UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, ~~2021~~2022

☐ 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 May ~~3, 2021,~~2, 2022, there were ~~32,813,845~~33,042,047 shares outstanding of the registrant's common stock.

UNIVERSAL TECHNICAL INSTITUTE, INC.

INDEX TO FORM 10-Q FOR THE QUARTER ENDED MARCH 31, ~~2021~~2022


		Page
		Number
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS		ii

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets at March 31,~~, 202~~1 2022 and September 30, ~~2020~~2021 (Unaudited)	1
	Condensed Consolidated Statements of Operations for the Three and Six Months Ended March 31, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	2
	Condensed Consolidated Statements of ~~Shareholders’ Equity as of~~ Other Comprehensive Income (Loss) for the Three and Six Months Ended March 31, ~~202~~1 2022 and 20 20 2021 (Unaudited)	3
	Condensed Consolidated Statements of ~~Cash Flows for the~~ ~~Six~~ ~~Months Ended~~ Shareholders’ Equity as of March 31, ~~202~~1 2022 and 20 20 2021 (Unaudited)	54
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended March 31, 2022 and 2021 (Unaudited)	6
	Notes to Condensed Consolidated Financial Statements (Unaudited)	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2430
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3541
Item 4.	Controls and Procedures	3542

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	3643
Item 1A.	Risk Factors	3643
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3643
Item 3.	Defaults upon Senior Securities	3643
Item 4.	Mine Safety Disclosures	3643
Item 5.	Other Information	3643
Item 6.	Exhibits	3743

SIGNATURES		3845

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q 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 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.

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions (including the negative form of such expressions) intended to identify forward-looking statements, although not all 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 realize the expected benefits of our acquisition of MIAT College of Technology;

•our failure to successfully integrate MIAT College of Technology’s program offerings into our current program offerings;

•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;~~while maintaining positive student outcomes;

•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;

•failure to comply with the restrictive covenants and our ability to pay the amounts when due under the Credit Agreement; and

•risks related to other factors discussed in our ~~2020~~2021 Annual Report on Form 10-K~~, including those described in Item 1A. “Risk Factors.”~~ filed with the SEC on December 2, 2021 (the “2021 Annual Report on Form 10-K”).

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. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Many events beyond our control may determine

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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.

~~Table of Contents~~

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 update 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 reports and filings with the Securities and Exchange Commission (“SEC”).

iii

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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)


		March 31, 2021		September 30, 2020			March 31, 2022		September 30, 2021
Assets	Assets					Assets
Cash and cash equivalents	Cash and cash equivalents	$	58,965	$	76,803	Cash and cash equivalents	$	61,498	$	133,721
Restricted cash	Restricted cash	12,817		12,116		Restricted cash	11,481		12,256
Held-to-maturity investments		19,502		38,055

Receivables, net	Receivables, net	19,809		35,411		Receivables, net	15,465		17,151
Notes receivable, current portion	Notes receivable, current portion	5,307		5,184		Notes receivable, current portion	5,519		5,538
Prepaid expenses	Prepaid expenses	8,262		6,121		Prepaid expenses	8,048		6,658
Other current assets	Other current assets	6,431		6,489		Other current assets	7,461		8,068
Total current assets	Total current assets	131,093		180,179		Total current assets	109,472		183,392
Property and equipment, net	Property and equipment, net	114,921		72,743		Property and equipment, net	193,084		122,051
Goodwill	Goodwill	8,222		8,222		Goodwill	16,859		8,222
Intangible assets						Intangible assets	16,273		124
Notes receivable, less current portion	Notes receivable, less current portion	28,996		27,609		Notes receivable, less current portion	30,764		30,586
Right-of-use assets for operating leases	Right-of-use assets for operating leases	147,651		144,663		Right-of-use assets for operating leases	141,736		159,075
Deferred tax asset, net						Deferred tax asset, net	3,907		—
Other assets	Other assets	9,462		8,565		Other assets	5,258		9,120
Total assets	Total assets	$	440,345	$	441,981	Total assets	$	517,353	$	512,570
Liabilities and Shareholders’ Equity	Liabilities and Shareholders’ Equity					Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses	Accounts payable and accrued expenses	$	49,088	$	51,891	Accounts payable and accrued expenses	$	55,147	$	54,397

Deferred revenue	Deferred revenue	40,954		40,694		Deferred revenue	42,010		57,648
Accrued tool sets	Accrued tool sets	3,251		3,148		Accrued tool sets	3,619		3,292
Operating lease liability, current portion	Operating lease liability, current portion	19,565		23,666		Operating lease liability, current portion	12,940		14,075

Long term debt, current portion						Long term debt, current portion	2,374		876
Other current liabilities	Other current liabilities	1,901		2,241		Other current liabilities	2,262		2,430
Total current liabilities	Total current liabilities	114,759		121,640		Total current liabilities	118,352		132,718
Deferred tax liabilities, net	Deferred tax liabilities, net	674		674		Deferred tax liabilities, net	—		674

Operating lease liability	Operating lease liability	140,136		134,089		Operating lease liability	137,635		153,228
Long-term debt						Long-term debt	46,045		29,850
Other liabilities	Other liabilities	8,318		9,056		Other liabilities	4,586		7,570
Total liabilities	Total liabilities	263,887		265,459		Total liabilities	306,618		324,040
Commitments and contingencies (Note 13)		0		0
Commitments and contingencies (Note 16)						Commitments and contingencies (Note 16)	0		0
Shareholders’ equity:	Shareholders’ equity:					Shareholders’ equity:
Common stock, $0.0001 par value, 100,000 shares authorized, 32,896 and 32,730 shares issued		3		3
Common stock, $0.0001 par value, 100,000 shares authorized, 33,124 and 32,915 shares issued						Common stock, $0.0001 par value, 100,000 shares authorized, 33,124 and 32,915 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	0		0		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	—		—
Paid-in capital - common	Paid-in capital - common	142,383		141,002		Paid-in capital - common	143,926		142,314
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 shares as of March 31, 2021 and September 30, 2020		(365)		(365)
Treasury stock, at cost, 82 shares						Treasury stock, at cost, 82 shares	(365)		(365)
Retained deficit	Retained deficit	(34,416)		(32,971)		Retained deficit	(2,437)		(21,996)
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	755		(279)
Total shareholders’ equity	Total shareholders’ equity	176,458		176,522		Total shareholders’ equity	210,735		188,530
Total liabilities and shareholders’ equity	Total liabilities and shareholders’ equity	$	440,345	$	441,981	Total liabilities and shareholders’ equity	$	517,353	$	512,570

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 Six Months Ended
March 31, March 31,
2021 2020 2021 2020
Revenues $ 77,709 $ 82,717 $ 153,834 $ 169,951
Operating expenses:
Educational services and facilities 40,480 42,909 79,811 85,785
Selling, general and administrative 38,890 40,307 74,909 80,411
Total operating expenses 79,370 83,216 154,720 166,196
(Loss) income from operations (1,661) (499) (886) 3,755
Other income (expense):
Interest income 8 347 62 683
Interest expense (1) (3) (3) (3)
Other income (expense), net 73 (507) 355 (329)
Total other income (expense), net 80 (163) 414 351
(Loss) income before income taxes (1,581) (662) (472) 4,106
Income tax benefit 34 10,804 8 10,720
Net (loss) income $ (1,547) $ 10,142 $ (464) $ 14,826
Preferred stock dividends 1,312 1,309 2,625 2,632
Net (loss) income available for distribution $ (2,859) $ 8,833 $ (3,089) $ 12,194
Earnings per share (See Note 15 ):
Net (loss) income per share - basic $ (0.09) $ 0.18 $ (0.09) $ 0.25
Net (loss) income per share - diluted $ (0.09) $ 0.18 $ (0.09) $ 0.25
Weighted average number of shares outstanding:
Basic 32,762 28,379 32,709 27,013
Diluted 32,762 28,644 32,709 27,320


	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Revenues	$	102,086	$	77,709	$	207,161	$	153,834
Operating expenses:
Educational services and facilities	49,209		40,480		97,110		79,811
Selling, general and administrative	49,500		38,890		93,096		74,909
Total operating expenses	98,709		79,370		190,206		154,720
Income (loss) from operations	3,377		(1,661)		16,955		(886)
Other (expense) income:
Interest income	8		8		20		62
Interest expense	(466)		(1)		(699)		(3)

Other (expense) income, net	(163)		73		(45)		355
Total other (expense) income, net	(621)		80		(724)		414
Income (loss) before income taxes	2,756		(1,581)		16,231		(472)
Income tax benefit (See Note 15)	4,598		34		5,945		8
Net income (loss)	$	7,354	$	(1,547)	$	22,176	$	(464)
Preferred stock dividends	1,294		1,312		2,617		2,625
Net income (loss) available for distribution	$	6,060	$	(2,859)	$	19,559	$	(3,089)

Earnings per share (See Note 18):
Net income (loss) per share - basic	$	0.11	$	(0.09)	$	0.36	$	(0.09)
Net income (loss) per share - diluted	$	0.11	$	(0.09)	$	0.36	$	(0.09)

Weighted average number of shares outstanding:
Basic	32,992		32,762		32,920		32,709
Diluted	33,436		32,762		33,393		32,709

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 OTHER COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)


	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Net income (loss)	$	7,354	$	(1,547)	$	22,176	$	(464)
Other comprehensive income:
Unrealized gain on interest rate swap	861		—		1,034		—
Comprehensive income (loss)	$	8,215	$	(1,547)	$	23,210	$	(464)

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						Common Stock							Preferred Stock									Paid-in Capital - Common				Paid-in Capital - Preferred			Treasury Stock								Retained Deficit				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
		Shares	Amount		Shares	Amount								Shares			Amount			Total Shareholders’ Equity					Shares				Amount					Shares				Amount			Paid-in Capital - Common							Amount								Retained Deficit
Balance as of September 30, 2020		32,730	$	3	700	$	0			$	141,002			$	68,853		(82)				$	(365)	$	(32,971)							$	176,522
Balance as of September 30, 2021																										Balance as of September 30, 2021				32,915					$	3			700						$	—				$	142,314			$	68,853					(82)				$	(365)			$	(21,996)			$	(279)	$	188,530
Net income	Net income	—	—		—	—		—				—				—		—			1,083						1,083		Net income				—				—			—				—						—				—			—				—				14,822				—				14,822

Cumulative effect from adoption of ASC 326		—	—		—	—		—				—				—		—			1,644						1,644

Issuance of common stock under employee plans	Issuance of common stock under employee plans	66	—		—	—		—				—				—		—			—						—		Issuance of common stock under employee plans				111				—			—				—					—				—			—				—				—				—				—
Shares withheld for payroll taxes	Shares withheld for payroll taxes	(29)	—		—	—		(178)				—				—		—			—						(178)		Shares withheld for payroll taxes				(37)				—			—				—					(301)				—			—				—				—				—				(301)

Stock-based compensation	Stock-based compensation	—	—		—	—		548				—				—		—			—						548		Stock-based compensation				—				—			—				—					706				—			—				—				—				—				706

Preferred stock dividends	Preferred stock dividends	—	—		—	—		—				—				—		—			(1,313)						(1,313)		Preferred stock dividends				—				—			—				—					—				—			—				—				(1,323)				—				(1,323)

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)
Unrealized gain on interest rate swap																										Unrealized gain on interest rate swap				—					—				—			—				—					—				—			—				—				173				173
Balance as of December 31, 2021																										Balance as of December 31, 2021				32,989					$	3			700			$	—			$	142,719				$	68,853			(82)			$	(365)			$	(8,497)			$	(106)			$	202,607
Net income																										Net income				—					—				—			—				—					—				—			—				7,354				—				7,354
Issuance of common stock under employee plans	Issuance of common stock under employee plans	164	—		—	—		—				—				—		—			—						—		Issuance of common stock under employee plans				177				—			—				—					—				—			—				—				—				—				—
Shares withheld for payroll taxes	Shares withheld for payroll taxes	(35)	—		—	—		(223)				—				—		—			—						(223)		Shares withheld for payroll taxes				(42)				—			—				—					(327)				—			—				—				—				—				(327)

Stock-based compensation	Stock-based compensation	—	—		—	—		1,234				—				—		—			—						1,234		Stock-based compensation				—				—			—				—					1,534				—			—				—				—				—				1,534

Preferred stock dividends	Preferred stock dividends	—	—		—	—		—				—				—		—			(1,312)						(1,312)		Preferred stock dividends				—				—			—				—					—				—			—				—				(1,294)				—				(1,294)
Balance as of March 31, 2021		32,896	$	3	700	$	0	$	142,383			$	68,853			(82)		$	(365)		$	(34,416)					$	176,458
Unrealized gain on interest rate swap																										Unrealized gain on interest rate swap				—					$	—			—			$	—			$	—				$	—			—			$	—			$	—			$	861			$	861
Balance as of March 31, 2022																										Balance as of March 31, 2022				33,124					$	3			700			$	—			$	143,926				$	68,853			(82)			$	(365)			$	(2,437)			$	755			$	210,735

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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						Common Stock							Preferred Stock									Paid-in Capital - Common				Paid-in Capital - Preferred			Treasury Stock								Retained Deficit				Accumulated Other Comprehensive Income (Loss)				Total Shareholders’ Equity
		Shares	Amount		Shares	Amount								Shares			Amount			Total Shareholders’ Equity					Shares				Amount					Shares				Amount			Paid-in Capital - Common							Amount								Retained Deficit
Balance as of September 30, 2019		32,499	$	3	700	$	0			$	187,493			$	68,853		(6,865)				$	(97,388)	$	(44,673)							$	114,288
Balance as of September 30, 2020																										Balance as of September 30, 2020				32,730					$	3			700						$	—				$	141,002			$	68,853					(82)				$	(365)			$	(32,971)			$	—	$	176,522
Net income	Net income	—	—		—	—		—				—				—		—			4,684						4,684		Net income				—				—			—				—						—				—			—				—				1,083				—				1,083

Cumulative effect from adoption of ASC 842		—	—		—	—		—				—				—		—			9,107						9,107
Cumulative effect from adoption of ASC 326																										Cumulative effect from adoption of ASC 326				—					—				—			—				—					—				—			—				1,644				—				1,644
Issuance of common stock under employee plans	Issuance of common stock under employee plans	179	—		—	—		—				—				—		—			—						—		Issuance of common stock under employee plans				66				—			—				—					—				—			—				—				—				—				—
Shares withheld for payroll taxes	Shares withheld for payroll taxes	(68)	—		—	—		(497)				—				—		—			—						(497)		Shares withheld for payroll taxes				(29)				—			—				—					(178)				—			—				—				—				—				(178)

Stock-based compensation	Stock-based compensation	—	—		—	—		14				—				—		—			—						14		Stock-based compensation				—				—			—				—					548				—			—				—				—				—				548

Preferred stock dividends	Preferred stock dividends	—	—		—	—		—				—				—		—			(1,323)						(1,323)		Preferred stock dividends				—				—			—				—					—				—			—				—				(1,313)				—				(1,313)

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)
Balance as of December 31, 2020																										Balance as of December 31, 2020				32,767					$	3			700			$	—			$	141,372				$	68,853			(82)			$	(365)			$	(31,557)			$	—			$	178,306
Net loss																										Net loss				—					—				—			—				—					—				—			—				(1,547)				—				(1,547)
Issuance of common stock under employee plans	Issuance of common stock under employee plans	81	—		—	—		—				—				—		—			—						—		Issuance of common stock under employee plans				164				—			—				—					—				—			—				—				—				—				—
Shares withheld for payroll taxes	Shares withheld for payroll taxes	(4)	—		—	—		(30)				—				—		—			—						(30)		Shares withheld for payroll taxes				(35)				—			—				—					(223)				—			—				—				—				—				(223)

