Affiliate

In 2012, we invested $4.0 million to acquire an equity interest of approximately 28% in a joint venture (“JV”) related to the lease of our Lisle, Illinois campus facility. In connection with this investment, we do not possess a controlling financial interest as we do not hold a majority of the equity interest, nor do we have the power to make major decisions without approval from the other equity member. Therefore, we do not qualify as the primary beneficiary. Accordingly, this investment is accounted for under the equity method of accounting. We recognize our proportionate share of the JV's net income or loss during each accounting period and any return of capital as a change in our investment.

Investment in unconsolidated affiliate consisted of the following and is included within “Other assets” on our condensed consolidated balance sheets:

June 30, 2020 September 30, 2019
Carrying Value Ownership Percentage Carrying Value Ownership Percentage
Investment in JV $ 4,459 27.972 % $ 4,338 27.972 %


	March 31, 2021				September 30, 2020
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
Investment in JV	$	4,559	28.0	%	$	4,494	28.0	%

Investment in unconsolidated affiliate included the following activity during the period:


		Nine Months Ended June 30,							Six Months Ended March 31,
		2020		2019			2021		2020
Balance at beginning of period	Balance at beginning of period	$	4,338	$	4,206	Balance at beginning of period	$	4,494	$	4,338
Equity in earnings of unconsolidated affiliate	Equity in earnings of unconsolidated affiliate	311		298		Equity in earnings of unconsolidated affiliate	215		205
Return of capital contribution from unconsolidated affiliate	Return of capital contribution from unconsolidated affiliate	(190)		(200)		Return of capital contribution from unconsolidated affiliate	(150)		(142)
Balance at end of period	Balance at end of period	$	4,459	$	4,304	Balance at end of period	$	4,559	$	4,401

Through September 30, 2019, the activity from equity in earnings of the unconsolidated affiliate was included in “Other (expense) income, net” on the condensed consolidated statements of operations. In conjunction with the adoption of ASC 842, as previously described in Note 3, beginning October 1, 2019, the activity is included in “Educational services and facilities” on the condensed consolidated statements of operations.

Note 1110 - Leases

~~We lease 10~~As of March 31, 2021, we leased 9 of our 12 campuses and our corporate headquarters under non-cancelable operating leases, some of which contain escalation clauses and requirements to pay other fees associated with the leases. Our lease for the Norwood, Massachusetts campus ended on July 31, 2020 when the campus closed. Also, during the three months ended June 30, 2020, we relocated our corporate headquarters facility in conjunction with the expiration of the existing lease agreement, and entered into a new long-term lease agreement at a new facility. The facility leases have original lease terms ranging from 8 to 20 years and expire at various dates through 2031. In addition, the leases commonly include lease incentives in the form of rent abatements and tenant improvement allowances. We sublease certain portions of unused building space to third parties, which ~~currently result~~as of March 31, 2021, resulted in minimal income. All of the leases, other than those that may qualify for the short-term scope exception of 12 months or less, are recorded on our condensed consolidated balance sheets.

Some of the facility leases are subject to annual changes in the Consumer Price Index (“CPI”). While lease liabilities are not remeasured as a result of changes to the CPI, changes to the CPI are treated as variable lease payments and recognized in the period in which the obligation for those payments was incurred. Many of our lease agreements include options to extend the lease, which we do not include in our minimum lease terms unless they are reasonably certain to be exercised. There are no early termination with penalties, residual value guarantees, restrictions or covenants imposed by our facility leases.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

~~Significant Assumptions and Judgments~~

To determine if a contract is or contains a lease, we considered whether (1) explicitly or implicitly identified assets have been deployed in the contract and (2) we obtain substantially all of the economic benefits from the use of that underlying asset and~~direct how and for what purpose the asset is used during the term of the contract.~~

If we determine a contract is, or contains, a lease, we assess whether the contract contains multiple lease components. We consider a lease component to be separate from other lease components in the contract if (a) we can benefit from the right of use either on its own or together with other resources that are readily available to us and (b) the right of use is neither highly dependent on nor highly interrelated with the other right(s) to use underlying assets in the contract. In contracts involving the use of real estate, we separate the right to use land from other underlying assets unless the effect of separating the land is insignificant to the resulting lease accounting. We have elected to account for the lease and non-lease components as a single lease component.

For all leases we are a party to, the discount rate implicit in the lease was not readily determinable. Therefore, we used our incremental borrowing rate for each lease to determine the present value of the lease. We determined the incremental borrowing rate applicable to each lease through a model that represents the rate of interest we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The incremental borrowing rate was applied to each lease based on the remaining term of the lease.

The components of lease expense are included in “Educational services and facilities” and “Selling, general and administrative” on the condensed consolidated statement of operations, with the exception of interest on lease liabilities, which is included in “Interest expense.” The components of lease expense during the three months and ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020 were as follows:

Lease Expense Three Months Ended June 30, 2020 Nine Months Ended June 30, 2020
Operating lease expense (a) $ 7,494 $ 22,478
Finance lease expense:
Amortization of leased assets 32 70
Interest on lease liabilities 2 5
Variable lease expense 1,090 3,269
Sublease income (145) (653)
Total net lease expense $ 8,473 $ 25,169


	Three Months Ended March 31,				Six Months Ended March 31,
Lease Expense	2021		2020		2021		2020
Operating lease expense(1)	$	5,458	$	7,462	$	11,590	$	14,984
Finance lease expense:
Amortization of leased assets	33		38		65		38
Interest on lease liabilities	1		3		3		3
Variable lease expense	950		1,180		1,857		2,179
Sublease income	(123)		(156)		(246)		(507)
Total net lease expense	$	6,319	$	8,527	$	13,269	$	16,697

~~(a)~~(1) Excludes the expense for short-term leases not accounted for under ASC 842, which was not significant for the three and ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020.

Supplemental balance sheet, cash flow and other information related to our leases was as follows (in thousands, except lease term and discount rate):


Leases	Classification	March 31, 2021		September 30, 2020
Assets:
Operating lease assets	Right-of-use assets for operating leases	$	147,651	$	144,663
Finance lease assets	Property and equipment, net(1)	192		257
Total leased assets		$	147,843	$	144,920

Liabilities:
Current
Operating lease liabilities	Operating lease liability, current portion	$	19,565	$	23,666
Finance lease liabilities	Other current liabilities	131		129
Noncurrent
Operating lease liabilities	Operating lease liability	140,136		134,089
Finance lease liabilities	Other liabilities	65		131
Total lease liabilities		$	159,897	$	158,015

(1) Finance lease assets are recorded net of accumulated amortization of $0.2 million and $0.1 million as of March 31, 2021 and September 30, 2020, respectively.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

~~Supplemental balance sheet, cash flow and other information related to our leases was as follows:~~

~~Leases~~

~~Classification~~

~~As of June 30, 2020~~

~~Assets:~~

~~Operating lease assets~~

~~Right-of-use assets for operating leases~~

~~133,539~~

~~Finance lease assets~~

~~Property and equipment, net (a)~~

~~289~~

~~Total leased assets~~

~~133,828~~

~~Liabilities:~~

~~Current~~

~~Operating lease liabilities~~

~~Operating lease liability, current portion~~

~~24,930~~

~~Finance lease liabilities~~

~~Other current liabilities~~

~~128~~

~~Noncurrent~~

~~Operating lease liabilities~~

~~Operating lease liability~~

~~121,944~~

~~Finance lease liabilities~~

~~Other liabilities~~

~~164~~

~~Total lease liabilities~~

~~147,166~~


Lease Term and Discount Rate	March 31, 2021		September 30, 2020
Weighted-average remaining lease term (in years):
Operating leases	9.68		9.34
Finance leases	1.58		2.05

Weighted average discount rate:
Operating leases	4.54	%	4.37	%
Finance leases	3.08	%	3.08	%

~~(a) Finance lease assets are recorded net~~


	Six Months Ended March 31,
Supplemental Disclosure of Cash Flow Information and Other Information	2021		2020
Non-cash activity related to lease liabilities:
Lease assets obtained in exchange for new operating lease liabilities (1)	$	11,105	$	21
Leases assets obtained in exchange for new finance lease liabilities	0		205

(1) Excludes the impact of ~~accumulated amortization~~the opening balance adjustment for the adoption of ~~$70.0 thousand~~ASC 842 as of ~~June 30,~~October 1, 2019 for the six months ended March 31, 2020.


~~Supplemental Disclosure of Cash Flow Information and Other Information~~	~~Nine Months Ended June 30, 2020~~
~~Cash paid for amounts included in the measurement of lease liabilities:~~
~~Operating cash flows from operating leases~~	$	~~19,264~~
~~Operating cash flows from finance leases~~	5
~~Financing cash flows from finance leases~~	68

~~Non-cash activity related to lease liabilities:~~
~~Lease assets obtained in exchange for new operating lease liabilities~~	$	~~3,099~~
~~Leases assets obtained in exchange for new finance lease liabilities~~	~~215~~


~~Lease Term and Discount Rate~~	~~As of June 30, 2020~~
~~Weighted-average remaining lease term (in years):~~
~~Operating leases~~	~~8.41~~
~~Finance leases~~	~~2.30~~

~~Weighted average discount rate:~~
~~Operating leases~~	~~4.19~~	%
~~Finance leases~~	~~3.08~~	%

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~~UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

Maturities of lease liabilities were as follows:


		As of June 30, 2020							As of March 31, 2021
Years ending September 30,	Years ending September 30,	Operating Leases		Finance Leases		Years ending September 30,	Operating Leases		Finance Leases
Remainder of 2020		$	8,053	$	34
2021		28,141		135
Remainder of 2021						Remainder of 2021	$	12,205	$	67
2022	2022	26,863		110		2022	23,823		110
2023	2023	16,261		23		2023	19,035		23
2024	2024	15,137		—		2024	18,765		0
2025 and thereafter		81,974		—
2025						2025	18,993		0
2026 and thereafter						2026 and thereafter	104,647		0
Total lease payments	Total lease payments	176,429		302		Total lease payments	197,468		200
Less: interest	Less: interest	(29,555)		(10)		Less: interest	(37,767)		(4)
Present value of lease liabilities	Present value of lease liabilities	146,874		292		Present value of lease liabilities	159,701		196
Less: current lease liabilities	Less: current lease liabilities	(24,930)		(128)		Less: current lease liabilities	(19,565)		(131)
Long-term lease liabilities	Long-term lease liabilities	$	121,944	$	164	Long-term lease liabilities	$	140,136	$	65

~~The maturities of lease liabilities as of June 30, 2020 includes the future minimum lease payments for the build-to-suit leases that were presented separately in our~~ ~~2019 Annual Report on Form 10-K~~ ~~filed with the SEC on December 6, 2019.~~

~~Disclosures Related to Periods Prior to the Adoption of ASC 842~~

~~As of September 30, 2019, minimum lease payments under non-cancelable operating leases by period were expected to be as follows (in thousands):~~

Years ending September 30, Gross Sublease income Net
2020 $ 26,379 $ (362) $ 26,017
2021 23,531 (77) 23,454
2022 21,621 (78) 21,543
2023 10,461 (20) 10,441
2024 9,180 — 9,180
Thereafter 41,822 — 41,822
Total lease payments $ 132,994 $ (537) $ 132,457

~~Related Party Transactions for Leases~~

Rent expense includes rent paid to related parties, which was approximately $0.5 million for the three months ended June 30, 2020 and 2019, respectively, and $1.5 million for the nine months ended June 30, 2020 and 2019, respectively. Since 1991, two of our properties comprising our Orlando, Florida location have been leased from entities controlled by John C. White, a director on our Board of Directors. The leases extend through August 19, 2022 and August 31, 2022 with annual base lease payments for the first year under this lease totaling approximately $0.3 million and $0.7 million, with annual adjustments based on the higher of (i) an amount equal to 4% of the total annual rent for the immediately preceding year or (ii) the percentage of increase in the CPI. These transactions were not considered significant as of June 30, 2020.

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~~UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(In thousands, except per share amounts)~~

~~(Unaudited)~~

Note 1211 - Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:


		June 30, 2020		September 30, 2019			March 31, 2021		September 30, 2020
Accounts payable	Accounts payable	$	12,309	$	10,033	Accounts payable	$	10,571	$	12,471
Accrued compensation and benefits	Accrued compensation and benefits	27,786		22,230		Accrued compensation and benefits	26,564		28,053
Other accrued expenses	Other accrued expenses	16,535		13,615		Other accrued expenses	11,953		11,367
Total accounts payable and accrued expenses	Total accounts payable and accrued expenses	$	56,630	$	45,878	Total accounts payable and accrued expenses	$	49,088	$	51,891

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 1312 - Income Taxes

Our income tax ~~expense~~benefit for the three months ended ~~June 30, 2020~~March 31, 2021 was ~~$21~~$34 thousand, or ~~0.2%~~2.2% of pre-tax loss, compared to ~~income tax expense of $31 thousand,~~$10.8 million, or ~~9.3%~~1,632.0% of pre-tax loss, for the three months ended ~~June 30, 2019.~~March 31, 2020. For the ~~nine~~six months ended ~~June 30, 2020,~~March 31, 2021, our income tax benefit was ~~$10.7 million,~~$8.0 thousand, or ~~117.0%~~1.7% of pre-tax loss, compared to ~~income tax expense of $0.3~~$10.7 million, or ~~1.9%~~261.1% of pre-tax ~~loss,~~income, for the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020. The effective income tax rate in each period differed from the federal statutory tax rate of 21% primarily as a result of changes in the valuation allowance, state taxes and ~~state taxes.~~the impact of net operating loss carrybacks recognized in the prior year as a result of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The balance of the valuation allowance for our deferred tax assets was ~~$19.1~~$17.5 million and ~~$25.7~~$17.4 million as of ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019,~~2020, respectively. The significant decrease in the valuation allowance for the nine months ended June 30, 2020, and the related income tax benefit, was primarily attributable to the carryback of net operating losses (“NOLs”) under the provisions of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the adoption of ASC 842 as of October 1, 2019.

~~The CARES Act, which was enacted~~As discussed in Note 13 on ~~March 27,~~ “Income Taxes” in our 2020 ~~made~~Annual Report on Form 10-K filed with the SEC on December 3, 2020, during the year ended September 30, 2020, we recorded an income tax ~~law changes to provide financial relief to companies~~refund of approximately $11.3 million as a result of ~~the business impacts of COVID-19.Key income tax~~certain provisions of the CARES Act, ~~include changes in NOL carryback and carryforwards rules, acceleration~~ of ~~alternative minimum tax credit recovery, increase~~which $7.1 million remained outstanding as of ~~the net interest expense deduction limit and charitable contribution limit, and immediate write-off of qualified improvement property.~~

~~The CARES Act allows us to carryback $20.3 million and $13.0 million of NOLs arising in the years ended~~ September 30, ~~2019 and September 30, 2018, respectively, generating a tax refund of approximately $11.3 million.~~2020. During the ~~nine~~six months ended ~~June 30,~~March 31, 2021, we received approximately $2.7 million in refunds, leaving $4.3 million as an income tax receivable recorded in “Receivable, net” on the condensed consolidated balance sheet as of March 31, 2021. We expect to receive the remaining $4.3 million subsequent to the filing of our consolidated tax return for our fiscal 2020 ~~we recorded a receivable for the expected refund.We have also adjusted our deferred tax liabilities and deferred tax assets, and the corresponding valuation allowance, for the impact of the NOL provisions in the CARES Act.~~later this year.

As of ~~June 30, 2020,~~March 31, 2021, we continued to have a full valuation allowance against all deferred tax assets that rely upon future taxable income for their realization and will continue to evaluate our valuation allowance in future periods for any change in circumstances that causes a change in judgment about the realizability of the deferred tax assets. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods if estimates of future taxable income during the carryforward period are increased, if objective negative evidence in the form of cumulative losses is no longer present and if additional weight ~~may be~~is given to subjective evidence such as our projections for growth.

