U. S. UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 _____________________________________________
FormFORM 10-K
(Mark One)


þ☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 20172022
 
¨☐ 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)
Delaware86-0226984
Delaware86-0226984
(State or other jurisdiction of

incorporation or organization)
(IRS Employer Identification No.)
16220 North Scottsdale Road,4225 East Windrose Drive, Suite 100200
Scottsdale,Phoenix, Arizona 8525485032
(Address of principal executive offices)
(623) 445-9500
(Registrant’s telephone number, including area code)


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

Title of each class:classTrading SymbolName of each exchange on which registered:registered
Common Stock, $0.0001 par valueUTINew York Stock Exchange


Securities registered pursuant to section 12(g) of the Act: None.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨☐ No  þ☑




Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No  þ☑
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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405)232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   þ☑    No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company”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  ¨
Large accelerated filer ☐
 Accelerated filer ☑
Non-accelerated filer ☐
 Smaller reporting company ☐ 
 Emerging growth 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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

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

At November 21, 2017, 25,007,53630, 2022, 33,774,821 shares of common stock were outstanding. The aggregate market value of the shares of common stock held by non-affiliates of the registrant on the last business day of the registrant's most recently completed second fiscal quarter (March 31, 2017)2022) was approximately $61,600,000$284,000,000 (based upon the closing price of the common stock on such date as reported by the New York Stock Exchange). For purposes of this calculation, the registrant has excluded the market value of all common stock beneficially owned by all executive officers and directors of the registrant.



Documents Incorporated by Reference


Portions of the registrant's definitive proxy statement for the 20182023 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.






UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
INDEX TO FORM 10-K FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2022


Page
1
PART I
Page
ITEM 1.
13
ITEM 1.1A.
222
ITEM 1B.
2
Business Model
2
Business Strategy
3
Industry Background
5
Schools and Programs
6
Industry Relationships
12
Student Recruitment Model
14
Student Admissions and Retention
15
Enrollment
15
Graduate Employment
16
Faculty and Employees
16
Competition
17
Environmental Matters
18
Available Information
18
Regulatory Environment
18
ITEM 1A.
RISK FACTORS
40
ITEM 1B.
UNRESOLVED STAFF COMMENTS
6135
ITEM 2.
6235
ITEM 3.
6236
ITEM 4.
6336
EXECUTIVE OFFICERS OF UNIVERSAL TECHNICAL INSTITUTE, INC
63
PART II
ITEM 5.
6537
ITEM 6.
6838
ITEM 7.
7138
ITEM 7A.
71
2017 Overview
72
Results of Operations
78
Liquidity and Capital Resources
86
Contractual Obligations
89
Off-Balance Sheet Arrangements
89
Related Party Transactions
89
Seasonality
90
Critical Accounting Estimates
91
Recent Accounting Pronouncements
94
ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
9453
ITEM 8.
9554
ITEM 9.
9554
ITEM 9A.
9554
ITEM 9B.
9655


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PART III
Page
ITEM 10.
9656
ITEM 11.
9756
ITEM 12.
9756
ITEM 13.
9756
ITEM 14.
9757
PART IV
ITEM 15.
9858
ITEM 16.
61

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


This Annual Report on Form 10-K and the documents incorporated by reference herein contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act) and(“Exchange Act”), Section 27A of the Securities Act of 1933, as amended (Securities Act),(“Securities Act”) and the Private Securities Litigation Reform Act of 1995, which include information relating to future events, future financial performance, strategies, expectations, competitive environment, regulation and availability of resources.resources and involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. From time to time, we also provide forward-looking statements in other materials we release to the public as well as verbal forward-looking statements. These
In some cases, you can identify forward-looking statements include, without limitation, statements regarding: proposed new programs; scheduled openings of new campuses and campus expansions; expectations that regulatory developments, or agency interpretations of such regulatory developments or other matters will not have a material adverse effect on our consolidated financial position, results of operations or liquidity; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; and statements of management’s goals, strategies and objectives and other similar expressions. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Wordsby terms such as “may,” “will,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,“plans,” “future,” “intends,” “plans,“anticipates,” “believes,” “estimates,” “projects,” “predicts,” “potential” and similar expressions as well as statements in future tense,(including the negative form of such expressions) intended to identify forward-looking statements. However,statements, although not all forward-looking 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;
•our failure to maintain eligibility for or the ability to process federal student financial assistance;
•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 acquisitions;
•our failure to successfully integrate our acquisitions;
•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 timely and cost-effective manner 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;
•a loss of our senior management or other key employees; and
•risks related to other factors discussed in this Annual Report on Form 10-K, including those described in Item 1A. “Risk Factors.”
The factors above are not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that could impact our business. We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions.realized. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. Among the factors that could cause actual results to differ materially are the factors discussed under Part 1, Item 1A, "Risk Factors".1. “Business” and Item 1A. “Risk Factors,” and Part II, 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.
Also, these forward-looking statements represent our estimates and assumptions only as of the date of the document containing the applicable statement. Except as required by law, we undertake no obligation to publicly update 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 Annual Report on Form 10-K, including the documents that we


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incorporate by reference herein, by these cautionary statements. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Qreports and 8-K reports tofilings with the Securities and Exchange Commission(SEC) (“SEC”).



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PART I
ITEM 1. BUSINESS
Overview
We are theFounded in 1965, with more than 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, motorcycletransportation and marine technicians as measured by total average undergraduate full-time enrollment and graduates. We offertechnical training programs. As of September 30, 2022, we offered certificate, diploma and undergraduateor degree programs at 1216 campuses across the United States under the banner of several well-known brands, including Universal Technical Institute (UTI)(“UTI”), Motorcycle Mechanics Institute and Marine Mechanics Institute (collectively, MMI) and“MMI”), NASCAR Technical Institute (NASCAR Tech)(“NASCAR Tech”), and MIAT College of Technology (“MIAT”). We alsoAdditionally, 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. We recently began offering undergraduate diplomaoffer the majority of our programs in a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.
All of our campuses are nationally accredited and are eligible for weldingfederal student financial assistance funds under the Higher Education Act of 1965, 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 financial aid from federal sources other than Title IV Programs, such as the programs administered by the U.S. Department of Veterans Affairs (“VA”) and computer numerical control (CNC) machining. We have provided technical education for 52 years.
Forunder the year ended September 30, 2017, our average undergraduate full-time student enrollment was approximately 10,900.
Workforce Innovation and Opportunity Act.
Business Model and Industry Partnerships
We work closelyserve students, partners and communities by providing quality education and training for in-demand careers. We continue to evolve our business model to provide our students with leading original equipment manufacturers (OEMs)accessible, affordable training with a focus on bringing education to the students at convenient locations. The market for qualified service technicians across the programs that we offer is large and growing. The United States Department of Labor Bureau of Labor Statistics (“U.S. DOL BLS”) estimates that an average of approximately 117,000 new job openings, due to growth and net replacements, will exist annually for newly trained technicians in the automotive, diesel, and collision fields through 2031. Additionally, the U.S. DOL BLS estimates that an average of 42,500 new jobs openings for industrial machinery mechanics, 47,600 new job openings for welders, 40,100 new job openings in the HVAC industry, 14,700 new job openings for computer-controlled machine tool operators, 13,100 new job openings for avionic technicians, 6,100 new job openings for robotics, 4,800 new job openings for marine and motorcycle marine, weldingtechnicians and CNC machining industries1,900 new job openings for wind turbine service technicians will exist annually for new entrants through 2031 in these fields.
Our student recruitment efforts begin with our commitment to positive outcomes, both for our students and our industry relationships. We use a multi-touch media approach for our three primary admissions channels (high school, adult, and military) to enroll and start students, which involves national and local outreach to generate a high quality and quantity of prospective students. To maximize the likelihood of student retention and graduation, our admissions process is intended to identify students who have the desire and ability to succeed in their chosen program. In addition, we have established processes to identify students who may be in need of assistance to succeed in and complete their chosen program. To assist these students in graduating, we employ student service professionals that provide tutoring, and academic, financial, personal, and employment advisement. Additionally, as our campus locations do not offer housing for students, we have service professionals who leverage third-party relationships and assist our students in finding affordable housing near our campuses.
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, with OEMs, we are able to continuously refine and expand our programs and curricula. We believe our industry-orientedindustry-focused educational philosophymodel and national presence have enabled us to develop valuable industry relationships, which provide us with significant competitive strengthadvantages and supportsupports our market leadership.
We are a primary provider of manufacturer specific advanced training (MSAT) programs, and we have relationshipsleadership, along with over 30 OEMs, including the following, and their associated brands:
American Honda Motor Co., Inc.
Mercedes-Benz USA, LLC
BMW of North America, LLC
Mercury Marine, a division of Brunswick Corp.
BMW Motorrad of North America, LLC
Navistar International Corp.
Bombardier Produits Recreatifs (BRP), Inc.
Nissan North America, Inc.
Cummins Rocky Mountain, a subsidiary of Cummins, Inc.
Peterbilt Motors Company
Daimler Trucks N.A.
Porsche Cars of North America, Inc.
FCA US LLC (fka Chrysler Group LLC)
Suzuki Motor of America, Inc.
Ford Motor Co.
Toyota Motor Sales, U.S.A., Inc.
General Motors Co.
Volvo Cars of North America, LLC
Harley-Davidson Motor Co.
Volvo Penta of the Americas, Inc.
Kawasaki Motors Corp., U.S.A.
Yamaha Motor Corp., USA
KTM of North America, Inc.


Participating manufacturers typically assist us in the development of course content and curricula, while providing us with vehicles, equipment, specialty tools and parts at reduced prices or at no charge. In some instances, they offer tuition reimbursement and other hiring incentives to our graduates. Our collaboration with OEMs enablesenabling us to provide highly specialized education to our students, resulting in enhanced employment opportunities and the potential for higher wages for our graduates.
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Our industry partners and their dealers benefit from a supply of technicians who are certified or credentialed by the manufacturer as graduates of the MSAT programs. The MSAT programs offer a cost-effective alternative for sourcing and developing technicians for both OEMs and their dealers. These relationships also support the development of incremental revenue opportunities from training the OEMs’ existing employees.
In addition to the OEMs, our industry relationships also extend to thousands of local employers, after-market retailers, fleet service providers and enthusiast organizations. Other target groups for relationship-building, such as parts and tools suppliers, provide us with a variety of strategic and financial benefits that include equipment sponsorship, new product support, licensing and branding opportunities and financial sponsorship for our campuses and students.


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Business Strategy
Our goal iscore business strategies are aligned with our mission to continue to be the leading provider of post-secondaryserve students, partners and communities by providing quality education and training for students seeking careersin-demand careers. Additionally, as professional automotive, diesel, collision repair, motorcycle and marine technicians and the leading supplier of entry-level skilled technicians for the industries we serve. We are also broadening our program offerings into high-demand, adjacent skilled trades such as welding and CNC machining technician training. We continue to evolve our business model, to provide our students with accessible, affordable training with a focuswe are focused on bringing education to the students. We intend to pursue the followinggrowth and diversification achieved through acquisitions, opening new campus locations, expanding program offerings, and new funding and business strategies to attain these goals:operating models.

Strengthen industry relationships
Our relationships with leading OEMs are important to our business. We deliver value to OEMs and employers by functioning as an efficient hiring source and low cost training option for new and existing technicians. These relationships give us direct input on the latest needs and requirements of employers, which not only guides our prospective student recruitment, but also strengthens our curricula and our students’ opportunities for employment and earnings potential after graduation. In addition, our OEM partners and their related dealers support our students through manufacturer-paid courses, scholarships and tuition reimbursement programs.


Recruit, trainTrain and identify employment opportunitiesIdentify Employment Opportunities for more studentsMore Students

Our student recruitment efforts are focused on three primary marketsbegin with our commitment to positive outcomes for our students and our industry relationships. Our responsibility to present job-ready graduates to employers requires that we recruit, enroll and train prospective students who have the drive and potential to successfully pursue a career in their field of training.

Our student recruitment efforts for prospective students and are conducted through three admissions channels:

•High School: Field-based representatives develop and maintain relationships with high school guidance counselors, teachers and administrators as well as local employers. These representatives generate student interest in pursuing thea professional technician career path and UTI’sour training programs through career presentations and workshops at high schools and career fairs and inviting students and their influencers on field trips and tours of our campuses and local employers’ businesses.

Adult:•Adult: Campus-based representatives serve adult career-seeking or career changing students who typically inquire with our schools as a result of our advertising campaigns.
Military:•Military: Our military representatives are strategically located throughout the country andcountry. These representatives focus on building relationships with military installations in order to serve the needs of those transitioning soldiers andfrom military veterans. Additionally, we have a centralized team of military representatives who are dedicated to serving and assisting veterans throughout the U.S.service.


We collaborate with employers to help prospective students and their families understand the potential career opportunities that may be available during and after completing one of our programs. As competition for the graduates we train grows, employers are increasingly partnering with us to raise awareness of the benefits of a technician career path for prospective students. Employer testimonials are featured in our marketing materials. Additionally,
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Return on Education
employers host special events for our prospective students at their locations and participate in open houses at our campuses, highlighting the high-tech jobs and career opportunities available to our graduates.

Our national multi-media marketing strategies are designed to drive new student growth by building brand awareness and differentiation, enhancing the appeal of the skilled trades, and generating inquiries from qualified prospective students.


We continue to optimize our national and local marketing initiatives, tools and systems with the goals of cost-efficiency, balancing the volume and quality of inquiries and attracting prospective students with a high propensity to attend our programs. Partnering with employers and focusing on our marketing strategies is part of an effort to increase positive perception of technical careers and our programs. We are working to build relationships on military bases, in high schools, with local and state businesses and education and policy leaders to educate them on the value we create for our students, local employers, the economy and the community.

We have implemented new processes, technology and tools to support our national network of admissions representatives in responding to new student inquiries and keeping them engaged as they apply for, enroll in and start school. We provide graduate-based incentive compensation for our admissions representatives, which rewards them for students who successfully complete our programs.

Improve educational value proposition and affordability
Educational value
Our strategy is to provide students with an excellent return on their educationalour students’ education investment by working with our industry partners to offer manufacturer-specific training that is tailored to industry standards and requirements, that improves students’ opportunities to find employment and maximizes their earnings potential in a secure, growing industry.potential. We actively engage transportation industry partners in defining our core curriculum and improving and expanding our MSAT courses. We regularly evaluate program offerings, schedules and locations that are most appealing to students and aligned with employer expectations, andexpectations. We also update and expand our core and MSAT courses to align our training programs with current industry standards and requirements.


These unique industry-aligned course offerings make our students more valuable to employers by giving them training that is consistent with industry needs and rapidly changing technology and the opportunity to earn a variety of industry-recognized certifications and credentials. As a result, we believe we are well positioned to better meet the industry’s demand for skilled technicians.

Our Automotive and Diesel Technology II curricula is designed around manufacturers’ needs and fulfills student demand for hands-on, instructor led training in multiple learning environments. We intend to continue integrating this curricula and methodologies at new and existing campuses that offer Automotive and Diesel Technology programs. We will prioritize implementation of the Automotive and Diesel Technology II curricula at new campus locations.


We provide relevant services to assist students with possible tuition financing options, educational and career counseling, opportunities while attending school for part-time work and housing assistancewhile attending school, and ultimately, graduate employment. Our national employmentcareer services team develops job opportunities and outreach, while our local employmentcareer services teams instructadvise active students on employment search and interviewing skills, facilitate employer visits to campuses, provide access to reference materials and assist with the composition of resumes.


AffordabilityStrengthen Industry Relationships
Increased price sensitivity
Our relationships with leading manufacturer brand partners and aversionother strategic partners are important to debt continueour business. We deliver value to negatively impact prospective students’ willingnessthese partners and ability to invest inemployers by functioning as an education, especially when jobs are plentiful in an economic cycle. We areefficient hiring source and low cost training option for new and existing technicians. These relationships give us direct input on the latest needs and requirements of employers, which


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working to open more conveniently located campuses that allownot only guides our prospective student recruitment, but also strengthens our curricula and our students’ opportunities for employment and higher earnings after graduation. In addition, our manufacturer brand partners support our students to commute and we provide a flexible curriculum that allows students to work while attending school. We are focused on making our training more affordable and accessible through financing options, proprietary loans, institutional grants andmanufacturer-paid courses, scholarships, based on need and merit and employer funded tuition reimbursement; we assist students in applying for any grants or scholarships available for which they meet qualifications and we engage employers in developing tuition reimbursement programs for employeesand early employment initiatives.

Growth and Diversification

Our growth strategy is predicated on adding new campuses and expanding program offerings in good standing. the transportation and skilled trades fields.We also offer financing toolshave the opportunity to pursue our growth strategy through acquisitions. With a national higher-education market in transition, we are exploring potential acquisition opportunities that would allow us to enter new markets, expand our presence in existing markets, broaden our program offerings, enter into adjacent markets such as other skilled trades or high demand energy, or that could drive significant cost and guidanceoperational synergies.