Stock-based compensation	Stock-based compensation	—	—		—	—		992				—				—		—			—						992		Stock-based compensation				—				—			—				—					1,234				—			—				—				—				—				1,234
Shares issued for equity offering		—	—		—	—		(47,886)				—				6,783		97,023			—						49,137

Preferred stock dividends	Preferred stock dividends	—	—		—	—		—				—				—		—			(1,309)						(1,309)		Preferred stock dividends				—				—			—				—					—				—			—				—				(1,312)				—				(1,312)
Balance as of March 31, 2020		32,687	$	3	700	$	0	$	140,086			$	68,853			(82)		$	(365)		$	(23,521)					$	185,056
Balance as of March 31, 2021																										Balance as of March 31, 2021				32,896					$	3			700			$	—			$	142,383				$	68,853			(82)			$	(365)			$	(34,416)			$	—			$	176,458

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)

Six Months Ended March 31,
2021 2020
Cash flows from operating activities:
Net (loss) income $ (464) $ 14,826
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization 6,851 5,894
Amortization of right-of-use assets for operating leases 8,117 11,840
Bad debt expense 415 571
Stock-based compensation 1,782 1,006
Deferred income taxes 0 345
Training equipment credits earned, net 155 419
Other losses, net (135) 227
Changes in assets and liabilities:
Receivables 12,277 3,058
Prepaid expenses (2,987) (1,347)
Other assets (535) 16
Notes receivable 134 652
Accounts payable and accrued expenses (1,480) 4,784
Deferred revenue 260 (6,132)
Income tax receivable 2,685 (10,893)
Accrued tool sets and other current liabilities 244 11
Operating lease liability (9,159) (12,734)
Other liabilities (633) (1,646)
Net cash provided by operating activities 17,527 10,897
Cash flows from investing activities:
Purchase of held-to-maturity securities 0 (41,562)
Proceeds from maturities of held-to-maturity securities 18,189 0
Purchase of property and equipment (49,919) (5,164)
Proceeds from disposal of property and equipment 6 32
Return of capital contribution from unconsolidated affiliate 150 142
Net cash used in investing activities (31,574) (46,552)
Cash flows from financing activities:
Proceeds from equity offering 0 49,137
Payment of preferred stock cash dividend (2,625) (2,632)
Payment of finance leases (64) (37)
Payment of payroll taxes on stock-based compensation through shares withheld (401) (527)
Net cash (used in) provided by financing activities (3,090) 45,941
Change in cash, cash equivalents and restricted cash (17,137) 10,286
Cash and cash equivalents, beginning of period 76,803 65,442
Restricted cash, beginning of period 12,116 15,113
Cash, cash equivalents and restricted cash, beginning of period 88,919 80,555
Cash and cash equivalents, end of period 58,965 76,606
Restricted cash, end of period 12,817 14,235
Cash, cash equivalents and restricted cash, end of period $ 71,782 $ 90,841


	Six Months Ended March 31,
	2022		2021
Cash flows from operating activities:
Net income	$	22,176	$	(464)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	7,563		6,851

Amortization of right-of-use assets for operating leases	9,123		8,117


Bad debt expense	1,355		415
Stock-based compensation	2,240		1,782
Deferred income taxes	(6,556)		—


Training equipment credits earned, net	(809)		155
Unrealized gain on interest rate swap	1,034		—
Other gains (losses), net	112		(135)
Changes in assets and liabilities:
Receivables	3,777		12,277
Prepaid expenses	(79)		(2,987)
Other assets	(540)		(535)
Notes receivable	(159)		134
Accounts payable and accrued expenses	(46)		(1,480)
Deferred revenue	(17,481)		260
Income tax receivable	—		2,685
Accrued tool sets and other current liabilities	752		244

Operating lease liability	(8,566)		(9,159)
Other liabilities	(3,496)		(633)
Net cash provided by operating activities	10,400		17,527
Cash flows from investing activities:
Cash paid for acquisition, net of cash acquired	(26,514)		—
Purchase of property and equipment	(53,151)		(49,919)
Proceeds from disposal of property and equipment	2		6

Proceeds from maturities of held-to-maturity securities	—		18,189

Return of capital contribution from unconsolidated affiliate	188		150
Net cash used in investing activities	(79,475)		(31,574)
Cash flows from financing activities:



Payment of preferred stock cash dividend	(2,617)		(2,625)
Payments on term loan and finance leases	(678)		(64)
Payment of payroll taxes on stock-based compensation through shares withheld	(628)		(401)

Net cash used in financing activities	(3,923)		(3,090)
Change in cash, cash equivalents and restricted cash	(72,998)		(17,137)
Cash and cash equivalents, beginning of period	133,721		76,803
Restricted cash, beginning of period	12,256		12,116
Cash, cash equivalents and restricted cash, beginning of period	145,977		88,919
Cash and cash equivalents, end of period	61,498		58,965
Restricted cash, end of period	11,481		12,817
Cash, cash equivalents and restricted cash, end of period	$	72,979	$	71,782

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

(Unaudited)

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


	Six Months Ended March 31,
	2022		2021
Supplemental disclosure of cash flow information:
Income taxes paid (refunded)	$	399	$	(2,693)
Interest paid	680		3
Training equipment obtained in exchange for services	802		227
Depreciation of training equipment obtained in exchange for services	453		646
Accounts payable and accrued expenses for capital expenditures	1,140		1,098







CARES Act funds received for student emergency grants (See Note 21)	4,942		—
CARES Act funds disbursed for student emergency grants (See Note 21)	(5,026)		—
CARES Act funds received for institutional costs	—		880

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~~Founded in 1965, with approximately 250,000 graduates in its history, Universal Technical Institute, Inc. (“we,” “us” or “our”) is a leading provider of ~~postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle~~transportation and marine 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 offertechnical training programs. As of March 31, 2022, we offered certificate, diploma or degree programs at 1214 campuses across the United States under the banner of several well-known brands, including Universal Technical Institute (“UTI”), Motorcycle Mechanics Institute and Marine Mechanics Institute ~~and~~(collectively, “MMI”), NASCAR Technical ~~Institute. We also~~Institute (“NASCAR Tech”), and MIAT College of Technology (“MIAT”). Additionally, we 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. ~~Founded in 1965, we have provided technical education for more than 55 years and have graduated more than 220,000 technicians.~~

We work closely with over 35 original equipment manufacturers and 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~~veterans’ benefits programs. For further discussion, see Note ~~2 on “Summary of Significant Accounting Policies - Concentration of Risk” and Note 20~~21 on “Government Regulation and Financial Aid” included in our ~~2020~~2021 Annual Report on Form 10-K filed with the SEC on December ~~3, 2020.~~2, 2021 (the “2021 Annual Report on Form 10-K”).

curriculum requirements.

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 six months ended March 31, ~~2021~~2022 are not necessarily indicative of the results that may be expected for the year ending September 30, ~~2021.~~2022. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our ~~2020~~2021 Annual Report on Form 10-K ~~filed with the SEC on December 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.

Other than described below, there have been no material changes or developments in our significant accounting policies or evaluation of accounting estimates and underlying assumptions or methodologies from those disclosed in Note 2 of our 2021 Annual Report on Form 10-K.

New Significant Accounting Policy for Goodwill and Intangible Assets

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

the carrying values. If we conclude that it is more likely than not that the fair value is less than the carrying amount based on our qualitative assessment, or that a qualitative assessment should not be performed, we proceed with the quantitative impairment tests to compare the estimated fair value of the reporting unit to the carrying value of its net assets. Determining the fair value of indefinite-lived intangible assets is judgmental in nature and involves the use of significant estimates and assumptions. We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, future tuition revenues, operating costs, working capital changes, capital expenditures and a discount rate. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends particularly in student enrollment and pricing and long-term operating strategies and initiatives. There were no indicators of impairment for our goodwill or indefinite-lived intangible assets as of March 31, 2022.

We also have definite-lived intangible assets, which primarily consist of purchased intangibles and capitalized curriculum development costs. The definite-lived intangible assets are recognized at cost less accumulated amortization. Amortization is computed using the straight-line method based on estimated useful lives of the related assets.

See Note 8 and Note 9 for additional details on our goodwill and intangible assets.

Reclassifications

Due to the acquisition of MIAT on November 1, 2021, which is described in further detail in Note 4, we added a new line to the condensed consolidated balance sheet: “Intangible Assets.” We have presented the intangible assets arising from the MIAT acquisition as well as the previously recorded intangible assets in this line. As of September 30, 2021, $0.1 million of intangible assets was reclassified from “Other assets” to “Intangible assets” on the condensed consolidated balance sheet for comparable presentation.

Note 3 - Recent Accounting Pronouncements

Effective ~~the First Quarter of Fiscal 2021~~

~~In June 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-13,~~ ~~Financial Instruments—Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326)~~. This update significantly changes the way that entities measure credit losses. The new standard requires that entities estimate credit losses based upon an “expected credit loss” approach rather than the historical “incurred loss” approach. The new approach requires entities to measure all expected credit losses for financial assets based on historical experience, current conditions and reasonable forecasts of collectability. The change in approach impacts the timing of recognition of credit losses. 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 corresponding amount recorded as an increase to 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~~Financial Accounting Standards Board (“FASB”) issued ~~ASU~~Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes(“ASU 2019-12”). The amendments in ~~this standard~~ASU 2019-12 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~~have evaluated the ~~impact~~new guidance and determined that ~~the update will have~~there is no material impact on our results of operations, financial condition ~~and~~or financial statement disclosures.

In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). The amendments in ASU 2021-08 require that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification (“ASC”) 606, Revenue from Contracts from Customers (“ASC 606”). At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree financial statements were prepared in accordance with generally accepted accounting principles). For public business entities, the amendments in ASU 2021-08 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption of ASU 2021-08 is permitted, including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to all business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period of early application and (2) prospectively to all business combinations that occur on or after the date of initial application. Due to the MIAT acquisition on November 1, 2021, we have elected to early adopt ASU 2021-08 as of October 1, 2021 and have applied the guidance in ASU 2021-08 to the deferred revenue recorded for MIAT. See Note 4 for further information on the acquisition of MIAT.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Other

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting (“ASU 2020-04”), which provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions affected by reference rate reform, if certain criteria are met. This new guidance only applies to contracts and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. An entity may elect to apply the amendments for contract modifications as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020, or prospectively from a date within an interim period that includes or is subsequent to March 12, 2020, up to the date that the financial statements are available to be issued. The amendments in ASU 2020-04 do not apply to contract modifications made after December 31, 2022. Given the interest rate for our term loan (which is further described in Note 13) references LIBOR, we are currently evaluating the new reference rate reform practical expedients and will consider adopting this guidance when we are required to modify our contract for the discontinuation of LIBOR.

Note 4 - Acquisition of MIAT College of Technology

On November 1, 2021, we completed the acquisition contemplated by the previously announced Stock Purchase Agreement (the “Purchase Agreement”), dated March 29, 2021, by and among UTI, HCP Ed Holdings, LLC, a Delaware limited liability company (“Seller”), HCP Ed Holdings, Inc., a Delaware corporation and wholly owned subsidiary of Seller (“HCP”), and Michigan Institute of Aeronautics, Inc. d/b/a MIAT, a Michigan corporation and wholly subsidiary of HCP. MIAT is a post-secondary school that offers vocational and technical certificates and degrees across aviation maintenance, energy technology, wind energy technology, robotics and automation, non-destructive testing, heating ventilation air conditioning and refrigeration (“HVACR”), and welding disciplines. HCP is MIAT’s holding company that owns no assets other than the issued and outstanding shares of MIAT.

The acquisition is part of our growth and diversification strategy and will allow us to expand MIAT programs throughout UTI brand campuses and extend UTI’s presence and programs into the Canton, MI market where MIAT has been for over 50 years. Other expected synergies include operating and purchasing cost efficiencies and broadening the opportunity for student growth at the acquired MIAT campuses by leveraging our high school and national marketing and admissions infrastructure.

Under the terms of the Purchase Agreement, we acquired all of the issued and outstanding shares of capital stock of HCP from the Seller for $26.0 million base purchase price plus $2.8 million working capital surplus for total cash consideration paid of $28.8 million. As a result, HCP is now a wholly-owned subsidiary of UTI and MIAT remains as a wholly-owned subsidiary of HCP. The consideration paid was funded by available operating cash.

In connection with this acquisition, we incurred total transaction costs of $1.6 million of which $0.8 million were incurred during the six months ended March 31, 2022 and $0.8 million during the year ended September 30, 2021. In both periods, these costs are included in “Selling, general and administrative” expenses in the condensed consolidated statements of operations. The results of operations for MIAT were not material to our condensed consolidated statement of operations for the three and six months ended March 31, 2022.

Under the acquisition method of accounting, the total purchase price was allocated to the identifiable assets acquired and the liabilities assumed based on our preliminary valuation estimates of the fair values as of the acquisition date. During the three months ended March 31, 2022, adjustments were made related to the acquired deferred tax liabilities, right-of-use assets for operating leases and other assets, which adjusted the value of the goodwill acquired. The acquisition accounting allocation is based upon the information available as of the date of this filing and there could be further adjustments related to taxes as we continue our analysis under the provisions of ASC 805 which allows companies one year to complete acquisition related adjustments, which may result in potential adjustments to the carrying value of the respective recorded assets and liabilities, and the determination of any residual amount that will be allocated to goodwill.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

The adjusted allocation of the purchase price at November 1, 2021 is summarized as follows:


Assets acquired:
Cash and cash equivalents	$	2,301
Accounts receivable, net	3,230
Prepaid expenses	268
Other current assets	507
Property and equipment	3,043
Goodwill	8,637
Intangible assets	16,200
Right-of-use assets for operating leases	14,979
Other assets	314
Total assets acquired	$	49,479
Less: Liabilities assumed
Accounts payable and accrued expenses	$	1,720
Deferred revenue	1,843
Operating lease liability, current portion	817
Deferred tax liabilities, net	1,975
Operating lease liability	14,216
Other liabilities	93
Total liabilities assumed	20,664
Net assets acquired	$	28,815

The goodwill of $8.6 million arising from the acquisition consists largely of the growth and operating synergies expected from integrating MIAT into UTI. The total amount of goodwill expected to be deductible for tax purposes is approximately $0.6 million. See Note 8 for additional details on goodwill.

The purchase price allocation requires subjective estimates that, if incorrectly estimated, could be material to our consolidated financial statements including the amount of depreciation and amortization expense. The fair value of the tangible assets was estimated using the cost approach. The intangible assets acquired, which primarily consists of the accreditations and regulatory approvals, trademarks and trade names, and curriculum, were valued using different valuation techniques depending upon the nature of the intangible asset acquired. The accreditations and regulatory approvals were valued using the multiperiod excess earnings method (“MPEEM”) under the income approach. The MPEEM is a variation of discounted cash-flow analysis. Rather than focusing on the whole entity, the MPEEM isolates the cash flows that can be associated with a single intangible asset and measures fair value by discounting them to present value. The trademarks and trade names were valued using the relief from royalty method. The value of the trade name encompasses all items necessary to generate revenue utilizing the trade name. The curriculum was valued using the cost approach. See Note 9 for further details on the intangible assets recorded. As previously discussed in Note 3, we early adopted ASU 2021-08 and applied the new guidance when recording the initial deferred revenue.