Note 1413 - Commitments and Contingencies

Legal

In the ordinary conduct of our business, we are periodically subject to lawsuits, demands in arbitration, investigations, regulatory proceedings or other claims, including, but not limited to, claims involving current or former students, routine employment matters, business disputes and regulatory demands. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we accrue a liability for the loss. When a loss is not both probable and estimable, we do not accrue a liability. Where a loss is not probable but is reasonably possible, including if a loss in excess of an accrued liability is reasonably possible, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for

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the claim. Because we cannot predict with certainty the ultimate resolution of the legal proceedings (including lawsuits, investigations, regulatory proceedings or claims) asserted against us, it is not currently possible to provide such an estimate. The ultimate outcome of pending legal proceedings to which we are a party may have a material adverse effect on our business, cash flows and results of operations or financial condition.

Note 1514 - Shareholders’ Equity

Common Stock

Holders of our common stock are entitled to receive dividends when and as declared by our Board of Directors and have the right to 1 vote per share on all matters requiring shareholder approval. On June 9, 2016, our Board of Directors voted to eliminate the quarterly cash dividend on our common stock. Any future common stock dividends require the approval of a majority of the voting power of the Series A Preferred Stock.

~~Preferred Stock~~

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Preferred Stock

Preferred Stock consists of 10,000,000 authorized preferred shares of $0.0001 par value each. As of ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019,~~2020, 700,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) were issued and outstanding. The liquidation preference associated with the Series A Preferred Stock was $100 per share at ~~June 30, 2020~~March 31, 2021 and September 30, ~~2019.~~2020.

Pursuant to the terms of the ~~Securities Purchase Agreement,~~Certificate of Designations of the Series A Preferred Stock, we may pay a cash dividend on each share of the Series A Preferred Stock at a rate of 7.5% per year on the liquidation preference then in effect (“Cash Dividend”). If we do not pay a Cash Dividend, the liquidation preference shall be increased to an amount equal to the current liquidation preference in effect plus an amount reflecting that liquidation preference multiplied by the Cash Dividend rate then in effect plus 2.0% per year (“Accrued Dividend”). Cash Dividends are payable semi-annually in arrears on September 30 and March 31 of each year, and begin to accrue on the first day of the applicable dividend period. We paid Cash Dividends of $2.6 million ~~on March 27, 2020.~~

~~Equity Offering~~

On February 20, 2020, we entered into an Underwriting Agreement with B. Riley FBR, Inc., as representative of the several underwriters named therein (the “Underwriters”), to issue and sell an aggregate of 6,782,610 shares (the “Firm Shares”) of our common stock, par value $0.0001 per share (the “Common Stock”), in a public offering, at a price to the public of $7.75 per share, pursuant to a registration statement on ~~Form S-3~~ ~~(Registration No. 333-236146) (the “Registration Statement”) and the accompanying~~ ~~prospectus, and~~ ~~related prospectus supplement~~, filed with the SEC (the “Offering”). In addition, we granted the Underwriters an option (“Option”) to purchase up to an additional 1,017,390 shares of the Common Stock for a period of 30 days from February 20, 2020.

The Offering of the Firm Shares closed on February 25, 2020. The net proceeds from the Offering were approximately $49.5 million, after deducting underwriting discounts. Direct costs of $0.4 million related to the offering were recorded to equity during the three months ended March 31, ~~2020. The Underwriters did not exercise~~2021.

For further discussion of our preferred stock, see Note 15 on “Shareholders’ Equity” included in our 2020 Annual Report on Form 10-K filed with the ~~Option in full for the additional 1,017,390 shares. The 6,782,610 shares purchased were issued from Treasury Stock~~SEC on ~~February 25, 2020, leaving 82,287 shares in Treasury stock as of March 31, 2020 and June 30,~~December 3, 2020. We intend to use the proceeds for working capital, capital expenditures, and other general corporate purposes, which may include the addition of new campuses, the expansion of existing programs and the development of new programs, and the purchase of real property and campus infrastructure. We may also use a portion of the net proceeds to fund potential strategic acquisitions of complementary businesses, assets, services or technologies.

Share Repurchase Program

On December ~~20, 2011,~~10, 2020, our Board of Directors authorized a new share repurchase plan that would allow for the repurchase of up to ~~$25.0~~$35.0 million of our common stock in the open market or through privately negotiated transactions. ~~The timing and actual number of shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements and prevailing market conditions. We may terminate~~

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~~or limit the~~This new share repurchase ~~program at any time without prior notice. We did not repurchase shares during~~plan replaced the ~~nine months ended June 30, 2020 or June 30, 2019. As of June 30, 2020, we have purchased 1,677,570 shares at an average price per share of $9.09 and a total cost of approximately $15.3 million~~previously authorized plan from fiscal 2012. Any repurchases under this ~~program. Under the terms of the Securities Purchase Agreement, future~~new stock ~~purchases under this~~repurchase program require the approval of a majority of the voting power of ~~the~~our Series A Preferred Stock. We did not repurchase any shares during the six months ended March 31, 2021.

Note 1615 - Earnings per Share

We calculate basic earnings per common share (“EPS”) pursuant to the two-class method as a result of the issuance of the Series A Preferred Stock on June 24, 2016. Our Series A Preferred Stock is considered a participating security because, in the event that we pay a dividend or make a distribution on the outstanding common stock, we shall also pay each holder of the Series A Preferred Stock a dividend on an as-converted basis. The two-class method is an earnings allocation formula that determines ~~earnings per share~~EPS for common stock and participating securities according to dividend and participation rights in undistributed earnings. Under this method, all earnings, distributed and undistributed, are allocated to common shares and participating securities based on their respective rights to receive dividends. The Series A Preferred Stock is not included in the computation of basic ~~earnings per common share~~EPS in periods in which we have a net loss, as the Series A Preferred Stock is not contractually obligated to share in our net losses.

Diluted ~~earnings per common share~~EPS is calculated using the more dilutive of the two-class method or as-converted ormethod. The two-class method uses net income available to common shareholders and assumes conversion of all potential shares other than the ~~two-class method.~~participating securities. The as-converted method uses net income and assumes conversion of all potential shares including the participating securities. Dilutive potential common shares include outstanding stock options, unvested restricted share ~~awards and~~ units and convertible preferred stock. The basic and diluted weighted average shares outstanding are the same for the three months and ~~nine~~six months ended ~~June 30, 2020 and 2019~~March 31, 2021 as a result of the net loss available to common shareholders and anti-dilutive impact of the potentially dilutive securities.

Subsequent to the issuance of our March 31, 2020 interim financial statements, we identified that the diluted EPS disclosures incorrectly stated that diluted EPS for the three and six months ended March 31, 2020 was calculated using the as-converted method and not the two-class method, when in fact diluted EPS was correctly calculated internally using the two-class method. The ~~following~~ table ~~summarizes~~in the disclosure summarizing the computation of ~~basic~~diluted EPS incorrectly added back “Income allocated to participating securities” to what is equivalent to “Net income available to common shareholders” shown below and incorrectly included the corresponding 21,021 weighted average diluted ~~earnings~~participating shares outstanding in diluted shares outstanding. The disclosure errors had no impact on reported net income per ~~common~~diluted share ~~under~~for the ~~as-converted or two-class method, as well as the anti-dilutive shares excluded:~~

Three Months Ended Nine Months Ended
June 30, June 30,
2020 2019 2020 2019
Basic earnings per common share:
Net (loss) income $ (13,268) $ (365) $ 1,558 $ (13,345)
Less: Preferred stock dividend declared (1,309) (1,309) (3,941) (3,927)
Loss available for distribution (14,577) (1,674) (2,383) (17,272)
Income allocated to participating securities — — — —
Net loss available to common shareholders $ (14,577) $ (1,674) $ (2,383) $ (17,272)
Weighted average basic shares outstanding 32,607 25,498 28,871 25,410
Basic loss per common share $ (0.45) $ (0.07) $ (0.08) $ (0.68)
three and six months ended

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Three Months Ended Nine Months Ended
June 30, June 30,
2020 2019 2020 2019
Diluted earnings per common share:
Loss available for distribution $ (14,577) $ (1,674) $ (2,383) $ (17,272)
Weighted average basic shares outstanding 32,607 25,498 28,871 25,410
Dilutive effect related to employee stock plans — — — —
Dilutive effect related to preferred stock — — — —
Weighted average diluted shares outstanding 32,607 25,498 28,871 25,410
Diluted loss per common share $ (0.45) $ (0.07) $ (0.08) $ (0.68)
Anti-dilutive shares excluded:
Outstanding stock-based grants 281 273 297 387
Convertible preferred stock 21,021 21,021 21,021 21,021
Total anti-dilutive shares excluded 21,302 21,294 21,318 21,408
March 31, 2020. The disclosures below have been corrected to appropriately reflect diluted EPS under the two-class method for the three and six months ended March 31, 2020. We have concluded that these corrections were not material to the previously issued condensed consolidated financial statements for the three and six months ended March 31, 2020.

The following table summarizes the computation of basic and diluted EPS under the two-class or as-converted method, as well as the anti-dilutive shares excluded:


	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2021		2020		2021		2020
Basic earnings per common share:
Net (loss) income	$	(1,547)	$	10,142	$	(464)	$	14,826
Less: Preferred stock dividend declared	(1,312)		(1,309)		(2,625)		(2,632)
Net (loss) income available for distribution	(2,859)		8,833		(3,089)		12,194
Income allocated to participating securities	0		(3,759)		0		(5,336)
Net (loss) income available to common shareholders	$	(2,859)	$	5,074	$	(3,089)	$	6,858

Weighted average basic shares outstanding	32,762		28,379		32,709		27,013

Basic (loss) income per common share	$	(0.09)	$	0.18	$	(0.09)	$	0.25

Diluted earnings per common share:
Method used:	Two-class		Two-class		Two-class		Two-class
Net (loss) income available to common shareholders	$	(2,859)	$	5,074	$	(3,089)	$	6,858

Weighted average basic shares outstanding	32,762		28,379		32,709		27,013
Dilutive effect related to employee stock plans	0		265		0		307
Weighted average diluted shares outstanding	32,762		28,644		32,709		27,320

Diluted (loss) income per common share	$	(0.09)	$	0.18	$	(0.09)	$	0.25

Anti-dilutive shares excluded:
Outstanding stock-based grants	467		8		677		133
Convertible preferred stock	21,021		21,021		21,021		21,021
Total anti-dilutive shares excluded	21,488		21,029		21,698		21,154

Dilutive shares under the as-converted method(1)	54,065		49,665		54,003		48,341

(1) The dilutive shares under the as-converted method assume conversion of the Series A Preferred Stock and are presented here merely for reference. In a net income position, diluted earnings per share is determined by the more dilutive of the two-class method or the as-converted method.

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Note 1716 - Segment Information

Our principal business is providing postsecondary education. We also provide manufacturer-specific training, and these operations are managed separately from our campus operations. These operations do not currently meet the quantitative criteria for segments and therefore are reflected in the “Other” category. Our equity method investment and other non-postsecondary education operations are also included within the “Other” category. Corporate expenses are allocated to “Postsecondary Education” and the “Other” category based on compensation expense.

Summary information by reportable segment was as follows:


	Postsecondary Education		Other		Consolidated
Three Months Ended March 31, 2021
Revenues	$	74,846	$	2,863	$	77,709
Loss from operations	(1,322)		(339)		(1,661)
Depreciation and amortization (1)	3,547		22		3,569
Net loss	(1,208)		(339)		(1,547)

Three Months Ended March 31, 2020
Revenues	$	78,261	$	4,456	$	82,717
(Loss) Income from operations	(591)		92		(499)
Depreciation and amortization (2)	2,854		27		2,881
Net income	10,050		92		10,142

Six Months Ended March 31, 2021
Revenues	$	148,406	$	5,428	$	153,834
Loss from operations	(218)		(668)		(886)
Depreciation and amortization(1)	6,805		46		6,851
Net income (loss)	204		(668)		(464)

Six Months Ended March 31, 2020
Revenues	$	161,581	$	8,370	$	169,951
Income (loss) from operations	4,010		(255)		3,755
Depreciation and amortization (2)	5,825		69		5,894
Net income (loss)	15,081		(255)		14,826

As of March 31, 2021
Total assets	$	433,708	$	6,637	$	440,345

As of September 30, 2020
Total assets	$	435,144	$	6,837	$	441,981

Postsecondary Education Other Consolidated
Three Months Ended June 30, 2020
Revenues $ 52,199 $ 2,284 $ 54,483
Loss from operations (13,341) (438) (13,779)
Depreciation and amortization (a) 2,904 23 2,927
Net loss (12,830) (438) (13,268)
Three Months Ended June 30, 2019
Revenues 75,396 3,646 79,042
Loss from operations (402) (53) (455)
Depreciation and amortization (a) 3,966 36 4,002
Net (loss) income (413) 48 (365)
(1) Includes depreciation of training equipment obtained in exchange for services of $0.3 million and $0.6 million for the three months and six months ended March 31, 2021, respectively.

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Postsecondary Education Other Consolidated
Nine Months Ended June 30, 2020
Revenues 213,780 10,654 224,434
Loss from operations (9,331) (693) (10,024)
Depreciation and amortization (a) 8,729 92 8,821
Net income (loss) 2,251 (693) 1,558
Nine Months Ended June 30, 2019
Revenues 232,561 11,277 243,838
Loss from operations (12,071) (1,169) (13,240)
Depreciation and amortization (a)(b) 11,835 122 11,957
Net loss (12,474) (871) (13,345)
As of June 30, 2020
Total assets 415,103 6,480 421,583
As of September 30, 2019
Total assets 263,974 6,552 270,526

~~(a)~~(2) Excludes depreciation of training equipment obtained in exchange for services of $0.3 million and ~~$1.0~~$0.7 million for the three months and ~~nine~~six months ended ~~June 30,~~March 31, 2020, ~~respectively, and $0.4 million and $1.1 million for the three and nine months ended June 30, 2019,~~ respectively.

~~(b) During nine months ended June 30, 2019, depreciation and amortization included $2.0 million of amortization of assets subject to a financing obligation.~~

Note 1817 - Government Regulation and Financial Aid

As discussed at length in our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on December ~~6, 2019,~~3, 2020, our institutions participate in a range of government-sponsored student assistance programs. The most significant of these is the federal student aid programs administered by the U.S. Department of Education (“ED”) pursuant to Title IV of the Higher Education Act (“HEA”), commonly referred to as the Title IV Programs. Generally, to participate in the Title IV Programs, an institution must be licensed or otherwise legally authorized to operate in the state where it is physically located, be accredited by an accreditor recognized by ED, be certified as an eligible institution by ED, offer at least one eligible program of education, and comply with other statutory and regulatory requirements. See ~~“Regulatory~~“Part I, Item 1. Regulatory Environment” in our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on December ~~6, 2019.~~3, 2020.

State Authorization ~~and Regulation~~

~~Each~~To operate and offer postsecondary programs, and to be certified to participate in Title IV Programs, each of our institutions must ~~be licensed or otherwise legally authorized to operate in the state where the institution is located to operate~~obtain and ~~offer a postsecondary education program to our students. In some cases, our institutions also must be authorized by state education agencies in states other than~~maintain authorization from the state in which ~~the institution~~it is physically located ~~if the~~(its “Home State”). To engage in recruiting or educational activities outside of its Home State, each institution ~~recruits in the other state. State education authorization~~ also ismay be required to ~~participate~~obtain and maintain authorization from the states in ~~the Title IV Programs. Our institutions are subject to extensive, ongoing regulation by each of these agencies. See “Regulatory Environment - State Authorization and Regulation”~~which it is recruiting or engaging in ~~our~~ ~~2019 Annual Report on Form 10-K~~ ~~filed with the SEC on December 6, 2019. We believe that each of our institutions is in substantial compliance with state education agency requirements.~~

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educational activities. The level of regulatory oversight varies substantially from state to state and is extensive in some states. State laws ~~and regulations typically~~may establish standards for instruction, qualifications of faculty, location and nature of facilities and equipment, administrative procedures, marketing, recruiting, student outcomes reporting, disclosure obligations to students, limitations on mandatory arbitration clauses in enrollment agreements, financial operations, and other operational matters. ~~States often change their~~Some states prescribe standards of financial responsibility and mandate that institutions post surety bonds. Many states have requirements ~~in response~~for institutions to ~~ED regulations or implement requirements~~disclose institutional data to current and prospective students, as well as to the public. And some states require that ~~may impact institutional and student success, and~~ our institutions must respond quickly to remain in compliance. Also, from time to time, states may transition authority between state agencies, and we must comply with the new state agency’s rules, procedures and other documentation requirements. If any oneschools meet prescribed performance standards as a condition of our campuses were to lose its authorization from the education agency of the state in which the campus is located, that campus would be unable to offer its programs and we could be forced to close that campus. If one of our campuses were to lose its authorization from a state other than the state in which the campus is located, that campus would not be able to recruit students in that state.continued approval.