Our diversification strategy is focused on program diversification by adding new disciplines; evolving our instructional and delivery model to leverage enabling technologies resulting in better usage of campus facilities and instructional costs per student; executing on new instructional strategies that drive student outcomes and allow the business to more effectively scale; and identifying and adding new ways for programs to be funded by and for students.


In responseDuring the year ended September 30, 2022, we executed the following as part of our growth and diversification strategy:

Acquisitions

•Entered into a definitive agreement to growing demand for trained technicians, our industry partnersacquire Concorde Career Colleges, Inc. (“Concorde”) in May 2022. Concorde is a leading provider of industry-aligned healthcare education programs in fields such as nursing, dental hygiene and employers are increasingly willing to provide our studentsmedical diagnostics. Concorde currently operates 17 campuses across eight states with scholarship money and to offer our graduates tuition reimbursement plans and competitive compensation and benefit packages, including signing bonuses, relocation grants and toolboxes. These programs make our training more affordable forapproximately 8,000 students, and provide tangible examples of the opportunities available tooffers its programs in ground, hybrid and online formats. The acquisition aligns with our graduates.

We are working with high schools across the nation to increase course articulation programs, which allow students who have completed courses accredited by the National Automotive Technical Education Foundation (NATEF), a division of the Institute for Automotive Service Excellence (ASE), to transfer these credits to our programs. These additional credits can reduce students’ tuition and the time needed to complete our programs.

Additionally, we regularly review and revise key business processes with the goals of eliminating costs and waste, driving efficiency and allowing us to continue to improve value and affordability for our students. Our goal is to align costs with student populations without compromising the quality of our education.

Invest in strategies to return to profitable growth

We are pursuing strategies designed to return to profitable long-term growth and have secured the capital necessary to execute these initiatives, while meeting the requirements and expectationsdiversification strategy, which is focused on offering a broader array of regulators and our accreditor.

Through organic growth and, potentially, strategic acquisition of campus locations, we are expanding our national footprint by adding smaller campuses in locations where there is strong demand fromhigh-quality, in-demand workforce solutions which both prepare students and employers, including those students who would not relocate to one of our existing campuses. Additionally, we are working to more cost effectively and efficiently use our space through reducing the size of and better utilizing our existing campuses, offering new OEM courses, adding complementary skilled trade programs, such as our new welding and CNC machining programs, and through negotiating facility use agreements.

We are also working to create more diversified revenue streams that build on our expertise in developing training programs for hands-on technical applications. Through strategic acquisition, we are building the capability to develop and deliver digital training and continuing technical education solutions for a variety of domesticcareers in fast-growing fields and international companies.help close the country's skills gap by leveraging key industry partnerships. On December 1, 2022, we closed the Concorde acquisition.

Industry Background
The market for qualified service technicians is large and growing. In•Completed the most recent data available, the United States Departmentacquisition of Labor (U.S. DOL) estimated that in 2016 there were approximately 749,900 employed automotive technicians in the United States, and this number was expected to increase by 6.3%MIAT College of Technology (“MIAT”) from 2016 to 2026. Other 2016 estimates provided by the U.S. DOL indicate that the number of technicians in the other industries we serve, including diesel, collision, motorcycle and marine repair, are expected to increase over this ten-year period by 9.5%, 8.7%, 1.6% and 0.4%, respectively. The need for technicians is due to a variety of factors, including technological advancement in the industries into which our graduates enter, a continued increase in the number of automobiles, trucks, motorcycles and boats in service, the increasing lifespan of late-model automobiles and light trucks and an aging workforce that has begun to retire. As a result of these factors, the U.S. DOL estimates thatHCP & Company on November 1, 2021. MIAT had an average of approximately 125,600950 undergraduate full-time active students during the year ended September 30, 2022 through its campuses in Canton, Michigan and Houston, Texas. MIAT 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 enables us to further expand our program offerings into growing industry sectors and rapidly expanding fields likely to be bolstered by technological innovation and the country’s focus on sustainable energy.

Campus Openings and Optimization

•Expanded our operations through the opening of our new job openings will exist annuallycampuses in Austin, Texas and Miramar, Florida. Austin is our third school in Texas and Miramar is our second school in Florida. Both campuses help to broaden the reach of our skilled trade programs to high demand geographies.
•Completed the consolidation and reconfiguration of our UTI and MMI Orlando, Florida campus facilities into one site and the consolidation of the MMI Phoenix campus into our Avondale, Arizona building.
•Purchased the Lisle, Illinois campus in February 2022, for approximately $28.7 million in cash consideration, including closing costs and other fees and assumed debt of $18.3 million. In April 2022, we completed the financing for the purchase which retired the assumed debt and replenished approximately $20.0 million of the funds used to purchase the campus. See Notes 9, 12, 13 and 15 of the notes to our consolidated financial statements herein for additional details on the purchase and related debt and interest rate swap.

Program Expansion and New Industry Partnerships

•Executed on the next phase of our growth and diversification strategy by announcing the addition of 15 new entrants from 2016programs across our campus footprint, including Aviation, HVACR, Robotics, Industrial Maintenance and Wind Energy Technician training to 2026 inUTI and NASCAR Tech branded campuses, and initiated efforts to add Auto and


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these fields, according to data we reviewed. In additionDiesel Essentials to the increaseMIAT Canton, Michigan campus. Pending all regulatory approvals, the initial planned program additions are projected to begin launching in the second quarter of 2023.
•Launched electric vehicle (“EV”) technician training coursework to meet increasing demand for newly qualifiedclean cars and trucks. This enhanced training is the initial step in our overall EV strategy to prepare future technicians manufacturers, dealer networks, transportation companiesfor anticipated increasing EV sales in the coming decades.
▪As part of this initiative, we rolled out new curriculum in our Ford Accelerated Credential Training program to prepare students for 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 governmental entities with large fleets are outsourcing their training functions, seeking preferred education providers who can offeroperation, EV battery components and operation and an introduction to high quality curriculavoltage battery service, as well as a Ford instructor-led class on hybrid and EV operation and diagnosis.
•We have a national presencealso selected Bosch to support the development of new courseware that helps meet the employment and advanced training needs of their national dealer networks.the growing EV market, which continues to see record sales and a demand for skilled technicians.

•Expanded our welding technology program to our Mooresville, North Carolina and Exton, Pennsylvania campuses in January and July 2022, respectively.
•Launched the BMW Fast Track program at our Avondale, Arizona and Orlando, Florida campuses in January 2022, our Long Beach, California campus in April 2022, our Houston, Texas campus in May 2022 and our Exton, Pennsylvania campus in August 2022. We expect to launch the program at our Lisle, Illinois campus in Spring 2023 and Miramar, Florida campus in Summer 2023.
•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 U.S. DOL estimated that in 2016 there were approximately 404,800 employed welders, cutters, solderersinitial stage of the partnership will impact UTI, MMI and brazersNASCAR Tech campuses and may be expanded to MIAT-branded campuses in the United States, and this number was expected to increase by 5.5% from 2016 to 2026. The U.S. DOL estimates that an average of approximately 45,800 new job openings will exist annually for new entrants from 2014 to 2024 in this field, according to data we reviewed.future.


The U.S. DOL estimated that in 2016 there were approximately 145,700 employed computer-controlled machine tool operators in the United States, and this number was expected to increase by 1.1% from 2016 to 2026. The U.S. DOL estimates that an average of approximately 14,500 new job openings will exist annually for new entrants from 2016 to 2026 in this field, according to data we reviewed.

Schools and Programs
Through our campus-based school system, weWe offer specialized technical educationcertificate, diploma or degree programs at 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 (collectively, MMI) and NASCAR Technical Institute (NASCAR Tech).brands. The majority of our undergraduateUTI programs are designed to be completed in 36 to 10290 weeks andwhile our MIAT programs are completed in 28 to 96 weeks. Our advanced training programs range from 12 to 23 weeks in durations. These programs culminate in a certificate, diploma, or associate of occupational studies degree, or associate of applied science degree depending on the program and campus. Tuition ranges from approximately $17,450 to $54,200per program, depending on the naturerates vary by type and length of our programs and the program. Longer programs generally reflect multiple elective manufacturer courses. Our campuses are accredited andprogram level, such as core or advanced training.

The table below sets forth our undergraduate programs are eligible for federal student financial assistance fundscurrent locations that operate under the Higher Education Act of 1965, as amended (HEA), commonly referred to as Title IV Programs, which are administered byUTI, MMI, NASCAR Tech, and MIAT brands, the U.S. Department of Education (ED). Ouryear the campus opened, and the principal programs are also eligible for financial aid from federal sources other than Title IV Programs, such as the programs administered by the U.S. Department of Veterans Affairs (VA) and under the Workforce Investment Act.

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Our undergraduate schools and programs are summarized in the following table:
taught at each location.
LocationDateBrandYear Campus OpenedPrincipal Programs
Arizona (Avondale)TrainingUTI
LocationBrand1965CommencedPrincipal ProgramsAutomotive; Diesel; Welding
Arizona (Avondale)*1(1)
UTI1965MMIAutomotive; Diesel1973Motorcycle
Arizona (Phoenix)MMI1973Motorcycle
California (Long Beach)*UTI2015UTI2015Automotive; Diesel; Collision Repair and RefinishingRefinishing; Welding
California (Rancho Cucamonga)*UTI1998UTI1998Automotive; Diesel; Welding
California (Sacramento)*UTI2005UTI2005Automotive; Diesel
Florida (Miramar)UTI2022Automotive; Diesel; Welding
Florida (Orlando)UTI/MMI1986Automotive; Diesel; Motorcycle; Marine
Illinois (Lisle)UTI1988Automotive; Diesel; Welding
Michigan (Canton)MIAT1969Airframe and Powerplant; Aviation Maintenance; Energy; HVACR; Industrial Maintenance; Robotics & Automation; Wind Power; Welding
New Jersey (Bloomfield)UTI2018Automotive; Diesel; Welding
North Carolina (Mooresville)NASCAR Tech2002Automotive; NASCAR; CNC Machining; Welding
Pennsylvania (Exton)UTI2004Automotive; Diesel; Welding


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LocationBrandYear Campus OpenedPrincipal Programs
Texas (Austin)UTI2022Automotive; Diesel; Welding
Texas (Dallas/Ft. Worth)UTI2010Automotive; Diesel; Welding
Texas (Houston)UTI1983Automotive; Diesel; Collision Repair and RefinishingRefinishing; Welding
Florida (Orlando)*Texas (Houston)UTI/MMI1986MIATAutomotive; Diesel2010Airframe and Powerplant; Aviation Maintenance; Energy; HVACR; Industrial Maintenance; Non-Destructive Testing; Robotics & Industrial; Motorcycle; MarineAutomation; Wind Power; Welding
(1)     As previously noted, the MMI Phoenix, Arizona campus was consolidated into our Avondale, Arizona building during fiscal 2022. While the MMI program shares the same building as UTI in Avondale, it is considered a separate campus for our reporting requirements to the ED.

Description of Current Programs Offered
Many of our students receive their training in a blended training model that combines instructor-facilitated online teaching and demonstrations with hands-on labs. The blended learning model not only increases access for students, but better prepares them to be life-long learners as technicians today perform many day-to-day tasks and continuing education courses online or on a digital device.
The table below provides an overview of the programs taught by UTI owned and operated institutions, including the year a program was first offered at one of our campuses, the focus of the program, and the type of employment the program was designed to prepare graduates to obtain.
Illinois (Lisle)ProgramUTI1988Year EstablishedAutomotive; DieselProgram Focus
Target Job Placement(1)
Massachusetts (Norwood)AutomotiveUTI20051965Automotive; DieselDiagnose, service and repair automobilesEntry-level service technicians in automotive dealer service departments or automotive repair facilities
North Carolina (Mooresville)DieselNASCAR Tech20021968Automotive; Automotive with NASCAR; CNC MachiningDiagnose, service and repair diesel systems and industrial equipmentEntry-level service technicians in medium and heavy truck facilities, truck dealerships, or in service and repair facilities
Pennsylvania (Exton)Airframe and PowerplantUTI20041969Automotive; DieselAircraft troubleshooting, hydraulics and pneumatics, powerplant lubrication systems and turbine engine operationEntry-level opportunities in various areas of the aviation industry
Texas (Dallas/Ft. Worth)*Automotive/DieselUTI20101970Automotive; DieselDiagnose, service and repair automobiles and diesel systemsEntry-level service technicians in automotive repair facilities, automotive dealer service departments, diesel engine repair facilities, medium and heavy truck facilities, truck dealerships, or in service and repair facilities
Texas (Houston)MotorcycleUTI19831973Automotive; Diesel; Diagnose, service and repair motorcycles and all-terrain vehiclesEntry-level service technicians in motorcycle dealerships and independent repair facilities
Marine1991Diagnose, service and repair boatsEntry-level service technicians for marine dealerships and independent repair shops, as well as for marinas, boat yards and yacht clubs
Collision Repair and Refinishing1999How to repair non-structural and structural automobile damage as well as how to prepare cost estimates on all phases of repair and refinishingEntry-level technicians at OEM dealerships and independent repair facilities


* Indicates a campus location that offers our Automotive Technology and Diesel Technology II curricula.
1 We will begin teaching our Welding Technology program at our Avondale, Arizona campus in January 2018.7

In October 2017, we entered into a lease agreement for a new campus in Bloomfield, New Jersey. We anticipate opening the Bloomfield, New Jersey campus in fall 2018 and offering our Automotive Technology and Diesel Technology II programs.

Universal Technical Institute (UTI)
UTI offers automotive, diesel and industrial, and collision repair and refinishing programs that are accredited by NATEF, a division of ASE. In order to apply for NATEF accreditation, a school must meet the NATEF curriculum requirements and also must have graduated its first class. We offer certificate, diploma and associate degree level programs, with degree level credentials currently only offered at our Avondale, Arizona; Dallas/Ft. Worth, Texas; Rancho Cucamonga, California and Sacramento, California campuses. We plan to expand degree level offerings to select existing and new campus locations, subject to applicable regulatory approvals. We offer the following programs under the UTI brand:
Automotive Technology. Established in 1965, the Automotive Technology program is designed to teach students how to diagnose, service and repair automobiles. In 2010, we began offering this program as Automotive Technology II in a blended learning format which combines daily instructor-led theory and hands-on lab training complimented by interactive web-based learning. Automotive Technology II is currently offered at our Avondale, Arizona; Long Beach, California; Rancho Cucamonga, California; Sacramento, California; Orlando, Florida and Dallas/Ft. Worth, Texas campuses. The program generally ranges from 51 to 66 weeks in duration and tuition ranges from
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ProgramYear EstablishedProgram Focus
Target Job Placement(1)
NASCAR2002Automotive training along with additional NASCAR-specific elective coursesEntry-level service technicians in automotive dealer service departments or automotive repair facilities, or opportunities in racing-related industries
Energy Technology2007Associate of Applied Science degree which focuses on power generation, wind power, compression technology and powerplant operationsEntry-level positions in the wind, nuclear, gas, coal, power distribution, or solar industries
Industrial Maintenance2007Diagnose, service, test and repair various types of machineryEntry-level industrial maintenance technician in a wide range of industries including gas, coal, nuclear and solar industries
Wind Power2007Diagnose, service and repair wind turbine towersEntry-level service technicians for the wind power industry
Aviation Maintenance Technology2012Perform inspections, routine maintenance and repairs to keep aircraft in operating conditionEntry-level service technicians in aviation repair stations and hangers, and on airfields
Heating, ventilation, air conditioning and refrigeration (HVACR)2012An awareness of safety procedures, knowledge of heating and cooling, familiarity with tools used in the industry, and the ability to perform a variety of manual skillsEntry-level service technicians in the heating and cooling industry
Welding2017How to weld various materials using a wide range of welding processesEntry-level welders in the construction, structural, pipe, mechanical contracting and fabrication industries.
CNC Machining2017How to produce precision parts used in high-performance engines and a wide variety of trucks, motorcycles, cars and boats, and also in industrial applications, aerospace components and medical and surgical equipmentEntry-level CNC operators in the manufacturing and mechanical fabrication industries
Robotics & Automation2018Robotics is the process of creating and using robots to complete certain tasks. Automation refers to the process of using technology to perform tasks typically completed by humans.Entry-level technician in a variety of industries
Non-Destructive Testing2019Training in the discipline focused on the quality and serviceability of materials and structuresEntry-level technicians in a variety of industries, from oil and gas and manufacturing to power generation and aviation
approximately $33,150 to $44,200. Graduates(1)    Target job placement describes the type of thisemployment the program are qualified to work as entry-level service technicians in automotive dealer service departments or automotive repair facilities.