Pro forma financial information is not presented as the fiscal 2021 revenues and earnings of MIAT are not material to our condensed consolidated statements of operations. MIAT’s principal business is providing postsecondary education and is included in our “Postsecondary Education” reporting unit disclosed in Note 19 on Segments. MIAT’s corporate expenses are allocated to “Postsecondary Education” and the “Other” category based on compensation expense.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 45 - 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~~.606. Tuition and fee revenue is recognized ratably over the term of the course or program offered. The majority of our UTI programs are designed to be completed in 36 to 90 weeks ~~and~~while our MIAT programs are completed in 30 to 104 weeks. 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 1619 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.

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

March 31, 2021 September 30, 2020
Receivables, which includes tuition and notes receivable $ 43,103 $ 53,144
Deferred revenue 40,954 40,694


	March 31, 2022		September 30, 2021
Receivables, which includes tuition and notes receivable	$	45,601	$	46,489
Deferred revenue	42,010		57,648

During the six months ended March 31, ~~2021,~~2022, 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~~

As previously noted, during the year ended September 30, 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 so that our 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 recommended or required by the Centers for Disease Control (“CDC”) and state and local jurisdictions, while still meeting our accreditation and curriculum requirements.

All of our campuses remained open during the six 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 remained exclusively online. As of March 31, 2021, approximately 10% of students were completing catch-up lab work, but over an extended period of time, while less than 1% of students had not returned to campus to complete the in-person labs and remained exclusively in the online portion of the curriculum, essentially only completing half of each 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 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 approximately $0.8 million.

~~Note 5 - 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.

912

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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 March 31, 2021 and September 30, 2020 were as follows:~~

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 6 - 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.

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
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


			Fair Value Measurements Using
	March 31, 2022		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)	$	57,109	$	57,109	$	—	$	—
Notes receivable(2)	36,283		—		—		36,283



Total assets at fair value on a recurring basis	$	93,392	$	57,109	$	—	$	36,283

~~Table of Contents~~

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~


				Fair Value Measurements Using									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)			September 30, 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)	Money market funds(1)	$	43,322	$	43,322	$	0	$	0	Money market funds(1)	$	62,100	$	62,100	$	—	$	—
Notes receivable(2)	Notes receivable(2)	32,793		0		0		32,793		Notes receivable(2)	36,124		—		—		36,124
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	Total assets at fair value on a recurring basis	$	114,147	$	81,354	$	0	$	32,793	Total assets at fair value on a recurring basis	$	98,224	$	62,100	$	—	$	36,124

(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~~2022 and September 30, ~~2020.~~2021.

(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~~

Table of ~~March 31, 2021 and September 30, 2020.~~Contents

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 7 - Property and Equipment, net

Property and equipment, net consisted of the following:


	Depreciable Lives (in years)	March 31, 2022		September 30, 2021
Land	—	$	16,555	$	8,355
Buildings and building improvements	3-35	118,335		71,036
Leasehold improvements	1-28	71,544		63,502
Training equipment	3-10	92,261		91,191
Office and computer equipment	3-10	32,016		31,718
Curriculum development	5	19,692		19,692
Software developed for internal use	1-5	11,887		12,524
Vehicles	5	1,431		1,436
Right-of-use assets for finance leases	2-3	215		215
Construction in progress	—	19,587		10,171
		383,523		309,840
Less: Accumulated depreciation and amortization		(190,439)		(187,789)
		$	193,084	$	122,051

Depreciable
Lives (in years) March 31, 2021 September 30, 2020
Land (1)
— $ 8,355 $ 3,189
Buildings and building improvements (1)
3-35 68,282 28,046
Leasehold improvements 1-28 64,232 62,899
Training equipment 3-10 92,250 91,731
Office and computer equipment 3-10 32,641 33,524
Curriculum development 5 19,692 19,692
Software developed for internal use 1-5 11,959 11,951
Vehicles 5 1,460 1,502
Right-of-use assets for finance leases 2-3 359 359
Construction in progress — 1,276 2,213
300,506 255,106
Less: Accumulated depreciation and amortization (185,585) (182,363)
$ 114,921 $ 72,743

~~(1) During~~Depreciation expense related to property and equipment was $3.9 million and $7.5 million for the three and six months ended March 31, 2022, respectively, and $3.5 million and $6.8 million for the three and six months ended March 31, 2021, ~~land and buildings and building improvements increased due~~respectively.

Acquisition of Lisle

On February 11, 2022, we completed the acquisition of 2611 Corporate West Drive Venture LLC (“2611”) which owns our Lisle, Illinois campus (the “Lisle Campus”). Prior to the ~~purchase of~~acquisition, we had a 28% interest in 2611 through our unconsolidated affiliate, as described in Note 10, and previously leased the ~~building and land at our Avondale, Arizona~~ campus ~~location.~~from 2611. The total ~~purchase price~~cash consideration paid, including transaction related costs, for the remaining 72% interest in 2611 was ~~approximately $45.2~~$28.4 million. In addition to the cash consideration paid, we assumed $18.3 million in debt for a loan agreement with a third-party bank that is secured by a mortgage on the Lisle Campus. The total net assets recorded for the transaction equaled $33.0 million, of which ~~$5.1~~$8.2 million was allocated to land, ~~and $40.1~~$43.1 million was allocated to buildings, and $18.3 million was allocated to debt. Additionally, prior to the acquisition of 2611, there was $4.0 million in leasehold improvements recorded for the Lisle Campus which we have reclassified to building ~~improvements based upon the appraised values.~~and building improvements.

Note 8 - Goodwill

Our goodwill balance of ~~$8.2~~$16.9 million as of 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~~2022 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~~The changes in the carrying value of goodwill are presented in the table below.


	March 31, 2022		September 30, 2021
Balance at beginning of period	$	8,222	$	8,222
Additions to Goodwill for acquisition of MIAT	8,637		—
Balance at end of period	$	16,859	$	8,222

Of the $16.9 million recorded as goodwill as of March 31, 2022, $8.2 million resulted from the ~~deterioration~~acquisition of our motorcycle and marine education business in Orlando, Florida in 1998 and $8.6 million relates to the acquisition of MIAT as of November 1, 2021 as previously described in Note 4. All of the goodwill relates to our Postsecondary Education reportable operating ~~performance~~segment.

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Goodwill is reviewed at least annually for impairment, which may result from the deterioration in the operating performance of the acquired ~~business,~~businesses, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. ~~Any resulting~~Historically, this testing has been performed as of September 30 of each fiscal year. Effective as of October 1, 2021, we determined that our goodwill will be tested annually for impairment ~~charge would~~as of August 1 and more frequently if events or circumstances lead to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. We do not consider this change to be ~~recognized~~material and believe that the timing is preferable as ~~an expense~~it allows additional time to complete the annual assessment in ~~the period in which impairment is identified.~~

~~As of~~ ~~March 31, 2021, while some students were taking longer than normal to graduate from their programs due to the impacts~~advance of the ~~COVID-19 pandemic on our business, students enrolled at our Orlando, Florida campus continue to progress through their programs under the new blended training model. There~~annual reporting deadline. This change in assessment date did not delay, accelerate, or cause avoidance of a potential impairment charge. There were no indicators of goodwill impairment as of March 31, ~~2021~~2022.

Note 9 - Intangible Assets

The following table provides the gross carrying value, accumulated amortization, net book value and remaining useful life for intangible assets subject to amortization as of March 31, 2022:


	Gross Carrying Value		Accumulated Amortization		Net Book Value		Weighted Average Remaining Useful Life (Years)
Accreditations and regulatory approvals - MIAT	$	12,800	$	—	$	12,800	Indefinite
Trademarks and trade names - MIAT	3,000		—		3,000		Indefinite
Curriculum - MIAT	400		(33)		367		4.58
Non-compete agreement and trade name	442		(336)		106		3.08
Total	$	16,642	$	(369)	$	16,273	4.23

Of the $16.6 million gross carrying value recorded as intangible assets as of March 31, 2022, $16.2 million relates to the MIAT acquisition completed on November 1, 2021 as previously described in Note 4. The remaining weighted average useful lives shown are calculated based on the net book value and remaining amortization period of each respective intangible asset. Amortization is computed using the straight-line method based on estimated useful lives of the related assets. Amortization expense related to finite-lived intangible assets was $51.1 thousand and $17.7 thousand for the six months ended March 31, 2022 and 2021, respectively.

As discussed in our new significant accounting policy on intangible assets in Note 2, our indefinite-lived intangible assets are reviewed at least annually for impairment as of August 1, or more frequently if there are indicators of impairment. There were no indicators of impairment for our indefinite-lived intangible assets as of March 31, 2022.

Note 910 - 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~~the Lisle ~~Illinois campus facility. In connection~~Campus. As discussed in Note 7, in February 2022, this JV was dissolved and we acquired the building, land and debt associated with this ~~investment, we do not possess a controlling financial interest as we do not hold a majority~~campus through the acquisition 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.2611 entity.

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


	March 31, 2022				September 30, 2021
	Carrying Value		Ownership Percentage		Carrying Value		Ownership Percentage
Investment in JV	$	—	—	%	$	4,627	28.0	%

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 %

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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

Six Months Ended March 31,
2021 2020
Balance at beginning of period $ 4,494 $ 4,338
Equity in earnings of unconsolidated affiliate 215 205
Return of capital contribution from unconsolidated affiliate (150) (142)
Balance at end of period $ 4,559 $ 4,401


	Six Months Ended March 31,
	2022		2021
Balance at beginning of period	$	4,627	$	4,494
Equity in earnings of unconsolidated affiliate	113		215
Return of capital contribution from unconsolidated affiliate	(188)		(150)
Dissolution of unconsolidated affiliate	(4,552)		—
Balance at end of period	$	—	$	4,559

Note 1011 - Leases

As of March 31, ~~2021,~~2022, we leased 910 of our 1214 currently operating campuses, two future 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. The facility leases have original lease terms ranging from 8 to 20 years and expire at various dates through ~~2031.~~2036. 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 as of March 31, ~~2021,~~2022, 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.

As previously discussed in Note 7, in February 2022 we purchased the 2611 entity which owns the Lisle Campus. While the lease for the Lisle Campus remains in place between the 2611 and UTI of Illinois, LLC entities, at the UTI, Inc consolidated level, the right-of-use asset and the operating lease liability for this campus were settled, resulting in a gain on settlement of $1.6 million which has been included within “Educational services and facilities” on our condensed consolidated statement of operations for the three and six months ended March 31, 2022.

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.

~~Table of Contents~~

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

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~

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 six months ended March 31, ~~2021~~2022 and ~~2020~~2021 were as follows:

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


	Three Months Ended March 31,				Six Months Ended March 31,
Lease Expense	2022		2021		2022		2021
Operating lease expense(1)	$	6,371	$	5,458	$	12,734	$	11,590
Finance lease expense:
Amortization of leased assets	18		33		36		65
Interest on lease liabilities	—		1		1		3
Variable lease expense	1,382		950		2,473		1,857
Sublease income	(31)		(123)		(90)		(246)
Total net lease expense	$	7,740	$	6,319	$	15,154	$	13,269

(1) Excludes the expense for short-term leases not accounted for under ASC 842, which was not significant for the three and six months ended March 31, ~~2021~~2022 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.~~

2021.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

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

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


Leases	Classification	March 31, 2022		September 30, 2021
Assets:
Operating lease assets	Right-of-use assets for operating leases(1)	$	141,736	$	159,075
Finance lease assets	Property and equipment, net(2)	58		94
Total leased assets		$	141,794	$	159,169

Liabilities:
Current
Operating lease liabilities	Operating lease liability, current portion(1)	$	12,940	$	14,075
Finance lease liabilities	Long-term debt, current portion	60		73
Noncurrent
Operating lease liabilities	Operating lease liability(1)	137,635		153,228
Finance lease liabilities	Long-term debt	—		23
Total lease liabilities		$	150,635	$	167,399

(1) ~~Excludes the impact of the opening balance adjustment for the adoption of ASC 842 as of October 1, 2019 for~~As noted above, during the six months ended March 31, ~~2020.~~2022, our right-of-use assets and operating lease liability decreased due to the purchase of the Lisle Campus and the settlement of the existing lease.

(2) Finance lease assets are recorded net of accumulated amortization of $0.2 million and $0.1 million as of March 31, 2022 and September 30, 2021, respectively.


Lease Term and Discount Rate	March 31, 2022		September 30, 2021
Weighted-average remaining lease term (in years):
Operating leases	9.25		9.37
Finance leases	0.82		1.32

Weighted average discount rate:
Operating leases	3.96	%	4.31	%
Finance leases	3.08	%	3.08	%


	Six Months Ended March 31,
Supplemental Disclosure of Cash Flow Information and Other Information	2022		2021
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	6,962	$	9,159
Financing cash flows from finance leases	36		64

Non-cash activity related to lease liabilities:
Lease assets obtained in exchange for new operating lease liabilities (1)	$	6,241	$	11,105

(1) Excludes the operating leases recorded for the MIAT acquisition discussed in Note 4.

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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 March 31, 2021
Years ending September 30, Operating Leases Finance Leases
Remainder of 2021 $ 12,205 $ 67
2022 23,823 110
2023 19,035 23
2024 18,765 0
2025 18,993 0
2026 and thereafter 104,647 0
Total lease payments 197,468 200
Less: interest (37,767) (4)
Present value of lease liabilities 159,701 196
Less: current lease liabilities (19,565) (131)
Long-term lease liabilities $ 140,136 $ 65


	As of March 31, 2022
Years ending September 30,	Operating Leases		Finance Leases
Remainder of 2022	$	6,923	$	37
2023	19,744		24
2024	19,531		—
2025	19,800		—
2026	19,565		—
2027 and thereafter	94,518		—
Total lease payments	180,081		61
Less: interest	(29,506)		(1)
Present value of lease liabilities	150,575		60
Less: current lease liabilities	(12,940)		(60)
Long-term lease liabilities	$	137,635	$	—

Note 1112 - Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consisted of the following:


	March 31, 2022		September 30, 2021
Accounts payable	$	9,070	$	13,702
Accrued compensation and benefits	29,545		29,506
Other accrued expenses	16,532		11,189
Total accounts payable and accrued expenses	$	55,147	$	54,397

March 31, 2021 September 30, 2020
Accounts payable $ 10,571 $ 12,471
Accrued compensation and benefits 26,564 28,053
Other accrued expenses 11,953 11,367
Total accounts payable and accrued expenses $ 49,088 $ 51,891

Note 13 - Debt


	March 31, 2022					September 30, 2021
	Interest Rate		Maturity Date	Carrying Value of Debt (4)		Carrying Value of Debt (4)

Avondale Term Loan(1)	2.46	%	May 2028	$	30,489	$	30,886
Lisle Term Loan	5.29	%	Nov 2031	18,106		—
Finance leases(2)	3.08	%	Various	60		96
Total debt				48,655		30,982
Debt issuance costs presented with debt (3)				(236)		(256)
Total debt, net				48,419		30,726
Less: current portion of long-term debt				(2,374)		(876)
Long-term debt				$	46,045	$	29,850

(1) Interest on the Avondale Term Loan (as defined below) accrues at annual rate equal to the LIBOR plus 2.0%.

(2) Our finance leases include finance lease arrangements related to various equipment with a weighted-average annual interest rate of approximately 3.08%, which mature in varying installments between 2022 and 2023. See Note 11 for additional details on our finance leases.

(3) The unamortized debt issuance costs as of March 31, 2022 and September 30, 2021 relate entirely to the Avondale Term Loan.

(4) Our term loans and finance leases bear interest at rates commensurate with market rates and therefore the respective carrying values approximate fair value (Level 2).