Accreditation

Accreditation is a non-governmental process through which an institution voluntarily submits to ongoing qualitative reviews by an organization of peer institutions. ~~Accreditation~~Institutional accreditation by an ED-recognized ~~accrediting agency~~accreditor is required for an institution to be certified to participate in ~~the~~ Title IV Programs. All of our institutions are accredited by the Accrediting Commission of Career Schools and Colleges (“ACCSC”), which is an accrediting agency recognized by ED. ACCSC reviews the academic quality of each institution’s instructional programs, as well as the administrative and financial operations of the institution to ensure that it has the resources necessary to perform its educational mission, implement continuous improvement processes, and support student success. Our institutions must submit annual reports, and at times, supplemental reports, to demonstrate ongoing compliance and improvement. ACCSC requires institutions to disclose certain institutional information to current and prospective students, as well as to the public, and requires that our schools and programs meet various performance standards as a condition of continued accreditation. Institutions must periodically renew their accreditation by completing a comprehensive renewal of accreditation process. See ~~“Regulatory~~“Part I, Item 1. Regulatory Environment - Accreditation” in our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on December ~~6, 2019~~3, 2020 for further ~~details.~~details and the current status of our campus accreditation. We believe that each of our institutions is in substantial compliance with ACCSC accreditation standards.

Our campuses’ grants of accreditation periodically expire and require renewal. A school that is faithfully engaged in the renewal of accreditation process and is meeting all of the requirements of that process continues to be accredited if the school’s term of accreditation has exceeded the period of time last granted by ACCSC. In December 2019, ACCSC conducted a renewal of accreditation on-site evaluation at our Bloomfield, New Jersey campus, which resulted in zero findings of non-compliance. The campus received a Renewal of Education through May 2025 during the ACCSC Commission meeting in May 2020.

~~Regulation of Federal Student Financial Aid~~Title IV Programs

The federal government provides a substantial part of its support for postsecondary education through Title IV Programs in the form of grants and loans to students who can use those funds at any institution that has been certified as eligible to participate by ED. All of our institutions are certified to participate in ~~the~~ Title IV Programs. ~~ED will certify a postsecondary institution~~Significant factors relating to ~~participate in the~~ Title IV Programs only after the institution has demonstrated compliance with the HEA and ED’s extensive regulations regarding institutional eligibility. An institution must also demonstrate its compliance to ED on an ongoing basis. See “Regulatory Environment - Regulation of Federal Student Financial Aid Programs” in our ~~2019 Annual Report on Form 10-K~~ ~~filed with the SEC on December 6, 2019 for further details.~~

~~Accreditation and Innovation Regulations~~

On January 7, 2019, ED released a set of draft proposed regulations for consideration and negotiation as part of its “Accreditation and Innovation” rulemaking. The draft proposed regulations covered a broad range of topics, including the following: (1) the recognition of accrediting agencies and accreditation procedures; (2) the legal authorization of institutions by states; (3) the definition of a credit hour, competency-based education, direct assessment programs and standards for distance education programs; (4) the eligibility of faith-based entities to participate in ED’s higher education and student aid programs; and (5) the Teacher Education Assistance for College and Higher Education (“TEACH”) Grant.

~~On June 12, 2019, ED published proposed regulations relating to ED’s recognition of accrediting agencies and accreditation procedures and the legal authorization of institutions by states.The proposed regulations were published in a notice of proposed rulemaking in the Federal Register and made available for public comment.On November, 1, 2019, ED published the final regulations. The final regulations include revisions to the standards~~ that accrediting agencies must meet to qualify for ED recognition, the rules governing authorization by state agencies, and certain provisions requiring institutions to report and disclose institutional information to current and prospective students. These regulations became effective July 1, 2020.could adversely affect us include:

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~~On July 1, 2020, ED published the final regulations relating to faith based entities and Teach Grants. These regulations will be effective July 1, 2021.~~

Last, on April 2, 2020, ED published a Notice of Proposed Rulemaking in the Federal Register related to distance education and innovation regulations for a 30-day public comment period. ED is expected to publish a final regulation prior to November 1, 2020.

~~Our process of reviewing the potential impact of any regulations issued in connection with the “Accreditation and Innovation” rulemaking is continuing.~~

~~Borrower Defense and Financial Responsibility Regulations~~

~~On July 1, 2020, ED’s final rule on borrower defense and financial responsibility became effective.~~

The borrower defense aspect of the regulations allows borrowers who were defrauded by their college or university to seek full or partial forgiveness of their federal student loan. Applicable regulations depend on when the relevant loan was disbursed: Loans disbursed before July 1, 2017 are subject to ED’s 1994 regulations; Loans disbursed on or after July 1, 2017 and before July 1, 2020 are subject to ED’s 2016 regulations; and loans disbursed on or after July 1, 2020 are subject to ED’s 2020 regulations, which became effective July 1, 2020.

The financial responsibility aspect of the new regulations continue to include a list of events that could result in ED determining that an institution has failed ED’s financial responsibility standards and requiring a letter of credit or other form of acceptable financial protection and the acceptance of other conditions or requirements. The regulations establish revised lists of mandatory triggering events and of discretionary triggering events for which ED may determine that an institution is not able to meet its financial or administrative obligations if the events are likely to have a material adverse effect on the financial condition of the institution. The regulations require the institution to notify ED of the occurrence of a mandatory or discretionary event in accordance with procedures established by ED, typically within 10 days of the occurrence of the event with certain exceptions. ED may make a determination that an institution fails to meet the financial responsibility standards based on the occurrence of one or more mandatory or discretionary triggers and impose a letter of credit and/or other conditions upon the institution. See “Regulation of Federal Student Aid Programs - Defense to Repayment Regulations - Financial Protection Requirements” in our ~~2019 Annual Report on Form 10-K~~ ~~filed with the SEC on December 6, 2019.~~

~~Closed School Loan Discharges~~

As part of the borrower defense regulations effective July 1, 2020, ED revised the regulations concerning the discharge of student loans based on the school’s closure or a false claim of high school completion under certain circumstances. The new regulations apply to loans first disbursed on or after July 1, 2020. Among other things, the new regulations allow students to obtain a discharge if, among other requirements, they were enrolled not more than 180 days before the campus closed. ED has the authority to extend the 180-day period for extenuating circumstances. The borrower also must certify that the student has not accepted the opportunity to complete, or is not continuing in, the program of study or comparable program through either an institutional teach-out plan performed by the school or a teach-out agreement at another school, approved by the school’s accrediting agency and, if applicable, state licensing agency.

ED also has the authority to discharge on its own initiative the loans of qualified borrowers without a borrower application if the borrower did not subsequently re-enroll in any Title IV eligible institution within three years from the date the school closed. These regulations limit this authority to schools that close between November 1, 2013 and July 1, 2020.

On February 18, 2019, we announced that our campus in Norwood, Massachusetts is no longer accepting new student applications, and its last class group of students started on March 18, 2019. The campus closed on July 31, 2020, after the July 1, 2020 effective date of the regulations. We provided all of the students enrolled at the campus prior to February 18, 2019 the ability to complete their programs, however some students withdrew before graduation and potentially qualified for a loan discharge.

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~~An electronic announcement published by ED~~•The 90/10 Rule. As a condition of participation in Title IV Programs, proprietary institutions must agree when they sign their PPA to comply with the 90/10 rule. Under the current 90/10 rule, to remain eligible to participate in the federal student aid programs, a proprietary institution must derive at least 10% of their revenues for each fiscal year from sources other than Title IV Program funds. Under the American Rescue Plan Act of 2021 (“ARPA”), a proprietary institution must derive at least 10 percent of its revenue from sources other than “Federal education assistance funds.” Federal education assistance funds are defined as “[f]ederal funds that are disbursed or delivered to or on ~~November 25, 2019, stated that ED was about~~behalf of a student to ~~begin issuing letters assessing closed school loan discharge liabilities against schools pursuant~~be used to attend such institution.” Pursuant to ARPA, the earliest the revision to the ~~2016 defense to repayment regulations. The letter stated that such schools would be given an opportunity to request reconsideration by submitting written evidence to show that the determination~~90/10 rule may take effect is ~~unwarranted. UTI has not received any such assessment letters from ED.~~for institutional fiscal years beginning on or after January 1, 2023.

~~Compliance with Regulatory Standards~~A proprietary institution is subject to sanctions if it exceeds the 90% level for a single year, and ~~Requests~~loses its eligibility to participate in Title IV Programs if it derives more than 90% of its revenue from Title IV Programs/Federal education assistance funds, as applicable, for two consecutive fiscal years.

We are currently reviewing the potential impact of the change in the 90/10 rule created under ARPA.

~~As described~~•Administrative Capability. To continue its participation in ~~our~~ Title IV Programs, an institution must demonstrate that it remains administratively capable of providing the education it promises and of properly managing the Title IV Programs. ED assesses the administrative capability of each institution that participates in Title IV Programs under a series of standards listed in the regulations, which cover a wide range of operational and administrative topics, including the designation of capable and qualified individuals, the quality and scope of written procedures, the adequacy of institutional communication and processes, the timely resolution of issues, the sufficiency of recordkeeping, and the frequency of findings of noncompliance, to name a few. ED’s administrative capability standards also include thresholds and expectations for federal student loan cohort default rates (discussed below), satisfactory academic progress, and loan counseling. Failure to satisfy any of the standards may lead ED to find the institution ineligible to participate in Title IV Programs, require the institution to repay Title IV Program funds, change the method of payment of Title IV Program funds, or place the institution on provisional certification as a condition of its continued participation or take other actions against the institution.

•~~2019 Annual Report~~Three-Year Student Loan Default Rates. To remain eligible to participate in Title IV Programs, institutions also must maintain federal student loan cohort default rates below specified levels. An institution whose three-year cohort default rate is 15% or greater for any one of the three preceding years is subject to a 30-day delay in receiving the first disbursement on ~~Form 10-K~~federal student loans for first-time borrowers.

•Financial Responsibility. ~~filed~~All institutions participating in Title IV Programs also must satisfy specific ED standards of financial responsibility. Among other things, an institution must meet all of its financial obligations, including required refunds to students and any Title IV Program liabilities and debts, be current in its debt payments, comply with certain past performance requirements, not receive an adverse, qualified, or disclaimed opinion by its accountants in its audited financial statements. Each year, ED also evaluates institutions’ financial responsibility by calculating a “composite score,” which utilizes information provided in the institutions’ annual audited financial statements. The composite score is based on three ratios: (1) the equity ratio which measures the institution’s capital resources, ability to borrow and financial viability; (2) the primary reserve ratio which measures the institution’s ability to support current operations from expendable resources; and (3) the net income ratio which measures the institution’s ability to operate at a profit. Between composite score calculations, ED also will reevaluate the financial responsibility of an institution following the occurrence of certain “triggering events,” which must be timely reported to the agency.

•Title IV Program Rulemaking.ED is almost continuously engaged in one or more negotiated rulemakings, which is the process pursuant to which it revisits, revises, and expands the complex and voluminous Title IV Program regulations. Recent and significant negotiated rulemakings include the Gainful Employment Rulemaking, the Borrower Defense to Repayment Rulemaking, and the Accreditation and Innovation Rulemaking. New regulations associated with these rulemakings took effect on July 1, 2020, and additional, new rules will take effect on July 1, 2021. We devote significant effort to understanding the effects of these regulations on our business and to developing compliant solutions that also are congruent with our business, culture, and mission to serve our students and industry relationships.

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(Unaudited)

However, we cannot predict with certainty how these new and developing regulatory requirements will be applied or whether each of our schools will be able to comply with all of the requirements in the future.

Other Federal and State Student Aid Programs

Some of our students also receive financial aid from federal sources other than Title IV Programs, such as the programs administered by the VA, the Department of Defense (“DOD”) and under the Workforce Investment Act. Additionally, some states provide financial aid to our students in the form of grants, loans or scholarships. Our Long Beach, Rancho Cucamonga and Sacramento, California campuses, for example, are currently eligible to participate in the Cal Grant program. All of our institutions must comply with the ~~SEC on December 6, 2019, in connection with the issuance~~eligibility and participation requirements applicable to each of these funding programs, which vary by funding agency and program.

Each year we derive a portion of our Series A Preferred Stock, effective July 2016 ED requested the submission of bi-weekly cash flow projection reports and a monthly student roster. On February 28, 2018, ED notified us that the cash flow projection reports would be requiredrevenues, on a ~~monthly~~cash basis, ~~instead of~~from veterans’ benefits programs, which include the ~~previously requested bi-weekly basis. This special reporting will~~Post-9/11 GI Bill, the Montgomery GI Bill, the Reserve Education Assistance Program (“REAP”) and VA Vocational Rehabilitation. To continue ~~until we are otherwise notified~~participation in veterans’ benefits programs, an institution must comply with certain requirements established by ~~ED.~~the VA.

COVID-19, ~~and~~ the CARES Act, the CRRSAA, and ARPA

On March 13, 2020, the United States declared a national emergency concerning the COVID-19 pandemic, effective March 1, 2020. ED, consistent with its authority under then-existing statutes and regulations, issued guidance on March 5, 2020, outlining a range of accommodations intended to address interruptions of study related to COVID-19. This guidance was updated on March 20, 2020, by adding an attachment titled “COVID-19 FAQs” to the March 5, 2020 announcement. Together, these documents offered guidance and flexibility regarding a wide range of regulatory requirements, including provisions relating to the offering of distance education, campus-based assistance programs, the length of an academic year, the measurement of satisfactory academic progress and the return of unearned Title IV Program funds to ED, among others. We reviewed and implemented many of these flexibilities, including the opportunity to temporarily offer distance education.

On March 27, 2020, President Trump signed the CARES Act, which ~~provides~~provided additional flexibilities and accommodations, beyond those offered by the ED in its March 5, 2020 guidance, particularly with regard to the campus-based assistance programs, the measurement of satisfactory academic progress and the return of unearned Title IV Program funds to ED. Shortly thereafter, on April 3, 2020, ED issued further guidance, providing additional regulatory flexibilities, and in some cases, implementing the accommodations provided for in the CARES Act. ED periodically updated and supplemented this guidance over the following months. Guidance ~~has~~ also ~~been~~was published regarding immigration, discrimination, safety, and privacy issues, as well as the Higher Education Emergency Relief Fund (“HEERF”) established under the CARES Act. ~~ED has indicated that additional guidance is forthcoming.~~

~~We continue to review~~On December 11, 2020, ED published a notice in the ~~CARES~~Federal Register extending the end dates of COVID-19-related waivers and modifications, and introducing several new flexibilities using its authority granted by the Higher Education Relief Opportunities for Students (“HEROES”) Act ~~and the guidance from ED and implement available legislative and regulatory relief as applicable.~~of 2003.