Diesel Technology. Established in 1968, the Diesel Technology program iswas designed to teach students how to diagnose, service and repair diesel systems and industrial equipment. In 2010, we began offering this program as Diesel Technology II in the blended learning format described above. Diesel Technology II is currently offered at our Avondale, Arizona; Long Beach, California; Rancho Cucamonga, California; Sacramento, California; Orlando, Florida and Dallas/Ft. Worth, Texas campuses. The program generally ranges from 45 to 57 weeks in duration and tuition ranges from approximately $30,850 to $39,300. Graduates of this program are qualified to work as entry-level service technicians in medium and heavy truck facilities, truck dealerships, or in service and repair facilities for equipment utilized in various industrial applications, including materials handling, construction, transport refrigeration or farming.

Automotive and Diesel Technology. Established in 1970, the Automotive/Diesel Technology program is designed to teach students how to diagnose, service and repair automobiles and diesel systems. Automotive and Diesel Technology is currently offered at our Lisle, Illinois; Norwood, Massachusetts; Exton, Pennsylvania and Houston, Texas campuses. In 2010, we began offering this program as Automotive and Diesel Technology II in the blended learning format described above; Automotive and Diesel Technology II is currently offered at our Avondale, Arizona; Long Beach, California; Rancho Cucamonga, California; Sacramento, California; Orlando, Florida and Dallas/Ft. Worth, Texas campuses. The program generally ranges from 75 to 90 weeks in duration and tuition ranges from approximately $42,200 to $54,200. Graduates of this program are qualified to work as entry-level service technicians in automotive repair facilities, automotive dealer service departments, diesel engine repair facilities, medium and heavy truck facilities, truck dealerships, or in service and repair facilities for marine diesel engines and equipment utilized in various industrial applications, including materials handling, construction, transport refrigeration or farming.

Collision Repair and Refinishing Technology (CRRT). Established in 1999, the CRRT program is designed to teach students how to repair non-structural and structural automobile damage as well as how to prepare cost estimates on all phases of repair and refinishing. The program generally ranges from 45 to 54 weeks in duration and tuition ranges from approximately $29,200 to $38,050. Graduates of this program are qualified to work as entry-level technicians at OEM dealerships and independent repair facilities.

Welding Technology. Established in 2017, our Welding Technology program is designed to teach students how to to weld various materials using a wide range of welding processes. The program’s curriculum was built in partnership with Lincoln Electric, a global leader in the welding industry. Welding Technology is offered at our Rancho Cucamonga, California campus. We will begin teaching our Welding Technology program at our Avondale, Arizona campus in January 2018.The program is 36 weeks in duration and tuition is approximately $19,950. Graduates of this program are qualified to work as entry-level welders in the construction, structural, pipe, mechanical contracting and fabrication industries. The training will prepare graduates to apply for American Welding Society certification.

Motorcycle Mechanics Institute and Marine Mechanics Institute (collectively, MMI)
Motorcycle. Established in 1973, the MMI motorcycle program is designed to teach students how to diagnose, service and repair motorcycles and all-terrain vehicles. The program generally ranges from 48 to 102 weeks in duration and tuition ranges from approximately $21,700 to $45,900.obtain. Graduates of this program are qualified to work as entry-level service technicians in motorcycle dealerships and independent repair facilities. We have agreements relating to specific motorcycle
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training and elective programs with American Honda Motor Co., Inc.; BMW Motorrad of North America, LLC; Harley-Davidson Motor Co.; Kawasaki Motors Corp., U.S.A.; Suzuki Motor of America, Inc. and Yamaha Motor Corp., USA, and MMI ismay also supported by KTM North America, Inc. We have agreements for dealer training with American Honda Motor Co., Inc. and Harley-Davidson Motor Co. These motorcycle manufacturers support us through their endorsement of our curricula content, assisting with our course development, providing equipment and product donations and instructor training. Certain of these agreements are verbal and may be terminated without cause by either party at any time.

Marine. Established in 1991, the MMI marine program is designed to teach students how to diagnose, service and repair boats. The program is 51 weeks in duration and tuition is approximately $27,450. Graduates of this program are qualified to work as entry-level service technicians for marine dealerships and independent repair shops, as well as for marinas, boat yards and yacht clubs. MMI is supported by several marine manufacturers, and we have agreements relating to marine OEM courses with American Honda Motor Co., Inc.; Mercury Marine, a division of Brunswick Corp.; Suzuki Motor of America, Inc.; Volvo Pentasecure positions outside of the Americas, Inc.Target Job Placement, including, for example, parts associate, service technician, fabricator, paint and Yamaha Motor Corp., USA. We have agreements for dealer training with American Honda Motor Co. Inc.preparation, and Mercury Marine, a division of Brunswick Corp. These marine manufacturers support us through their endorsement of our curricula content, assisting with course development, equipment and product donations and instructor training. Certain of these agreements are verbal and may be terminated without cause by either party at any time.
shop owner or operator, among others.
Students who complete the MMI marine program can also pursue provisional certification as factory-certified technicians for Mercury Marine outboard products at no additional cost. Students must complete core Mercury University requirements, which are an embedded component of the MMI marine program, and complete online distance-learning courses in order to achieve the provisional certification. The certification becomes active upon employment with a Mercury Marine dealership within two years of graduation. MMI is the only career technical education school in the country with which Mercury Marine is offering this certification program.

NASCAR Technical Institute (NASCAR Tech)
Established in 2002, NASCAR Tech offers the same type of automotive training as other UTI locations, along with additional NASCAR-specific elective courses. In the NASCAR-specific elective courses, students have the opportunity to learn first-hand with NASCAR engines and equipment and to acquire specific skills required for entry-level positions in automotive and racing-related career opportunities. The programs generally range from 48 to 78 weeks in duration and tuition ranges from $34,400 to $49,450. Graduates of the Automotive Technology program and the Automotive Technology with NASCAR (the NASCAR program) at NASCAR Tech are qualified to work as entry-level service technicians in automotive repair facilities or automotive dealer service departments. Graduates from the NASCAR program have additional opportunities to work in racing-related industries. Of the students who elected to take the NASCAR-specific elective courses and graduated during 2016, approximately 16% found employment opportunities in racing-related industries. The overall employment rate for our NASCAR Tech campus was 89% for 2016 graduates. See "Business - Graduate Employment" included elsewhere in this Report on Form 10-K for further information on our employment rates.
Computer Numeric Control (CNC) Machining and Manufacturing Technology. Established in 2017, our CNC Machining and Manufacturing Technology program is designed to teach students how to produce precision parts used in high-performance engines and a wide variety of trucks, motorcycles, cars and boats, and also in industrial applications, aerospace components and medical and surgical equipment. The program’s curriculum of CNC classes is aligned with standards
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established by the National Institute for Metalworking Skills (NIMS) and prepares graduates to take the NIMS assessments and examinations for CNC machine operators. CNC Machining and Manufacturing Technology is offered at our NASCAR Tech campus. The program is 36 weeks in duration and tuition is approximately $17,450. Graduates of this program are qualified to work as entry-level CNC operators in the manufacturing and mechanical fabrication industries.


Manufacturer Specific Advanced Training (MSAT)(“MSAT”) Programs
We
In addition to the program offerings noted above, we also offer advanced training programs in the form of manufacturer-paid post-graduate MSAT programs and in the form of student-paid MSAT courses, which may be added as electives to a student’s core Automotive, Dieselautomotive, diesel or Motorcycle undergraduatemotorcycle program.


The manufacturer-paid MSATs are paid for by the manufacturer and/or its dealers in return for a commitment by the student to work for a dealer of that manufacturer for a certain period of time upon completion of the program. For both types of programs, the manufacturer typically assists us in the development of course content and curricula, while providing us with vehicles, equipment, specialty tools and parts at reduced prices or at no charge. This specialized training enhances the student’s skills with a particular manufacturer’s technology resulting in enhanced employment opportunities and potential for higher wages for our graduates.

We consistently evaluate new and existing OEM relationships to determine those programs that have the best outcomes for our students. This may lead to the termination of relationships that do not result in the best outcomes for our students after graduation.
Manufacturer-Paid MSATs
Our
A select number of students are offered manufacturer-paid MSATs, which are intendedpaid for by the manufacturer and/or its dealers in return for a commitment by the student to offer in-depth instruction on specific manufacturers’ products, qualifying a graduatework for employment with a dealer seeking highly specialized, entry-level technicians with brand-specific skills.of that manufacturer for a certain period of time upon completion of the program. Students who are highly rankedhigh performing graduates of an automotive or diesel program may apply to be selected for these programs. The programs range from 12 to 23 weeks in duration. PursuantOur manufacturer-paid MSATs are


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intended to written agreements, weoffer in-depth instruction on specific manufacturers’ products, qualifying a graduate for employment with a dealer seeking highly specialized, entry-level technicians with brand-specific skills.

We currently offer the following manufacturer-paid MSAT programs using vehicles, equipment, specialty tools and curricula provided by the OEMs:our manufacturer brand partners:
Manufacturer-Paid MSAT Programs OfferedLocation
Fendt Technician Academy by AGCOLisle
Mercedes-Benz DRIVEMercedes-Benz facilities in Long Beach, California, Jacksonville, Florida, Robbinsville, New Jersey and Grapevine, Texas
Peterbilt Technician InstituteLisle, Dallas/Ft. Worth
Porsche Technician Apprenticeship Program (PTAP)Porsche facilities in Eastvale, California, Atlanta, Georgia, and Easton, Pennsylvania
Volvo Tekniker Apprenticeship Program(1)
Avondale, Volvo facility in Ridgeville, South Carolina
BMW of North America, LLC. We provide BMW’s Service Technician Education Program (STEP). STEP programs are provided at our Avondale, Arizona and Orlando, Florida campuses and at the BMW(1)    The Volvo South Carolina training centersfacility launched in Ontario, California and Woodcliff Lake, New Jersey. This agreement expires on December 31, 2017 and may be terminated for cause by either party.
June 2022.
Mercedes-Benz USA, LLC. We provide the Mercedes-Benz DRIVEProgram at the MBUSA training centers in Grapevine, Texas; Jacksonville, Florida and Long Beach, California. This agreement expires on March 31, 2019 and may be terminated without cause by either party. We also deliver this program at our Norwood, Massachusetts campus. The agreement for this location expires on December 31, 2017.
Navistar International Corp. We provide the International Truck Education Program at our Lisle, Illinois and Sacramento, California campuses. This agreement expires December 31, 2017 and may be renewed annually by mutual agreement.
Nissan North America, Inc. We provide the INFINITI Technician Training Academy at our Long Beach, California campus. This agreement expires on January 31, 2019 and may be terminated without cause by either party.
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Peterbilt Motors Company. We provide the Peterbilt Technician Institute program at our Dallas/Ft. Worth, Texas; Exton, Pennsylvania and Lisle, Illinois campuses. This agreement expires on December 31, 2019 and may be terminated without cause by either party.
Porsche Cars of North America, Inc. We provide the Porsche Technician Apprenticeship Program at the Porsche training centers in Atlanta, Georgia; Easton, Pennsylvania and Eastvale, California.This agreement expires September 30, 2019 and may be renewed by mutual agreement.
Volvo Cars of North America, LLC.We provide Volvo’s Service Automotive Factory Education program training at our Avondale, Arizona campus. This agreement expires on December 31, 2017 and may be renewed annually by mutual agreement.
Student-Paid MSATs

Pursuant to written agreements, weWe currently offer the following student-paid MSAT programs for the following OEMs using vehicles, equipment, specialty tools and curricula provided by and/or developed in collaboration with our manufacturer brand partners:

Student-Paid MSAT Programs OfferedLocation
UTI and NASCAR Tech Campuses
BMW FastTrack(1)
Avondale, Exton, Houston, Long Beach, Orlando
Cummins EnginesAvondale, Exton, Houston
Cummins Power GenerationAvondale
Daimler Trucks Finish First ProgramAvondale, Lisle, Orlando
Ford Accelerated Credential Training (FACT)Avondale, Rancho Cucamonga, Sacramento, Orlando, Lisle, Mooresville, Bloomfield, Exton, Houston
General Motors Technician Career TrainingAvondale
Mopar TEC by Fiat Chrysler Automobiles US LLCMooresville
Toyota Professional Automotive Technician (TPAT)Lisle, Rancho Cucamonga
MMI Campuses
American Honda Motor Company, Inc.Avondale, Orlando
BMW Motorrad of North America, LLCAvondale, Orlando
Harley-Davidson Motor CompanyAvondale, Orlando
Kawasaki Motors Corporation, USAAvondale, Orlando
Mercury MarineOrlando
Suzuki Motor of America, Inc.Avondale, Orlando
Volvo Penta of the AmericasOrlando
Yamaha Motor Corporation, USAAvondale, Orlando
(1)    The BMW STEP program was replaced in fiscal 2022 with the OEMs:
BMW of North America, LLC. We provide BMW’s FastTrack Program, at oura student-paid MSAT program. The FastTrack program is targeted to expand the BMW footprint to seven UTI campuses, with Avondale Arizona and Orlando Florida campuses. The program has been discontinued by the manufacturer as they redirect their investment into the manufacturer-paid BMW STEP program. We anticipate that the teach out will be completed during the third quarter of 2018.
Cummins, Inc. We provide power generation training through the Cummins Technician Apprentice Program at our Avondale, Arizona campus.
Cummins Rocky Mountain, a subsidiary of Cummins, Inc. We provide the Cummins Technician Qualification Program at our Avondale, Arizona; Exton, Pennsylvania and Houston, Texas campuses.
Daimler Trucks N.A. We provide the Daimler Trucks Finish First Program at our Avondale, Arizona and Lisle, Illinois campuses.
Fiat Chrysler Automobiles US LLC. We provide the Mopar Technical Education Curriculum program at our NASCAR Tech campuslaunched in Mooresville, North Carolina.
Ford Motor Co. We provide the Ford Accelerated Credential Training Program at all UTI campuses except our Dallas/Ft. Worth, Texas andJanuary 2022, Long Beach California campuses.launched in April 2022, Houston launched in May 2022 and Exton launched in August 2022. It is also expected to launch at Lisle in Spring 2023 and Miramar in Summer 2023.

General Motors Company. We provide the GM Technician Career Training Program at our Avondale, Arizona campus.


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Nissan North America, Inc. We provide the Nissan Automotive Technician Training Program at our Houston, Texas; Mooresville, North Carolina; Long Beach, California and Orlando, Florida campuses.
Toyota Motor Sales, U.S.A., Inc. We provide the Toyota Professional Automotive Technician Program at our Lisle, Illinois; Exton, Pennsylvania and Sacramento, California campuses.
Dealer/Industry Training
Technicians in all of the industries we serve are in regular need of training or certification on new technologies. Manufacturers outsource a portion of this training to education providers such as UTI. Additionally, certain manufacturers outsource instructor staffing for their own training programs. We currently provide dealer technician training or instructor staffing services to manufacturers such as the following: American Honda Motor Co., Inc.; BMW of North America, LLC; Ford Motor Co.; General Motors Company, through Raytheon Professional Services LLC; Harley-Davidson Motor Co. and Mercury Marine, a division of Brunswick Corporation.
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Military Base Programs
Industry Relationships
In addition to the MSATs noted above, in partnership with the military and select industry partners, we have been developing and implementing advanced training programs at select military base locations. Military base programs differ from our traditional MSATs in that the students do not complete our traditional core programs at a UTI campus before entering these advanced training programs. These programs range from 12 to 16 weeks and are available to all men and women transitioning out of the military. Candidates are interviewed and selected for these programs. Additionally, to be considered, candidates must be within six months of their separation dates from the military. There is no tuition cost to the participating service members.

We have a network of industry relationships that provide a wide range of strategic and financial benefits, including product/financial support, licensing and manufacturer training.
Product/Financial Support. Product/financial support is an integral component of our business strategy and is present throughout our schools. In these relationships, sponsors provide their products, including equipment and supplies, at reduced or no cost to us, in return for our use of those products incurrently offer the classroom. Additionally, they may provide financial sponsorship either to us or to our students. Product/financial support is an attractive marketing opportunity for sponsors because our classrooms provide them with early access to the future end-users of their products. As students become familiar with a manufacturer’s products during training, they may be more likely to continue to use the same products upon graduation. Our product support relationships allow us to minimize the equipment and supply costs in each of our classrooms and significantly reduce the capital outlay necessary for operating and equipping our campuses.