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Avondale Term Loan

In connection with the Avondale, Arizona building purchase in December 2020, we entered into a Credit Agreement with Fifth Third Bank, National Association (the “Avondale Lender”) on May 12, 2021 in the maximum principal amount of $31.2 million with a maturity of seven years (the “Avondale Term Loan”). The Avondale Term Loan bears interest at the rate of LIBOR plus 2.0%. Principal and interest payments are due monthly. The Avondale Term Loan is secured by a first priority lien on our Avondale, Arizona property, including all land and improvements. Additionally, on May 12, 2021, we entered into an interest rate swap agreement with the Avondale Lender that effectively fixes the interest rate on 50% of the principal amount of the Avondale Term Loan, or approximately $15.6 million, at 3.5% for the entire loan term. See Note 14 below for further discussion on the interest rate swap.

Lisle Term Loan

As discussed in Note 7, in connection with the Lisle Campus purchase, we assumed a Loan Agreement with Western Alliance Bank on February 14, 2022 in the principal amount of $18.3 million, maturing in October 2031 (the “Lisle Term Loan”). The Lisle Term Loan bears interest at the rate of 5.293%. Principal and interest payments are due monthly. The Lisle Term Loan is secured by a first priority lien on the Lisle Campus, including all land and improvements. In April 2022, this term loan was repaid in full, as discussed in Note 22 on “Subsequent Events”.

Debt Covenants

We are subject to certain customary affirmative and negative covenants in connection with our term loans, including, without limitation, certain reporting obligations, certain limitations on restricted payments, limitations on liens, encumbrances and indebtedness and a debt service coverage ratio covenant. Events of default under the Lisle Term Loan include, among others, the failure to make payments when due, breach of covenants, and breach of representations or warranties. For further discussion of our Avondale Term Loan debt covenants, see Note 12 on “Debt” included in our 2021 Annual Report on Form 10-K. As of March 31, 2022, we were in compliance with all debt covenants.

Debt Maturities

Scheduled principal payments due on our debt for the remainder of 2022 and for each year through the period ended September 30, 2026, and thereafter were as follows at March 31, 2022:


Maturity	Term Loans		Finance Leases		Total
Remainder of 2022	$	1,141	$	36	$	1,177
2023	2,370		24		2,394
2024	2,481		—		2,481
2025	2,604		—		2,604
2026	2,730		—		2,730
Thereafter	37,269		—		37,269
Subtotal	48,595		60		48,655
Debt issuance costs presented with debt	(236)		—		(236)
Total	$	48,359	$	60	$	48,419

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 14- Derivative Financial Instruments

In the normal course of business, our operations are exposed to market risks, including the effect of changes in interest rates. We may enter into derivative financial instruments to offset these underlying market risks.

On May 12, 2021, in connection with the Avondale Term Loan discussed in Note 13, we entered into an interest rate swap agreement with the Avondale Lender that effectively fixes the interest rate on 50% of the principal amount of the Avondale Term Loan, or approximately $15.6 million, at 3.5% for the entire loan term, or seven years (the “Swap”). On May 12, 2021, the Swap was designated as an effective cash flow hedge for accounting and tax purposes.

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)” on the condensed consolidated balance sheets. For cash flow hedges, we report the effective portion of the gain or loss as a component of “Accumulated other comprehensive income (loss)” and reclassify it to “Interest expense” in the condensed consolidated statements of operations over the corresponding period of the underlying hedged item. The ineffective portion of the change in fair value of a derivative financial instrument is recognized in “Interest expense” at the time the ineffectiveness occurs. To the extent the hedged forecasted interest payments on debt related to our interest rate swap is paid off, the remaining balance in “Accumulated other comprehensive income (loss)” is recognized in “Interest expense” in the condensed consolidated statements of operations. Of the net amount of the existing losses that are reported in “Accumulated other comprehensive income (loss)” as of March 31, 2022, we estimate that $0.1 million will be reclassified to “Interest expense” within the next twelve months. As of March 31, 2022, the notional amount of our Swap was approximately $15.3 million.

Fair Value of Derivative Instruments

The following table presents the fair value of our Swap (Level 2) which is designated as a cash flow hedge and the related classification on the condensed consolidated balance sheet as of March 31, 2022:


	Interest Rate Swap
Other current assets	$	28
Other assets	$	727
Total fair value of assets designated as hedging instruments	$	755

Effect of Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Loss)

The table below presents the effect of cash flow hedge accounting for our Swap on “Accumulated other comprehensive income (loss)” as of March 31, 2022:


	Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on Derivative		Location of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income	Amount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
	Three Months Ended March 31, 2022
Interest Rate Swap	$	810	Interest expense	$	(51)

	Six Months Ended March 31, 2022
Interest Rate Swap	$	927	Interest expense	$	(107)

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Effect of Cash Flow Hedge Accounting on the Condensed Consolidated Statement of Operations

The table below presents the effect of cash flow hedge accounting for our Swap on the condensed consolidated statement of operations for the six months ended March 31, 2022:


Interest Rate Swap	Interest Expense
Amount of gain (loss) reclassified from accumulated other comprehensive income (loss) into income	$	(107)

Note 1215 - Income Taxes

Our income tax benefit for the three months ended March 31, ~~2021~~2022 was $4.6 million, or (166.8)% of pre-tax income, compared to income tax benefit of $34 thousand, or 2.2% ~~of pre-tax loss, compared to $10.8 million, or 1,632.0%~~ of pre-tax loss, for the three months ended March 31, ~~2020.~~2021. For the six months ended March 31, ~~2021,~~2022, our income tax benefit was ~~$8.0~~$5.9 million, or (36.6)% of pre-tax income, compared to $8 thousand, or 1.7% of pre-tax loss, ~~compared to $10.7 million, or 261.1% of pre-tax income,~~ for the six months ended March 31, ~~2020.~~2021. 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 and 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”).~~taxes. The ~~balance of the valuation allowance for our deferred~~income tax ~~assets was $17.5 million and $17.4 million as of March 31, 2021 and September 30, 2020, respectively.~~

~~As discussed in Note 13 on “Income Taxes” in our~~ ~~2020 Annual Report on Form 10-K~~ ~~filed with the SEC on December 3, 2020,~~benefit recorded during the year ended September 30, 2020, we recorded an income tax refund of approximately $11.3 million as a result of certain provisions of the CARES Act, of which $7.1 million remained outstanding as of September 30, 2020. During thethree and six months ended March 31, 2021 is primarily comprised of the benefit related to the release of a majority of the valuation allowance (as discussed further below), which includes the valuation allowance impact related to the MIAT deferred tax liability for indefinite lived intangibles which are available to offset a portion of our indefinite lived deferred tax assets, offset by current state tax expense.

As of each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. During the second quarter of 2022, based in part on our sustained positive earnings in recent quarters, we ~~received approximately $2.7 million~~have determined that there is sufficient evidence to meet the more likely than not realizability threshold and support the reversal of a majority of the previously recorded valuation allowance against our deferred tax assets as of March 31, 2022. The release of the valuation allowance resulted in ~~refunds, leaving $4.3 million as an income~~the recognition of certain deferred tax ~~receivable recorded in “Receivable, net”~~assets on the condensed consolidated balance sheet asand a non-cash tax benefit recorded in the condensed consolidated statement of ~~March 31, 2021. We expect to receive~~operations for the ~~remaining $4.3 million subsequent to the filing of our consolidated tax return for our fiscal 2020 later this year.~~

period. As of March 31, ~~2021,~~2022, we continued to ~~have~~maintain a ~~full~~ valuation allowance ~~against all deferred tax assets that rely upon future taxable income for their realization~~related to certain federal and ~~will continue~~state attributes which are not expected 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 is givenutilized prior to ~~subjective evidence such as our projections for growth.~~expiration.

Note 1316 - 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 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.

We received a January 18, 2022 letter from the Consumer Financial Protection Bureau (“CFPB”) explaining that it was assessing whether UTI “is subject to the CFPB’s supervisory authority based on its activities related to student lending.” The CFPB’s letter then requested certain information about extensions of credit to UTI students; generally explained the source and scope of the CFPB’s regulatory authority; and advised that, after it reviewed the requested materials, the CFPB “anticipates providing guidance regarding whether UTI is subject to CFPB’s supervisory authority.” We have provided the requested information and are awaiting further guidance, if any, from the CFPB.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In thousands, except per share amounts)

(Unaudited)

Note 1417 - 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.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

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

~~(Unaudited)~~

Preferred Stock

Preferred Stock consists of 10,000,000 authorized preferred shares of $0.0001 par value each. As of March 31, ~~2021~~2022 and September 30, ~~2020,~~2021, 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 March 31, ~~2021~~2022 and September 30, ~~2020.~~2021.

Pursuant to the terms of the 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 during the three months ended March 31, ~~2021.~~2022.

Given our current earnings and anticipated future earnings, along with share price of the Company’s common stock based upon trading activity during the quarter and subsequent to quarter end, we believe that there is a reasonable possibility that within the next 12 months, we may be eligible, at our option and subject to obtaining any required stockholder and regulatory approvals, to require that any or all of the then outstanding Series A Preferred Stock be automatically converted into our common stock at the conversion rate. For further discussion of our preferred stock, including the potential for conversion into common stock, see Note 1516 on “Shareholders’ Equity” included in our ~~2020~~2021 Annual Report on Form 10-K ~~filed with the SEC on December 3, 2020.~~.

Share Repurchase Program

On December 10, 2020, our Board of Directors authorized a new share repurchase plan that would allow for the repurchase of up to $35.0 million of our common stock in the open market or through privately negotiated transactions. This new share repurchase plan replaced the previously authorized plan from fiscal 2012. Any repurchases under this new stock repurchase program require the approval of a majority of the voting power of our Series A Preferred Stock. We ~~did~~have not ~~repurchase~~repurchased any shares under the share repurchase program, including during the six months ended March 31, ~~2021.~~2022.

Note 1518 - 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 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 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 EPS is calculated using the more dilutive of the two-class method or as-converted method. The two-class method uses net income available to common shareholders and assumes conversion of all potential shares other than the 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 units and convertible preferred stock. The basic and diluted weighted average shares outstanding are the same for the three months and six months ended 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 table in the disclosure summarizing the computation of 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 participating shares outstanding in diluted shares outstanding. The disclosure errors had no impact on reported net income per diluted share for the three and six months ended

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(In thousands, except per share amounts)

(Unaudited)

~~March 31, 2020.~~participating securities. Dilutive potential common shares include outstanding stock options, unvested restricted share units and convertible preferred stock. The ~~disclosures below have been corrected to appropriately reflect~~basic and diluted ~~EPS under~~weighted average shares outstanding are the ~~two-class method~~same for the three and six months ended March 31, ~~2020. We have concluded that these corrections were not material~~2021 as a result of the net loss available to common shareholders and anti-dilutive impact of the ~~previously issued condensed consolidated financial statements for the three and six months ended March 31, 2020.~~potentially dilutive securities.

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


	Three Months Ended				Six Months Ended
	March 31,				March 31,
	2022		2021		2022		2021
Basic earnings per common share:
Net income (loss)	$	7,354	$	(1,547)	$	22,176	$	(464)
Less: Preferred stock dividend declared	(1,294)		(1,312)		(2,617)		(2,625)
Net income (loss) available for distribution	6,060		(2,859)		19,559		(3,089)
Income allocated to participating securities	(2,359)		—		(7,622)		—
Net income (loss) available to common shareholders	$	3,701	$	(2,859)	$	11,937	$	(3,089)

Weighted average basic shares outstanding	32,992		32,762		32,920		32,709

Basic income (loss) per common share	$	0.11	$	(0.09)	$	0.36	$	(0.09)

Diluted earnings per common share:
Method used:	Two-class		Two-class		Two-class		Two-class
Net income (loss) available to common shareholders	$	3,701	$	(2,859)	$	11,937	$	(3,089)

Weighted average basic shares outstanding	32,992		32,762		32,920		32,709
Dilutive effect related to employee stock plans	444		—		473		—
Weighted average diluted shares outstanding	33,436		32,762		33,393		32,709

Diluted income (loss) per common share	$	0.11	$	(0.09)	$	0.36	$	(0.09)

Anti-dilutive shares excluded:
Outstanding stock-based grants	355		467		444		677
Convertible preferred stock	21,021		21,021		21,021		21,021
Total anti-dilutive shares excluded	21,376		21,488		21,465		21,698

Dilutive shares under the as-converted method(1)	54,457		54,065		54,414		54,003

(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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(In thousands, except per share amounts)

(Unaudited)

Note 1619 - 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~~As discussed in Note 10, our JV was dissolved in February 2022. Prior to this change, our equity method investment and other non-postsecondary education operations ~~are~~were 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, 2022								Three Months Ended March 31, 2022
Revenues								Revenues	$	98,650	$	3,436	$	102,086
Income (loss) from operations								Income (loss) from operations	3,876		(499)		3,377
Depreciation and amortization (1)								Depreciation and amortization (1)	3,857		27		3,884
Net income (loss)								Net income (loss)	7,853		(499)		7,354
		Postsecondary Education		Other		Consolidated
Three Months Ended March 31, 2021	Three Months Ended March 31, 2021							Three Months Ended March 31, 2021
Revenues	Revenues	$	74,846	$	2,863	$	77,709	Revenues	$	74,846	$	2,863	$	77,709
Loss from operations	Loss from operations	(1,322)		(339)		(1,661)		Loss from operations	(1,322)		(339)		(1,661)
Depreciation and amortization (1)	Depreciation and amortization (1)	3,547		22		3,569		Depreciation and amortization (1)	3,547		22		3,569
Net loss	Net loss	(1,208)		(339)		(1,547)		Net loss	(1,208)		(339)		(1,547)

Three Months Ended March 31, 2020
Six Months Ended March 31, 2022								Six Months Ended March 31, 2022
Revenues	Revenues	$	78,261	$	4,456	$	82,717	Revenues	$	200,352	$	6,809	$	207,161
(Loss) Income from operations		(591)		92		(499)
Depreciation and amortization (2)		2,854		27		2,881
Net income		10,050		92		10,142
Income (loss) from operations								Income (loss) from operations	18,023		(1,068)		16,955
Depreciation and amortization(1)								Depreciation and amortization(1)	7,511		52		7,563
Net income (loss)								Net income (loss)	23,244		(1,068)		22,176

Six Months Ended March 31, 2021	Six Months Ended March 31, 2021							Six Months Ended March 31, 2021
Revenues	Revenues	$	148,406	$	5,428	$	153,834	Revenues	$	148,406	$	5,428	$	153,834
Loss from operations	Loss from operations	(218)		(668)		(886)		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)	Depreciation and amortization (2)	5,825		69		5,894		Depreciation and amortization (2)	6,805		46		6,851
Net income (loss)	Net income (loss)	15,081		(255)		14,826		Net income (loss)	204		(668)		(464)

As of March 31, 2021
As of March 31, 2022								As of March 31, 2022
Total assets	Total assets	$	433,708	$	6,637	$	440,345	Total assets	$	514,105	$	3,248	$	517,353

As of September 30, 2020
As of September 30, 2021								As of September 30, 2021
Total assets	Total assets	$	435,144	$	6,837	$	441,981	Total assets	$	504,934	$	7,636	$	512,570

(1) Includes depreciation of training equipment obtained in exchange for services of $0.3 million and ~~$0.6~~$0.3 million for the three months ended March 31, 2022 and 2021 and $0.5 million and $0.6 million for the six months ended March 31, 2022 and 2021, respectively.