~~Distance Education~~

~~In response~~On December 27, 2020, President Trump signed a $2.3 trillion spending bill that combined a $1.4 trillion omnibus appropriations bill for federal fiscal year 2021 with $900 billion in supplemental appropriations to provide relief for the COVID-19 ~~ED provided broad approval~~pandemic. As part of the omnibus appropriations bill, Congress simplifies the Free Application for ~~institutions~~Federal Student Aid, provides a $15 million increase to ~~use distance learning modalities without going through~~ the ~~standard ED approval process through December 31, 2020. ED also permitted accreditors~~Federal Supplemental Educational Opportunity Grant program, and adds an additional $10 million for Federal Work Study. This latter piece of legislation is known as the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“CRRSAA”). The CRRSAA extends the Paycheck Protection Program and allocates to waive their distance review requirements. ACCSC has granted institutions temporary approval to offer distance education through December 31, 2020. State agencies have also provided distance education flexibility, but the processesit an additional $284.5 billion, and ~~expiration dates for temporary distance education approval vary by state, and states have been granting extensions to these temporary approvals as they approach expiration.We have availed ourselves of this temporary flexibility in all our programs and we are in full compliance with all state and ACCSC requirements.~~

To afford us additional flexibility beyond the current temporary approval period(s), we have initiated the approval process with ACCSC, state agencies, or both to be able of offer distance education and a blended learning format for all of our programs on a more permanent basis. Additionally, as a result of previously implementing our Tech II curriculum, we are currently approved to offer distance education at our Avondale, Arizona, Rancho Cucamonga, California, Sacramento, California, Orlando, Florida, Dallas-Ft. Worth, Texas, Long Beach, California and Bloomfield, New Jersey campuses for our Automotive/Diesel Tech II programs by ACCSC, state agencies, or both.

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~~(In thousands, except per share amounts)~~

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~~Note 19 -~~includes The Higher Education Emergency Relief Fund ~~under~~II (“HEERF II”), which makes an addition $22.7 billion available to higher education institutions to mitigate the ~~CARES Act~~

~~The CARES Act established the HEERF. The HEERF includes approximately $12.5 billion in relief funds to be distributed directly to institutions of higher education. At least 50%~~impact of the ~~funds awarded~~COVID-19 pandemic. Of this amount, private, proprietary institutions are allocated approximately $681 million and may only use HEERF II funding to ~~an institution of higher education must be used for~~provide emergency financial aid grants to students. ~~The remaining funds must be used “to cover any costs associated with significant changes to~~On January 14, 2021, ED made extensive guidance available regarding the ~~delivery~~administration of ~~instruction due to~~ the ~~coronavirus.”~~HEERF II program.

~~In order~~On March 11, 2021, President Biden signed into law the ARPA, a $1.9 trillion economic relief package. The ARPA provides almost $40 billion in funding available to access the HEERF funds, institutions must complete two Funding and Certification Agreements (the “HEERF Agreements”), one for the emergency financial grants to students portion and the other for the institutional portion, which obligate the recipient to administer the funds in a manner that is consistent with the CARES Act and federal laws cited in the HEERF Agreements. The HEERF Agreements also subject the recipient to a range of reporting and audit requirements. ED has emphasized that institutions should be prepared to report the use of the funds and to describe any internal controls the institution has in place to ensure that funds were used for allowable purposes and in accordance with cash management principles. The agency also has encouraged institutions to keep detailed records of how they are expending all funds received under the HEERF and indicated that further instructions are forthcoming in a notice in the Federal Register. A failure to administer the HEERF funds in accordance with applicable laws at regular intervals could result in a future repayment liability.

~~The allocations to the~~ higher education institutions ~~were set by a formula prescribed in~~under the ~~CARES Act, which is weighted significantly by the number of full-time students who~~Higher Education Emergency Relief III (“HEERF III”). Of this amount, private, proprietary institutions are ~~Pell-eligible, but also takes into consideration the total population of the school~~allocated approximately $396 million and the number of students who were not enrolled full-time online before the COVID-19 outbreak. ED utilized the most recent data available from the Integrated Postsecondary Education Data System and Federal Student Aid for this calculation. In May 2020, we were granted approximately $33.0 million inmay only use HEERF ~~funds.~~

~~HEERF Funds for Student Grants~~

~~Per the HEERF Agreements, at least 50% of HEERF funds received were~~III funding to ~~be used exclusively for~~provide emergency financial aid grants to students impacted by COVID-19, supporting their efforts to stay in school and continue their training toward graduation and future careers. In May of 2020, we received $16.5 million designated for student grants and deposited these funds into a separate cash account that is classified on our condensed consolidated balance sheet as “Restricted cash.” As of June 30, 2020, we have awarded approximately $11.0 million in the form of grants to over 6,900 students, and $5.5 million remains in Restricted cash with an offsetting liability included in “Accounts payable and accrued expenses.”

~~HEERF Funds for Significant Changes to the Delivery of Instruction~~

In addition, in May of 2020 we received $16.5 million for the institutional portion of the HEERF funds. Such funds may be used to provide additional emergency financial aid grants to students, to cover institutional costs associated with significant changes to the delivery of instruction due to coronavirus, or not used at all and returned to the government. It is our general intent to draw the institutional funds from the ED’s G5 Grants Management System (“G5”) as we incur and record the expenses. As of June 30, 2020, the $16.5 million remained in our G5 account with the ED and is not included in our “Cash and cash equivalents” on our condensed consolidated balance sheet.

~~Per the CARES Act, the HEERF Agreements, and ED guidance, the following requirements are generally applicable to all allowable institutional costs:~~

•~~Funds may only be used to cover institutional costs associated with significant changes to the delivery of instruction due to the coronavirus.~~

•~~Costs must have been incurred on or after March 13, 2020.~~

•~~Funds must be used promptly and to the greatest extent practicable within one year of the date the funds are received and no later than September 30, 2022.~~

•~~The use of funds must be documented and reported.~~students.

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(In thousands, except per share amounts)

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~~As explained in~~On March 31, 2021, ED published its Guide for Compliance Attestation Engagements of Proprietary Schools Expending Higher Education Emergency Relief Fund Grants (the “Guide”). We are currently reviewing the requirements of the Guide and preparing for the required audit of our HEERF ~~Agreements,~~expenditures.

We have reviewed and implemented many of the flexibilities created by Congress and ED’s guidance, including the opportunity to temporarily offer distance education, discussed below, and we presently are evaluating the flexibilities and funding opportunities created by the CRRSAA and ARPA. We continue to review new guidance from ED and to implement available legislative and regulatory relief as applicable.

Distance Education

In response to the COVID-19 pandemic, ED provided broad approval for institutions to use distance learning modalities without going through the standard ED approval process for payment periods that begin on or before December 31, 2020, or the end of the payment period that includes the end date for the federally-declared emergency related to COVID-19, whichever occurs later. ED also permitted accreditors to waive their distance education review requirements. In its December 11, 2020 Federal Register notice, ED extended these flexibilities through the end of the payment period that begins after the date on which the federally-declared national emergency related to COVID-19 is rescinded. This extra payment period beyond the national emergency end date will facilitate a successful transition to non-pandemic requirements following the end of the national emergency.

We have received ACCSC approval to permanently offer blended format programs that utilize both distance and on-ground education. Additionally, we have ~~“discretion~~received permanent approvals by all state agencies to offer blended format programs, with the exception of our Motorcycle and Marine programs in ~~determining how~~Orlando, Florida. We are still operating under a temporary approval for these Florida based programs as we are waiting on permanent approvals from the Florida state agency.

Note 18 - Higher Education Emergency Relief Fund Grants

Fiscal 2020 HEERF Grant for Students and Significant Changes to ~~allocate and use~~ the ~~funds provided~~Delivery of Instruction under the CARES Act ~~provided~~

As discussed in “Note 21 - Higher Education Emergency Relief Fund under the CARES Act” in our 2020 Annual Report on Form 10-K filed with the SEC on December 3, 2020, in May 2020, we were granted approximately $33.0 million in HEERF funds ~~will~~with at least $16.5 million required to be spent ~~only on those~~for emergency grants to student and no more than $16.5 million permitted to cover institutional costs ~~for which Recipient has a reasoned basis for concluding such costs have a clear nexus to~~associated with significant changes to the delivery of instruction due to coronavirus. The allowable institutional costs for these institutional HEERF funds are described in “Note 21 - Higher Education Emergency Relief Fund under the ~~coronavirus.” Institutional costs that~~CARES Act” in our 2020 Annual Report on Form 10-K filed with the ED has specifically designated as allowable include: additional emergency grants to students; reimbursements for refunds made to students for services the institution could no longer provide such as housing, food, room and board, and tuition; technology costs including laptops, hotspots, and other information technology equipment and software to enable students to participate in distance learning; qualified scholarships and payment for future academic terms; and payments to a third-party service provider or online program manager for each additional student using the distance learning platform. The ED has specifically prohibited costs related to pre-enrollment recruiting activities, endowments, capital outlays associated with facilities to athletics, sectarian instruction, or religious worship, executive compensation, investor benefits, and to pay student balances or student debt.SEC on December 3, 2020.

~~Prior to~~During the COVID-19 crisis, the majority of our training programs were delivered exclusively through in-person instruction at our campus locations. In order to allow our students to continue their education during the COVID-19 crisis, beginning on March 25,three months ended December 31, 2020, we ~~shifted our predominantly on-campus, in-person education model to a blended training model that combines online, instructor-delivered teaching and demonstrations with hands-on labs. We~~ incurred ~~significant~~$0.9 million in allowable costs for the initial development and implementation of our online training program for students including software purchases, audio/video equipment purchases and labor hours to record the instructional videos and for training of faculty, and enhancements to the online student experience. In May of 2020, we resumed in-person labs at 8 of our campus locations. NaN of our campuses resumed in-person labs in June of 2020, and our final campus to resume in-person labs in Bloomfield, New Jersey opened on July 1, 2020. On-campus labs have been re-designed or modified to meet the guidelines set by the CDC, as well as state and local jurisdictions for health, safety and social distancing. In order to comply with these new guidelines, we incurred costs for sanitization supplies, partitions, labor hours and other related expenses to ensure safety and social distancing. In total, we incurred approximately $5.9 million between March 15, 2020 and June 30, 2020 related to the changes in the delivery of instruction due to the ~~coronavirus. We have consulted with our outside regulatory counsel and believe that all of these costs are allowable expenses for~~coronavirus, thereby utilizing the institutional HEERF funds under the CARES Act. As a result, we have recorded a receivable of $5.9 million as of June 30, 2020, and have offset our total operating expenses by $5.9 million for the three months ended June 30, 2020.remaining available funds. Of the ~~$5.9~~$0.9 million ~~$4.9~~incurred, $0.3 million was recorded in “Educational services and facilities” and ~~$1.0~~$0.6 million was recorded in “Selling, general and administrative” on the condensed consolidated statements of ~~operation~~operations for the three months ended ~~June 30,~~December 31, 2020. ~~It is~~The $0.9 million was drawn down prior to December 31, 2020 and was included in our ~~general intent to draw the institutional~~“Cash and cash equivalents” on our condensed consolidated balance sheets as of December 31, 2020.

As of December 31, 2020, there were no remaining unused funds from the ~~G5 account~~fiscal 2020 HEERF grant.

Fiscal 2021 HEERF II Grant for Students under the CRRSAA

As noted above, the CRRSAA includes HEERF II, which makes an additional $22.7 billion available to higher education institutions. Of this amount, private, proprietary institutions are allocated approximately $681 million. The statute permits proprietary institutions to use HEERF II funds to provide financial aid grants to students, and requires that institutions prioritize the grants to students with exceptional need, such as ~~we incur and record~~students who receive Pell Grants. On January 14, 2021, ED issued guidance regarding the ~~expenses. We plan to draw~~administration of the ~~funds related to~~HEERF II program. In accordance with the ~~expenses incurred through June 30, 2020~~ ED’s allocation schedule,

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(In thousands, except per share amounts)

(Unaudited)

during the three months ended ~~September 30, 2020.~~March 31, 2021, we were granted approximately $16.8 million for purposes of funding HEERF II student grants. As of March 31, 2021, we had not yet awarded any student grants under the HEERF II program or drawn any of the grant funds. Additionally, we intend to draw down the HEERF II funds as student grants are distributed. Therefore, none of the HEERF II funds are included in “Restricted cash” on our condensed consolidated balance sheets as of March 31, 2021.

Fiscal 2021 HEERF III Grant for Students under the ARPA

As noted above, the ARPA provides almost $40 billion in funding available to higher education institutions under the HEERF III. Of this amount, private, proprietary institutions are allocated approximately $396 million and may only use HEERF III funding to provide emergency financial aid grants to students. While we expect to receive an allocation under HEERF III, as of March 31, 2021, we have not received an allocation as the ED has not published HEERF III allocation amounts or guidance.

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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and those in our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on December ~~6, 2019.~~3, 2020. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under “Risk Factors” in our ~~2019~~2020 Annual Report on Form 10-K and included in Part II, Item 1A of this Quarterly Report on Form 10-Q. See also ~~“Special~~“Cautionary Note Regarding Forward-Looking Statements” on page ii of this Quarterly Report on Form 10-Q.

Company Overview

We are the leading provider of postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians as ~~well as~~measured by total average undergraduate full-time enrollment and graduates. We also provide programs for welders and computer ~~numerical~~numeric control (“CNC”) machining ~~technicians as measured by total average full-time enrollment and graduates.~~technicians. We offer certificate, diploma or degree programs at 12 campuses across the United States ~~excluding~~under the ~~Norwood, Massachusetts campus which was closed on July 31, 2020. Additionally, we~~banner of several well-known brands, including Universal Technical Institute, Motorcycle Mechanics Institute, Marine Mechanics Institute and NASCAR Technical Institute. We also offer manufacturer specific advanced training (“MSAT”) programs, including student-paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers. WeFounded in 1965, we have provided technical education for more than 55 ~~years.~~years and have graduated more than 220,000 technicians.

~~We work closely~~To ensure our programs provide students with ~~leading~~the necessary hard and soft skills needed upon graduation, we have relationships with over 35 original equipment manufacturers ~~(“OEMs”)~~ and ~~employers~~industry brand partners across the country to understand their needs for qualified service professionals. Through our industry relationships, we are able to continuously refine and expand our programs and curricula. We believe our ~~industry-oriented~~industry-focused educational ~~philosophy~~model and national presence have enabled us to develop valuable industry relationships, which provide us with significant competitive ~~strength~~strengths and ~~support~~supports our market ~~leadership.~~

~~Participating manufacturers typically assist us in the development of course content and curricula, while providing us~~leadership, along with vehicles, equipment, specialty tools and parts at reduced prices or at no charge. In some instances, they offer tuition reimbursement and other hiring incentives to our graduates. Our collaboration with OEMs enablesenabling us to provide highly specialized education to our students, resulting in enhanced employment opportunities and the potential for higher wages for our graduates.

Our industry partners and their dealers benefit from a supply of technicians who receive industry-recognized certifications and credentials from the manufacturers as graduates of the MSAT programs. The MSAT programs offer a cost-effective alternative for sourcing and developing technicians for both OEMs and their dealers. These relationships also support the development of incremental revenue opportunities from training the OEMs’ existing employees.

~~In addition to the OEMs, our industry~~ relationships also extend to thousands of local employers, after-market retailers, fleet service providers and enthusiast organizations. Other target groups for relationship-building, such as parts and tools suppliers, provide us with a variety of strategic and financial benefits that include equipment sponsorship, new product support, licensing and branding opportunities and financial sponsorship for our campuses and students.

~~On March 19,~~During fiscal 2020, we suspended all in person classes at all of our campuses for the safety and protection of our students and staff, to help slow the spread of COVID-19 and to comply with state and local orders and restrictions. Upon the suspension of all in person classes, we provided all students with the opportunity to take a leave of absence or to continue their education via an online curriculum. On March 25, 2020, we began offering the classroom portion of our training online so that the more than 8,000 students who elected to remain active in the program could continue their education remotely. As our training is a combination of classroom lectures and hands-on labs, there is a portion of most classes that cannot be delivered online and needs to be completed in-person at the campus lab.

~~During the three months ended June 30, 2020, as campuses were able to reopen,~~ we transitioned our on-campus, in-person education model to a blended training model that combines instructor-facilitated online ~~instructor-delivered~~ teaching and demonstrations with hands-on labs. ~~In May of 2020, we resumed in-person labs at eight of~~This new blended learning format allowed us to continue to offer our ~~campus locations. Four of~~programs to our campuses resumed in-person labs in June of 2020, and our final campus to resume in-person labs in Bloomfield, New Jersey opened on July 1, 2020. As previously planned, we completed the teach-out of our Norwood, Massachusetts campus and it closed on July 31, 2020.