An example of a product/financial support relationship is:
◦
Snap-on Tools. We have a strategic agreement with Snap-on Tools, a premier tool provider to the industries we serve. Upon graduation from our undergraduate programs, students receive a Snap-on Tools entry-level tool set having an approximate retail value of $1,000, which can become valuable as a student establishes their career. We purchase these tool sets from Snap-on Tools at a discount from their list price pursuant to a written agreement which expires in October 2022. In the context of this relationship, we have granted Snap-on Tools exclusive access to our campuses to display tool related advertising, and we have agreed to use Snap-on Tools equipment to train our students. We receive credits from Snap-on Tools for student tool kits that we purchase and any additional purchases made by our students. We can then redeem those credits in multiple ways, which historically has been to purchase Snap-on Tools equipment and tools for our campuses at the full retail list price. The renewal executed in October 2017 also allows us to redeem our credits for a portion of the tool sets we purchase.

Licensing. Licensing agreements enable us to establish meaningful relationships with key industry brands. We pay a licensing fee and, in return, receive the right to use a particular industry participant’s name, logo or trademark in our promotional materials and on our campuses. We believe that our current and potential students generally identify favorably with the recognized brand names licensed to us, enhancing our reputation and the effectiveness of our marketing efforts.

An example of a licensing arrangement is:
◦
NASCAR. We have a licensing arrangement with NASCAR and we are its exclusive education provider for automotive technicians. The agreement expires on December 31, 2024 and may be terminated for cause by either party at any time prior to its expiration. This relationship provides us with access to the network of NASCAR sponsors, presenting us with the opportunity to enhance our product support relationships. In July 2002, NASCAR Technical Institute opened in Mooresville, North Carolina where students have the opportunity to take NASCAR-specific elective courses that were developed through a collaboration of NASCAR crew chiefs and motorsports industry leaders. The popular NASCAR brand name combined with the opportunity to learn on high-performance cars is a powerful recruiting and retention tool. It also provides students with the opportunity to learn first-hand with NASCAR engines and equipment and to acquire specific skills required for entry-level positions in automotive and racing-related career opportunities.
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See Note 13 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Report on Form 10-K for further discussion of licensing agreements.

Manufacturer Training. Manufacturer training relationships provide benefits to us that impact each of our education programs. These relationships support entry-level training tailored to the needs of a specific manufacturer, as well as continuing education and training of experienced technicians. In both the entry-level and continuing educationfollowing military base programs students receive training on a given manufacturer’s products. In return, the manufacturer suppliesusing vehicles, equipment, specialty tools and parts at reduced prices curricula provided by and/or at no charge and assistancedeveloped in developing curricula. Students who receive the entry-level training may earncollaboration with certain manufacturer certification to work on that manufacturer’s products when they complete the program. The manufacturer certification typically leads to both improved employment opportunities and the potential for higher wages. The continuing education programs for experienced technicians are paid for by the manufacturer and often take place in our facilities, allowing the manufacturer to avoid the costs associated with establishing its own dedicated facility. Manufacturer training relationships lower the capital investment necessary to equip our classrooms and provide us with a significant marketing advantage. In addition, through these relationships, manufacturers are able to increase the pool of skilled technicians available to service and repair their products.
brand partners:


Examples of manufacturer training relationships include:
◦Military Base Programs OfferedNissan North America, Inc. This is an example of a student-paid MSAT program.  We offer the Nissan AutomotiveLocation
BMW Military Service Technician Training elective program at our Houston, Texas; Long Beach, California; Mooresville,Education ProgramMarine Corps Base Camp Pendleton in California
U.S. Army Base Fort Bragg in North Carolina and Orlando, Florida campuses.  The Nissan Program uses training and course materials as well as training vehicles and equipment provided by Nissan North America Inc.

◦Penske Premier Truck Group Technician Skills Program
American Honda Motor Co., Inc. This is an example of a dealer technician training program paid for by the manufacturer or dealer. We provide marine and motorcycle training for experienced American Honda technicians utilizing training materials and curricula provided by American Honda. Our instructors provide marine and motorcycle dealer training at American Honda-authorized training centers across the United States. Additionally, American Honda supports our campus Hon Tech training program by donating equipment and providing curricula.
Fort Bliss in El Paso, Texas

◦
Porsche Cars of North America, Inc. This is an example of a manufacturer-paid MSAT program.We have a written agreement with Porsche Cars of North America, Inc. whereby we provide the Porsche Technician Apprenticeship Program at the Porsche training centers in Atlanta, Georgia and Easton, Pennsylvania using vehicles, equipment, specialty tools and curricula provided by Porsche.The written agreement expires September 30, 2019 and may be renewed by mutual agreement.


Industry Employer IncentivesAffordability and Accessibility

During the year ended September 30, 2022, tuition at our UTI, MMI and NASCAR Tech campuses ranged from approximately $20,000 for our CNC program (lasting 36 weeks) to $60,000 for our Automotive and Diesel program with one specialized elective program (lasting 90 weeks). OEMDuring fiscal 2022, tuition at our MIAT campuses ranged from approximately $20,000 for our Industrial Maintenance Technician program (lasting 28 weeks) to $50,000 for our Aviation Maintenance Technology program (lasting 96 weeks). During the year ended September 30, 2022, the average annual revenue per student was approximately $32,600, net of scholarships or grants funded by the institution. We are focused on making our training more affordable and non-OEM large national employersaccessible through financing options, proprietary loans, institutional and relocation grants, scholarships based on need and merit, and employer sponsored training and tuition reimbursement. During the year ended September 30, 2022, approximately 42% of our graduates compete for newly trained techniciansactive students received a UTI-funded scholarship or grant and approximately 22% of active students received funding from the proprietary loan program.

To maximize student affordability and speed to fill their technician shortage. In response to this, industry employers have workedcompletion, we are working with us to create more comprehensive recruitment and retention strategies which benefit our students and graduates. The strategies continue to evolve, but common techniques include tuition reimbursement programs (TRIP) for qualifying students and graduates, where employers pay back some or all of a graduate's student loan, as well as tool incentives, relocation packages, mentorship programs and part-time employment opportunities while attending school. Tuition reimbursement amounts range from $1,000 to full student loan reimbursement. This industry support lowers the cost for students to attend our programs and begin their careers as technicians
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while also allowing industry employers to increase the pool of skilled technicians to fill their open positions.

Examples of industry employer incentives include:
◦
Penske Automotive Group.Penske Automotive Group offers tuition reimbursement, tool reimbursement and tenure bonuses.

◦
AutoNation. AutoNation's Eastern Region offers tuition reimbursement and relocation assistance, or a sign-on bonus and tool allowance.

◦
Crown Lift Trucks. Crown Lift Trucks offers tuition reimbursement.

◦
Ryder Systems, Inc.Ryder Systems, Inc. offers tuition reimbursement, a quarterly incentive program and a new hire mentorship program.

Student Recruitment Model
Our student recruitment efforts begin with our commitment to positive outcomes, both for our students and our industry relationships. Our responsibility to present job-ready graduates to employers requires that we recruit, enroll and train prospective students who have the drive and potential to successfully pursue a career in their field of training. We use a multi-touch media approach that involves national and local outreach to generate the quality and quantity of prospective students necessary for our three primary admissions channels to enroll and start students.
Marketing and Advertising. Our marketing strategies are designed to identify potential students who would benefit from our programs and pursue successful careers upon graduation. We leverage an integrated inquiry generation platform that focuses on generating awareness and engagement, both nationally and locally, where our website acts as the primary hub of our campaigns, to inform and educate potential students on the nature and cost of our educational programs and the employment opportunities that could be available to them. Currently, we advertise on television, internet search, social media, display, online video and other internet-based content, radio and in magazines. We use events, sponsorships, social media, direct mail, email, texting and telephonic response to reach prospective students.

Recruitment. Our recruiting policy is intended to maximize the efficiency of our admissions representatives by focusing on the students most likely to succeed in our programs and in their chosen field. Our admissions representatives are provided with training and tools to assist any prospective student.

High School Students. Our field-based representatives recruit prospective students primarily from high schools across the country with assigned territories coveringnation to increase our Technical Education Institutional Grant (“TEIG”) agreements. The TEIG agreements allow students who have completed course(s) related to their selected program of study to receive a corresponding tuition credit for up to six courses. Our students may opt out of the United States and U.S. territories. Our field-basedcourses provided they pass an Advanced Placement Opportunities Test for each selected course. We have approximately 5,200 curriculum-specific TEIG agreements in place across the country. This represents approximately 6% of the high schools covered by our admissions representatives generateteams. We continue to identify new opportunities to expand the majorityvolume of their inquiries by making career presentations at high schools. Typically, the field-based admissions representatives enroll high school students during an application interview conducted at the homes of prospective students.
these curriculum-specific TEIG agreements.


Our reputation in local, regional and national business communities, endorsements from high school instructors and guidance counselors and the recommendations of satisfied graduatesIn response to growing demand for trained technicians, our industry partners and employers are some of our most effective recruiting tools. Accordingly, we striveincreasingly willing to build relationships with the people who influence the career decisions of prospective students, such as vocational instructors and high school guidance counselors. We conduct seminars for high school career counselors and instructors at our training facilities and campuses as a means of further educating these individuals on the merits of our technical training programs. We also participate in national skills competitions
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as judgeseducation by providing them with scholarship money and offer STEM (Science, Technology, Engineering and Math) curriculum integrationrelocation assistance to secondary education instructors. Our representatives focus on expanding highattend school relationships and increasing access to high schools beyond the traditional vocational programsby offering our graduates tuition reimbursement plans and into academic classes. Our programs align with STEM principles,competitive compensation and we actively work to increase this awareness in high school educatorsbenefit packages, including signing bonuses, relocation grants and prospective students. We offer a summer program at certain campuses for high school students whotool incentives. There are entering their junior or senior year. This program allows the student to take a specific course, or courses, in advance of enrolling in a UTI program. When the student enrolls and starts in a full-time program at one of our campuses, he or she receives credit for the courses previously completed.
Military Personnel. Our military representatives are strategically located throughout the country and focus on building relationships with military installations. Additionally, we have a centralized team of military representatives who are dedicated to serving and assisting veterans throughout the U.S. We develop relationships with military personnel and provide information aboutover 5,700 employer location incentive opportunities, which when made available make our training programs by delivering career presentations to transitioning service members who are approaching their date of separationmore affordable for students and may provide them with valuable relationships or have recently separated from the military as a means of further educating these individuals on the merits of our technical training programs. We continue to offer introductory motorcycle mechanics classes at Fort Bliss in El Paso, Texas. These classes are designed to introduce motorcycle theory to active military personnel and expose them to the opportunity to transfer to an MMI campus to complete their program after they are discharged from the military. This continues to be part of our ongoing initiative to serve the needs of transitioning veterans and military personnel.
employment opportunities following graduation.

Adult Students. Our campus-based representatives recruit adult career-seeker or career-changer students. These representatives respond to student inquiries generated from national, regional and local advertising and promotional activities. Since adults tend to start our programs throughout the year instead of in the fall as is most typical of traditional school calendars or for recent high school graduates, these students help balance our enrollment throughout the year.

Student Admissions and Retention
We currently employ field, military and campus-based admissions representatives who work directly with prospective students to facilitate the enrollment process. Enrollment applications are reviewed by a central enrollment office for accuracy and completion before students are enrolled into the program of study. Different programs have varying admissions standards.
Applicants must provide proof of one of the following: high school graduation or its equivalent; certification of high school equivalency (G.E.D. or approved State Equivalency Exam); successful completion of a degree program at the postsecondary level or successful completion of officially recognized home schooling. Certain states require official transcripts or G.E.D. test scores instead of the certificates.
To maximize the likelihood of student retention and graduation, our admissions process is intended to identify students who have the desire and ability to succeed in their chosen program. We have student services professionals and other resources that provide various student services, including orientation, tutoring, student housing assistance, and academic, financial, personal and employment advisement. We have established processes to identify students who may be in need of assistance to succeed in and complete their chosen program.
Enrollment
We enroll students throughout the year, and courses typically start every three to six weeks. For the year ended September 30, 2017,2022, our average number of undergraduate full-time student enrollmentactive students was approximately 10,900,12,838, representing a decreasean increase of approximately 9.2%11.7% as compared to 12,00011,489 for the year ended September 30, 2016. 2021. A portion of this increase was due to our acquisition of MIAT which for the year ended September 30, 2022, had an average number of undergraduate full-time active students of 950. At September 30, 2022, our end of period number of undergraduate full-time active students was 14,380, an increase of 5.1% from our ending full-time enrollment of 13,682 at September 30, 2021.



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Currently, our student body is geographically diverse, withdiverse. While our campus locations attract local students that live within 50 miles, we estimate that approximately 50% of our students having relocated
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elect to relocate to attend our programs, with this percentage varying across campuses and programs. Due to the seasonality of our business and normal fluctuations in student populations, we would expect volatilityvariability in our quarterly results. See "Seasonality" within Part II, Item 7 of this Annual Report on Form 10-K for further discussion of seasonal fluctuations in our revenues and operating results.


Graduate Employment
As described in “Business - Schools and Programs” included elsewhere in this Report on Form 10-K, our programs prepare graduates for careers in industries using the training we provide, primarily as automotive, diesel, collision repair, motorcycle, marine and CNC machining technicians and as welders. Identifying employment opportunities and preparing our graduates for thesetheir future careers is critical to our ability to helpdeliver value to our graduates benefit from their education. Accordingly, we dedicate significant resources to maintaining an effective employmentcareer services team. Our campus-based staff facilitatesfacilitate several career development processes, including instruction and coaching for interview skills, interview etiquette and professionalism. Additionally, the employmentcareer services team provides students with reference materials and assistance with the composition of resumes. Finally, we place emphasis on and devote significant time to assisting students with part-time and graduate job searches.


We also have a centralized department whose focus is to build and maintain relationships with potential and existing national employers and develop graduate job opportunities and, where possible, relocation assistance, sign-on bonuses, tool packages and tuition reimbursement plans with our OEMsmanufacturer brand partners and other industry employers. Together, the campuses and centralized department coordinate and host career fairs, industry awareness presentations, interview days and employer visits to our campus locations. We believe that our graduate employmentcareer services provide our students with a compelling value proposition and enhance the employment opportunities for our graduates.graduates and are a competitive differentiator from other education institutions.


Our employment rate for 20162021 and 20152020 graduates who were employed within one year of graduation was86%82% and 88%80%, respectively. The employment calculation is based on all graduates, including those that completed MSAT programs, from October 1, 20152020 to September 30, 20162021 and October 1, 20142019 to September 30, 2015,2020, respectively, excluding graduates not available for employment because of continuing education, military service, medical reasons, incarceration, death or international student status. We count a graduate as employed based on a verified understanding of the graduate’s job duties to assess and confirm that the graduate’s primary job responsibilities are in his or her field of study. We verify employment by sending written verification requests to the graduate and/or the employer. The verificationsemployer or collecting written information with all required elements. Verifications must include employer name, job duties, job title, hire date and employer contact.contact information. Once we receive written verification from either source, the graduate is classified as employed in field as long as all verification requirements are met. If any information provided in a written format requires clarification, a call is made to clarify certain elements with notes documented in our student database. In instances where we are unable to obtain written verification, we also classify graduates as employed in field if we are able to obtain verbal verification, collecting the same information as noted above, from both the graduate and the employer. We periodically review a sample of employment verifications to ensure accuracy.


For 2016,The table below summarizes the graduate employment rate data(1):
Year Ended September 30,
20212020
Graduate employment rate82 %80 %
Graduates7,308 6,832 
Graduates available for employment6,914 6,476 
Graduates employed5,692 5,176 
(1)    We completed the acquisition of MIAT on November 1, 2021. As such, this table does not include the graduate employment rate data for MIAT graduates.
Competition
The for-profit, postsecondary education industry is highly competitive and highly fragmented, with no one provider controlling significant market share. We compete with other institutions that are eligible to receive Title IV funding, including not-for-profit public and private schools, community colleges and for-profit institutions which offer automotive, diesel, collision repair, motorcycle, marine, welding, CNC machining, aviation, HVACR, robotics, and closely related skilled


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trades training programs. Our competition differs in each market depending on the curriculum we offer and the availability of other choices, including job prospects. Other competitive factors that influence our ability to attract new students include the employment market, community colleges, other career-oriented and technical schools, and the military.

Prospective students may choose to forego additional education and enter the workforce directly, especially during periods when the unemployment rate declines or remains stable as it has in recent years. This may include employment with our industry partners or with other manufacturers and employers of our graduates.

We compete with local community colleges for students seeking programs that are similar to ours, mainly due to local accessibility, low tuition rates and in certain cases free tuition. Public institutions are generally able to charge lower tuition than our schools, due in part to government subsidies and other financial sources not available to for-profit schools. No single community college is a significant competitor; rather, the sector as a whole provides competition.