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(Unaudited)

~~(2) Excludes depreciation of training equipment obtained in exchange for services of $0.3 million and $0.7 million for the three months and six months ended March 31, 2020, respectively.~~

Note 1720 - Government Regulation and Financial Aid

As discussed at length in our ~~2020~~2021 Annual Report on Form 10-K ~~filed with the SEC on December 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 “Part I, Item 1. Regulatory Environment” in our ~~2020~~2021 Annual Report on Form 10-K ~~filed with the SEC on December 3, 2020.~~.

State Authorization

To operate and offer postsecondary programs, and to be certified to participate in Title IV Programs, each of our institutions must obtain and maintain authorization from the state in which it is physically located ~~(its “Home~~(“Home State”). To engage in recruiting ~~or educational~~ activities outside of its Home State, each institution also may be required to obtain and maintain authorization from the states in which it is recruiting students. UTI is authorized to participate in the State Authorization Reciprocity Agreement (“SARA”). SARA is an agreement among member states, districts and territories that establishes comparable national standards for interstate offering of post-secondary distance education courses and programs. SARA is overseen by a national council (NC-SARA) and administered by four regional education compacts. As of September 1, 2021, all states other than California are members of SARA. Each of our institutions holds the state or ~~engaging~~SARA authorizations required to operate and offer postsecondary education programs in ~~educational~~its Home State, and to recruit in the states in which it engages in recruiting activities.

The level of regulatory oversight varies substantially from state to state and is extensive in some states. State laws 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. Some states prescribe standards of financial responsibility and mandate that institutions post surety bonds. Many states have requirements for institutions to disclose institutional data to current and prospective students, as well as to the ~~public. And~~public, and some states require that our schools meet prescribed performance standards as a condition of continued approval. States can and often do revisit, revise, and expand their regulations governing postsecondary education and recruiting.

Accreditation

Accreditation is a non-governmental process through which an institution voluntarily submits to ongoing qualitative reviews by an organization of peer institutions. Institutional accreditation by an ED-recognized accreditor is required for an institution to be certified to participate in 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 “Part I, Item 1. Regulatory Environment - Accreditation” in our ~~2020~~2021 Annual Report on Form 10-K ~~filed with the SEC on December 3, 2020~~ for further details and the current status of our campus accreditation. ~~We believe that each of our institutions is in substantial compliance with ACCSC accreditation standards.~~

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 Title IV Programs. Significant factors relating to Title IV Programs that could adversely affect us include:

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(In thousands, except per share amounts)

(Unaudited)

•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/~~“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~~its 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 behalf of a student to be used to attend such institution.” Pursuant to ARPA, the earliest the revision to the 90/10 rule may take effect is for institutional fiscal years beginning on or after January 1, 2023.

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

In 2021, President Biden signed into law the American Rescue Plan Act of 2021, which amended the 90/10 rule. Section 2013 of the Act amended the rule to require covered institutions to derive at least 10 percent of their revenue from sources other than “Federal education assistance funds.” The phrase “Federal education assistance funds” was broadly defined as “federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution.” Congress directed ED to clarify the impact of this change with new regulations. In its most recent negotiated rulemaking, which concluded March 18, 2022, ED considered changes to the 90/10 regulations. After extensive discussion, on the final day the negotiators reached consensus on draft language, which means ED will very likely use the agreed upon language (or something close to it) in its proposed regulations. We are ~~currently reviewing the potential impact of the change in~~monitoring these proposed changes to the 90/10 rule, ~~created under ARPA.~~and will review and assess the impact of any proposed or final regulations promulgated by ED. These changes would take effect July 1, 2023, and would apply to any annual audit submission for a proprietary institution fiscal year beginning on or after January 1, 2023.

•Administrative ~~Capability~~.Capability. To continue its participation in 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.

•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 federal student loans for first-time borrowers. As of September 30, 2021, only Universal Technical Institute of Texas was subject to a 30-day delay in receiving the first disbursement on federal student loans for first-time borrowers due to a three-year cohort default rate that was 15% or greater for one of the three most recent years.

•Financial Responsibility. 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, and not receive anany 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~~ED is currently managing two significant rulemaking efforts. First, between October 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.December 2021, ED held three

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(In thousands, except per share amounts)

(Unaudited)

~~However, we cannot predict with certainty how these new and developing regulatory requirements will be applied or whether each~~rounds of ~~our schools will be able to comply with all~~negotiations as part of the ~~requirements in~~Affordability and Student Loans rulemaking. The negotiators considered nine issue areas, including the ~~future.~~borrower defense to repayment rule, closed school loan discharges, and loan repayment plans. Second, between January and March of 2022, ED held three rounds of negotiations as part of the Institutional and Programmatic Eligibility rulemaking. The negotiators considered seven issue areas, including administrative capability, financial responsibility, gainful employment, change of ownership and control, ability to benefit and the 90/10 rule. The regulated community is currently awaiting ED’s official proposed rules based on these rounds of negotiated rulemaking, which are likely to be made available for public review and comment between May and July 2022. If ED publishes final rules by November 1, these rules will become effective July 1, 2023. We devote significant effort to understanding the effects of ED regulations and rulemakings 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.

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,~~U.S. Department of Veterans Affairs (“VA”), the Department of Defense (“DOD”) and under the Workforce ~~Investment~~Innovation and Opportunity 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 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 revenues, on a cash basis, from veterans’ benefits programs, which include the Post-9/11 GI Bill, the Montgomery GI Bill, the Reserve Education Assistance Program (“REAP”) and VA Vocational Rehabilitation. To continue participation in veterans’ benefits programs, an institution must comply with certain requirements established by the VA.

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

~~On March 13,~~During fiscal 2020 ~~the United States declared a national emergency concerning~~and 2021 various pieces of legislation were issued related to 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. On March 27, 2020, President Trump signedincluding the CARES Act, which 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 also was published regarding immigration, discrimination, safety, and privacy issues, as well as the Higher Education Emergency Relief Fund (“HEERF”) established under the CARES Act.

On December 11, 2020, ED published a notice in the 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 of 2003.

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 pandemic. As part of the omnibus appropriations bill, Congress simplifies the Free Application for Federal Student Aid, provides a $15 million increase to the 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”) and the American Rescue Plan Act (“ARPA”). This legislation, along with guidance from the ED, are discussed at length in “Note 21 - Governmental Regulation and Financial Aid” in our 2021 Annual Report on Form 10-K. The ~~CRRSAA extends the Paycheck Protection Program and allocates to it an additional $284.5 billion, and includes The~~funding received from these Acts is also discussed in Note 21 on Higher Education Emergency Relief Fund ~~II (“HEERF II”), which makes an addition $22.7 billion available to higher education institutions to mitigate the impact of the COVID-19 pandemic. Of~~Grants below. For additional information and risks associated with this ~~amount, private, proprietary institutions are allocated approximately $681 million and may only use HEERF II funding to provide emergency financial aid grants to students. On January 14,~~ legislation, see Item 1A. “Risk Factors” in our 2021 ~~ED made extensive guidance available regarding the administration of the HEERF II program.~~Annual Report on Form 10-K.

~~On March 11, 2021, President Biden signed~~Distance Education

In response to the COVID-19 pandemic, ED provided broad approval for institutions to use distance education without going through the standard ED approval process. ED also permitted accreditors to waive their distance education review requirements. Taking advantage of these flexibilities, we transitioned our students into ~~law~~blended program formats, which permitted their non-clinical training to be offered online.

ED’s temporary flexibilities currently remain in place and will continue through the ~~ARPA,~~end of the payment period that begins after the date on which the federally-declared national emergency related to COVID-19 is rescinded. However, having observed that our blended learning programs offer a ~~$1.9 trillion economic relief package. The ARPA provides almost $40 billion~~range of academic, operational, and financial efficiencies, we have determined to seek the permanent approvals that will permit us to continue offering blended learning programming after the noted temporary flexibilities have expired. We also continue to work to ensure that our blended learning programming complies with applicable distance education rules and standards, including ED’s new distance education rules, which became effective July 1, 2021. We intend to offer our Automotive, Diesel, Automotive/Diesel, Motorcycle and Marine programs in ~~funding available~~a blended learning format on a permanent basis. Additionally, we intend to ~~higher education institutions under~~continue to invest in our blended learning platform and curriculum to further enhance the ~~Higher Education Emergency Relief III (“HEERF III”). Of this amount, private, proprietary institutions are allocated approximately $396 million~~student experience and ~~may only use HEERF III funding to provide emergency financial aid grants to students.~~student outcomes.

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(In thousands, except per share amounts)

(Unaudited)

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 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~~To date, 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 approval from ACCSC ~~approval~~ to permanently offer blended format programs that utilize both distance and on-ground education. Additionally, we have received permanent approvals byfrom all state education authorizing agencies to offer blended format ~~programs, with~~programs. Last, we note that as part of the ~~exception~~Responsible Education Mitigating Options and Technical Extensions (REMOTE) Act, remote learning waivers for GI Bill students were extended until June 1, 2022. GI Bill students attending a course that was converted to remote learning because 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.COVID-19 may also continue to receive housing benefits until June 1, 2022.

Note 1821 - Higher Education Emergency Relief Fund Grants

~~Fiscal 2020~~ HEERF II Grants for Students under the CRRSAA and HEERF III Grant for Students ~~and Significant Changes to the Delivery of Instruction~~ under the ~~CARES Act~~ARPA

As discussed in “Note 21 - ~~Higher Education Emergency Relief Fund under the CARES Act”~~Governmental Regulation and Financial Aid” in our ~~2020~~2021 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 with at least $16.5 million required to be spent for emergency grants to student and no more than $16.5 million permitted to cover institutional costs 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 -CRRSAA includes 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.~~

During the three months ended December 31, 2020, we incurred $0.9 million in allowable costs related to the changes in the delivery of instruction due to the coronavirus, thereby utilizing the remaining available funds. Of the $0.9 million incurred, $0.3 million was recorded in “Educational services and facilities” and $0.6 million was recorded in “Selling, general and administrative” on the condensed consolidated statements of operations for the three months ended December 31, 2020. The $0.9 million was drawn down prior to December 31, 2020 and was included in our “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 fiscal 2020~~ II (“HEERF ~~grant.~~

~~Fiscal 2021 HEERF II Grant for Students under the CRRSAA~~

~~As noted above, the CRRSAA includes HEERF II,~~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 students who receive Pell Grants. On January 14, 2021, ED issued guidance regarding the administration of the HEERF II program. In accordance with the ED’s allocation schedule, during the year ended September 30, 2021, we were granted approximately $16.8 million for purposes of funding HEERF II student grants.

Additionally, as discussed in “Note 21 - Governmental Regulation and Financial Aid” in our 2021 Annual Report on Form 10-K, the ARPA provides almost $40 billion in funding available to higher education institutions under the Higher Education Emergency Relief III (“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. In accordance with the ED’s allocation schedule, during the year ended September 30, 2021, we were granted approximately $9.9 million for purposes of funding HEERF III student grants.

During the six months ended March 31, 2022, we awarded approximately $5.0 million in HEERF II and HEERF III grants to over 4,100 students. The HEERF II and HEERF III funds were drawn down as student grants were distributed with approximately $0.6 million included in “Restricted cash” on our consolidated balance sheet as of March 31, 2022 which relates to pending student grants and outstanding checks. As of March 31, 2022, we have approximately $1.9 million of funds still available for HEERF II and HEERF III grants to students.

HEERF I Grants for Significant Changes to the Delivery of Instruction Due to the Coronavirus under the CARES Act

As discussed in “Note 22 - Higher Education Emergency Relief Fund under the CARES Act” in our 2021 Annual Report on Form 10-K, during the three months ended December 31, 2020, we incurred $0.9 million in allowable costs related to the changes in the delivery of instruction due to the coronavirus, thereby utilizing the remaining available HEERF institutional funds. Of the $0.9 million incurred, $0.3 million was recorded in “Educational services and facilities” and $0.6 million was recorded in “Selling, general and administrative” on the condensed consolidated statements of operation for the three months ended December 31, 2020. The $0.9 million was drawn down prior to December 31, 2020 and was included in our “Cash and cash equivalents” on our condensed consolidated balance sheet as of December 31, 2020.

Note 22 - Subsequent Events

Lisle Campus Term Loan

As previously disclosed in Note 7, on February 11, 2022, we completed the acquisition of 2611, an entity that is the owner of the real property that serves the Lisle Campus. At the time of the acquisition, 2611 was a party to a term loan agreement with a third-party bank secured by a mortgage on the Lisle Campus (the “Previous Mortgage Debt”).

On April 14, 2022, 2611, as borrower (the “Borrower”), entered into a Loan Agreement (“Loan Agreement”) with Valley National Bank, a national banking association (the “Lisle Lender”), to fund the acquisition and retirement of the Previous

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(In thousands, except per share amounts)

(Unaudited)

~~during~~Mortgage Debt, via a term loan in the ~~three months ended March 31, 2021, we were granted approximately $16.8~~original principal amount of $38.0 million ~~for purposes~~with a maturity of ~~funding HEERF II student grants. As~~seven years (the “Term Loan”). The Term Loan bears interest at a rate of ~~March 31, 2021, we had not yet awarded any student grants under~~one-month Secured Overnight Financing Rate (“SOFR”) plus 2.0%. In connection with the ~~HEERF II program or drawn any~~Term Loan, the Borrower entered into an interest rate swap agreement with the Lisle Lender that effectively fixes the interest rate on 50% of the ~~grant funds. Additionally, we intend to draw down the HEERF II funds as student grants are distributed. Therefore, none~~principal amount of the ~~HEERF II funds are included in “Restricted cash”~~Term Loan at 4.69% for the entire loan term. The Term Loan is secured by a mortgage on ~~our condensed consolidated balance sheets as~~the Lisle Campus. Further details of ~~March 31, 2021.~~the transactions were disclosed separately under a Form 8-K filed with the SEC on April 19, 2022.

~~Fiscal 2021 HEERF III Grant for Students under the ARPA~~Acquisition of Concorde Career Colleges, Inc.

On May 3, 2022, we entered into a definitive Stock Purchase Agreement (the “Purchase Agreement”) by and among UTI, Concorde Career Colleges, Inc., a Delaware corporation (“Concorde”); Liberty Partners Holdings 28, L.L.C., a Delaware limited liability company, and Liberty Investment IIC, LLC, a Delaware limited liability company (each a “Seller,” and collectively, the “Sellers”); and Liberty Partners L.P., a Delaware limited partnership, in its capacity as a representative of the Sellers. Concorde is a leading provider of industry-aligned healthcare education programs in fields such as nursing, dental hygiene and medical diagnostics. Concorde operates 17 campuses across 8 states with approximately 7,400 students, and offers its programs in ground, hybrid and online formats.

The Purchase Agreement provides for the purchase by UTI of all of the issued and outstanding shares of capital stock of Concorde for a base purchase price of $50.0 million in cash, subject to certain customary adjustments as set forth in the Purchase Agreement. As ~~noted above,~~a result of the ~~ARPA provides almost $40 billion in funding available~~transactions contemplated by the Purchase Agreement, Concorde would become a wholly owned subsidiary of UTI.

The closing of the Purchase Agreement is subject to ~~higher education institutions~~customary closing conditions, including, among other things, the receipt of a Pre-Acquisition Review Response from the United States Department of Education that does not contain certain letter of credit requirements. UTI intends to use its cash on hand to pay the consideration contemplated under the ~~HEERF III. Of this amount, private, proprietary institutions are allocated approximately $396 million and may only use HEERF III funding~~Purchase Agreement. UTI expects the transaction to ~~provide emergency financial aid grants to students. While we expect to receive an allocation~~close during the first half of its fiscal 2023.