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~~Fiscal 2020 Overview~~

~~Operations~~

~~As a result of~~students during the COVID-19 pandemic ~~there were a higher number~~and aligns with an increasing trend of ~~student leaves of absence during the three months ended June 30, 2020 versus the prior year comparable period. This resulted in a decrease of 8.3% in our average undergraduate full-time enrollment to 9,068 for~~ ~~the three months ended June 30, 2020. Despite these factors, we started 1,824 new students during the three months ended June 30, 2020, which was an increase of 8.4% from the prior year~~ comparable period. The increase in starts was primarily the result of an additional start during the three months ended June 30, 2020, due to the timing of the June 29th start which, in the prior year, occurred on July 1st and thus was reported in the three months ended September 30, 2019.

Revenues for the three months ended June 30, 2020 were $54.5 million, a decrease of $24.6 million, or 31.1%, from the comparable period in the prior year. We had a loss from operations of $13.8 million compared to $0.5 million in the prior year period. Our loss from operations was primarily driven by our decrease in revenue, but was offset by decreases in expenses suchonline education now being offered as ~~labor, variable~~individuals seek life-long learning opportunities. On campus expenses and travel due to the COVID-19 crisis. Our results of operations were impacted by the opening of our new campus in Bloomfield, New Jersey in August 2018 and our exit of the Norwood, Massachusetts campus, which closed on July 31, 2020:

•For the three months ended June 30, 2020 and 2019, the Bloomfield, New Jersey campus had revenues of $2.6 million and $2.9 million, respectively, and total direct costs of $1.8 million and $2.2 million, respectively.

•For the three months ended June 30, 2020 and 2019, the Norwood, Massachusetts campus had revenues of $0.1 million and $2.1 million, respectively, and total direct costs of $1.6 million and $2.2 million, respectively. For further discussion on the Norwood closure, see the Current Report on ~~Form 8-K~~ ~~filed with the SEC on February 19, 2019. Additionally, see Note 5 of the notes to our condensed consolidated financial statements herein for further discussion of the related postemployment benefits.~~

Revenues for the nine months ended June 30, 2020 were $224.4 million, a decrease of $19.4 million, or 8.0%, from the comparable period in the prior year. Our operating loss was $10.0 million for the nine months ended June 30, 2020 compared to $13.2 million in the prior year period. The improvement in our operating results was primarily due to decreases in expenses in the current year due to cost management initiatives and the impacts of the COVID-19 crisis. Additionally, the nine months ended June 30, 2019 included a $4.0 million consultant termination fee that was not recurring. Further, as noted above, our results of operations were impacted by the opening of our new campus in Bloomfield, New Jersey and our exit of the Norwood, Massachusetts campus as follows:

•For the nine months ended June 30, 2020 and 2019, the Bloomfield, New Jersey campus had revenues of $10.9 million and $7.4 million, respectively, and total direct costs of $6.5 million and $6.3 million, respectively.

•For the nine months ended June 30, 2020 and 2019, the Norwood, Massachusetts campus had revenues of $1.4 million and $7.0 million, respectively, and total direct costs of $4.6 million and $8.5 million, respectively.

~~As previously noted,~~ ~~we have transitioned our on-campus, in-person education model to a blended training model that combines online, instructor-delivered teaching and demonstrations with hands-on labs. On-campus~~ labs have been ~~re-designed~~redesigned to meet the health, safety and social distancing guidelines ~~imposed~~recommended or required by the Centers for Disease Control (“CDC”) and state and local jurisdictions, while still meeting our accreditation and curriculum requirements. The ED granted institutions temporary approval to offer distance learning through December 31, 2020. The ED has extended these flexibilities through the end of the payment period that begins after the date on which the federally-declared national emergency related to COVID-19 is rescinded. We have received approval from the Accrediting Commission of Career Schools and Colleges (“ACCSC”) to permanently offer blended format programs that utilize both distance and on-ground education. Additionally, we have received permanent approvals by all state agencies to offer blended format programs, with the exception of our Motorcycle and Marine programs in Orlando, Florida. We are still operating under a temporary approval for these Florida based programs as we are waiting on permanent approvals from the Florida state agency. We intend to offer our Automotive, Diesel, Automotive/Diesel, Motorcycle and Marine programs in a blended learning format on a permanent basis. Additionally, we continue to invest in the online delivery platform and curriculum to further enhance the student experience and student outcomes.

Table of Contents~~Now that~~

Overview of the Three and Six Months Ended March 31, 2021

Operations

For the three months ended March 31, 2021, we had an increase of 10.8% in our average undergraduate full-time enrollment to 11,356. Additionally, we started 2,405 new students during the three months ended March 31, 2021, which was an increase of 14.9% from the prior year comparable period, reflecting strong front-end demand across all channels.

Revenues for the three months ended March 31, 2021 were $77.7 million, a decrease of $5.0 million, or 6.1%, from the comparable period in the prior year. Revenues for the six months ended March 31, 2021 were $153.8 million, a decrease of $16.1 million, or 9.5%, from the comparable period in the prior year. Our revenues, including the three and six months ended March 31, 2021, continued to be affected by impacts of the COVID-19 pandemic. All of our campuses ~~have reopened, once a student returns to campus for in-person labs, under~~remained open during the ~~new guidelines it takes on average approximately~~ six ~~to nine weeks for that student to catch up on the~~months ended March 31, 2021, however, as of March 31, 2021, there were students with catch-up lab work outstanding and a small number of others that ~~he was unable to complete during the campus closure and prior to his return.~~ remained exclusively online. As ~~a result, the graduation dates for many~~ of ~~the~~March 31, 2021, approximately 10% of students ~~who would have completed their programs between March and September~~were completing catch-up lab work, but over an extended period of ~~2020 have been delayed. Additionally, some~~time, while less than 1% of students ~~have~~had not returned to campus to complete the in-person labs and ~~remain only~~remained exclusively in the online portion of the curriculum, essentially only completing half of each ~~course, while others are completing catch up labs, but over an extended period of time.~~course. We continue to recognize revenue ratably over the term of the course or program offered, taking into consideration those only completing the online curriculum, and the ~~catch up~~catch-up period for active students and the impact it has on expected graduation dates. As a result, as of March 31, 2021, we had deferred revenue of ~~$10.8 million during the three months ended June 30, 2020. Of the $0.3 million revenue deferred during~~

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~~the three months ended March 31, 2020, $0.2 million was recognized during the three months ended June 30, 2020, as those students were able to complete their in-person labs and graduate.~~

While we have reopened all of our campus locations, some students have delayed returning to campus for in-person labs even with the new social distancing protocols in place and remain on leave of absence or continue only with the online instruction portion of the curriculum.approximately $0.8 million. If students continue to remain on a leave of absence, withdraw, or do not make up the required in-person labs on a timely basis, our revenues could continue to be impacted ~~for~~in 2021.

We had a loss from operations of $1.7 million and $0.9 million during the ~~remainder~~three and six months ended March 31, 2021, respectively, compared to a loss of ~~2020.~~$0.5 million and income of $3.8 million during the three and six months ended March 31, 2020, respectively. The increase in our loss from operations during the three months ended March 31, 2021 was primarily driven by our decrease in revenue, which was partially offset by decreases in expenses such as occupancy, advertising and travel and entertainment expenses. A decrease in revenue due to effects of the COVID-19 pandemic, partially offset by decreases in compensation and benefits, occupancy, travel and entertainment and advertising costs, primarily drove the decrease in our income from operations during the six months ended March 31, 2021.

~~During 2018,~~Business Strategy

In support of our goal to continue to be the leading provider of postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians, as well as welders and CNC machining technicians, and the leading supplier of entry-level skilled technicians for the industries we ~~announced~~serve, we continue to pursue the following business strategies: return on education; strengthen industry relationships; recruit, train and ~~began implementation of a multi-year transformation plan. This plan included~~identify employment opportunities for more students; education program affordability; and overall company growth ~~with select investments~~and diversification.

During the six months ended March 31, 2021 some actionable steps in marketing, admissions and student services. During 2019 and continuing into 2020, we realized measurable benefits from the transformation plan, and we continued to refine and execute on these opportunities. We continue to focus on the transformation plan and existing keyexecuting our business strategies ~~including:~~included:

•~~Expanding into~~Announcing our plans to open two additional campus locations during fiscal 2022, including a new ~~geographic markets either organically or through strategic acquisitions;~~campus in Austin, Texas and Miami, Florida.

•~~Offering new programs, such~~We entered into a definitive agreement to acquire MIAT College of Technology (“MIAT”) from HCP & Company. MIAT currently serves approximately 1,200 students through its campuses in Canton, MI and Houston, TX. The company offers vocational and technical certificates as well as associates degrees in fields with robust and growing demand for skilled technical workers, including aviation maintenance, energy technology, wind power, robotics and automation, non-destructive testing, HVACR, and welding. The acquisition will enable us to further expand our program offerings into growing industry sections and rapidly expanding fields likely to be bolstered by technological innovation and the country’s focus on sustainable energy. The closing of the acquisition is subject to customary closing conditions.

•Announcing the expansion of our welding technology program to our ~~Dallas Ft. Worth, Texas~~Bloomfield, New Jersey campus, with classes beginning in July 2021, and our plans to further expand to two more locations in fiscal ~~2019, and to our Houston, Texas campus in fiscal 2020, and offering associate level degree programs at additional campus locations;~~2022.

•~~Maintaining~~Announcing a new manufacturer training program with AGCO Corporation, a global leader in the design, manufacture and ~~expanding relationships with OEM partners~~distribution of agricultural machinery and ~~other employers~~solutions. The Fendt® Technician Academy will launch at our Lisle, Illinois campus in Fall 2021.

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•Launching our new Premier Truck Group Technician Skills Program, a first-of-its-kind diesel-commercial vehicle technician career skills program for service members at Fort Bliss, a U.S. Army post in El Paso, Texas. The 12-week program will provide hands-on, industry-aligned technician training designed to ~~provide~~lead directly to rewarding career opportunities ~~and tuition reimbursement~~at Premier Truck Group for ~~our graduates;~~veterans transitioning from military service to civilian life. Premier Truck Group is a wholly owned subsidiary of Penske Automotive Group.

•~~Identifying~~Announcing the expansion of the Daimler Trucks North America (“DTNA”) Finish First program to our Orlando campus in summer 2021. The program, an elective offered exclusively at certain of our UTI campus locations, trains students to maintain, diagnose and ~~executing on a variety of affordability initiatives for our students,~~repair DTNA's industry-leading brands, including ~~employer financial support~~Freightliner, Western Star and ~~institutional scholarships~~Detroit. Our UTI campuses in Avondale, Arizona and ~~grants;~~Lisle, Illinois currently offer the Finish First program.

•~~Shifting perceptions~~Purchasing our Avondale, Arizona campus at the end of December 2020, for approximately $45.2 million, including closing costs and ~~building advocacy~~other fees, with ~~key policy makers and influencers; and~~the intention of consolidating our MMI Phoenix, Arizona campus into the same location by the end of fiscal 2022.

•~~Rationalizing~~Announcing the future consolidation and ~~optimizing our real estate footprint to improve utilization~~reconfiguration of the UTI and ~~reduce cost.~~MMI Orlando campus facilities into one site by the end of fiscal 2021.

~~Graduate Employment~~

~~Our consolidated graduate employment rate for~~In addition, we continue to pursue other strategic opportunities that align with our fiscal 2019 graduates as of June 30, 2020 was 2.9% lower than the rate at the same time in the prior year. The rate declined for all of our programs, with the larger rate declines in our Welding and CNC programs, which are two of our smaller programs and subject to more rate variability.core business strategies.

Regulatory Environment

See Note 1817 of the notes to our condensed consolidated financial statements herein for a discussion of our regulatory environment.

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Results of Operations: Three Months Ended ~~June 30, 2020~~March 31, 2021 Compared to Three Months Ended ~~June 30, 2019~~March 31, 2020

The following table sets forth selected statements of operations data as a percentage of revenues for each of the periods indicated.


		Three Months Ended June 30,							Three Months Ended March 31,
		2020		2019			2021		2020
Revenues	Revenues	100.0	%	100.0	%	Revenues	100.0	%	100.0	%
Operating expenses:	Operating expenses:					Operating expenses:
Educational services and facilities	Educational services and facilities	59.6	%	54.2	%	Educational services and facilities	52.1	%	51.9	%
Selling, general and administrative	Selling, general and administrative	65.7	%	46.4	%	Selling, general and administrative	50.0	%	48.7	%
Total operating expenses	Total operating expenses	125.3	%	100.6	%	Total operating expenses	102.1	%	100.6	%
Loss from operations	Loss from operations	(25.3)	%	(0.6)	%	Loss from operations	(2.1)	%	(0.6)	%
Interest income	Interest income	0.4	%	0.4	%	Interest income	—	%	0.4	%
Interest expense	Interest expense	—	%	(1.0)	%	Interest expense	—	%	—	%
Other income, net		0.6	%	0.7	%
Total other income, net		1.0	%	0.1	%
Other income (expense), net						Other income (expense), net	0.1	%	(0.6)	%
Total other income (expense), net						Total other income (expense), net	0.1	%	(0.2)	%
Loss before income taxes	Loss before income taxes	(24.3)	%	(0.5)	%	Loss before income taxes	(2.0)	%	(0.8)	%
Income tax expense		—	%	—	%
Net loss		(24.4)	%	(0.5)	%
Income tax benefit						Income tax benefit	—	%	13.1	%
Net (loss) income						Net (loss) income	(2.0)	%	12.3	%
Preferred stock dividends	Preferred stock dividends	2.4	%	1.7	%	Preferred stock dividends	1.7	%	1.6	%
Loss available for distribution		(26.8)	%	(2.2)	%
(Loss) income available for distribution						(Loss) income available for distribution	(3.7)	%	10.7	%

Revenues

Revenues for the three months ended ~~June 30, 2020~~March 31, 2021 were ~~$54.5~~$77.7 million, a decrease of ~~$24.6~~$5.0 million, or ~~31.1%~~6.1%, as compared to revenues of ~~$79.0~~$82.7 million for the three months ended ~~June 30, 2019.~~March 31, 2020. During the three months ended ~~June 30, 2020,~~March 31, 2021, we had a ~~8.3% decrease~~10.8% increase in our average full-time student enrollment and a 14.9% increase in new student starts reflecting strong front-end demand across all channels. However, our revenue recognized for active students during the period has been impacted by overall lower average revenue per student driven by the pace in which students are progressing through their programs and by students retaking courses previously completed or attempted, primarily due to the impacts of COVID-19.

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Additionally, as a result of ~~higher student leaves~~the catch-up labs not yet completed, as of absence due to COVID-19. Additionally, revenue recognition for active students has been impacted by students retaking courses that were previously completed and by the time needed to complete in-person catch-up labs ~~that were unable to be completed during the time the campuses were closed. As previously discussed in the “Fiscal 2020 Overview,”~~March 31, 2021 we had deferred revenue of $10.8 million during the three months ended June 30, 2020, for active students who have elongated the lab catch up period and are therefore delaying their future graduation dates, and for many active students who would have graduated between March and September of 2020 and whose graduation dates are delayed due to the campus closures and pending lab catch ups. We$0.8 million. We recognized ~~$2.3~~$1.8 million on an accrual basis ~~related~~related to revenues and interest under our proprietary loan program for the three months ended ~~June 30, 2020~~March 31, 2021 as compared to ~~$1.5~~ $1.7 million for the three months ended ~~June 30, 2019.~~March 31, 2020.

Educational services and facilities expenses

Educational services and facilities expenses were ~~$32.5~~$40.5 million for the three months ended ~~June 30, 2020,~~March 31, 2021, which represents a decrease of ~~$10.3~~$2.4 million as compared to ~~$42.8~~$42.9 million for the three months ended ~~June 30, 2019.~~March 31, 2020.