Within the for-profit career-oriented and technical school sector, some of our national and regional competitors are Lincoln Technical Institute and Tulsa Welding School. We also consider other single location institutions with a larger local presence near one of our campuses to be competitors. Competition is generally based on location, tuition rates, the type of programs offered, the quality of instruction and instructional facilities, graduate employment rates, reputation and recruiting. Additionally, the military often recruits or retains potential students when branches of the military offer enlistment or re-enlistment bonuses.

Human Capital Management

As of September 30, 2022, we had approximately 9,200 total graduates,1,950 full-time employees, including approximately 650 instructors, 350 admissions representatives, and 600 student support employees.

Each of which approximately 8,600 were availableour employees plays a key role in our mission to serve students, partners and communities by providing quality education and training for employment. Of those graduates available for employment, approximately 7,400 were employed within one year of their graduation date, for a total of 86%. For 2015, we had approximately9,700total graduates, of which approximately 9,100 were available for employment. Of those graduates available for employment, approximately 8,000 were employed within one year of their graduation date, for a total of88%. For discussion of current year graduate employment results, see See “Management's Discussionin-demand careers. We believe that diversity, equity, and Analysis - Graduate Employment” included elsewhereinclusion (“DE&I”) among our employees is essential in this Reportprocess, as a truly innovative educational institution relies on Form 10-K.a wealth of backgrounds and experiences to enhance student outcomes. We have a Director of Diversity, Equity, and Inclusion who is responsible for setting the DE&I strategy and roadmap to ensure that we meet our objectives both internally, of creating a company where everyone feels they belong, and externally, by working closely with our marketing and talent acquisition function to attract diverse talent. To attract a truly diverse workforce, we strive to instill a culture where employees are encouraged to draw upon their own unique skills and perspectives when engaging with our growing and diverse student population.

Faculty and Employees
Faculty members are hired nationally in accordance with established criteria, applicable accreditation standards and applicable state regulations. Members of our faculty are primarily industry professionals and are hired based on their prior work and educational experience. We require a specific level of industry experience in order to enhance the quality of the programs we offer and to address current and industry-specific issues in the
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our course content. We provide intensive instructional training and continuing education to our faculty members to maintain the quality of instruction in all fields of study. A majority of our existing instructors have a minimum of fiveyearsyears’ experience in the industry and an average of eightseven years of experience teaching at UTI, ranging from less than 1 yearUTI.

We employ field, military and campus-based admissions representatives who work directly with prospective students to 33 years. Our average undergraduate student-to-teacher ratio is approximately 19-to-1.
Each school’sfacilitate the enrollment process. Additionally, each school has a support team that typically includes a campus president, an education director, a financial aid director, a student services director, and an career services director.

We believe our management team has the experience necessary to effectively implement our growth and diversification strategy and continue to drive positive educational and employment services director, a controller and a facilities director. As of September 30, 2017, we had approximately 1,730 full-time employees, including approximately 520 student support employees and approximately 640 full-time instructors.
Our employees are not represented by labor unions and are not subject to collective bargaining agreements. We have encountered in the past, and may encounter in the future, employees who desire to seek union representation at new or existing campuses. We have never experienced a work stoppage and we believe that we have good relationships withoutcomes for our employees.
Competition
The for-profit, post-secondary education industry is highly competitive and highly fragmented, with no one provider controlling significant market share. We compete with other institutions that are eligible to receive Title IV funding, including not-for-profit public and private schools, community colleges and all for-profit institutions which offer automotive, diesel, collision repair, motorcycle and marine technician training as well as other skilled trades training programs. Our competition differs in each market depending on the curriculum that we offer and the availability of other choices, including job prospects. Our main competitors for the programs we provide are local community colleges, mainly due to local accessibility and low tuition rates. There is no single community college that is a significant competitor; rather, the sector as a whole provides competition. Within the for-profit career-oriented and technical school sector, some of our national and regional competitors include programs offered by Lincoln Technical Institute, WyoTech, Tulsa Welding and University of Northwestern Ohio. On November 8, 2017, Zenith Education Group announced that it plans to cease enrolling new students and will teach out its programs with existing students at all three WyoTech campuses. We consider other single location institutions, with a larger local presence near one of our campuses, as competitors as well. Additionally, the military often recruits or retains potential students when branchesstudents. For discussion of the military offer enlistment or re-enlistment bonuses. The 2017 National Defense Authorization Act increased enlistment targets forrisks relating to the Army, Guard,attraction and the Reserve. Prospective students may also choose to forego additional educationretention of management and enter the workforce directly, especially during periods when the unemployment rate declines or remains stable as it has in recent years. This may include employment with our industry partners or with other manufacturers and employers of our graduates. Competition is generally based on location, tuition rates, the type of programs offered, the quality of instruction and instructional facilities, graduate employment rates, reputation and recruiting. Public institutions are generally able to charge lower tuition than our schools, due in part to government subsidies and other financial sources not available to for-profit schools.executive management employees, see Item 1A. “ Risk Factors.”


According to provisional data available through the National Center for Education Statistics (NCES), for the twelve months ended June 30, 2016, we had 8,972 graduates; Lincoln Technical Institute had 3,349 graduates; University of Northwestern Ohio had 1,158 graduates and WyoTech had 1,262 graduates in programs similar to ours. This data also shows that no individual community college had a number of graduates commensurate with ours in similar programs. Further, we partner with over 30 OEMs to provide manufacturer specific advanced training. We believe that we have the largest number of OEM branded training programs. These OEMs provide vehicles, equipment, specialty tools and curricula that lead to increased training and employment opportunities for our students, including the potential for brand specific certifications. For additional information regarding the benefits of the relationships with OEMs, see “Business - Business Model” and “Business - Business Strategy” included elsewhere in this report on Form 10-K. We believe that our industry relationships, brand recognition and national presence provide significant benefits to our students, our graduates and their employers while differentiating us from other technical training schools.
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Environmental Matters
We use hazardous materials at our training facilities and campuses and generate small quantities of regulated waste, including, but not limited to, used oil, antifreeze, transmission fluid, paint, solvents, car batteries and caraircraft batteries. As a result, our facilities and operations are subject to a variety of environmental laws and regulations governing, among other things, the use, storage and disposal of solid and hazardous substances and waste, and the clean-up of contamination at our


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facilities or off-site locations to which we send or have sent waste for disposal. Certain of our campuses are required to obtain permits for our air emissions. In the event we do not maintain compliance with any of these laws and regulations, or if we are responsible for a spill or release of hazardous materials, we could incur significant costs for clean-up, damages, and fines or penalties.


Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available on our website at www.uti.edu under the “Investors - Financial Information - SEC Filings” captions, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Reports of our executive officers, directors and any other persons required to file securities ownership reports under Section 16(a) of the Exchange Act are also available through our website. Information contained on our website is not a part of this Report and is not incorporated herein by reference.
In Part III of this Report on Form 10-K, we “incorporate by reference” certain information from parts of other documents filed with the SEC, specifically our proxy statement for the 2018 Annual Meeting of Stockholders. The SEC allows us to disclose important information by referring to it in that manner. Please refer to such information. We anticipate that on or about January 17, 2018, our proxy statement for the 2018 Annual Meeting of Stockholders will be filed with the SEC and available on our website at www.uti.edu under the “Investors - Financial Information - SEC Filings” captions.
Information relating to our corporate governance, including our Code of Conduct for all of our employees and our Supplemental Code of Ethics for our Chief Executive Officer and senior financial officers, and information concerning Board Committees, including Committee charters, is available on our website atwww.uti.edu under the “Investors - Corporate Governance” captions. We will provide copies of any of the foregoing information without charge upon written request to Universal Technical Institute, Inc., 16220 North Scottsdale Road, Suite 100, Scottsdale, Arizona 85254, Attention: Investor Relations.

See Note 17 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Report on Form 10-K for summary segment financial information.

Regulatory Environment


Our institutions are subject to extensive regulatory requirements imposed by a wide range of federal and state agencies, as well as by institutional and programmatic accreditors. These regulatory requirements cover the vast majority of our operations, including our educational programs, facilities, instructional and administrative staff, administrative procedures, marketing, recruiting, financial operations and financial condition. These regulatory requirements also affect our ability to acquire, expand or open additional institutions or campuses, to revise or expand our educational programs, and to change our corporate structure and ownership.

The approvals granted by these entities permit our schools to operate and to participate in a variety of government-sponsored financial aid programs that assist students in paying for their cost of education. The largest sourcemost significant of such supportthese is the federal student aid programs of student financial assistance underadministered by the ED pursuant to HEA Title IV of the HEA. This support, commonly referredPrograms. Generally, to as Title IV Programs, is administered by ED. In 2017, we derived approximately 71%of our revenues, on a cash basis as defined by ED, from Title IV Programs, as calculated under the 90/10 rule.
To participate in Title IV Programs, an institution must be licensed or otherwise legally authorized to offer its programs of instruction by relevantoperate in the state education agencies,where it is physically located, be accredited by an accrediting commissionaccreditor recognized by ED, and be certified as an eligible institution by ED. To participate in veterans' benefits programs, including the Post-9/11 GI Bill, the Montgomery GI Bill, the Reserve Education Assistance Program (REAP),ED, offer at least one eligible program of education, and VA Vocational Rehabilitation, an institution must comply with certain requirements established by the VA. Additionally, certain statesother statutory and theirregulatory requirements.
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attorneys general require additional authorization to operate our institutions or for our students to receive state funding. Furthermore, weWe also are subject to oversight by other federal agencies including the Consumer Financial Protection Bureau (CFPB)(“CFPB”), the SEC,Securities and Exchange Commission (“SEC”), the Federal Trade Commission (“FTC”), the Internal Revenue Service and the Departments of Veterans Affairs (“VA”), Defense (“DOD”), Treasury, Labor, and Justice. For these reasons, our institutions are subject to extensiveBelow, we discuss certain elements of this regulatory requirements imposed by all of these entities.environment.


State Authorization

To operate and Regulation
Eachoffer postsecondary programs, and to be certified to participate in Title IV Programs, each of our institutions must be authorized byobtain and maintain authorization from the applicable state education agency where thein which it is physically located (“Home State”).To engage in educational or recruiting activities outside of its Home State, each institution is located to operate and offer a postsecondary education program to its students. Our institutions are subject to extensive, ongoing regulation by each of these states. Additionally, our institutions arealso may be required to be authorized byobtain and maintain authorization from the applicable state education agencies of certain other states in which our institutions recruitit is educating or recruiting students. Currently, each of our institutions is authorized by the applicable state education agency or agencies.
The level of regulatory oversight varies substantially from state to state and is extensive in some states. State laws typicallymay 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. State laws and regulations may limit our ability to offer educational programs and to award certificates, diplomas or degrees. Some states prescribe standards of financial responsibility that are not consistent with those required by ED and some mandate that institutions post surety bonds. Currently, weMany states have posted surety bonds on behalfrequirements for institutions to disclose institutional data to current and prospective students, as well as to the 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.

Our institutions are also 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 2022, 49 states (all but California), the District of Columbia, Puerto Rico and the U.S. Virgin Islands have joined SARA. Each of our institutions and admissions representatives with multiple states of approximately $21.4 million. We believe that each of our institutions is in substantial compliance with state education agency requirements.
States often change their requirements in response to ED regulations or to implement requirements that may impact institutional and student success, and our institutions must respond quickly to remain in compliance. Also, from time to time, states may transition authority between state agencies and we must comply with the new state agency’s rules, procedures and other documentation requirements. Changes in state requirements have resulted in changes to our recruiting and other operations in those states and have increased our costs of doing business. If any one of our campuses were to lose its authorization from the education agency ofholds the state and/or SARA authorizations required to operate and offer postsecondary education programs, and to recruit in the states in which the campus is located, that campus would be unable to offer its programs and we could be forced to close that campus. If one of our campuses were to lose its authorization from a state other than the stateit engages in which the campus is located, that campus would not be able to recruit students in that state.recruiting activities.

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 commissions examineCommission of Career Schools and Colleges (“ACCSC”), which is an accrediting agency recognized by ED.



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ACCSC reviews the academic quality of theeach institution’s instructional programs, and a grant of accreditation is generally viewed as confirmation that the institution’s programs meet generally accepted academic standards and practices. Accrediting commissions also reviewwell as the administrative and financial operations of the institutions they accreditinstitution to ensure that each institutionit has the resources necessary to perform its educational mission, implement continuous improvement processes, and support student success.
Table 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 Contents

Accreditationcontinued accreditation. ACCSC often revisits, revises, and expands its standards and policies. Institutions must periodically renew their accreditation by an ED-recognized commission is required for an institution to be certified to participate in Title IV Programs. In order to be recognized by ED, an accrediting agency must adopt specific standards for its review of educational institutions and must undergocompleting a periodic process forcomprehensive renewal of its ED recognition.  The renewal process begins with a review and analysis by ED staff of written application materials submitted byaccreditation process.

We strive to maintain the accrediting agency. The application materials and ED’s staff analysis are then submitted to the National Advisory Committee on Institutional Quality and Integrity (NACIQI) for consideration. 
Allhighest standards. Currently 13 of our institutionscampuses are accredited byclassified as ACCSC Schools of Excellence or ACCSC Schools of Distinction. Six of our campuses have achieved this award twice in their history, and one campus has received this award three times in its history.

The table below sets out the Accrediting Commission of Career Schools and Colleges (ACCSC), a national accrediting agency recognized by ED.  In August 2016, NACIQI recommended that ED renew its recognition of ACCSCrenewal cycle for a period of five years; in October 2016, ED accepted this recommendation and renewed ACCSC's recognition for a period of five years.

We believe that each of our institutions is in substantial compliance with ACCSC accreditation standards. If any one of our institutions lost its accreditation, students attending that institution would no longer be eligible to receive Title IV Program funding, we could lose our state authorization in states that require accreditation and we could be forced to close that institution. Our campuses' grants of accreditation expire as detailed below; a school that is faithfully engaged in the renewal of accreditation process and is meeting all of the requirements of that process continues to be accredited if the school's term of accreditation has exceeded the period of time last granted by ACCSC.
schools:
CampusAccreditation ExpirationRenewal StatusOn-Site Evaluation
Long Beach, CaliforniaSeptember 2022In ProcessNovember 2022
Long Beach, California*
Exton, Pennsylvania(1)
September 2017October 2022In ProcessEst FY23
Sacramento, California
Houston, Texas (MIAT)(2)
December 20172022In ProcessEst FY23
Dallas/Ft. Worth, Texas(1)
March 2023In ProcessEst FY23
Sacramento, California(1)
December 2023RenewedMarch 2017
Mooresville, North Carolina; NASCAR Technical Institute (NASCAR Tech)(1)
December 2024RenewedJuly 2018
Avondale, Arizona(1)
February 2025RenewedFebruary 2019
Orlando, Florida(1)
February 20192025RenewedAugust 2018
Houston, Texas(1)
February 20192025RenewedSeptember 2018
Lisle, Illinois(1)
February 20192025RenewedDecember 2018
Rancho Cucamonga, California(1)
February 2025RenewedMarch 2019
Phoenix,
Avondale, Arizona; Motorcycle Mechanics Institute (MMI)(1)
May 2025RenewedApril 2019
Norwood, Massachusetts
Bloomfield, New Jersey(2)
July 2022May 2025RenewedDecember 2019
Exton, Pennsylvania**
Canton, Michigan (MIAT)(2)
July 2026RenewedOctober 20222021
Dallas/Ft. Worth, Texas**
Austin, Texas(3)
March 2023May 2024ApprovedEst FY25
Miramar, Florida(3)
September 2024ApprovedEst FY25

* Our Long Beach, California campus accreditation expired in September 2017. We completed the renewal site visit for accreditation in April 2017; refer to additional discussion below.

** Schools(1)    Indicates a school that achievehas achieved School of Excellence status after July 1, 2015 are awarded a six-year team of accreditation.

The procedures of our accrediting agency for theduring its most recent renewal of accreditation, of a campus require a team of professionals to conduct an on-site visit at the campus and issue a Team Summary Report, which includes an assessment of the school’s compliance with accrediting standards.  On July 20, 2017, we received a Team Summary Report from the Accrediting Commission of Career Schools and Colleges (ACCSC) that summarized three findings from its visit to our Long Beach, California campus in connection with renewing the campus’ accreditation.  The first finding related to the campus’ application for a hybrid-distance education model, which is used in several programs.  The second finding related to the campus’ application of ACCSC’s standards for the calculation of credit hours.  The third finding related to the campus’ application of certain aspects of its leave of absence policy.
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Under ACCSC procedures, we submitted our response to the Team Summary Report on August 29, 2017.  ACCSC has indicated that our response will be considered at the November 2017 meeting. If ACCSC determines our responses or remedial efforts are sufficient, it may close the findings and provide a five year renewal of accreditation for the Long Beach, California campus.  If ACCSC ultimately determines our responses or remedial efforts are insufficient, program accreditation and Title IV awards for students at our campuses could be negatively impacted.