Further details of the transactions were disclosed separately under ~~HEERF III, as of March 31, 2021, we have not received an allocation as~~a Form 8-K filed with the ~~ED has not published HEERF III allocation amounts or guidance.~~SEC on May 4, 2022.

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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 ~~2020~~2021 Annual Report on Form 10-K ~~filed with the SEC on December 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 ~~2020~~2021 Annual Report on Form 10-K and included in Part II, Item 1A of this Quarterly Report on Form 10-Q. See also “Cautionary Note Regarding Forward-Looking Statements” on page ii of this Quarterly Report on Form 10-Q.

Company Overview

All of our campuses are nationally accredited and are eligible for federal student financial assistance funds under the Higher Education Act of 1965, ~~we have provided technical education~~as amended (“HEA”), commonly referred to as Title IV Programs, which are administered by the U.S. Department of Education (“ED”). Our programs are also eligible for ~~more~~financial aid from federal sources other than ~~55 years~~Title IV Programs, such as the programs administered by the U.S. Department of Veterans Affairs (“VA”) and ~~have graduated more than 220,000 technicians.~~under the Workforce Investment Act.

To ensure our programs provide students with the necessary hard and soft skills needed upon graduation, we have relationships with over 35 original equipment manufacturers (“OEMs”) and 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-focused educational model and national presence have enabled us to develop valuable industry relationships, which provide us with significant competitive ~~strengths~~advantages and supports our market leadership, along with enabling 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 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.

~~During fiscal 2020, we transitioned~~We offer the majority of our ~~on-campus, in-person education model to~~programs in a blended ~~training~~learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs. This ~~new~~ blended learning format has 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 more flexibility and life-long learning opportunities. ~~On campus~~On-campus labs ~~have been redesigned~~are designed to meet or exceed the ~~health, safety and social distancing~~current national guidelines recommended ~~or required~~ by the Centers for Disease Control (“CDC”) ~~and~~as well as state and local ~~jurisdictions,~~mandates, 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.

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Overview of the Three and Six Months Ended March 31, 2022

Student Metrics


	Three Months Ended				Six Months Ended
	March 31,		%		March 31,		%
	2022	2021	Change		2022	2021	Change
Total new student starts	2,275	2,405	(5.4)	%	4,247	4,332	(2.0)	%
Average undergraduate full-time active students	12,903	11,356	13.6	%	13,316	11,585	14.9	%
End of period undergraduate full-time active students	12,466	10,945	13.9	%	12,466	10,945	13.9	%

The increase in average undergraduate full-time active students and end of period undergraduate full-time active students was due to strong student demand throughout fiscal 2021 and the ongoing but diminishing impacts of the COVID-19 pandemic on the prior year. The acquisition of MIAT in November 2021 also contributed to the increase in our average and end of period undergraduate full-time active students.

Our ability to start new students can be influenced by various factors including: ongoing impacts of the COVID-19 pandemic and related variants, unemployment rates; competition; adverse media coverage, legislative hearings, regulatory actions and investigations by attorneys general and various agencies related to allegations of wrongdoing on the part of other companies within the education and training services industry, which have cast the industry in a negative light; and the state of the general macro-economic environment and its impact on price sensitivity and the ability and willingness of students and their families to incur debt.

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~~2022 were ~~$77.7~~$102.1 million, ~~a decrease~~an increase of ~~$5.0~~$24.4 million, or ~~6.1%~~31.4%, from the comparable period in the prior year. Revenues for the six months ended March 31, ~~2021~~2022 were ~~$153.8~~$207.2 million, ~~a decrease~~an increase of ~~$16.1~~$53.3 million, or ~~9.5%~~34.7%, from the comparable period in the prior year. ~~Our revenues, including~~The increase in revenue was due to growth in students, increased revenue per student due to the impact of the COVID-19 pandemic in the prior year, and the acquisition of MIAT.

We had income from operations of $3.4 million and $17.0 million during the three and six months ended March 31, ~~2021, continued~~2022, respectively, compared to be affected by impacts of the COVID-19 pandemic. All of our campuses remained open during the six 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 remained exclusively online. As of March 31, 2021, approximately 10% of students were completing catch-up lab work, but over an extended period of time, while less than 1% of students had not returned to campus to complete the in-person labs and remained exclusively in the online portion of the curriculum, essentially only completing half of each 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 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 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 in 2021.

~~We had~~ a loss from operations of $1.7 million and $0.9 million during the three and six months ended March 31, 2021, ~~respectively, compared to a loss of $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 these periods was primarily driven by our increase in revenue. Additionally, productivity improvements and proactive cost actions have been a key part of our operating model for the ~~six months ended March 31, 2021.~~past several years, and we continue to identify and execute on efficiency opportunities throughout our cost structure, while improving and investing in the overall student experience.

Business Strategy

~~In support of~~Our core business strategies are aligned with our ~~goal~~mission to ~~continue to be the leading provider of postsecondary~~serve students, partners and communities by providing quality education and training for ~~students seeking careers~~in-demand careers. Additionally, 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 ~~serve,~~evolve our business model, we ~~continue to pursue the following business strategies: return~~are focused on ~~education; strengthen industry relationships; recruit, train and identify employment opportunities for more students; education program affordability; and overall company~~ growth and ~~diversification.~~diversification which is achieved through acquisitions, opening new campus locations, the expansion of new program offerings, and new funding and business operating models.

During the six months ended March 31, ~~2021 some actionable steps in executing~~2022, we executed the following as part of our ~~business strategies included:~~growth and diversification strategy:

•~~Announcing our plans to open two additional campus locations during fiscal 2022, including a new campus in Austin, Texas and Miami, Florida.~~

•~~We entered into a definitive agreement to acquire~~Completed the acquisition of MIAT College of Technology (“MIAT”) from HCP & ~~Company.~~Company on November 1, 2021. MIAT ~~currently serves~~served approximately ~~1,200~~1,000 students as of December 31, 2021 through its campuses in Canton, MIMichigan and Houston, ~~TX.~~Texas. 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~~sectors 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 Bloomfield, New Jersey campus, with classes beginning in July 2021, and our plans to further expand to two more locations in fiscal 2022.

•Announcing a new manufacturer training program with AGCO Corporation, a global leader in the design, manufacture and distribution of agricultural machinery and 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~~Launched electric 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~~(“EV”) technician training ~~designed~~coursework to ~~lead directly~~meet increasing demand for clean cars and trucks. This enhanced training is the initial step in our overall EV strategy to ~~rewarding career opportunities at Premier Truck Group~~prepare future technicians for ~~veterans transitioning from military~~surging electric vehicle sales in the coming decades.

◦As part of this initiative, we rolled out new curriculum in our Ford FACT (“Ford Accelerated Credential Training”) program to prepare students to keep the next generation of vehicles on the road. This new curriculum will feature blended learning courses on high voltage systems safety, hybrid vehicle components and operation, battery electric vehicle components and operation and an introduction to high voltage battery service, as well as a Ford instructor-led class on hybrid and electric vehicle operation and diagnosis.

◦We have also selected Bosch to ~~civilian life. Premier Truck Group is~~support the development of new courseware that helps meet the needs of the growing electric vehicle EV market, which continues to see record sales and a ~~wholly owned subsidiary of Penske Automotive Group.~~demand for skilled technicians.

•~~Announcing the expansion~~Formed a new strategic alliance with Napa Auto Parts (“NAPA”). NAPA will supply essential parts for hands-on labs, including brake kits, rotors, bulbs, bearing kits, wheel weights and more. The initial stage of the ~~Daimler Trucks North America (“DTNA”) Finish First program~~partnership will impact UTI, MMI and NTI-branded campuses and may be expanded 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 repair DTNA's industry-leading brands, including Freightliner, Western Star and Detroit. Our UTIMIAT-branded campuses in ~~Avondale, Arizona and Lisle, Illinois currently offer~~ the ~~Finish First program.~~future.

•~~Purchasing~~Purchased our ~~Avondale, Arizona~~Lisle, Illinois campus ~~at the end of December 2020,~~in February 2022, for approximately ~~$45.2~~$28.4 million, net of debt assumed, including closing costs and other ~~fees, with the intention of consolidating our MMI Phoenix, Arizona campus into the same location by the end of fiscal 2022.~~

•~~Announcing the future consolidation~~fees. See Note 7, 13 and ~~reconfiguration~~22 of the ~~UTI and MMI Orlando campus facilities into one site by the end of fiscal 2021.~~

notes to our condensed consolidated financial statements herein for more discussion on this transaction.

In addition, we continue to pursue other ~~strategic~~ opportunities that align with our ~~core business strategies.~~growth and diversification strategy.

Regulatory Environment

See Note 1720 of the notes to our condensed consolidated financial statements herein for a discussion of our regulatory environment.

Results of Operations: Three Months Ended March 31, ~~2021~~2022 Compared to Three Months Ended March 31, ~~2020~~2021

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


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
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	52.1	%	51.9	%	Educational services and facilities	48.2	%	52.1	%
Selling, general and administrative	Selling, general and administrative	50.0	%	48.7	%	Selling, general and administrative	48.5	%	50.0	%
Total operating expenses	Total operating expenses	102.1	%	100.6	%	Total operating expenses	96.7	%	102.1	%
Loss from operations		(2.1)	%	(0.6)	%
Income (loss) from operations						Income (loss) from operations	3.3	%	(2.1)	%
Interest income	Interest income	—	%	0.4	%	Interest income	—	%	—	%
Interest expense	Interest expense	—	%	—	%	Interest expense	(0.5)	%	—	%
Other income (expense), net		0.1	%	(0.6)	%
Total other income (expense), net		0.1	%	(0.2)	%
Loss before income taxes		(2.0)	%	(0.8)	%
Other (expense) income, net						Other (expense) income, net	(0.2)	%	0.1	%
Total other (expense) income, net						Total other (expense) income, net	(0.7)	%	0.1	%
Income (loss) before income taxes						Income (loss) before income taxes	2.7	%	(2.0)	%
Income tax benefit	Income tax benefit	—	%	13.1	%	Income tax benefit	4.5	%	—	%
Net (loss) income		(2.0)	%	12.3	%
Net income (loss)						Net income (loss)	7.2	%	(2.0)	%
Preferred stock dividends	Preferred stock dividends	1.7	%	1.6	%	Preferred stock dividends	1.3	%	1.7	%
(Loss) income available for distribution		(3.7)	%	10.7	%
Income (loss) available for distribution						Income (loss) available for distribution	5.9	%	(3.7)	%

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Revenues

Revenues for the three months ended March 31, ~~2021~~2022 were ~~$77.7~~$102.1 million, ~~a decrease~~an increase of ~~$5.0~~$24.4 million, or ~~6.1%~~31.4%, as compared to revenues of ~~$82.7~~$77.7 million for the three months ended March 31, ~~2020.~~2021. During the three months ended March 31, ~~2021,~~2022, we had a ~~10.8%~~13.6% increase in our average undergraduate full-time ~~student enrollment and a 14.9% increase in new student starts reflecting~~active students as we saw strong front-end demand across all ~~channels. However, our revenue recognized for active students during~~channels throughout fiscal 2021, and the prior year period ~~has been~~was impacted by ~~overall lower~~the ongoing but diminishing effects of the global pandemic. The increase in revenue is primarily due to an increase in the average revenue per student ~~driven~~as compared to the prior year which was impacted by the ~~pace in which students are progressing through their programs~~timing of completion of student make-up lab work and ~~by students retaking courses previously completed or attempted, primarily~~slower student progression due to the ongoing but diminishing impacts of COVID-19.

~~Table~~ The acquisition of ~~Contents~~

~~Additionally, as a result~~MIAT also contributed to our student and revenue growth, accounting for $6.5 million of revenues for the ~~catch-up labs not yet completed, as of~~three months ended March 31, ~~2021 we had deferred revenue of $0.8 million.~~2022. We recognized $2.1 million and $1.8 million on an accrual basis related to revenues and interest under our proprietary loan program for the three months ended March 31, 2022, and 2021, ~~as compared to $1.7 million for the three months ended March 31, 2020.~~respectively.

Educational services and facilities expenses

Educational services and facilities expenses were $49.2 million for the three months ended March 31, 2022, which represents an increase of $8.7 million as compared to $40.5 million for the three months ended March 31, ~~2021, which represents a decrease of $2.4 million as compared to $42.9 million for the three months ended March 31, 2020.~~2021.

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


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
Salaries expense	Salaries expense	$	19,008	$	18,770	Salaries expense	$	21,880	$	19,008
Employee benefits and tax	Employee benefits and tax	2,664		3,387		Employee benefits and tax	4,335		2,664
Bonus expense	Bonus expense	389		195		Bonus expense	576		389
Stock-based compensation	Stock-based compensation	39		18		Stock-based compensation	55		39
Compensation and related costs	Compensation and related costs	22,100		22,370		Compensation and related costs	26,846		22,100
Occupancy costs	Occupancy costs	7,449		9,513		Occupancy costs	9,488		7,449
Depreciation and amortization expense	Depreciation and amortization expense	3,388		3,039		Depreciation and amortization expense	3,572		3,388
Supplies and maintenance expense	Supplies and maintenance expense	2,541		2,430		Supplies and maintenance expense	3,729		2,541
Taxes and licensing expense	Taxes and licensing expense	885		651		Taxes and licensing expense	694		885
Student expense	Student expense	767		896		Student expense	708		767
Contract services expense	Contract services expense	598		891		Contract services expense	895		598
Other educational services and facilities expense	Other educational services and facilities expense	2,752		3,119		Other educational services and facilities expense	3,277		2,752
Total educational services and facilities expense	Total educational services and facilities expense	$	40,480	$	42,909	Total educational services and facilities expense	$	49,209	$	40,480

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~~increased by ~~$2.1~~$4.7 million for the three months ended March 31, ~~2021.~~2022 primarily due to increased headcount in support of higher student counts, which includes the benefit of productivity improvements associated with our blended learning model. The ~~decrease was primarily attributed to cost reductions from closing our Norwood, Massachusetts campus, downsizing our Exton, Pennsylvania~~acquisition of MIAT accounted for $2.5 million of the increased compensation and ~~Sacramento, California campuses, and purchasing our Avondale, Arizona campus in December 2020.~~related costs.

~~Depreciation and amortization expense~~Occupancy costs increased ~~$0.3~~by $2.0 million for the three months ended March 31, ~~2021~~2022. The increase was primarily due to costs associated with the planned new campuses in Austin, Texas and Miramar, Florida, both of which are expected to open in the second half of 2022, as well as $0.5 million related to our two new MIAT campuses. Additionally, we incurred approximately $0.6 million for lease accounting adjustments resulting from the completed consolidation of our Orlando, Florida campus and the on-going consolidation of our Arizona campuses.

Supplies and maintenance expense increased by $1.2 million primarily due to a $0.3 million increase for the purchase of laptops for our ~~Avondale, Arizona~~students to aid their education under our blended-learning model. During the prior year, we primarily utilized funds from the CARES Act to purchase the laptops for our students. We also incurred additional expenses for technical supplies due to a higher average student population, the acquisition of MIAT, and the opening of our Austin, Texas campus in ~~December 2020.~~May 2022.

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Contract services increased by $0.3 million primarily due to costs incurred related to our growth and diversification initiatives.