The following table sets forth the significant components of our educational services and facilities expenses (in thousands):


	Three Months Ended March 31,
	2021		2020
Salaries expense	$	19,008	$	18,770
Employee benefits and tax	2,664		3,387
Bonus expense	389		195
Stock-based compensation	39		18
Compensation and related costs	22,100		22,370
Occupancy costs	7,449		9,513
Depreciation and amortization expense	3,388		3,039
Supplies and maintenance expense	2,541		2,430
Taxes and licensing expense	885		651
Student expense	767		896
Contract services expense	598		891
Other educational services and facilities expense	2,752		3,119
Total educational services and facilities expense	$	40,480	$	42,909

Compensation and related costs remained relatively consistent for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Occupancy costs decreased by $2.1 million for the three months ended March 31, 2021. The decrease was primarily attributed to cost reductions from closing our Norwood, Massachusetts campus, downsizing our Exton, Pennsylvania and Sacramento, California campuses, and purchasing our Avondale, Arizona campus in December 2020.

Depreciation and amortization expense increased $0.3 million for the three months ended March 31, 2021 primarily due to the purchase of our Avondale, Arizona campus in December 2020.

Other educational services and facilities expense decreased by $0.4 million for the three months ended March 31, 2021, primarily due to a decrease of $0.2 million in expenses related to our accrued tool sets and decreased travel and entertainment costs.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 31, 2021 were $38.9 million. This represents a decrease of $1.4 million, as compared to $40.3 million for the three months ended March 31, 2020.

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The following table sets forth the significant components of our selling, general and administrative expenses (in thousands):


	Three Months Ended March 31,
	2021		2020
Salaries expense	$	13,918	$	13,684
Employee benefits and tax	2,551		3,155
Bonus expense	3,164		2,951
Stock-based compensation	1,270		975
Compensation and related costs	20,903		20,765
Advertising expense	10,592		11,564
Contract services expense	1,692		1,182
Professional services expense	1,582		1,004
Depreciation and amortization expense	181		197
Other selling, general and administrative expenses	3,940		5,595
Total selling, general and administrative expenses	$	38,890	$	40,307

Compensation and related costs remained relatively consistent for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Advertising expense decreased by $1.0 million for the three months ended March 31, 2021, primarily due to timing of spend and targeted cost-efficient marketing efforts, with a shift away from television advertising toward digital media.

Contract services and professional services expenses increased $0.5 million and $0.6 million, respectively, for the three months ended March 31, 2021. The increases were primarily due to costs incurred related to our growth and diversification initiatives, including the announced acquisition of MIAT.

Other selling, general and administrative expenses decreased by $1.7 million for the three months ended March 31, 2021. The overall decrease was primarily due to decreases in travel and entertainment of $0.7 million, occupancy costs of $0.3 million due to relocating and downsizing our headquarters, bad debt expense of $0.3 million, and nominal decreases in taxes and licensing, employment advertising and recruitment due to overall cost control measures.

Income taxes

Our income tax benefit for the three months ended March 31, 2021 was $34.0 thousand, or 2.2% of pre-tax loss, compared to income tax benefit of $10.8 million, or 1,632.0% of pre-tax loss, for the three months ended March 31, 2020. The effective income tax rate in each period differed from the federal statutory tax rate of 21% primarily as a result of changes in the valuation allowance, state taxes and the impact of net operating loss carrybacks recognized in the prior year as a result of the CARES Act. We recorded a full valuation allowance against the deferred tax assets as of March 31, 2021 and March 31, 2020.

Preferred stock dividends

On June 24, 2016, we sold 700,000 shares of Series A Preferred Stock for $70.0 million in cash, less $1.2 million in issuance costs. Pursuant to the Certificate of Designations of the Series A Preferred Stock, we recorded a preferred stock cash dividend of $1.3 million for the three months ended March 31, 2021 and 2020, respectively.

Net (loss) income available for distribution

Net (loss) income available for distribution refers to the net income or net loss reduced by dividends on our Series A Preferred Stock. As a result of the foregoing, we reported a net loss available for distribution for the three months ended March 31, 2021 of $2.9 million and net income available for distribution of $8.8 million for the three months ended March 31, 2020.

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Results of Operations: Six Months Ended March 31, 2021 Compared to Six Months Ended March 31, 2020

The following table sets forth selected statements of operations data as a percentage of revenues for each of the periods indicated.


	Six Months Ended March 31,
	2021		2020
Revenues	100.0	%	100.0	%
Operating expenses:
Educational services and facilities	51.9	%	50.5	%
Selling, general and administrative	48.7	%	47.3	%
Total operating expenses	100.6	%	97.8	%
(Loss) income from operations	(0.6)	%	2.2	%
Interest income	—	%	0.4	%
Interest expense	—	%	—	%
Other income (expense), net	0.2	%	(0.2)	%
Total other income, net	0.2	%	0.2	%
(Loss) income before income taxes	(0.3)	%	2.4	%
Income tax benefit	—	%	6.3	%
Net (loss) income	(0.3)	%	8.7	%
Preferred stock dividends	1.7	%	1.6	%
(Loss) income available for distribution	(2.0)	%	7.1	%

Revenues

Revenues for the six months ended March 31, 2021 were $153.8 million, a decrease of $16.1 million, or 9.5%, as compared to revenues of $170.0 million for the six months ended March 31, 2020. During the six months ended March 31, 2021, we had a 6.1% increase in our average full-time student enrollment and a 17.5% increase in new student starts, reflecting strong front-end demand across all channels. However, our revenue recognized for active students during the period has been impacted by overall lower average revenue per student driven by the pace in which students are progressing through their programs and by students retaking courses previously completed or attempted, primarily due to the impacts of COVID-19. Additionally, as a result of the catch-up labs not yet completed, as of March 31, 2021 we had deferred revenue of $0.8 million. We recognized $3.5 million on an accrual basis related to revenues and interest under our proprietary loan program for the six months ended March 31, 2021, and 2020, respectively.

Educational services and facilities expenses

Educational services and facilities expenses were $79.8 million for the six months ended March 31, 2021, which represents a decrease of $6.0 million as compared to $85.8 million for the six months ended March 31, 2020.

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The following table sets forth the significant components of our educational services and facilities expenses (in thousands):


		Three Months Ended June 30,							Six Months Ended March 31,
		2020		2019			2021		2020
Salaries expense	Salaries expense	15,728		$	18,660	Salaries expense	$	36,844	$	37,854
Employee benefits and tax	Employee benefits and tax	2,586		4,143		Employee benefits and tax	5,636		6,428
Bonus expense	Bonus expense	703		100		Bonus expense	843		566
Stock-based compensation	Stock-based compensation	20		—		Stock-based compensation	65		18
Compensation and related costs	Compensation and related costs	19,037		22,903		Compensation and related costs	43,388		44,866
Occupancy costs						Occupancy costs	15,717		19,351
Depreciation and amortization expense	Depreciation and amortization expense	3,082		3,869		Depreciation and amortization expense	6,453		6,005
Occupancy costs		9,323		8,661
Supplies and maintenance expense	Supplies and maintenance expense	1,623		2,408		Supplies and maintenance expense	4,799		4,887
Contract service expense		523		725
Student expense	Student expense	478		532		Student expense	2,151		1,501
Contract services expense						Contract services expense	1,294		1,600
Taxes and licensing expense	Taxes and licensing expense	647		904		Taxes and licensing expense	1,274		1,305
Other educational services and facilities expense	Other educational services and facilities expense	(2,237)		2,834		Other educational services and facilities expense	4,735		6,270
Total educational services and facilities expense	Total educational services and facilities expense	$	32,476	$	42,836	Total educational services and facilities expense	$	79,811	$	85,785

Compensation and related costs decreased ~~$3.9~~$1.5 million for the ~~three~~six months ended ~~June 30, 2020.~~March 31, 2021.

•Salaries expense decreased ~~$2.9~~$1.0 million for the ~~three~~six months ended ~~June 30, 2020. The decrease was attributable to lower headcount compared to the prior year period~~March 31, 2021 primarily due to ~~attrition and furloughs enacted to offset revenue decreases~~a decrease in instructor salaries resulting from ~~COVID-19.~~lower instructor headcount.

•Employee benefits and tax decreased ~~$1.6~~$0.8 million for ~~three~~six months ended ~~June 30, 2020.~~March 31, 2021. The decrease was primarily due to lower ~~headcount and lower cost per employee from implementing new benefit plans at the beginning of fiscal 2020.~~medical claims expense.

Occupancy costs decreased $3.6 million for the six months ended March 31, 2021. The decrease was primarily attributed to cost reductions from closing our Norwood, Massachusetts campus, downsizing our Exton, Pennsylvania and Sacramento, California campuses, and purchasing our Avondale, Arizona campus in December 2020.

Depreciation and amortization expense ~~decreased $0.8~~increased $0.4 million for the ~~three~~six months ended ~~June 30, 2020,~~March 31, 2021 primarily due to the ~~adoption~~purchase of ~~ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~(“ASC 842”)as of October 1, 2019, whereby the assets that were previously financed by finance obligations were converted to operating leases. Operating leases assets are classified~~our Avondale, Arizona campus in ~~“Right-of-use assets for operating leases” on the condensed consolidated balance sheet and the related operating lease expense now rolls into “Occupancy costs” in the table above.~~December 2020.

~~Occupancy costs increased $0.7 million for the three months ended June 30, 2020. The increase was primarily attributed to the adoption of ASC 842 as of October 1, 2019 as described above.~~

Taxes and licensing decreased $0.3 million for the three months ended June 30, 2020. The decrease was attributed to decline in real estate property taxes from exiting the Norwood, Massachusetts campus.

Other educational services and facilities expense decreased $1.5 million primarily due to a decrease of $0.7 million in expenses related to our accrued tool sets, and broad decreases related to travel and entertainment costs, MSAT related expenses, and other expenses as a result of cost control measures implemented. Additionally, the six months ended March 31, 2021 includes a ~~$4.9~~$0.3 million credit ~~for three months ended June 30, 2020~~ for the reimbursement of allowable costs related to the changes in the delivery of instruction due to the coronavirus. The allowable costs are included in the relevant line items above. See Note ~~19 in~~18 of the notes to the condensed consolidated financial statements herein for a discussion on the Higher Education Emergency Relief Fund (“HEERF”) established under the ~~Coronavirus Aid, Relief, and Economic Security Act (“~~CARES ~~Act”).~~Act.

Selling, general and administrative expenses

Selling, general and administrative expenses for the ~~three~~six months ended ~~June 30, 2020~~March 31, 2021 were ~~$35.8~~$74.9 million. This represents a decrease of ~~$0.9~~$5.5 million, as compared to ~~$36.7~~$80.4 million for the ~~three~~six months ended ~~June 30, 2019.~~March 31, 2020.

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The following table sets forth the significant components of our selling, general and administrative expenses (in thousands):


		Three Months Ended June 30,							Six Months Ended March 31,
		2020		2019			2021		2020
Salaries expense	Salaries expense	$	13,849	$	14,045	Salaries expense	$	27,872	$	29,354
Employee benefits and tax	Employee benefits and tax	2,896		3,592		Employee benefits and tax	5,402		6,251
Bonus expense	Bonus expense	4,074		2,134		Bonus expense	6,613		6,955
Stock-based compensation	Stock-based compensation	533		169		Stock-based compensation	1,792		989
Compensation and related costs	Compensation and related costs	21,352		19,940		Compensation and related costs	41,679		43,549
Advertising expense	Advertising expense	9,045		9,484		Advertising expense	19,622		21,017
Contract services expense						Contract services expense	2,915		2,302
Professional services expense	Professional services expense	942		1,194		Professional services expense	2,528		2,023
Contract services expense		868		878
Depreciation and amortization expense	Depreciation and amortization expense	177		362		Depreciation and amortization expense	398		567

Other selling, general and administrative expenses	Other selling, general and administrative expenses	3,402		4,803		Other selling, general and administrative expenses	7,767		10,953
Total selling, general and administrative expenses	Total selling, general and administrative expenses	$	35,786	$	36,661	Total selling, general and administrative expenses	$	74,909	$	80,411

Compensation and related costs ~~increased $1.4~~decreased $1.9 million for the ~~three~~six months ended ~~June 30, 2020:~~March 31, 2021:

•Salaries expense decreased by ~~$0.2~~$1.5 million for the ~~three~~six months ended ~~June 30, 2020.~~March 31, 2021. The decrease was primarily due to ~~lower headcount compared~~severance expense related to the ~~prior year~~retirement of Kimberly J. McWaters, our former President and ~~losses recognized on our qualified deferred compensation plan.~~Chief Executive Officer, in the six months ended March 31, 2020.

•Employee benefits and tax decreased ~~$0.7~~$0.8 million for the ~~three~~six months ended ~~June 30, 2020. The decrease was due to lower headcount and lower cost per employee from implementing new benefit plans in the first quarter of fiscal 2020.~~

•Bonus expense increased by $1.9 million for the three months ended June 30, 2020. The increase was the result of projected performance against bonus plan metrics and no management bonus accrual in the prior year period.

~~Professional services expenses decreased $0.3 million for the three months ended June 30, 2020.~~March 31, 2021. The decrease was primarily due to lower ~~legal~~medical claims expense.

Advertising expense decreased $1.4 million for the six months ended March 31, 2021, primarily due to timing of spend and ~~accounting fees.~~targeted cost-efficient marketing efforts, with a shift away from television advertising toward digital media.

Contract services expense increased $0.6 million and professional services expense increased $0.5 million for the six months ended March 31, 2021. The increases were primarily due to costs incurred related to our growth and diversification initiatives, including the announced acquisition of MIAT.

Other selling, general and administrative expenses decreased $3.2 million primarily due to decreases of $1.6 million in travel and entertainment costs and $0.5 million in occupancy costs due to relocating and downsizing our headquarters. Additionally, the six months ended March 31, 2021 includes a ~~$1.0~~$0.6 million credit ~~for three months ended June 30, 2020~~ for the reimbursement of allowable costs related to the changes in the delivery of instruction due to the ~~coronavirus from the institutional HEERF funds received.~~coronavirus. The allowable costs are included in the relevant line items above. See Note ~~19 in~~18 of the notes to the condensed consolidated financial statements herein for ~~further information~~a discussion on the HEERF funds.

~~Income taxes~~

Our income tax expense for the three months ended June 30, 2020 was $21 thousand, or 0.2% of pre-tax loss, compared to income tax expense of $31 thousand, or 9.3% of pre-tax loss, for the three months ended June 30, 2019. The effective income tax rate in each period differed from the federal statutory tax rate of 21% primarily as a result of changes in the valuation allowance and state taxes.~~We recorded a full valuation allowance against the deferred tax assets as of June 30, 2020 and June 30, 2019.~~

~~Preferred stock dividends~~

On June 24, 2016, we sold 700,000 shares of Series A Preferred Stock for $70.0 million in cash, less $1.1 million in issuance costs. In accordance with the terms of the related purchase agreement, we recorded a preferred stock cash dividend of $1.3 million for the three months ended June 30, 2020 and 2019.

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~~Net loss available for distribution~~

Net loss available for distribution refers to the net income or net loss reduced by dividends on our Series A Preferred Stock. As a result of the foregoing, we reported net loss available for distribution for the three months ended June 30, 2020 of $14.6 million and $1.7 million for the three months ended June 30, 2019.