On July 20, 2017, we also received the Team Summary Reports that summarize the findings from the renewal of accreditation evaluations for our Norwood, Massachusetts and Sacramento, California campuses. One of the programs at the Norwood campus did not meet the graduation benchmark set by ACCSC as a result of a small number of students in the program. We anticipate discontinuing this program and we submitted our response to the Team Summary Report on August 4, 2017. One of the programs at the Sacramento campus did not meet the employment benchmark set by ACCSC; this program has since met the benchmark. We submitted our response to ACCSC on August 29, 2017. We are continuing to implement initiatives designed to improve our graduation and employment rates.

In June 2017, our Exton, Pennsylvania and Dallas/Ft. Worth, Texas campuses received the “School of Excellence” designation by ACCSC.  The School of Excellence Award recognizes ACCSC-accredited institutions for their commitment to the expectations and rigors of ACCSC accreditation, as well as the efforts made by the institution in maintaining high-levelshigh levels of achievement among their students. In order
(2)    Indicates a school that has achieved School of Distinction status during its most recent renewal of accreditation, which recognizes accredited member schools that demonstrated a commitment to bethe expectations and rigors of ACCSC accreditation, as well as a commitment to delivering quality educational programs to students.
(3) New schools are initially accredited for a two year term after which they are then eligible to renew for the School of Excellence Award, an ACCSC-accredited institution must meet the conditions of renewing accreditation without any finding of non-compliance, satisfy all requirements necessary to be in good standing with ACCSC and demonstrate that the majority of the schools’ student graduation and graduate employment rates for all programs offered meetlonger five or exceed the average rates of graduation and employment among all ACCSC-accredited institutions.  Institutions are only eligible for the School of Excellence designation in thesix year in which they complete a renewal of accreditation. Our Avondale, Arizona; Phoenix, Arizona; Rancho Cucamonga, California; Lisle, Illinois; Mooresville, North Carolina and Houston, Texas campuses have previously received School of Excellence designation in the year in which they were eligible.cycle.


In March 2017, ACCSC conducted an unannounced site visit at our Houston, Texas campus. One program in the automotive division did not achieve the graduation benchmark set by ACCSC and was placed on heightened monitoring status effective June 9, 2017, which will involve a detailed review of the school's Annual Report submission. We are continuing to implement retention strategies designed to improve our graduation rates.Title IV Programs

Our 2017 annual report has been completed and submitted to ACCSC. Nine of our approximately 145 approved programs did not meet the graduation rate requirements, the employment rate requirements, or both. The majority of the programs that were below the benchmark requirements did not meet the requirements as a result of a small number of students in the program. Two of the nine programs had already been discontinued prior to reporting. We anticipate that an additional four of the nine programs below benchmark will be discontinued. Consistent with our goal of providing our students with an excellent return on their investment, we are eliminating longer programs that have minimal enrollment and higher cost to students. ACCSC may require additional reporting regarding these programs or institutions, and the program or institution could be at risk of a show cause or other adverse action that could lead to sanctions, including but not limited to loss of accreditation of the program or institution. An institution placed on reporting status is required to report periodically to ACCSC on that institution’s performance in the area or areas specified by ACCSC. In June 2017, we implemented enhanced internal reporting to provide earlier visibility to cohort outcomes, which will allow us to respond quickly to early indications of risk.

Nature of Federal and State Support for Postsecondary Education


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. Most aid underAll of our institutions are certified to participate in Title IV Programs. The HEA, which authorizes Title IV Programs, is awarded onhas not been comprehensively reauthorized since 2008. Despite repeated attempts, Congress has not completed a full reauthorization since then. In addition to HEA reauthorization, policies directly related to Title IV Programs and funding for those programs may be impacted by the basis of financial need, generally definedannual budget and appropriations process as the difference between the cost of attending the institution and the amount a student canwell as by other legislation. At this


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time, we cannot predict all or any of the changes that Congress may ultimately make, and any of those changes could potentially have a material adverse effect on our business and operations.
reasonably contribute to that cost. All recipients
In fiscal year 2022, we derived approximately 67%of Title IV Program funds must maintainour revenues, on a satisfactory grade point average and make academic progress,cash basis as defined by ED, towards the completion of their program of study as well as meet other eligibility requirements. In addition, each institution must ensure thatfrom Title IV Program funds are properly accounted for and disbursed in the correct amounts to eligible students, as well as provide a variety of disclosures and reports on recipient data and program expenditures.
During 2017, based on their individual eligibility under the following Title IV Programs, our students received grants and loans from the William D. Ford Federal Direct Loan (DL) program, the Federal Pell Grant (Pell) program, the Federal Supplemental Educational Opportunity Grant (FSEOG) program and the Federal Perkins Loan (Perkins) program.
Federal Title IV Programs
DL. Under the DL program, ED makes loans to students or their parents. Borrowers repay these loans to ED according to the terms and conditions of the program. Students with financial need continue to qualify for interest subsidies on subsidized loans while in school up through 150% of the published length of the student's program. Students with subsidized loans also qualify for interest subsidies while in the 6-month grace period and during periods of deferment. Students with unsubsidized loans do not qualify for interest subsidies. Non-need-based unsubsidized loans are also available to students or their parents. In 2017, wePrograms. We derived approximately 55%49% of our revenues, on a cash basis, from the DL program.
Pell. Under the PellDirect Loan program, pursuant to which ED makes grantsloans to students who demonstrate financial need based on the federal Free Application for Federal Student Aid. In 2017, weor their parents. We derived approximately 16%18% of our revenues, on a cash basis, from the Pell program, pursuant to which ED makes grants to students who demonstrate financial need. And we derived less than 1% of our revenues, on a cash basis, from the Federal Supplemental Educational Opportunity Grant (“FSEOG”) program.
FSEOG. FSEOG grants are designed to supplement Pell grants for students with the greatest financial need. Institutions must provide matching funding equal to 25% of all awards made under this program. In 2017, we derived less than 1% of our revenues, on a cash basis, from the FSEOG program.
Perkins. Perkins loans are made from a revolving institutional account in which 75% of new funding is capitalized by ED and the remainder by the institution. Each institution is responsible for collecting payments on Perkins loans from its former students and lending those funds to currently enrolled students. Defaults by students on their Perkins loans reduce the amount of funds available in the institution’s revolving account to make loans to additional students. Since the federal award year beginning July 1, 2004, ED has made no new Perkins allocations to institutions due to federal appropriations limitations. In 2017, we derived less than 1%of our revenues, on a cash basis, from the Perkins program.
The Federal Perkins Loan Program had previously been subject to a September 30, 2015 end date. On December 18, 2015, President Obama signed the Federal Perkins Loan Program Extension Act of 2015 into law, which allowed an extension of the program to make loans to undergraduate borrowers until September 30, 2017, after which point new Perkins loans will be prohibited. ED has provided guidance on the wind-down of the program.
Other Federal and State Programs
Some of our students receive financial aid from federal sources other than Title IV Programs, suchProgram statutes and regulations are applied primarily on an institutional basis. The HEA defines an “institution” as the programs administered by the VA, the Department of Defense (DOD) and under the Workforce Investment Act. Additionally, some states provide financial aid to our students in the form of grants, loans or scholarships. The eligibility requirements for federal and state financial aid vary by funding agency and program.
Since June 2012, institutions participating in the Cal Grant program funded by the state of California are required to achieve a three-year cohort default rate of less than 15.5% and a graduation rate above 30% to remain eligible for the Cal Grant program. As a result of their respective cohort default rates, our Universal Technical
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Institute of Phoenix institution, which includes our Sacramento, Californiamain campus and our Universal Technical Institute of Arizona institution, which includes our Rancho Cucamonga, Californiaits additional locations. Pursuant to this definition, ED recognizes UTI as owning and Long Beach, California campuses, became ineligible for the Cal Grant program with the 2013-2014 and 2014-2015 award years, respectively. In 2016, the rate for our Universal Technical Institute of Arizona institution fell below the Cal Grant ceiling of 15.5%operating four institutions (“OPE IDs”), which enabled usorganized as follows:

Institution:Universal Technical Institute of Arizona
Main campus:Universal Technical Institute, Avondale, Arizona
Additional campuses:Universal Technical Institute, Lisle, Illinois
Universal Technical Institute, Long Beach, California
Universal Technical Institute, Miramar, Florida
Universal Technical Institute, Rancho Cucamonga, California
NASCAR Technical Institute, Mooresville, North Carolina
Institution:Universal Technical Institute of Phoenix
Main campus:Universal Technical Institute DBA Motorcycle Mechanics Institute, Motorcycle & Marine Mechanics Institute, Avondale, Arizona
Additional campuses:Universal Technical Institute, Sacramento, California
Universal Technical Institute, Orlando, Florida for the following divisions:
Motorcycle Mechanics Institute, Orlando, Florida
Marine Mechanics Institute, Orlando, Florida
Automotive, Orlando, Florida
Institution:Universal Technical Institute of Texas
Main campus:Universal Technical Institute, Houston, Texas
Additional campuses:Universal Technical Institute, Exton, Pennsylvania
Universal Technical Institute, Dallas/Ft. Worth, Texas
Universal Technical Institute, Bloomfield, New Jersey
Universal Technical Institute, Austin, Texas
Institution:MIAT College of Technology
Main campus:MIAT College of Technology, Canton, Michigan
Additional campuses:MIAT College of Technology, Houston, Texas

Generally, to renew participation in the Cal Grant program at our Rancho Cucamonga campus and establish new participation at our Long Beach campus beginning with the 2017-2018 award year.

Veterans' Benefits. Since October 1, 2011, the Post-9/11 GI Bill has been effective for both degree and non-degree granting institutions of higher learning, allowing eligible veterans to use their Post-9/11 GI Bill benefits at all of our institutions. Additionally, veterans use benefits such as the Montgomery GI Bill, the REAP and VA Vocational Rehabilitation at our campuses. We derived approximately 19% of our revenues, on a cash basis, from veterans' benefits programs in 2016. To participate in veterans' benefits programs, including the Post-9/11 GI Bill, the Montgomery GI Bill, the REAP, and VA Vocational Rehabilitation, an institution must comply with certain requirements established by the VA. These criteria require, among other things, that the institution:

report on the enrollment status of eligible students;

maintain student records and make such records available for inspection;

follow current VA rules; and

comply with applicable limits on the percentage of students receiving certain veterans benefits on a program and campus basis.

If we fail to comply with these requirements, we could lose our eligibility to participate in veterans' benefits programs.

The VA imposes limitations on the percentage of students per program receiving benefits under certain veterans’ benefits programs, unless the program qualifies for certain exemptions. If the VA determines that a program is out of compliance with these limitations, the VA will continue to provide benefits to current students, but new students will not be eligible to use their veterans benefits for an affected program until we demonstrate compliance.

The VA shares responsibility for VA benefit approval and oversight with designated State Approving Agencies (SAAs).  SAAs play a critical role in evaluating institutions and their programs to determine if they meet VA benefit eligibility requirements.  Processes and approval criteria as well as interpretation of applicable requirements can vary from state to state. Therefore, approval in one state does not necessarily result in approval in all states.  If we are unable to secure approvals in one or more states, or if the process for obtaining an approval takes significant time, we could be required to alter the delivery methodology or structure of the program or experience delays in or the loss of a portion of VA funding. Students receiving VA funding may not have the same flexibility in scheduling their coursework.

During 2012, President Obama signed an Executive Order directing the DOD, Veterans Affairs and Education to establish “Principles of Excellence” (Principles), based on certain guidelines set forth in the Executive Order, to apply to educational institutions receiving federal funding for service members, veterans and family members. As requested, we provided written confirmation of our intent to comply with the Principles to the VA in June 2012. We are required to comply with the Principles to continue recruitment activities on military installations. Additionally, there is a requirement to possess a memorandum of understanding (MOU) with the U.S. DOD as well as with certain individual installations. Our access to bases for student recruitment has become more limited due to recent changes in the Transition Assistance Program (Transition Goals, Plans, Success) and increased enforcement of the MOU requirement. Each of our institutions has an MOU with the U.S. DOD. We have MOUs with certain key individual installations and are pursuing MOUs at additional locations; however,
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some installations will not provide MOUs to institutions that do not teach at the installation. We continue to strengthen and develop relationships with our existing contacts and with new contacts in order to maintain and rebuild our access to military installations.

Regulation of Federal Student Financial Aid Programs
To participate in Title IV Programs, an institution must be licensed or otherwise legally authorized to offer its programs byoperate in the relevant state education agencies,where it is physically located, be accredited by an accrediting commissionaccreditor recognized by ED, and be certified as an eligible institution by ED. ED, will certify an institution to participate in Title IV Programs only after the institution has demonstratedoffer at least one eligible program of education, and comply with other statutory and regulatory requirements. To obtain and maintain certification, institutions also must demonstrate ongoing compliance with the HEA and ED’sits extensive and complex implementing regulations; regulations regarding institutional eligibility. An institution must also demonstrate its compliance tothat ED on an ongoing basis. Allfrequently revisits, revises, and expands. Because all of our institutions are certified to participate in Title IV Programs.
ED’s Title IV program standards are applied primarily on an institutional basis,Programs, they must all comply with an institution defined by ED as a main campus and its additional locations, if any. Each institution is assigned a unique Officethis complex framework of Post-Secondary Education Identification Number (OPEID). Under this definition for ED purposes we have the following three institutions:statutes,


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Institution
Universal Technical Institute of Arizona
Main campus
Universal Technical Institute, Avondale, Arizona
Additional campuses
Universal Technical Institute, Lisle, Illinois
Universal Technical Institute, Long Beach, California
Universal Technical Institute, Rancho Cucamonga, California
NASCAR Technical Institute, Mooresville, North Carolina
Universal Technical Institute, Norwood, Massachusetts

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regulations, and guidance, and undergo detailed oversight and review. Below, we discuss the core components of the Title IV Programs’ regulatory framework.

Institution
Universal Technical Institute of Phoenix
Main campus
Universal Technical Institute DBA Motorcycle Mechanics Institute,
Motorcycle & Marine Mechanics Institute, Phoenix, Arizona
Additional campuses
Universal Technical Institute, Sacramento, California
Universal Technical Institute, Orlando, Florida
Divisions
Motorcycle Mechanics Institute, Orlando, Florida
Marine Mechanics Institute, Orlando, Florida
Automotive, Orlando, Florida
Eligibility and Recertification


Institution
All institutions participating in the Title IV Programs must first establish their eligibility to do so. The Program Participation Agreement (“PPA”) document serves as ED’s formal recognition that an institution and its associated additional locations have satisfied this requirement, and are authorized to participate in Title IV Programs for a specified period of time. An institution seeking to expand its activities in certain ways, such as opening an additional location or raising the highest academic credential it offers, must obtain approval from ED. Every institution is also required to periodically renew its certification by applying for continued certification before its current term of certification expires. Terms of certification are typically six years, but can be three years or shorter. We received fully recertified PPAs for Universal Technical Institute of Texas,
Main campus
Universal Technical Institute, Houston, Texas
Additional campuses
Universal Technical Institute, Exton, Pennsylvania
Universal Technical Institute, Dallas/Ft. Worth, Texas

The substantial amount of federal funds disbursed through Title IV Programs, the large number of students and institutions participating in those programs and instances of fraud and abuse have prompted ED to exercise significant regulatory oversight over institutions participating in Title IV Programs. Accrediting commissions and state agencies also oversee compliance with both their respective standards and certain Title IV Program requirements. As a result, each of our institutions is subject to detailed oversight and review and must comply with a complex framework of laws and regulations. Because ED periodically revises its regulations and changes its interpretation of existing laws and regulations, we cannot predict with certainty how the Title IV Program requirements will be applied in all circumstances.
Significant factors relating to Title IV Programs that could adversely affect us include the following:
Congressional Action. Political and budgetary concerns significantly affect Title IV Programs. Congress has historically reauthorized the HEA approximately every five to six years. The HEA was reauthorized, amended and signed into law most recently on August 14, 2008; a new reauthorization process has begun with hearings and draft legislation in the Senate Committee on Health, Education, Labor and Pensions and the House Committee on Education and the Workforce. Congress reviews and determines federal appropriations for Title IV Programs at least annually.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 established the CFPB, which became active during 2012. The CFPB is tasked with overseeing large banks and certain other types of nonbank
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financial companies, including alternative loan providers, for compliance with federal consumer financial protection laws. It is possible that our proprietary loan program will be subject to such review.
Incentive Compensation. In 2010, ED issued revised regulations pertaining to incentive compensation, which became effective July 1, 2011. The new regulations eliminated the 12 safe harbors in the former regulations, and provide that an institution participating in Title IV Programs may not provide any commission, bonus or other incentive payment based in any part, directly or indirectly, on success in securing enrollments or the award of financial aid to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV Program funds. When it issued the regulations, ED also stated that it does not intend to provide private guidance to individual institutions on their specific compensation practices, but that it may issue additional broadly applicable guidance to all institutions from time to time.