Other educational services and facilities expense ~~decreased~~increased by ~~$0.4~~$0.5 million for the three months ended March 31, ~~2021,~~2022. The increase was primarily due to our higher average student population and included a ~~decrease of $0.2~~$1.0 million increase in ~~expenses~~expense related to our accrued tool ~~sets~~kits, an increase in the cost of books of $0.3 million and ~~decreased travel and entertainment costs.~~an increase of $0.3 million in the cost of training aids. These increases were partially offset by a gain of $1.6 million in the current period as a result of the settlement of the Lisle Campus lease. See Note 7 of the notes to the condensed consolidated financial statements herein for additional details on the purchase of the Lisle Campus.

Selling, general and administrative expenses

Selling, general and administrative expenses for the three months ended March 31, ~~2021~~2022 were ~~$38.9~~$49.5 million. This represents ~~a decrease~~an increase of ~~$1.4~~$10.6 million, as compared to ~~$40.3~~$38.9 million for the three months ended March 31, ~~2020.~~

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2021.

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


		Three Months Ended March 31,					Three Months Ended March 31,
		2021		2020			2022		2021
Salaries expense	Salaries expense	$	13,918	$	13,684	Salaries expense	$	15,511	$	13,918
Employee benefits and tax	Employee benefits and tax	2,551		3,155		Employee benefits and tax	3,234		2,551
Bonus expense	Bonus expense	3,164		2,951		Bonus expense	3,796		3,164
Stock-based compensation	Stock-based compensation	1,270		975		Stock-based compensation	1,555		1,270
Compensation and related costs	Compensation and related costs	20,903		20,765		Compensation and related costs	24,096		20,903
Advertising expense	Advertising expense	10,592		11,564		Advertising expense	13,555		10,592
Contract services expense	Contract services expense	1,692		1,182		Contract services expense	1,405		1,692
Professional services expense	Professional services expense	1,582		1,004		Professional services expense	3,565		1,582
Depreciation and amortization expense	Depreciation and amortization expense	181		197		Depreciation and amortization expense	312		181
Other selling, general and administrative expenses	Other selling, general and administrative expenses	3,940		5,595		Other selling, general and administrative expenses	6,567		3,940
Total selling, general and administrative expenses	Total selling, general and administrative expenses	$	38,890	$	40,307	Total selling, general and administrative expenses	$	49,500	$	38,890

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~~increased by ~~$1.0~~$3.2 million for the three months ended March 31, ~~2021,~~2022 primarily due to ~~timing~~an increase in salaries to support our growth and diversification initiatives as compared to the prior year. The acquisition of ~~spend and targeted cost-efficient marketing efforts, with a shift away from television advertising toward digital media.~~MIAT represented $0.8 million of the increase.

~~Contract services and professional services expenses~~Advertising expense increased ~~$0.5~~by $3.0 million ~~and $0.6 million, respectively,~~ for the three months ended March 31, ~~2021. The increases were~~2022, primarily due to timing of spend along with incremental investment to support our growth objectives. We continue to target cost-efficient marketing with an increased focus on digital media. Advertising expense as a percentage of revenues decreased to 13.3% for the three months ended March 31, 2022 as compared to 13.6% in the prior year. Advertising expense for MIAT accounted for $1.5 million of the increase.

Professional services expense increased by $2.0 million primarily due costs incurred related to our growth and diversification ~~initiatives, including the announced acquisition of MIAT.~~initiatives.

Other selling, general and administrative expenses ~~decreased~~increased by ~~$1.7~~$2.6 million for the three months ended March 31, ~~2021.~~2022. The ~~overall decrease was primarily due to decreases in travel and entertainment~~primary factors included increases of ~~$0.7~~$0.8 million ~~occupancy costs of $0.3 million due to relocating and downsizing our headquarters,~~for bad debt expense, $0.4 million for travel, and $0.2 million for software. The acquisition of ~~$0.3~~MIAT represented $0.6 million ~~and nominal decreases in taxes and licensing, employment advertising and recruitment due to overall cost control measures.~~of the increase.

Income taxes

Our income tax benefit for the three months ended March 31, ~~2021~~2022 was $4.6 million, or (166.8)% of pre-tax income, compared to an income tax benefit of $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.~~2021. 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~~taxes. The tax benefit recorded during the three months ended March 31, 2022

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primarily relates to the release of the valuation allowance during the quarter and the impact of ~~net operating loss carrybacks recognized in~~ the ~~prior year as~~MIAT deferred tax liability for indefinite lived intangibles which are available to offset a ~~result~~portion of our indefinite lived deferred tax assets. See Note 15 of the ~~CARES Act. We recorded a full~~notes to the condensed consolidated financial statements herein for additional details on our valuation ~~allowance against the deferred tax assets as of March 31, 2021 and March 31, 2020.~~allowance.

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~~2022 and ~~2020,~~2021, respectively.

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

Net income (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~~income available for distribution for the three months ended March 31, ~~2021~~2022 of ~~$2.9~~$6.1 million and net ~~income~~loss available for distribution of ~~$8.8~~$2.9 million for the three months ended March 31, ~~2020.~~2021.

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Results of Operations: Six Months Ended March 31, ~~2021~~2022 Compared to Six Months Ended March 31, ~~2020~~2021

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,					Six Months Ended March 31,
		2021		2020			2022		2021
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	51.9	%	50.5	%	Educational services and facilities	46.9	%	51.9	%
Selling, general and administrative	Selling, general and administrative	48.7	%	47.3	%	Selling, general and administrative	44.9	%	48.7	%
Total operating expenses	Total operating expenses	100.6	%	97.8	%	Total operating expenses	91.8	%	100.6	%
(Loss) income from operations		(0.6)	%	2.2	%
Income (loss) from operations						Income (loss) from operations	8.2	%	(0.6)	%
Interest income	Interest income	—	%	0.4	%	Interest income	—	%	—	%
Interest expense	Interest expense	—	%	—	%	Interest expense	(0.3)	%	—	%
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	%
Other income, net						Other income, net	—	%	0.2	%
Total other (expense) income, net						Total other (expense) income, net	(0.3)	%	0.2	%
Income (loss) before income taxes						Income (loss) before income taxes	7.8	%	(0.3)	%
Income tax benefit	Income tax benefit	—	%	6.3	%	Income tax benefit	2.9	%	—	%
Net (loss) income		(0.3)	%	8.7	%
Net income (loss)						Net income (loss)	10.7	%	(0.3)	%
Preferred stock dividends	Preferred stock dividends	1.7	%	1.6	%	Preferred stock dividends	1.3	%	1.7	%
(Loss) income available for distribution		(2.0)	%	7.1	%
Income (loss) available for distribution						Income (loss) available for distribution	9.4	%	(2.0)	%

Revenues

Revenues for the six months ended March 31, ~~2021~~2022 were ~~$153.8~~$207.2 million, ~~a decrease~~an increase of ~~$16.1~~$53.3 million, or ~~9.5%~~34.7%, as compared to revenues of ~~$170.0~~$153.8 million for the six months ended March 31, ~~2020.~~2021. During the six months ended March 31, ~~2021,~~2022, we had a ~~6.1%~~14.9% 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~~channels throughout fiscal 2021. The increase in revenue ~~recognized for active students during~~is primarily due to an increase in the ~~period has been impacted by overall lower~~ average revenue per student ~~driven~~as compared to the prior year, which was impacted by the ~~pace in which students are progressing through their programs~~timing of completion of student make-up lab work and ~~by students retaking courses previously completed or attempted, primarily~~slower student progression due to the ongoing but diminishing impacts of COVID-19. ~~Additionally, as a result~~The acquisition of MIAT also contributed to our student and revenue growth, accounting for $11.6 million in revenues during the ~~catch-up labs not yet completed, as of~~six months ended March 31, ~~2021 we had deferred revenue of $0.8 million.~~2022. We recognized $4.6 million and $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,~~2022, and ~~2020,~~2021, respectively.

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Educational services and facilities expenses

Educational services and facilities expenses were $97.1 million for the six months ended March 31, 2022, which represents an increase of $17.3 million as compared to $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.~~2021.

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


		Six Months Ended March 31,					Six Months Ended March 31,
		2021		2020			2022		2021
Salaries expense	Salaries expense	$	36,844	$	37,854	Salaries expense	$	41,938	$	36,844
Employee benefits and tax	Employee benefits and tax	5,636		6,428		Employee benefits and tax	8,559		5,636
Bonus expense	Bonus expense	843		566		Bonus expense	1,115		843
Stock-based compensation	Stock-based compensation	65		18		Stock-based compensation	101		65
Compensation and related costs	Compensation and related costs	43,388		44,866		Compensation and related costs	51,713		43,388
Occupancy costs	Occupancy costs	15,717		19,351		Occupancy costs	18,484		15,717
Depreciation and amortization expense	Depreciation and amortization expense	6,453		6,005		Depreciation and amortization expense	6,979		6,453
Supplies and maintenance expense	Supplies and maintenance expense	4,799		4,887		Supplies and maintenance expense	7,170		4,799
Student expense	Student expense	2,151		1,501		Student expense	1,795		2,151
Contract services expense	Contract services expense	1,294		1,600		Contract services expense	2,143		1,294
Taxes and licensing expense	Taxes and licensing expense	1,274		1,305		Taxes and licensing expense	1,448		1,274
Other educational services and facilities expense	Other educational services and facilities expense	4,735		6,270		Other educational services and facilities expense	7,378		4,735
Total educational services and facilities expense	Total educational services and facilities expense	$	79,811	$	85,785	Total educational services and facilities expense	$	97,110	$	79,811

Compensation and related costs ~~decreased $1.5~~increased by $8.3 million for the six months ended March 31, ~~2021.~~2022 primarily due to increased headcount in support of higher student counts, which includes the benefit of productivity improvements associated with our blended learning model. The acquisition of MIAT accounted for $3.9 million of the increased compensation and related costs.

•~~Salaries expense decreased $1.0~~Occupancy costs increased by $2.8 million for the six months ended March 31, ~~2021 primarily due to a decrease in instructor salaries resulting from lower instructor headcount.~~

•~~Employee benefits and tax decreased $0.8 million for six months ended March 31, 2021.~~2022. The ~~decrease~~increase was primarily due to ~~lower medical claims expense.~~

~~Occupancy~~ costs ~~decreased $3.6~~associated with the planned new campuses in Austin, Texas and Miramar, Florida, both of which are expected to open in the second half of 2022, as well as $0.9 million related to MIAT’s two campuses since November 2021. Additionally, we incurred approximately $0.6 million for lease accounting adjustments resulting from the ~~six months ended March 31, 2021. The decrease was primarily attributed to cost reductions from closing~~completed consolidation of our ~~Norwood, Massachusetts~~Orlando, Florida campus ~~downsizing~~and the on-going consolidation of our ~~Exton, Pennsylvania and Sacramento, California campuses, and purchasing our Avondale,~~ Arizona ~~campus in December 2020.~~

~~Depreciation and amortization expense increased $0.4 million for~~campuses. These increases were partially offset by the ~~six months ended March 31, 2021 primarily due to~~benefits associated with the purchase of our Avondale, Arizona campus in December 2020.

Supplies and maintenance expense increased by $2.4 million primarily due to the purchase of laptops for our students to aide their education under our blended-learning model which accounted for $0.7 million of the increase, along with an increased technical supplies expense of $0.8 million. During the prior year, we primarily utilized funds from the CARES Act to purchase the laptops for our students. We also incurred additional expenses for student textbooks and technical supplies due to a higher average student population, the acquisition of MIAT, and the opening of our Austin, Texas campus in May 2022.

Contract services increased by $0.8 million, primarily due to costs incurred related to our growth and diversification initiatives.

Other educational services and facilities expense ~~decreased $1.5~~increased by $2.6 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,during the six months ended March 31, ~~2021 includes~~2022. The increase was primarily due to our higher average student population and included a $1.8 million increase in expense related to our accrued tool kits, an increase in the cost of books of $0.5 million and an increase of $0.3 million ~~credit for the reimbursement of allowable costs related to the changes~~ in the ~~delivery~~cost of ~~instruction due to the coronavirus. The allowable costs are included~~training aids. These increases were partially offset by a gain of $1.6 million in the ~~relevant line items above.~~current period as a result of the settlement of the Lisle Campus lease. See Note 187 of the notes to the condensed consolidated financial statements herein for ~~a discussion~~additional details on the ~~Higher Education Emergency Relief Fund (“HEERF”) established under~~purchase of the ~~CARES Act.~~Lisle Campus.

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Selling, general and administrative expenses

Selling, general and administrative expenses for the six months ended March 31, ~~2021~~2022 were ~~$74.9~~$93.1 million. This represents ~~a decrease~~an increase of ~~$5.5~~$18.2 million, as compared to ~~$80.4~~$74.9 million for the six months ended March 31, ~~2020.~~2021.

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


		Six Months Ended March 31,					Six Months Ended March 31,
		2021		2020			2022		2021
Salaries expense	Salaries expense	$	27,872	$	29,354	Salaries expense	$	31,135	$	27,872
Employee benefits and tax	Employee benefits and tax	5,402		6,251		Employee benefits and tax	6,137		5,402
Bonus expense	Bonus expense	6,613		6,955		Bonus expense	7,750		6,613
Stock-based compensation	Stock-based compensation	1,792		989		Stock-based compensation	2,214		1,792
Compensation and related costs	Compensation and related costs	41,679		43,549		Compensation and related costs	47,236		41,679
Advertising expense	Advertising expense	19,622		21,017		Advertising expense	24,893		19,622
Contract services expense	Contract services expense	2,915		2,302		Contract services expense	2,586		2,915
Professional services expense	Professional services expense	2,528		2,023		Professional services expense	5,202		2,528
Depreciation and amortization expense	Depreciation and amortization expense	398		567		Depreciation and amortization expense	584		398
Other selling, general and administrative expenses	Other selling, general and administrative expenses	7,767		10,953		Other selling, general and administrative expenses	12,595		7,767
Total selling, general and administrative expenses	Total selling, general and administrative expenses	$	74,909	$	80,411	Total selling, general and administrative expenses	$	93,096	$	74,909

Compensation and related costs ~~decreased $1.9~~increased by $5.6 million for the six months ended March 31, ~~2021:~~2022 primarily due to an increase in salaries to support our growth and diversification initiatives as compared to the prior year. The acquisition of MIAT represented $1.6 million of the increase.

•~~Salaries~~Advertising expense ~~decreased~~increased by ~~$1.5~~$5.3 million for the six months ended March 31, ~~2021. The decrease was~~2022, primarily due to ~~severance~~timing of spend along with incremental investment to support our growth objectives. We continue to target cost-efficient marketing with an increased focus on digital media. Advertising expense ~~related~~as a percentage of revenues decreased to ~~the retirement of Kimberly J. McWaters, our former President and Chief Executive Officer, in the six months ended March 31, 2020.~~

•~~Employee benefits and tax decreased $0.8 million~~12.0% for the six months ended March 31, ~~2021. The decrease was primarily due~~2022 as compared to ~~lower medical claims expense.~~12.8% in the prior year. Advertising expense for MIAT accounted for $2.2 million of the increase.

Advertising expense decreased $1.4 million for the six 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~~Professional services expense increased ~~$0.6~~by $2.7 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.~~MIAT which closed on November 1, 2021.

Other selling, general and administrative expenses ~~decreased $3.2~~increased by $4.8 million primarily due to ~~decreases~~increases of ~~$1.6~~$0.9 million in travel and entertainment costs, $0.9 million for bad debt expense, and $0.5 million ~~in occupancy costs due to relocating and downsizing our headquarters. Additionally, the six months ended March 31, 2021 includes a $0.6~~for software. The acquisition of MIAT represented $1.1 million credit 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 18 of the ~~notes to the condensed consolidated financial statements herein for a discussion on the HEERF funds.~~increase.