~~Results of Operations: Nine Months Ended June 30, 2020 Compared to Nine Months Ended June 30, 2019~~

~~The following table sets forth selected statements of operations data as a percentage of revenues for each of the periods indicated.~~

Nine Months Ended June 30,
2020 2019
Revenues 100.0 % 100.0 %
Operating expenses:
Educational services and facilities 52.7 % 55.1 %
Selling, general and administrative 51.8 % 50.3 %
Total operating expenses 104.5 % 105.4 %
Loss from operations (4.5) % (5.4) %
Interest income 0.4 % 0.5 %
Interest expense — % (1.0) %
Other (expense) income, net — % 0.6 %
Total other income, net 0.4 % 0.1 %
Loss before income taxes (4.1) % (5.3) %
Income tax benefit (expense) 4.8 % (0.1) %
Net income (loss) 0.7 % (5.4) %
Preferred stock dividends 1.8 % 1.6 %
Loss available for distribution (1.1) % (7.0) %

~~Revenues~~

Revenues for the nine months ended June 30, 2020 were $224.4 million, a decrease of $19.4 million, or 8.0%, as compared to revenues of $243.8 million for the nine months ended June 30, 2019. Our average full-time student enrollment decreased 3.3% due primarily to a higher number of students going on leave of absence due to the COVID-19 crisis. Additionally, revenue recognition for active students has been impacted by student retaking courses that were previously completed and by the time needed to complete in-person catch-up labs ~~that were unable to be completed during the time the campuses were closed. W~~e deferred net revenues of $10.9 million during the nine months ended June 30, 2020, for active students who have elongated the lab catch up period and thus are delaying their future graduation dates, and for many active students who would have graduated between March and September of 2020 and whose graduation dates are delayed due to the campus closures and pending lab catch ups. Offsetting the decrease in average students and the impact of the graduation delays, during the nine months ended June 30, 2020, we implemented tuition rate increases of 3.5% for our auto, diesel, welding, marine, CNC and collision repair programs, and 15.0% for our motorcycle program. Additionally, we recognized ~~$5.8~~ ~~million on an accrual basis related to revenues and interest under our proprietary loan program for the nine months ended June 30, 2020 as compared to $4.7 million for the nine months ended June 30, 2019.~~

~~Educational services and facilities expenses~~

Educational services and facilities expenses were $118.3 million for the nine months ended June 30, 2020, which represents a decrease of $16.1 million as compared to $134.4 million for the nine months ended June 30, 2019.

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~~The following table sets forth the significant components of our educational services and facilities expenses (in thousands):~~

Nine Months Ended June 30,
2020 2019
Salaries expense $ 53,582 $ 59,269
Employee benefits and tax 9,014 12,383
Bonus expense 1,269 330
Stock-based compensation 38 —
Compensation and related costs 63,903 71,982
Depreciation and amortization expense 9,087 11,613
Occupancy costs 28,674 26,510
Supplies and maintenance expense 6,510 7,600
Contract service expense 2,123 2,779
Student expense 1,979 1,792
Taxes and licensing expense 1,952 2,766
Other educational services and facilities expense 4,033 9,351
Total educational services and facilities expense $ 118,261 $ 134,393

~~Compensation and related costs decreased $8.1 million for the nine months ended June 30, 2020.~~

•Salaries expense decreased $5.7 million for the nine months ended June 30, 2020. The decrease was attributable to lower headcount compared to the prior year period due to attrition and furloughs enacted to offset revenue decreases from COVID-19.

•Employee benefits and tax decreased $3.4 million for nine months ended June 30, 2020. The decrease was due to lower headcount and lower cost per employee from implementing new benefit plans at the beginning of fiscal 2020.

Depreciation and amortization expense decreased $2.5 million for the nine months ended June 30, 2020, due to the adoption of ASU 842 as of October 1, 2019, whereby the assets that were previously financed by finance obligations were converted to operating leases. Operating leases assets are classified in “Right-of-use assets for operating leases” on the condensed consolidated balance sheet and the related operating lease expense now rolls into “Occupancy costs” in the table above.

~~Occupancy costs increased $2.2 million for the nine months ended June 30, 2020. The increase was primarily attributed to the adoption ASU 842 as of October 1, 2019 as described above.~~

Contract service expense decreased $0.7 million during the nine months ended June 30, 2020. The decrease was primarily attributed to phasing out contracts with third parties performing Free Application for Federal Student Aid related duties and absorbing these responsibilities internally.

Taxes and licensing decreased $0.8 million for the nine months ended June 30, 2020. The decrease was attributed to a decline in real estate property taxes from exiting the Norwood, Massachusetts campus.

Other educational services and facilities expense includes a $4.9 million credit for nine months ended June 30, 2020 for the reimbursement of allowable costs related to the changes in the delivery of instruction due to the coronavirus from the institutional HEERF funds received. The allowable costs are included in the relevant line items above. See Note 19 in the notes to the condensed consolidated financial statements herein for further information on the HEERF funds.

~~Selling, general and administrative expenses~~

Selling, general and administrative expenses for the nine months ended June 30, 2020 were $116.2 million. This represents a decrease of $6.5 million, as compared to $122.7 million for the nine months ended June 30, 2019.

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~~The following table sets forth the significant components of our selling, general and administrative expenses (in thousands):~~

Nine Months Ended June 30,
2020 2019
Salaries expense $ 43,203 $ 43,876
Employee benefits and tax 9,147 10,830
Bonus expense 11,029 6,981
Stock-based compensation 1,522 1,531
Compensation and related costs 64,901 63,218
Advertising expense 30,062 31,415
Contract services expense 3,170 7,362
Professional services expense 2,965 3,839
Depreciation and amortization expense 744 1,111
Other selling, general and administrative expenses 14,355 15,740
Total selling, general and administrative expenses $ 116,197 $ 122,685

~~Compensation and related costs increased $1.7 million for the nine months ended June 30, 2020:~~

•Salaries expense decreased by $0.7 million for the nine months ended June 30, 2020. The decrease was primarily due to lower headcount compared to the prior year, partially offset by costs related to the retirement of Kimberly J. McWaters, our former President and Chief Executive Officer, in October of 2019.

•Employee benefits and tax decreased $1.7 million for the nine months ended June 30, 2020. The decrease was due to lower headcount and lower cost per employee from implementing new benefit plans at the beginning of fiscal 2020.

•Bonus expense increased by $4.0 million for the nine months ended June 30, 2020. The increase was the result of projected performance against bonus plan metrics and no management bonus accrual in the prior year period.

~~Advertising expense decreased $1.4 million for the nine months ended June 30, 2020. The decrease was attributable to a change in spending pattern versus the prior year period.~~

Contract services expense decreased $4.2 million for the nine months ended June 30, 2020. The decrease was attributable to a $4.0 million consultant termination fee recognized during the nine months ended June 30, 2019 that was not recurring.

~~Professional services expenses decreased $0.9 million for the nine months ended June 30, 2020. The decrease was primarily due to lower legal and accounting fees.~~

Other selling, general and administrative expenses includes a $1.0 million credit for nine months ended June 30, 2020 for the reimbursement of allowable costs related to the changes in the delivery of instruction due to the coronavirus from the institutional HEERF funds received. The allowable costs are included in the relevant line items above. See Note 19 in the notes to the condensed consolidated financial statements herein for further information on the HEERF funds.

Income taxes

Our income tax benefit for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 was ~~$10.7 million,~~$8.0 thousand, or ~~117.0%~~1.7% of pre-tax loss, compared to ~~income tax expense of $0.3~~$10.7 million, or ~~1.9%~~261.1% of pre-tax ~~loss,~~income, for the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020. The effective income tax rate in each period differed from the federal statutory tax rate of 21% primarily as a result of changes in the valuation allowance and state taxes. We recorded a full valuation allowance against the deferred tax assets as of ~~June 30, 2020~~March 31, 2021 and ~~June 30, 2019.~~March 31, 2020. The significant decrease in the valuation allowance for the ~~nine~~six months ended ~~June 30,~~March 31, 2020, and the related income tax benefit, was primarily attributable to the carryback of NOLs under the provisions of the CARES Act and the adoption of ASC 842 as of October 1, 2019. ~~See Note 13 in the notes to the condensed consolidated financial statements herein for further information on the impacts of the CARES Act.~~

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Preferred stock dividends

On June 24, 2016, we sold 700,000 shares of Series A Preferred Stock for $70.0 million in cash, less ~~$1.1~~$1.2 million in issuance costs. In accordance with the terms of the related purchase agreement, we recorded and paid a preferred stock cash dividend of ~~$3.9~~$2.6 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Net ~~loss~~(loss) income available for distribution

Net ~~loss~~(loss) income available for distribution refers to the net income or net loss reduced by dividends on our Series A Preferred Stock. As a result of the foregoing, we reported a net loss available for distribution for the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 of ~~$2.4~~$3.1 million and ~~$17.3~~net income available for distribution of $12.2 million for the ~~nine~~six months ended ~~June 30, 2019.~~March 31, 2020.

Non-GAAP Financial Measures

Our earnings before interest income, income taxes, depreciation and amortization (“EBITDA”) for the three months and ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 were ~~negative $10.2~~$2.0 million and ~~$0.2~~$6.3 million, respectively, compared to ~~EBITDA of $4.4~~$2.2 million and ~~$1.2~~$10.0 million for the three months and ~~nine~~six months ended ~~June 30, 2019,~~March 31, 2020, respectively. We define EBITDA as net income (loss) for the year, before interest (income) expense, income tax (benefit) expense, and depreciation and amortization.

EBITDA is a non-GAAP financial measure which is provided to supplement, but not substitute for, the most directly comparable GAAP measure. We choose to disclose this non-GAAP financial measure because it provides an additional analytical tool to clarify our results from operations and helps to identify underlying trends. Additionally, this measure helps compare our performance on a consistent basis across time periods. Management also utilizes EBITDA as a performance measure internally. To obtain a complete understanding of our performance, this measure should be examined in connection with net income determined in accordance with GAAP. Since the items excluded from this measure should be examined in connection with net income in determining financial performance under GAAP, this measure should not be considered an alternative to net income as a measure of our operating performance or profitability. Exclusion of items in our non-GAAP presentation should not be construed as an inference that these items are unusual, infrequent or non-recurring. Other companies, including other companies in the education industry, may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure across companies. Investors are encouraged to use GAAP measures when evaluating our financial performance.

EBITDA reconciles to net ~~(loss)~~ income, as follows (in thousands):


		Three Months Ended June 30,						Nine Months Ended June 30,							Three Months Ended March 31,				Six Months Ended March 31,
		2020		2019		2020		2019			2021		2020		2021		2020
Net (loss) income	Net (loss) income	$	(13,268)	$	(365)	$	1,558	$	(13,345)	Net (loss) income	$	(1,547)	$	10,142	$	(464)	$	14,826
Interest income	Interest income	(218)		(358)		(901)		(1,153)		Interest income	(8)		(347)		(62)		(683)
Interest expense	Interest expense	2		802		5		2,424		Interest expense	1		3		3		3
Income tax expense (benefit)		21		31		(10,699)		253
Income tax benefit										Income tax benefit	(34)		(10,804)		(8)		(10,720)
Depreciation and amortization (1)	Depreciation and amortization (1)	3,259		4,326		9,831		13,023		Depreciation and amortization(1)	3,569		3,230		6,851		6,572
EBITDA	EBITDA	$	(10,204)	$	4,436	$	(206)	$	1,202	EBITDA	$	1,981	$	2,224	$	6,320	$	9,998

(1) Includes depreciation of training equipment obtained in exchange for services of $0.3 million ~~and $0.4 million~~ for the three months ended ~~June 30,~~March 31, 2021 and 2020 and ~~2019, respectively, and $1.0~~$0.6 million and ~~$1.1~~$0.7 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Liquidity and Capital Resources

Based on past performance and current expectations, we believe that our cash flows from operations, cash on hand and investments will satisfy our working capital needs, capital expenditures, commitments and other liquidity requirements associated with our existing operations, as well as ~~the expansion of programs at existing campuses~~announced growth and diversification initiatives through the next 12 months. Our cash position is available to fund strategic long-term growth initiatives, including opening additional ~~metro~~ campuses in new markets and the creation of new programs, such as welding, in existing markets with under-utilized campus facilities. ~~We have no bank debt as of June 30, 2020.~~

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Our aggregate cash and cash equivalents were ~~$60.0~~$59.0 million as of ~~June 30, 2020,~~March 31, 2021, a decrease of ~~$5.5~~$17.8 million from September 30, ~~2019.~~2020. Additionally, we had short-term held-to-maturity investments of ~~$31.6~~$19.5 million and $38.1 million as of ~~June~~March 31, 2021 and September 30, ~~2020. There were~~2020, respectively. We had no ~~held-to-maturity investments~~long-term debt outstanding as of ~~June~~March 31, 2021 or September 30, ~~2019.~~2020.

We believe that additional strategic use of our cash resources may include subsidizing funding alternatives for our students, the repurchase of common stock, purchase of real estate assets, consideration of strategic acquisitions, and other potential uses of cash. To the extent that potential acquisitions are large enough to require financing beyond cash from operations, cash and cash equivalents, and short-term investments, or we need capital to fund operations, new campus openings or expansion of programs at existing campuses, we may enter into a credit facility, issue debt or issue additional equity.

As previously noted, we purchased our Avondale, Arizona campus at the end of December 2020, for approximately $45.2 million, including closing costs and other fees. Due to the timing of the close for the Avondale building, we used available operating cash for the purchase. We continue to explore potential financing opportunities for the Avondale, Arizona campus to increase available capital.

~~On February 20, 2020,~~

Additionally, on March 29, 2021, we entered into ~~an Underwriting Agreement with B. Riley FBR, Inc., as representative of the several underwriters named therein,~~a definitive agreement to ~~issue and sell an aggregate of 6,782,610 shares (the “Firm Shares”) of our common stock, par value $0.0001 per share,~~acquire MIAT from HCP & Company for a purchase price not to exceed $26.0 million in ~~a public offering, at a price~~cash, subject to ~~the public of $7.75 per share, pursuant~~certain adjustments. The closing is subject to ~~a registration statement on~~ ~~Form S-3~~ ~~(Registration No. 333-236146) and the accompanying~~ ~~prospectus~~,customary closing conditions, including the ~~related prospectus supplement, filed with the SEC (the “Offering”). The Offering~~receipt of ~~the Firm Shares closed on February 25, 2020. The net proceeds~~a Pre-Acquisition Review Response from the ~~Offering were approximately $49.5 million, after deducting underwriting discounts. We invested a portion~~United States Department of ~~the proceeds from the equity offering in held-to-maturity securities, which primarily consist~~Education that does not contain certain letter of ~~corporate bonds from large cap industrial~~credit requirements or operational restrictions and ~~selected financial companies with a minimum credit rating of A.~~ACCSC approvals. We intend to use cash on hand to pay the ~~proceeds for working capital, capital expenditures, and other general corporate purposes, which may include~~consideration contemplated under the addition of new campuses, the expansion of existing programs and the development of new programs, and the purchase of real property and campus infrastructure. We may also use a portion of the net proceeds to fund potential strategic acquisitions of complementary businesses, assets, services or technologies. See Note 15 in the notes to the condensed consolidated financial statements for further discussion on the Offering.definitive agreement.

~~On June 9, 2016, our Board of Directors voted to eliminate the quarterly~~We currently do not pay a cash dividend on our common stock. On June 24, 2016, we issued 700,000 shares of Series A Preferred Stock for a total purchase price of $70.0 million. The proceeds from the offering were primarily used to fund strategic initiatives to drive growth, including the transformation plan, expansion to new markets with metro campuses and the creation of new programs in existing markets with under-utilized campus facilities. We paid a preferred stock cash dividends of ~~$5.3 million during the year ended September 30, 2019 and~~ $2.6 million during the ~~nine~~six months ended ~~June 30, 2020.~~March 31, 2021.

Our principal source of liquidity is operating cash flows and existing cash and cash equivalents. A majority of our revenues are derived from Title IV Programs and various veterans benefits programs. Federal regulations dictate the timing of disbursements of funds under Title IV Programs. Students must apply for new funding for each academic year consisting of 30-week periods. Loan funds are generally provided in two disbursements for each academic year. The first disbursement for first-time borrowers is usually received 30 days after the start of a student’s academic year, and the second disbursement is typically received at the beginning of the 16th week from the start of the student’s academic year. Under our proprietary loan program, we bear all credit and collection risk and students are not required to begin repayment until six months after the student completes or withdraws from his or her program. These factors, together with the timing of when our students begin their programs, affect our operating cash flow.