The revised incentive compensation regulations and the ED guidance that accompanied the revised regulations when they were issued in 2010 prohibited institutions from:
making salary adjustments to covered employees based, in any part, directly or indirectly, on the employee’s success in securing enrollments or financial aid, or the number of students recruited, enrolled or awarded financial aid;

providing any payments or incentives to covered employees based on students’ graduation or completion of any part of their program, although, as discussed below, ED recently issued new revised guidance regarding graduation and completion-based compensation; and

paying any incentives to covered employees based on how many students receive jobs in their field of study after graduation.

The compensation restrictions apply to any employee who undertakes recruiting or admitting of students, or who makes decisions about and awards Title IV Program funds, as well as any higher level employee with responsibility for recruitment or admission of students, or making decisions about awarding Title IV Program funds. Furthermore, the regulations state that the same restrictions on an institution’s payments to its own individual employees will also be applied with limited exceptions to an institution’s payments to an outside company engaged in certain admissions, recruiting or financial aid activities.
ED published guidance in November 2015 that eliminated certain restrictions on incentive compensation for admissions representatives. Specifically, ED reconsidered its previous interpretation and stated that its regulations do not prohibit compensation for admissions representatives that is based upon students’ graduation from, or completion of, educational programs. Compensation based on enrolling students continues to be prohibited. ED also stated that in assessing the legality of a compensation structure, ED will evaluate whether compensation labeled as graduation-based or completion-based compensation is in substance enrollment-based compensation. We have made adjustments to the compensation practices for our admissions representatives which we believe comply with ED's November 2015 guidance. The transition period for the new compensation structure will continue through calendar year 2018. We will continue to evaluate other compensation options under these regulations and guidance.

Because the regulations differ significantly from the prior regulations, and because of the imprecise nature of many aspects of these regulations and ED's published guidance, it is not clear how ED will apply these regulations in all circumstances. Although we cannot guarantee that ED will not take a position that some aspect of our compensation practices is not in compliance with these regulations, we believe that our compensation plans are in substantial compliance with the regulations.ED's revisions to the regulations continue to adversely affect our ability to compensate our employees and our compensation practices for third parties.
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Gainful Employment. The HEA generally requires for-profit institutions to provide programs of training that prepare students for gainful employment in a recognized occupation in order for the students enrolled in those programs to qualify for Title IV Program assistance.
On October 31, 2014, ED published final gainful employment regulations which established additional Title IV Program eligibility requirements on certain educational programs required to lead to gainful employment.
Most parts of the new rule were effective on July 1, 2015, with the exception of new disclosure requirements that were intended to replace prior disclosure requirements and were originally scheduled to take effect on a later date as discussed below.

On June 16, 2017, ED announced its intent to convene a negotiated rulemaking committee to develop proposed regulations to revise the gainful employment regulations. ED has announced that the committee will convene in December 2017 and in early 2018 and issue proposed regulations for public comment during the first half of 2018, but ED has not established a final schedule for publication of proposed or final regulations. Any regulations published in final form by November 1, 2018 typically would take effect in July 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations.

On June 30, 2017, ED announced the extension of the compliance date for certain gainful employment disclosure requirements from July 1, 2017 to July 1, 2018. ED stated that institutions are still required to comply with other gainful employment disclosure requirements by July 1, 2017. On August 18, 2017, ED announced in the Federal Registernew deadlines for submitting notices of intent to file alternate earnings appeals of gainful employment rates and for submitting alternate earnings appeals of those rates. The deadline to file a notice of intent to file an appeal is October 6, 2017 and the deadline to file the alternate earnings appeal is February 1, 2018. ED has not announced a delay or suspension in the enforcement of any other gainful employment regulations. However, on August 8, 2017, ED officials announced that ED did not have a timetable for the issuance of completer lists to schools, which is the first step toward generating the data for calculating new gainful employment rates. Consequently, we cannot predict when ED will begin the process of calculating and issuing new draft or final gainful employment rates in the future. We also cannot predict whether the announcement of the intent to initiate gainful employment rulemaking or the extension of certain gainful employment deadlines may result in ED delaying the issuance of new draft or final gainful employment rates in the future.

The following is a summary of the key elements of the final rule that took effect on July 1, 2015.

Applicability

The final rule applies to all of our Title IV eligible programs intended by the HEA to lead to gainful employment in a recognized occupation. ED uses two DE calculations to compare the debt incurred by each program’s Title IV recipients to their annual earnings following graduation. Specifically, our programs will qualify under the gainful employment rules if we can establish that the program meets at least one of the following two annual DE metrics:
annual debt to earnings rate (aDTE) which requires that the estimated median annual loan payment of a particular cohort of graduates not exceed eight percent of the higher of the mean or median earnings of those graduates, based on earnings information obtained by ED from the Social Security Administration (SSA).

discretionary debt to income rate (dDTE) which requires that the estimated median annual loan payment of a particular cohort of graduates not exceed 20 percent of the estimated discretionary income of those graduates. Discretionary income for this purpose is the higher of the mean or median annual earnings of the cohort less 1.5 times the poverty guideline for a single person as determined by the U.S. Department of Health and Human Services.

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Measurement Standards
The gainful employment rule provides a three tier rating system of pass, zone and fail:
Pass: Program meets at least one of the DE metrics.
Zone: Program passes neither DE metric, but is in the "zone" under at least one of the DE metrics, which is defined as having an aDTE between eight and 12 percent or a dDTE between 20 and 30 percent. The program's other metric may be failing.
Fail: Program fails both DE metrics, meaning the program has an aDTE greater than 12 percent and a dDTE greater than 30 percent.
A program becomes ineligible for Title IV if it fails both DE tests in two out of any three consecutive years for which rates are calculated. In addition, any program that measures in the zone or has a combination of zone/failing scores for four consecutive years would become ineligible for Title IV. If a program loses eligibility or is voluntarily discontinued after receiving draft zone or failing DE rates, the institution may not reestablish eligibility for that program or a substantially similar program, as defined in the regulations, for a period of three years.
The rule includes a transition period, which varies in duration between five and seven years depending on the length of the particular program. During the transition period, an institution's programs may be evaluated using an alternative DE calculation that uses the debt incurred by a more recent cohort of graduates. The transition period is intended to allow an institution to improve its DE rates by taking steps to reduce the debt of its recent student cohorts; however, at least for the first year of the transition period, the calculation will still use debt incurred by students who graduated before the rule took effect.
    The rule provides an institution with the opportunity to challenge certain elements of the DE calculations. However, such challenges will be subject to a compressed timeline. Challenges to the earnings calculations will be extremely limited and likely involve considerable expense to the institution. The rule grants ED substantial discretion to establish procedures, requirements and standards for the challenges.
In January 2017, ED issued to our schools final versions of the first set of DE rates to be issued under the new rule. Under these final DE rates for the 2015 debt measure year, none of our programs had failing rates. Nine of our 12 educational programs achieved passing rates, and the other three programs were in the zone. The three programs in the zone are the Collision Repair, Automotive, and Motorcycle programs at our Universal Technical Institute of Phoenix institution, which includes our MMI Phoenix, Arizona and Orlando, Florida campuses and our Sacramento, California campus. All of the programs at our Universal Technical Institute of Arizona and Universal Technical Institute of Texas institutions had passing final DE rates. With respect to future DE rates, we are not able to develop reliable projections of our programs' performance under the final rule because we do not have access to the SSA earnings data that is usedPhoenix in the calculations. Additionally, on August 8, 2017, ED officials announced that ED did not have a timetable for the issuance of completer lists to schools,June 2022, which is the first step toward generating the data for calculating new gainful employment rates. Consequently, we cannot predict when ED will begin the process of calculating and issuing new draft or final gainful employment rates in the future. expire June 30, 2024.
If a particular program ceased to be eligible for Title IV Program funding, in most cases it would not be practical to continue offering that program under our current business model. In order to prevent this, we may have to explore mitigation strategies which might include preemptively reducing program tuition in an attempt to ensure compliance. Because we cannot calculate the exact impact of such action on a program's DE rates, we may overestimate the required tuition reduction, which would have a negative impact on our tuition revenues. Conversely, we may underestimate the required tuition reduction, and fail to improve the program's DE rates, which could result in the loss of Title IV eligibility as discussed above.
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Certification
The rule requires an institution's most senior executive officer to certify, as90/10 Rule

As a condition of continuedparticipation in Title IV Program eligibility, that each of the institution’s eligible gainful employment programs satisfies certain new ED certification requirements that focus primarily on the approval of the program by relevant regulatory or governing bodies such as institutional accreditors and, if applicable, programmatic accreditors and state licensing agencies.
Disclosure
The rule identifies up to 16 different items, as determined by ED, thatPrograms, proprietary institutions must disclose to prospective students and the public about each of their programs, using a disclosure template provided by ED, while providing ED the right to expand the list as it deems necessary. ED issued a disclosure template in January 2017 for institutions to provide required disclosures and required institutions to begin using the template by April 3, 2017. In March 2017, ED extended the deadline for use of the new template to July 1, 2017. The template requires institutions to provide various data for each of its programs, including, among other things, program cost, length, on-time graduation rates, placement rates, percentage of students who borrow to pay for program, typical student debt and monthly payment, typical graduate earnings, and typical fields of employment. Until July 1, 2017, institutions were required to continue to comply with the existing disclosure requirements previously described. In June 2017, ED announced that institutions would be required to provide a completed disclosure template, or a link thereto, on its gainful employment program web pages by July 1, 2017, but would not be required until July 1, 2018 to include the disclosure template, or a link thereto, in the gainful employment program promotional materials and to directly distribute the disclosure template to prospective students prior to enrollment.
Reporting
The rule requires institutions to annually report to ED information required to calculate the DE rates and certain potential disclosure items, including information about the institution's gainful employment programs, the enrollment status of students in those programs and the debt incurred by those students.
Warnings
The rule requires institutions to provide disclosures to all prospective students prior to their signing an enrollment agreement, obtain verification of receipt from the student and maintain historical records of such verification. The rule further requires institutions to provide separate warnings with respect to any program that ED identifies as in jeopardy of losing Title IV eligibility when the next set of DE rates becomes final. If required, these warnings must be provided to all active and prospective students and the institution must maintain records that document its efforts to distribute the warning. Warnings must include a number of elements including a statement that the program has not met ED’s gainful employment standards and Title IV eligibility may be terminated, options available to the student should Title IV eligibility be lost and guidance on the institution’s plans to continue the program, offer refunds, or transfer credit should Title IV eligibility be lost. Based on our final DE rates for the 2015 debt measurement year, none of our programs are currently required to provide these separate warnings.
Defense to Repayment Regulations. On November 1, 2016, ED published final regulations in the Federal Register regarding, among other things, the ability of borrowers to obtain discharges of their obligations to repay certain Title IV loans and the circumstances that require institutions to provide letters of credit or other financial protection to ED. The regulations had a general effective date of July 1, 2017. In June 2017, ED announced a delay until further notice in the effective date of the majority of these regulations. ED also announced its intent to convene a negotiated rulemaking committee to develop proposed regulations to revise the regulations on borrower defenses to repayment of Federal student loans and other matters published on November 1, 2016. On October 24, 2017, ED published an interim final rule that delayed until July 1, 2018 the effective date of the majority of these regulations. On the same date, ED also published a notice of proposed rulemaking that proposed to further delay, until July 1, 2019, the effective date of the majority of the regulations to ensure that there is adequate time
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to conduct negotiated rulemaking and, as necessary, develop revised regulations. ED provided the public until November 24, 2017 to submit comments to its proposal. ED convened the first meeting of negotiated rulemaking in November 2017 and is scheduled to continue additional meetings into early 2018. ED intends to issue proposed regulations for public comment during the first half of 2018, but ED has not established a final schedule. Any regulations published in final form by November 1, 2018 typically would take effect on July 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations or whether and when ED might end the delay in the effective date of the previously published regulations. The following is a summary of the key elements of the final rule that was published on November 1, 2016.

Borrower Defense and Other Discharges

The new regulations establish amended procedures and standards for borrowers, either individually or as a group, to assert through an ED-administered process a defense to the borrowers’ obligation to repay certain Title IV loans first disbursed prior to July 1, 2017 based on certain acts or omissions of the institution that relate to the making of the loan for enrollment at the school or the provision of educational services for which the loan was provided that would give rise to a cause of action against the school. The effective date of the majority of the Borrower Defense and Other Discharges regulations was delayed until July 1, 2018 and ED proposed to further delay the effective date until July 1, 2019 in a notice of proposed rulemaking published on October 24, 2017.

The regulations also expand the types of defenses available for borrowers, either individually or as a group, to assert through a new ED-administered process for loans first disbursed on or after July 1, 2017 based on certain acts or omissions that relate to the making of a Direct Loan for enrollment at the school or the provision of educational services for which the loan was provided and which fall into one of the following categories:

The borrower, whether as an individual or as a member of a class, or a governmental agency, has obtained against the school a nondefault, favorable contested judgment based on state or federal law in a court of administrative tribunal.

The institution failed to perform its obligations under the terms of a contract with the student.

The school or any of its representatives or any institution, organization, or person with whom the school has an agreement to provide educational programs, or to provide marketing, advertising, recruiting or admissions services, made a substantial misrepresentation (as defined by ED regulations) that the borrower reasonably relied on to the borrower’s detriment when the borrower decided to attend, or to continue attending, the school or decided to take out a Direct Loan. The rules also expand the existing regulatory definition of a misrepresentation.

The regulations establish separate procedures for claims initiated for individual borrowers and claims initiated for groups of borrowers as well as separate procedures in the event that the institution is open or closed. The rules establish varying, borrower-favorable statutes of limitations for the initiation of claims and, in some cases, impose an unlimited statute of limitations. The procedures provide for evaluation of the claims either by an ED official or hearing official and provide for school participation in the process. The procedures in some cases enable ED to consolidate borrower claims with common facts and to present the borrowers’ claims during the process.

If the ED official or hearing official approves the borrower’s defense to repayment through the applicable administrative process established in the proposed regulations, ED may discharge the borrower’s obligation to repay some or all of the borrower’s student loans, may return to the borrower amounts already paid by the borrower toward the discharged portion of the loan, and may initiate a separate proceeding to collect the discharged and returned amounts from the institution.

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Financial Protection Requirements

The new regulations revise the financial responsibility regulations to expand the list of actions or events that would require an institution to provide ED with a letter of credit or other form of acceptable financial protection and potentially be subject to other conditions and requirements. The specified list of events is extensive and includes events that ED contends might result in actual or potential debts, liabilities or losses and other events that ED contends might result in the institution being unable to meet all of its financial obligations and otherwise provide the administrative resources necessary to comply with the Title IV programs. The new regulations require institutions to notify ED and current and prospective students within specified timeframes of the occurrence of one or more of these events. The effective date of the Financial Protection Requirements was delayed untilJuly 1, 2018 and ED proposed to further delay the effective date until July 1, 2019 in a notice of proposed rulemaking published on October 24, 2017.

With respect to events that might result in actual or potential debts, liabilities or losses, the new regulations identify the following events that could result in ED deeming the institution to fail ED’s financial responsibility standards and requiring a letter of credit or other form of acceptable financial protection and the acceptance of other conditions or requirements:

the institution is required to pay any debt or incur any liability arising from a final judgment in a judicial proceeding or from an administrative proceeding or determination, or from a settlement;

the institution is being sued in an action that has been pending for 120 days and that was brought by a federal or state authority for financial relief on claims related to making a Direct Loan for enrollment at the institution or the provision of educational services;

the institution is being sued in other litigation and the institution’s motion for summary judgment has been denied or was not filed with the court;

the institution is closing any or all of its locations and is required by its accrediting agency to submit a teach-out plan;

the institution has one or more gainful employment programs with gainful employment rates that could result in the programs becoming ineligible based on their rates for the next award year; or

if the institution’s composite score is less than 1.5, any withdrawal of owner’s equity from the institution occurs by any means, including by declaring a dividend, unless the transfer is to an entity included in the affiliated entity group on whose basis the institution’s composite score was calculated.

If one or more of these events occur, ED recalculates the institution’s composite score by estimating the amount of actual and potential losses resulting from the events and determining whether the recalculated composite score is less than 1.0 and the institution fails the financial responsibility standards as a result. The regulations establish severe rules for calculating and presuming the recognition of the potential losses that might arise from the above-referenced events. For example, with certain exceptions, the regulations estimate the potential losses from pending lawsuits to equal the amount of relief claimed in the complaint or in any final written demand letter from the claimant. With respect to closing locations and to programs that could lose eligibility based on gainful employment rates, the regulations estimate potential losses to equal the amount of Title IV funds received by the institution for the location and programs during the most recently completed award year. For a withdrawal of owner’s equity, the regulations estimate potential losses to equal the amount transferred to an entity other than the institution.