Income taxes

Our income tax benefit for the six months ended March 31, ~~2021~~2022 was $5.9 million, or 36.6% of pre-tax income, compared to an income tax benefit of $8.0 thousand, or 1.7% of pre-tax loss, ~~compared to $10.7 million, or 261.1% of pre-tax income,~~ for the six months ended March 31, ~~2020.~~2021. 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. WeThe tax benefit recorded ~~a full valuation allowance against the deferred tax assets as of March 31, 2021 and March 31, 2020. The significant decrease in the valuation allowance for~~during the six months ended March 31, ~~2020,~~2022 primarily relates to the release of the valuation allowance during the period and the ~~related income~~impact of the MIAT deferred tax ~~benefit, was primarily attributable~~liability for indefinite lived intangibles which are available to offset a portion of our indefinite lived deferred tax assets. See Note 15 of the notes to the ~~carryback of NOLs under the provisions of the CARES Act and the adoption of ASC 842 as of October 1, 2019.~~condensed consolidated financial statements herein for additional details on our valuation allowance.

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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 $1.2 million in issuance costs. In accordance with the terms of the related purchase agreement, we recorded ~~and paid~~ a preferred stock cash dividend of $2.6 million for the six months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

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

Net income (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~~income available for distribution for the six months ended March 31, ~~2021~~2022 of ~~$3.1~~$19.6 million and net ~~income~~loss available for distribution of ~~$12.2~~$3.1 million for the six months ended March 31, ~~2020.~~2021.

Non-GAAP Financial Measures

Our earnings before interest income, income taxes, depreciation and amortization (“EBITDA”) for the three and six months ended March 31, 2022 were $7.1 million and $24.5 million, respectively compared to $2.0 million and $6.3 million for the three and six months ended March 31, 2021, ~~were $2.0 million and $6.3 million, respectively, compared to $2.2 million and $10.0 million for the three months and six months ended 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 income, as follows (in thousands):


		Three Months Ended March 31,				Six Months Ended March 31,					Three Months Ended March 31,				Six Months Ended March 31,
		2021		2020		2021		2020			2022		2021		2022		2021
Net (loss) income		$	(1,547)	$	10,142	$	(464)	$	14,826
Net income (loss)										Net income (loss)	$	7,354	$	(1,547)	$	22,176	$	(464)
Interest income	Interest income	(8)		(347)		(62)		(683)		Interest income	(8)		(8)		(20)		(62)
Interest expense	Interest expense	1		3		3		3		Interest expense	466		1		699		3
Income tax benefit	Income tax benefit	(34)		(10,804)		(8)		(10,720)		Income tax benefit	(4,598)		(34)		(5,945)		(8)
Depreciation and amortization(1)	Depreciation and amortization(1)	3,569		3,230		6,851		6,572		Depreciation and amortization(1)	3,884		3,569		7,563		6,851
EBITDA	EBITDA	$	1,981	$	2,224	$	6,320	$	9,998	EBITDA	$	7,098	$	1,981	$	24,473	$	6,320

(1) Includes depreciation of training equipment obtained in exchange for services of $0.3 million and $0.3 million for the three months ended March 31, 2022 and 2021 and ~~2020~~$0.5 million and $0.6 ~~million and $0.7~~ million for the six months ended March 31, ~~2021~~2022 and ~~2020,~~2021, respectively.

Liquidity and Capital Resources

Overview of Liquidity

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 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 campuses in new markets and the creation of new programs, such as welding, in existing markets ~~with under-utilized~~where we continue to optimize utilization of our campus facilities.

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Our aggregate cash and cash equivalents were ~~$59.0~~$61.5 million as of March 31, ~~2021,~~2022, a decrease of ~~$17.8~~$72.2 million from September 30, ~~2020. Additionally,~~2021.

Strategic Uses of Cash

On November 1, 2021, using operating cash on hand, we ~~had short-term held-to-maturity investments~~acquired all of ~~$19.5~~the issued and outstanding shares of capital stock of MIAT for $26.0 million base purchase price plus $2.8 million working capital surplus for total cash consideration paid of $28.8 million. See Note 4 of the notes to the condensed consolidated financial statements herein for additional details on the acquisition.

During February 2022, we purchased the Lisle Campus for approximately $28.4 million, in cash plus assumed debt, including closing costs and ~~$38.1 million~~other fees. Due to the timing of the close for the Lisle Campus, we used available operating cash for the purchase. See Notes 7, 13 and 22 of the notes to the condensed consolidated financial statements herein for additional details on the purchase, debt assumed, and the subsequent retiring of the debt as a result of ~~March 31, 2021 and September 30, 2020, respectively. We had no long-term debt outstanding as of March 31, 2021 or September 30, 2020.~~securing a new term loan.

We believe that additional strategic ~~use~~uses of our cash resources may include consideration of strategic acquisitions and organic growth initiatives, purchase of real estate assets, subsidizing funding alternatives for our students, and the repurchase of common stock, ~~purchase of real estate assets, consideration of strategic acquisitions, and other potential uses of cash.~~among others. 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 aadditional credit ~~facility,~~facilities, issue debt or issue additional equity.

~~As previously noted, we purchased our Avondale, Arizona campus~~Long-term Debt

We had $48.7 million of long-term debt outstanding as of March 31, 2022, which is comprised of two term loans. Of the $48.7 million outstanding, $30.5 million relates to a term loan that bears interest at the ~~end~~rate of ~~December 2020, for approximately $45.2 million, including closing costs and other fees. Due to~~LIBOR plus 2.0% over 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~~seven year term secured in connection with the Avondale, Arizona campus property purchased in December 2020. The remaining $18.1 million relates to ~~increase available capital.~~a term loan that bears interest at the rate of 5.293% over the remaining nine year term, which was assumed in our purchase of the Lisle Campus property in February 2022. See Note 13 of the notes to the condensed consolidated financial statements herein for additional details on the term loans.

Additionally, on March 29, 2021, we entered into a definitive agreement to acquire MIAT from HCP & Company for a purchase price not to exceed $26.0 million in cash, subject to certain adjustments. The closing is subject to customary closing conditions, including the receipt of a Pre-Acquisition Review Response from the United States Department of Education that does not contain certain letter of credit requirements or operational restrictions and ACCSC approvals. We intend to use cash on hand to pay the consideration contemplated under the definitive agreement.Dividends

We currently do not pay a cash dividend on our common stock. We ~~paid a~~pay preferred stock cash dividends of $2.6 million during ~~the six months ended~~ March ~~31, 2021.~~and September of each fiscal year.

Principal Sources of Liquidity

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~~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 the timing and seasonality of our operating cash flow.

During the year ended September 30, 2020, due to the COVID-19 pandemic, 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. All of our campuses have remained open during the first six months of our fiscal 2021. If a significant number of students take a leave of absence, withdraw, or do not make-up the required in-person lab work on a timely basis, our cash generated from operations could be impacted in fiscal 2021.

Operating Activities

Our net cash provided by operating activities was ~~$17.5 million and $10.9~~$10.4 million for the six months ended March 31, ~~2021 and 2020, respectively.~~2022, compared to $17.5 million for the six months ended March 31, 2021.

Net ~~loss,~~income, after adjustments for non-cash items, provided cash of $36.2 million. The non-cash items included $9.1 million for amortization of right-of-use assets for operating leases, $7.6 million for depreciation and amortization expense and $2.2 million for stock-based compensation expense, partially offset by a change in deferred tax assets of $6.6 million.

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Changes in operating assets and liabilities used cash of $25.8 million primarily due to the following:

•The decrease in deferred revenue used cash of $17.5 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 March 31, 2022 as compared to September 30, 2021.

•Changes in our operating lease liability, primarily as a result of rent payments used cash of $8.6 million.

•The change in other liabilities used cash of $3.5 million primarily due to the reclassification of the CARES payroll tax deferral to current liabilities.

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

Net income, after adjustments for non-cash items, for the six months ended March 31, 2021 provided cash of $16.7 million. The non-cash items included $8.1 million for amortization of right-of-use assets for operating leases, $6.9 million for depreciation and amortization expense and $1.8 million for stock-based compensation expense.

Changes in operating assets and liabilities ~~provided~~used cash of $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 $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~~Investing Activities

During the six months ended March 31, ~~2020 provided~~2022, cash ~~of $35.1~~used in investing activities was $79.5 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 $10.9 million and~~ was ~~primarily attributable to recording an income tax receivable of $11.3 million as a result of the CARES Act.~~

•The decrease in deferred revenue used cash of $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 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 $4.8 million~~ primarily related to the ~~timing~~purchase of ~~payments for payroll~~property and ~~bonuses.~~

•~~The decrease in receivable provided cash~~equipment of ~~$3.1~~$53.2 million, ~~and was primarily due~~of which $28.4 million related to the ~~timing~~purchase of ~~Title IV disbursements~~the Lisle Campus. Other capital expenditures included investments for the Orlando, Florida and ~~other~~MMI, Phoenix consolidations, new campuses in Austin, Texas and Miramar, Florida, and the rollout of new programs at our campuses. Additionally, we purchased MIAT for $26.5 million, net of cash ~~receipts on behalf of our students..~~

~~Investing Activities~~consideration received.

During the six months ended 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.

Financing Activities

During the six months ended March 31, ~~2020,~~2022, cash used in ~~investing~~financing activities was ~~$46.6 million. The cash outflow~~$3.9 million which was primarily related to the ~~purchase~~semi-annual payment of ~~held-to-maturity investments with a portion~~preferred stock dividends of $2.6 million, the ~~proceeds received from a public offering~~payment of payroll taxes on stock-based compensation through shares withheld and payments on our ~~common stock in February 2020.~~

~~Financing Activities~~term loans.

During the six months ended March 31, 2021, cash used in financing activities was $3.1 million and related primarily to the semi-annual payment of preferred stock dividends of $2.6 million and 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 2020, offset by our semi-annual payment of preferred stock dividends of $2.6 million.withheld.

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

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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 pandemic could impact our future new student enrollments, graduations and student attrition.~~

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in conformity with GAAP and management’s discussion and analysis of our financial condition and operating results require management to make judgments, assumptions and estimates that affect the amounts reported. There were no significant changes in our critical accounting policies and estimates in the six months ended March 31, ~~2021~~2022 from those previously disclosed in Part II, Item 7 of our ~~2020~~2021 Annual Report on Form 10-K ~~filed~~other than noted below.

Goodwill and Intangible Assets

We test goodwill and indefinite-lived intangible assets for impairment annually as of August 1, or more frequently if events and circumstances warrant. Under ASC 350, Intangibles - Goodwill and Other, to evaluate the impairment of goodwill, we first assess qualitative factors, such as deterioration in the operating performance of the acquired business, adverse market conditions, adverse changes in the applicable laws or regulations and a variety of other circumstances, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. To evaluate the impairment of the indefinite-lived intangible assets, we assess the fair value of the assets to determine whether they were greater or less than the carrying values. If we conclude that it is more likely than not that the fair value is less than the carrying amount based on our qualitative assessment, or that a qualitative assessment should not be performed, we proceed with the ~~SEC~~quantitative impairment tests to compare the estimated fair value of the reporting unit to the carrying value of its net assets. Determining the fair value of indefinite-lived intangible assets is judgmental in nature and involves the use of significant estimates and assumptions. We believe the most critical assumptions and estimates in determining the estimated fair value of our reporting units include, but are not limited to, future tuition revenues, operating costs, working capital changes, capital expenditures and a discount rate. The assumptions used in determining our expected future cash flows consider various factors such as historical operating trends particularly in student enrollment and pricing and long-term operating strategies and initiatives. There were no indicators of impairment for our goodwill or indefinite-lived intangible assets as of March 31, 2022.

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, 2020. For a discussion of our~~Our principal exposure to market risk ~~refer~~relates to changes in interest rates.

We invest our cash and cash equivalents in money market funds. As of March 31, 2022, we held $61.5 million in cash and cash equivalents. During the six months ended March 31, 2022, we earned interest income of $20.0 thousand. As we have a restrictive investment policy, our financial exposure to fluctuations in interest rates related to our interest income is expected to remain low. We do not believe that the value or liquidity of our cash and cash equivalents and investments have been significantly impacted by current market events.

On May 12, 2021, we entered into a credit agreement to finance the Avondale property through a $31.2 million term loan that bears interest at the rate of LIBOR plus 2.0% with a maturity of seven years. As of March 31, 2022, the fair value of our long-term debt was $30.5 million and bears interest on the outstanding principal amount at a rate equal to the LIBOR plus 2.0%, which was 2.46% as of March 31, 2022. We believe the carrying value of the debt approximates fair value as the interest rate is a floating rate equal to the LIBOR plus 2.0%, which is representative of market rates for similar instruments. It is anticipated that the fair market value of our debt will continue to be immaterially affected by fluctuations in interest rates

~~2020 Annual Report on Form 10-K~~Table of Contents ~~filed~~

and we do not believe that the value of our debt has been significantly impacted by current market events. The variable rate of interest on our long-term debt can expose us to interest rate volatility due to changes in LIBOR. To mitigate this exposure, on May 12, 2021, we entered into an interest rate swap agreement that effectively fixes the interest rate on 50% of the principal amount of the term loan at 3.5% for the entire loan term. In February 2022, we assumed the term loan agreement associated with the ~~SEC~~Lisle Campus which had a principal balance of $18.3 million. This term loan has a fixed rate of 5.293% so it is not subject to variable rate risk.

During the six months ended March 31, 2022, we recorded interest expense of $0.7 million on ~~December 3, 2020.~~our outstanding debt. Assuming all terms of our outstanding long-term debt remained the same, a hypothetical 1.0% change (up or down) in the one-month LIBOR would result in a $0.2 million change to our annual interest expense for the portion of the long-term debt not hedged by the interest rate swap agreement.

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 March 31, ~~2021~~2022 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 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 March 31, ~~2021.~~2022.

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 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 ~~2020 Annual Report on Form 10-K~~ ~~filed with the SEC on December 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~~ ~~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.None.

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

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~~and Sale Contract dated February 4, 2022, 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~~Universal Technical Institute Ventures, LLC, and iStar Net Lease I LLC.
2.2*						Purchase and Sale Contract dated February ~~26, 2021)~~11, 2022, by and among Universal Technical Institute, Inc., Universal Technical Institute Ventures, LLC, and iStar Net Lease Member I LLC.
10.1*						Modification Agreement dated February 14, 2022, by and between 2611 Corporate West Drive Venture LLC and Western Alliance Bank.
10.2*						Repayment Guaranty dated February 14, 2022, by and among Universal Technical Institute, Inc., 2611 Corporate West Drive Venture LLC and Western Alliance Bank.
10.3*						Loan Agreement dated April 14, 2022, by and among 2611 Corporate West Drive Venture LLC and Valley National Bank .
~~10.1~~10.4*						U ~~niversal~~Guaranty dated April 14, 2022, by and among Universal Technical Institute, Inc. ~~2021 Equity Incentive Plan (incorporated by refer~~, ~~ence to Exh~~2611 Corporate West Drive Venture LLC ~~ibit 10.1 to the registra~~ and Valley National Bank.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+						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+						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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Table of Contents

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:

May ~~7, 2021~~5, 2022

By:

/s/ Jerome A. Grant

Name:

Jerome A. Grant

Title:

Chief Executive Officer (Principal Executive Officer)

3845


	March 31, 2021		September 30, 2020
Receivables, which includes tuition and notes receivable	$	43,103	$	53,144
Deferred revenue	40,954		40,694


	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