~~As discussed in more detail in Note 19 of~~During the ~~condensed consolidated financial statements herein, during the three months~~year ended ~~June~~September 30, 2020, we were granted approximately $33.0 million in HEERF funds under the CARES Act, with $16.5 million exclusively for emergency financial aid grants to students impacted by COVID-19 and $16.5 million to cover institutional costs associated with significant changesdue to the delivery of instruction due to coronavirus. As of June 30, 2020, $5.5 million of the funds exclusively for emergency financial aid grants to students remained after issuing student grants and is included in our “Restricted cash” balance. As of June 30, 2020, $16.5 million remained in the Department of Education’s G5 Grants Management System (“G5”) and is not included in our “Cash and cash equivalents” on our condensed consolidated balance sheet. It is our general intent to draw the institutional funds from the G5 account asCOVID-19 pandemic, we ~~incur and record the expenses.~~

~~On March 19, 2020, we suspended all in person classes at all of our campus locations to help slow the spread of COVID-19. As a result, we have~~ transitioned our on-campus, in-person education model to a blended training model that combines instructor-facilitated online ~~instructor-delivered~~ teaching and demonstrations with hands-on labs. In May of 2020, we resumed in-person labs at eight of our campus locations. Four of our campuses resumed in-person labs in June of 2020, and our final campus to resume in-person labs in Bloomfield, New Jersey opened on July 1, 2020. Now that allAll of our campuses have ~~reopened, once a student returns to campus for in-person labs, under the new guidelines it takes on average approximately six to nine weeks for~~

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~~that student to catch up on the lab work that he was unable to complete~~remained open during the ~~campus closure and prior to his return.~~ Additionally, some students have not returned to campus to complete the in-person labs and remain only in the online portion of the curriculum, essentially only completing half of each course, while others are completing catch up labs, but over an extended period of time. ~~While we have reopened all~~first six months of our ~~campus locations, some~~fiscal 2021. If a significant number of students have delayed returning to campus for in-person labs even with the new social distancing protocols in place and remain on leave of absence or continue only with the online instruction portion of the curriculum. If students continue to remain ontake a leave of absence, withdraw, or do not make-up the required in-person ~~labs~~lab work on a timely basis, our cash generated from operations could ~~continue to~~ be impacted ~~for the remainder of 2020.~~in fiscal 2021.

Operating Activities

Our net cash ~~used~~provided by operating activities was ~~$10.1~~$17.5 million and ~~$7.1~~$10.9 million for the ~~nine~~six months ended ~~June 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

Net loss, after adjustments for non-cash items, provided cash of ~~$32.0~~$16.7 million. The non-cash items included ~~$18.2~~$8.1 million for amortization of right-of-use assets for operating leases, ~~$8.8~~$6.9 million for depreciation and amortization expense and ~~$1.5~~$1.8 million for ~~stock based~~stock-based compensation expense.

Changes in operating assets and liabilities ~~used~~provided cash of ~~$42.2~~$0.8 million primarily due to the following:

•The decrease in receivables provided cash of $12.3 million and was primarily due to the timing of Title IV disbursements and other cash receipts on behalf of our students.

•The decrease in income tax receivable provided cash of $2.7 million and was primarily attributable to receiving an income tax refund as a result of the CARES Act.

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•Changes in our operating lease liability as a result of rent payments used cash of ~~$19.3~~$9.2 million.

•The increase in prepaid expenses used cash of $3.0 million primarily due to prepayments for insurance and rent.

•The decrease in accounts payable and accrued expenses used cash of $1.5 million primarily related to the timing of payments to vendors and for payroll and bonus.

Net income, after adjustments for non-cash items, for the six months ended March 31, 2020 provided cash of $35.1 million. The non-cash items included $11.8 million for amortization of right-of-use assets for operating leases, $5.9 million for depreciation and amortization expense and $1.0 million for stock-based compensation expense.

Changes in operating assets and liabilities used cash of $24.2 million primarily due to the following:

•The decrease in the lease liability resulted in a cash outflow of $12.7 million for rent payments.

•The increase in the income taxes receivable used cash of ~~$11.1~~$10.9 million and was primarily attributable to recording an income tax receivable of $11.3 million as a result of the CARES ~~Act, which allowed us to carryback NOLs from 2019 and 2018.~~Act.

•The decrease in deferred revenue used cash of ~~$10.0~~$6.1 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at ~~June 30,~~March 31, 2020 as compared to September 30, 2019.

•The decrease in other liabilities used cash of $1.6 million due to timing of payments for incentive compensation.

•The increase in accounts payable and accrued expenses provided cash of ~~$12.5~~$4.8 million primarily related to the timing of payments ~~to vendors and~~ for payroll and ~~bonus accruals.~~bonuses.

•The ~~increase~~decrease in ~~receivables used~~receivable provided cash of ~~$13.9~~$3.1 million and was primarily due to the timing of Title IV disbursements and other cash receipts on behalf of our ~~students.~~

Net loss, after adjustments for non-cash items, for the nine months ended June 30, 2019 provided cash of $1.3 million. The non-cash items included $9.9 million for depreciation and amortization expense, $2.0 million for amortization of assets subject to financing obligations and $1.5 million for stock-based compensation expense.

~~Changes in operating assets and liabilities used cash of $8.4 million primarily due to the following:~~

•~~The decrease in receivables provided cash of $3.8 million and was primarily attributable to the timing of Title IV disbursements and other cash receipts on behalf of our students.~~

•The increase in deferred revenue used cash of $10.6 million and was primarily attributable to the timing of student starts, the number of students in school and where they were at period end in relation to completion of their program at June 30, 2019 as compared to September 30, 2018.

•~~The decrease in accounts payable and accrued expenses used cash of $3.8 million primarily related to the timing of payments to vendors.~~

•The decrease in deferred rent used cash of $2.1 million due to the change in amortization of the deferred rent balance related to the Norwood, Massachusetts campus exit. Deferred rent also decreased due to normal amortization of our Orlando, Florida and home office leases.students..

Investing Activities

During the ~~nine~~six months ended ~~June 30,~~March 31, 2021, cash used in investing activities was $31.6 million. The cash outflow was primarily related to the purchase of property and equipment of $49.9 million, of which $45.2 million related to the purchase of the building at our Avondale, Arizona campus location, partially offset by proceeds from maturities of held-to-maturity securities of $18.2 million.

During the six months ended March 31, 2020, cash used in investing activities was ~~$37.2~~$46.6 million. The cash outflow was primarily related to the purchase of held-to-maturity investments with a portion of the proceeds received from ~~the~~a public offering of our common stock in February Offering, which was partially offset by maturities of certain of the held-to-maturity investments. Net cash used in investing activities also was impacted by purchases of property and equipment of $7.2 million which includes capital expenditures for the Houston, Texas and Long Beach, California welding program expansions.

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During the nine months ended June 30, 2019, cash used in investing activities was $5.1 million primarily related to the purchase of property and equipment, primarily for our Dallas/Ft. Worth, Texas campus for welding, and new and replacement training equipment for ongoing operations and consolidation efforts at our Houston, Texas campus. 2020.

Financing Activities

During the ~~nine~~six months ended ~~June 30,~~March 31, 2021, cash used in financing activities was $3.1 million and related primarily to the payment of payroll taxes on stock-based compensation through shares withheld and the semi-annual payment of preferred stock dividends of $2.6 million.

During the six months ended March 31, 2020, cash provided by financing activities was $45.9 million and related primarily to the net proceeds received from the public offering of our common stock in February ~~Offering, partially~~2020, offset by our semi-annual payment of preferred stock dividends of $2.6 ~~million on March 27, 2020.~~

During the nine months ended June 30, 2019, cash used in financing activities was $3.7 million and related primarily to the semi-annual payment of preferred stock dividends of $2.6 million on March 28, 2019, in addition to payments on our financing obligations of $1.0 million.

Seasonality and Trends

Our operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population and costs associated with opening or expanding our campuses. Our student population varies as a result of new student enrollments, graduations and student attrition. Historically, we have had lower student populations in our third quarter than in the remainder of our year because fewer students are enrolled during the summer months. Additionally, we have had higher student populations in our fourth quarter than in the remainder of the year because more students enroll during this period. Our expenses, however, do not vary significantly with changes in student population and revenues, and, as a result, such expenses do not fluctuate significantly on a quarterly basis. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. However, such patterns may change as a result of new school openings, new program introductions, increased enrollments of adult students or acquisitions.

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The transition of our on-campus, in-person education model to a blended training model that combines online, instructor-delivered teaching and demonstrations with hands-on labs as a result of the COVID-19 ~~crisis~~pandemic could impact our future new student enrollments, graduations and student attrition.

Critical Accounting Policies and Estimates

There were no significant changes in our critical accounting policies in the ~~nine~~six months ended ~~June 30, 2020~~March 31, 2021 from those previously disclosed in Part II, Item 7 of our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on December ~~6, 2019, except as disclosed in Note~~ 3, ~~in the notes to the condensed consolidated financial statements herein.~~2020.

Recent Accounting Pronouncements

For information regarding recent accounting pronouncements, see Note 3 of the notes to the condensed consolidated financial statements herein.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes to our market risk since September 30, ~~2019.~~2020. For a discussion of our exposure to market risk, refer to our ~~2019~~2020 Annual Report on Form 10-K, filed with the SEC on December ~~6, 2019.~~3, 2020.

Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as of ~~June 30, 2020~~March 31, 2021 were effective in ensuring that (i) information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) information

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required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by Exchange Act Rule 13a-15(d) or 15d-15(d) that occurred during the three months ended June 30, 2020, except for new internal controls related to ASC 842 that have been implemented, including internal controls related to a new enterprise-wide lease accounting system, as well as modified internal controls related to the collection, recording and accounting for leases in accordance with ASC 842.March 31, 2021.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls and procedures or our internal controls over financial reporting will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, misstatements, errors and instances of fraud, if any, within our company have been or will be prevented or detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls also can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks that internal controls may become inadequate as a result of changes in conditions, or through the deterioration of the degree of compliance with policies or procedures.

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PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

In the ordinary conduct of our business, we are periodically subject to lawsuits, demands in arbitrations, investigations, regulatory proceedings or other claims, including, but not limited to, claims involving current and former students, routine employment matters, business disputes and regulatory demands. When we are aware of a claim or potential claim, we assess the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, we would accrue a liability for the loss. When a loss is not both probable and estimable, we do not accrue a liability. Where a loss is not probable but is reasonably possible, including if a loss in excess of an accrued liability is reasonably possible, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim. Because we cannot predict with certainty the ultimate resolution of the legal proceedings (including lawsuits, investigations, regulatory proceedings or claims) asserted against us, it is not currently possible to provide such an estimate. The ultimate outcome of pending legal proceedings to which we are a party may have a material adverse effect on our business, cash flows, results of operations or financial condition.

Item 1A. RISK FACTORS

In addition to the ~~risk factors below and~~ other information set forth in this Quarterly Report on Form 10-Q, including the information contained in Part I, Item 3, you should carefully consider the factors discussed in Part I, Item IA of our ~~2019~~2020 Annual Report on Form 10-K filed with the SEC on December ~~6, 2019,~~3, 2020, which could materially affect our business, financial condition or operating results. The risks described in this Quarterly Report on Form 10-Q and in our ~~2019~~2020 Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

~~Risks Related to Our Business~~

~~Public health pandemics, epidemics or outbreaks could have a material adverse effect on our business and operations.~~

In December 2019, a novel strain of coronavirus, COVID-19, emerged in Wuhan, China. While initially concentrated in China, the outbreak has spread to other countries and infections have been reported globally, including in the United States. The World Health Organization has declared the outbreak to be a pandemic, the United States declared a state of national emergency, and many state and local governments are also taking various actions to combat the spread of COVID-19. The extent to which COVID-19, like any other rapidly spreading contagious illness, may impact our business and operations will depend on the evolution of the outbreak, which is highly speculative at this time and cannot be predicted with any level of certainty. The duration of the outbreak, new information which emerges concerning the severity of the illness and the actions to be taken to contain the spread of COVID-19 or its treatment remains unclear. We believe that the continued spread of COVID-19 could adversely impact our business and operations. A quarantine of one or more of our faculty members for two or more weeks due to exposure to the coronavirus or other contagious illness could eliminate a program unless a substitute was readily available, and quarantine of a faculty member or student could cause the temporary closure of an affected campus, which could have an adverse impact on our business and our financial results. Further, workforce limitations and travel restrictions resulting from pandemics or disease outbreaks and related government actions may impact many aspects of our business. If a significant percentage of our workforce is unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks, our operations and enrollment may be negatively impacted. Finally, state and federal regulators, including the U.S. Department of Education, are augmenting existing regulatory processes, waiving others and overseeing various emergency relief and aid programs. It is highly uncertain how long such regulatory accommodations will continue, or how long and in what amount emergency relief and aid funds will continue to be available.

With regard to the HEERF program in particular, we cannot predict whether and to what extent obligations will be interpreted, monitored, and enforced. A change in the presidential administration, congressional leadership changes, or new leadership in the Department of Justice and ED could affect or alter the current approach. We also cannot predict whether institutions of higher education will be subject to audit or investigation. Last, as with all government funds there is a potential for False Claims Act litigation.

~~Table of Contents~~

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Share Repurchase Program~~

On December 20, 2011, our Board of Directors authorized the repurchase of up to $25.0 million of our common stock in the open market or through privately negotiated transactions. As of June 30, 2020, we have purchased an aggregate of 1,677,570 shares of our common stock for an aggregate purchase price of $15.3 million under this stock repurchase program. During the three months ended June 30, 2020, we made no purchases under this stock repurchase program. Any future repurchases under this stock repurchase program require the approval of a majority of the voting power of the Series A Preferred Stock.

~~There were no share repurchases to settle individual employee tax liabilities for restricted share awards during the three months ended June 30, 2020.~~None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. MINE SAFETY DISCLOSURES

None.

Item 5. OTHER INFORMATION

None.

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Item 6. EXHIBITS

The following exhibits required by Item 601 of Regulation S-K are filed or furnished with this report, as applicable:


Exhibit Number						Description
2.1*#						Stock Purchase Agreement by and among HCP ED Holdings, LLC, HCP ED Holdings, Inc., Michigan Institute of Aeronautics, Inc. D/B/A MIAT College of Technology, and Universal Technical Institute, Inc. dated March 29, 2021.
3.1*						Fifth Amended and Restated Certificate of Incorporation of Universal Technical Institute, Inc. dated February 26, 2021.
3.2*						Fourth Amended and Restated Bylaws of Universal Technical Institute Inc., a Delaware Corporation (as amended on February 26, 2021).
10.1						U niversal Technical Institute, Inc. 2021 Equity Incentive Plan (incorporated by refer ence to Exh ibit 10.1 to the registra nt ’s Current Report on Form 8-K filed with the SEC on February 26, 2021 ).
31.1*						Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*32.1+						Certification of Chief Executive Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*32.2+						Certification of Chief Financial Officer pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*						XBRL Instance Document.
101.SCH*						XBRL Taxonomy Extension Schema Document.
101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB*						XBRL Taxonomy Extension Label Linkbase Document.
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document.
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

__________________

*Filed herewith.

+ Furnished herewith.

# Certain schedules and exhibits to this agreement have been omitted pursuant to Item 601(a)(5) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the SEC upon request.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

UNIVERSAL TECHNICAL INSTITUTE, INC.

Date:

~~August~~May 7, ~~2020~~2021

By:

/s/ Jerome A. Grant

Name:

Jerome A. Grant

Title:

Chief Executive Officer (Principal Executive Officer)

4438


	Severance		Other		Total
Balance accrued at beginning of period	$	721	$	32	$	753
Postemployment benefit charges	2,087		48		2,135
Cash paid	(1,623)		(184)		(1,807)
Other non-cash adjustments (a)	109		(21)		88
Balance accrued at end of period	$	1,294	$	(125)	$	1,169


Lease Expense	Three Months Ended June 30, 2020		Nine Months Ended June 30, 2020
Operating lease expense (a)	$	7,494	$	22,478
Finance lease expense:
Amortization of leased assets	32		70
Interest on lease liabilities	2		5
Variable lease expense	1,090		3,269
Sublease income	(145)		(653)
Total net lease expense	$	8,473	$	25,169


Years ending September 30,	Gross		Sublease income		Net
2020	$	26,379	$	(362)	$	26,017
2021	23,531		(77)		23,454
2022	21,621		(78)		21,543
2023	10,461		(20)		10,441
2024	9,180		—		9,180
Thereafter	41,822		—		41,822
Total lease payments	$	132,994	$	(537)	$	132,457