The new regulations could require us to submit a letter of credit or other form of acceptable financial protection and accept other conditions or requirements if we pay dividends to shareholders if our composite score
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is less than 1.5 and the dividend amounts in combination with estimated losses associated with other events covered by the rules would reduce our composite score below 1.0 as recalculated by ED. On June 24, 2016, we entered into a Securities Purchase Agreement with Coliseum Holdings I, LLC, pursuant to which Coliseum purchased shares of our Series A Preferred Stock. Under the related Certificate of Designations, dividends on the Series A Preferred Stock accrue from the date of original issuance at a rate of 7.5% per annum on the liquidation preference then in effect (Cash Dividend). If we do not declare and pay the dividend, the liquidation preference will be increased to an amount equal to the liquidation preference in effect at the start of the applicable dividend period plus an amount equal to such then applicable liquidation preference multiplied by 9.5% per annum (Accrued Dividend). Cash Dividends, if declared, are payable semi-annually in arrears on September 30 and March 31, of each year. If applicable, the Accrued Dividend will begin to accrue and be cumulative on the same schedule as set forth above for Cash Dividends and will also be compounded on each applicable subsequent dividend date. Consequently, our inability to pay dividends on a timely basis could increase the cost of paying those dividendsagree when they are paid in the future.

The regulations also identify the following events that ED contends might result in the institution being unable to meet all of its financial obligations and otherwise provide the administrative resources necessary to comply with the Title IV programs, and that could result in ED deeming the institution to fail ED’s financial responsibility standards, thus requiring a letter of credit or other form of acceptable financial protection and the acceptance of other conditions or requirements: failuresign their PPA to comply with the 90/10 Rule forrule. Under the most recently completed fiscal year; SEC warning that it may suspend trading on the institution’s stock; failurecurrent 90/10 rule, to file certain reports with the SEC; the exchange on which the institution’s stock is traded notifying the institution that it is not in compliance with exchange requirements or that its stock is delisted; cohort default rates of at least 30 percent for its two most recent rates; certain significant fluctuations in Title IV funding; certain citations for failure to comply with state agency requirements; failure to comply with yet to be developed ED financial stress tests; high annual dropout rates; placement of the institution on probation or issuance of a show-cause or similar action by its accrediting agency; certain violations of loan agreements; expected or pending claims for borrower relief discharges and certain other events that ED might identify as reasonably likely to have a material adverse effect on the financial condition, business or results of operations of the institutions.

If ED deems the institution to fail the financial responsibility standards based on one or more of the aforementioned events listed in the regulations or based on the institution’s failure to comply with other requirements in the financial responsibility regulations, ED may permit the institution to continue participating in the Title IV programs under a provisional certification and would require the institution to submit a letter of credit or other form of financial protection, comply with the zone requirements and potentially accept other conditions or restrictions. The regulations state that the letter of credit must equal 10 percent of the total amount of Title IV funds received by the institution during its most recently completed fiscal year plus any additional amount that ED determines is necessary to fully cover any estimated losses unless the institution demonstrates that the additional amount if unnecessary to protect, or is contrary to, the Federal interest. The regulations state that ED maintains the full amount of financial protection until ED determines that the institution has a composite score of 1.0 or greater based on a review of the institution’s audited financial statements for the fiscal year in which all losses from the aforementioned events have been fully recognized or if the recalculated composite score is 1.0 or greater and the aforementioned events have ceased to exist.

Student Loan Repayment Rates

The new regulations require proprietary institutions with student loan repayment rates, as defined in the regulations, below prescribed thresholds to provide an ED-prepared warning to prospective and enrolled students, as well as placement of the warning on its website and in all promotional materials and advertisements. The effective date of the Student Loan Repayment Rate regulations was delayed until July 1, 2018 and ED proposed to further delay the effective date until July 1, 2019 in a notice of proposed rulemaking published on October 24, 2017.

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Prohibition on Pre-Dispute Contractual Provisions

The new regulations prohibit the use and reliance upon certain contractual provisions regarding dispute resolution processes, such as pre-dispute arbitration agreements or class action waivers, and require certain notifications, contract provisions and disclosures by institutions regarding students’ abilityremain eligible to participate in certain class action lawsuits orthe federal student aid programs, a proprietary institution cannot derive more than 90% of its revenues for each fiscal year from Title IV Program funds. A proprietary institution is subject to initiate certain lawsuits instead of through arbitration. The rules require institutions to submit to ED copies of certain records in connection with any claim filed in arbitration by or againstsanctions if it exceeds the school concerning90% level for a borrower defense claimsingle year, and any claim filed in a lawsuit by the school against the student or by any party against the school concerning a borrower defense claim. The effective date of the Prohibition on Pre-Dispute Contractual Provisions was delayed until July 1, 2018 and ED proposed to further delay the effective date until July 1, 2019 in a notice of proposed rulemaking published on October 24, 2017.

Other Regulations. On August 25, 2017, ED announced its plans to convene two public hearings in September and October 2017 for the purpose of seeking input on ED regulations related to postsecondary education that may be appropriate for repeal, replacement or modification. The hearings are in accordance with a February 24, 2017 executive order that, among other things, directed federal agencies to establish a Regulatory Reform Task Force to evaluate existing regulations and make recommendations to the agency head regarding their repeal, replacement or modification. On June 22, 2017, ED published a notice in the Federal Register soliciting written comments from the public to inform its Task Force's evaluation of all of ED's existing regulations and guidance. The public hearings are designed to supplement this effort. ED has convened two negotiated rulemaking committees with one committee considering proposed regulations related to borrower defense to repayment and financial responsibility matters and another committee considering proposed regulations related to gainful employment.

The “90/10 Rule.” A for-profit institution loses its eligibility to participate in Title IV Programs if it derives more than 90% of its revenue from Title IV Programs, as applicable, for two consecutive fiscal years as calculated under a cash basis formula mandated by ED. The HEA and ED regulations set forth specific requirements foryears.

In 2021, President Biden signed into law the calculationAmerican Rescue Plan Act of 2021 (“ARPA”), which amended the 90/10 rule. Section 2013 of the Title IV ProgramARPA amended the rule to require covered institutions to derive at least 10% of their revenue percentage, mandate expanded disclosure requirements in howfrom 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. ED published a new proposed 90/10 rule on July 28, 2022 and a final rule on October 28, 2022. This rule takes effect July 1, 2023 and applies to any annual audit submission for a proprietary institutional fiscal year beginning on or after January 1, 2023.

Significantly, pursuant to this proposed rule, “Federal education assistance funds” would include most educational assistance funds provided by a Federal agency to an institution presents the calculationor a student to cover tuition, fees and impose negative consequences if an institution exceeds the 90% limit in a single fiscal year.

The HEA provides that an institution will lose its Title IV Program eligibility for a period of at least twoother institutional fiscal years if it exceeds the 90% threshold for two consecutive institutional fiscal years. The loss of such eligibility would begin on the first day following the conclusion of the second consecutive year in which the institution exceeded the 90% limit and, as such, any Title IV Programcharges, including funds already receivedprovided by the institution and its students during a period of ineligibility would have to be returned to EDVA or a lender, if applicable. Additionally, if an institution exceeds the 90% level for a single year, ED will place the institution on provisional certification for a period of at least two years, could impose other restrictions or conditions on the institution's Title IV eligibility, and, under ED’s amended financial responsibility regulations that were scheduled to take effect on July 1, 2017, but have now been delayed until July 1, 2018 and may be delayed until July 1, 2019 under a proposal published by ED on October 24, 2017, could conclude that the institution lacks financial responsibility and is required to submit a letter of credit or other form of financial protection.DOD.
The HEA sets specific standards for certain elements in the calculation of an institution’s percentage under the 90/10 Rule, including, among other things, the treatment of institutional loans and revenue received from students who are enrolled in educational programs that are not eligible for Title IV Program funding.
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As of September 30, 2017, our institutions’ annual Title IV percentages as calculated under the 90/10 rule ranged from approximately 68% to 73%. We regularly monitor compliance with thisthe 90/10 requirement to minimize the risk that any of our institutions would derive more than the allowable maximum percentage of its revenue from Title IV Programs for any fiscal year.

Federal Student Loan Defaults. To remain eligible to participate in Title IV Programs, institutions must maintain federal student loan cohort default rates below specified levels. ED calculates an institution’s cohort default rate on an annual basis. Under the current calculation, the cohort default rate is derived from student borrowers who first enter loan repayment during a federal fiscal year (FFY) ending September 30 and subsequently default on those loans within the two following years; parent borrowers are excluded from the calculation. This represents a three-year measuring period. An institution whose cohort default rate is 30% or more for three consecutive FFYs or greater than 40% for any given FFY loses eligibility to participate in some or all Title IV Programs. This sanction is effective for the remainder of the FFY in which the institution lost its eligibility and for the two subsequent FFYs. None of our institutions had a three-year cohort default rate of 30% or greater for 2014, 2013 or 2012, the three most recent FFYs with published rates.
The following tables set forth the FFEL/DL cohort default rates for our institutions:
 Three-Year Cohort Default Rates for
Institution
Cohort Years Ended September 30, (1)
 2014 2013 2012
      
Universal Technical Institute of Arizona13.9% 14.5% 17.1%
Universal Technical Institute of Phoenix18.3% 18.9% 18.9%
Universal Technical Institute of Texas15.8% 18.6% 18.3%
      
All proprietary postsecondary institutions15.5% 15.0% 15.8%
      
(1)       Based on information published by ED.

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, 2017, all of2022, our institutions were subjectinstitutions’ annual Title IV percentages as calculated under the current 90/10 rule ranged from approximately 64% to delayed disbursements. An institution whose cohort default rate is 30% or greater, but less than or equal to 40%, for two70% between our institution’s four OPE IDs. Based on our review of the three most recent federal fiscal years may be placed on provisional certification status by ED for up to three years. Under ED’s financial responsibility regulations that were amended with an effective date of July 1, 2017, but that were delayed until July 1, 2018 and may be delayed until July 1, 2019 under a proposal published by ED on October 24, 2017, an institution whose two most recent official cohort default rates are 30 percent or greater may fail ED’s financial responsibility regulations and be required to submit a letter of credit or other financial protection and be subject to other conditions and restrictions.
Perkins Loan Defaults. An institution with a Perkins program cohort default rate that is greater than 15.0% for any federal award year, which isfinal 90/10 rule, including the twelve month period from July 1 through June 30, may be placed on provisional certification.The most recent Perkins cohort default rates reported by our institutions is based on Perkins borrowers who entered repayment during the federal award year ended June 30, 2016, who then defaulted on their Perkins loans prior to July 1, 2017. The resulting 2015-2016 Perkins cohort default rates for Universal Technical Institute of Arizona and Universal Technical Institute of Texas were 12.5% and 9.09% respectively.  The Perkins cohort default rate for Universal Technical Institute of Phoenix for the same period was 10%, based on 2 of 20 Perkins borrowers defaulting in this cohort period. However, because there were fewer than 30 Perkins loan
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borrowers who entered repayment during the 2015-2016 period for this institution, ED requires a consolidationscope of the three most recently reported Perkins data to calculate an official Perkins cohort default rate. The resulting  3-year consolidation for Universal Technical Institute of Phoenix resulted in 7 of 33 defaulted Perkins borrowers, or a default rate of 21.21%. Although this Perkins 3-year consolidated cohort default rate is greater than 15% for Universal Technical Institute of Phoenix,phrase “Federal education assistance funds” we havedo not been advised of any provisional certification status. If we are placed on provisional certification status for any reason, ED will require us to obtain prior approval for changes tobelieve our programs and locations and may more closely view any application we file for recertification, new locations, new or revised educational programs, acquisitions of other institutions, increases in degree level or other significant changes. Further, for an institution that is provisionally certified, ED may revoke the institution’s certification without advance notice or advance opportunity to challenge the action.

An institution with a Perkins cohort default rate of 50% or greater for three consecutive federal award years loses eligibility to participate in the Perkins program and must liquidate its loan portfolio. None of our institutions had a Perkins cohort default rate of 50% or greater for any of the last three federal award years. ED also will not provide any additional federal funds to an institution for Perkins loans in any federal award year in which the institution’s Perkins cohort default rate is 25% or greater. None of our institutions has had its federal Perkins funding eliminated for the past three federal award years. For the federal award year ended June 30, 2017, as with the 13 preceding federal award years, ED will not disburse any new federal funds to any institutions for Perkins loans due to federal appropriations limitations. In our 2017 fiscal year, we derived less than 1% of our revenues from the Perkins program. The Perkins program was ended by Congress for new loans to undergraduate students effective September 30, 2017; thus no new Perkins loans will be made.
Financial Responsibility Standards. All institutions participating in Title IV Programs must satisfy specific ED standards of financial responsibility. ED evaluates institutions for compliance with these standards each year, based on the institution’s annual audited financial statements, as well as following a change of control of the institution.
The institution’s financial responsibility is measured by its composite score which is calculated by ED based on three ratios:
the equity ratio which measures the institution’s capital resources, ability to borrow and financial viability;
the primary reserve ratio which measures the institution’s ability to support current operations from expendable resources; and
the net income ratio which measures the institution’s ability to operate at a profit.
ED assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0, with negative 1.0 reflecting financial weakness and positive 3.0 reflecting financial strength. ED then assigns a weighting percentage to each ratio and adds the weighted scores for the three ratios together to produce a composite score for the institution. The composite score must be at least 1.5 for the institution to be deemed financially responsible without the need for further oversight. In addition to having an acceptable composite score, an institution must, among other things, 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 an adverse, qualified, or disclaimed opinion by its accountants in its audited financial statements. If ED determines that an institution does not satisfy its financial responsibility standards, depending on the resulting composite score and other factors, that institution may establish its financial responsibility on an alternative basis.
If an institution's composite score is below 1.5, but is at least 1.0, the institution is in a category classified by ED as the zone. Under ED regulations, institutions in the zone solely because their composite score is less than 1.5 are still considered to be financially responsible, but require additional oversight by ED in the form of cash monitoring and other participation requirements. Institutions in the zone typically are permitted by ED to continue
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to participate in the title IV programs under one of two alternatives:  1) the “Zone Alternative” under which an institution is required to make disbursements to students under a payment method other than ED’s standard repayment, typically the Heightened Cash Monitoring 1 (HCM1) payment method; to notify ED within 10 days after the occurrence of certain oversight and financial events and to comply with other operating conditions imposed by ED or 2) submit a letter of credit to ED equal to at least 50 percent of the Title IV funds received by the institutions during the most recent fiscal year.  ED permits an institution to participate under the “Zone Alternative” for a period of up to three consecutive fiscal years.  Under the “Zone Alternative” notification requirement, the institution must provide timely information to ED regarding any of the following oversight and financial events:
any adverse action, including a probation or similar action, taken against the institution by its accrediting agency, state authority or other federal agency;

any event that causes the institution to realize any liability that was noted as a contingent liability in the institution's most recent audited financial statements;

any violation by the institution of any loan agreement;

any failure of the institution to make a payment in accordance with its debt obligations that results in a creditor filing suit to recover funds under those obligations;

any withdrawal of owner's equity/net assets from the institution by any means, including by declaring a dividend;

any extraordinary losses as defined in accordance with generally accepted accounting principles; or

any filing of a petition by the institution for relief in bankruptcy court.

Under the new regulations that were scheduled to take effect on July 1, 2017, but that ED delayed until July 1, 2018 and that ED has proposed delaying until July 1, 2019 under a proposal published by ED on October 24, 2017, the list of information that an institution must provide timely to ED would change to the following: any event that causes the institution, or a related entity, to realize any liability that was noted as a contingent liability in the institution’s or related entity’s most recent audited financial statements or any losses that are unusual in nature and infrequently occur or both as defined in accordance with certain specified accounting standards. The institution also would be required to notify ED of certain other events described in the new Defense to Repayment regulations. See “Regulation of Federal Student Financial Aid Programs - Defense To Repayment Regulations.” ED could impose a letter of credit or other conditions or requirements upon us in response to the reporting of any oversight or financial events.

Under the HCM1 payment method, the institution is required to make Title IV disbursements to eligible students and parents before it requests or receives funds for the amount of those disbursements from ED.  As long as the student accounts are credited before the funding requests are initiated, an institution is permitted to draw down funds through ED’s electronic system for grants management and payments for the amount of disbursements made to eligible students.  Unlike the Heightened Cash Monitoring 2 (HCM2) or reimbursement payment methods, the HCM1 payment method typically does not require institutions to submit documentation to ED and wait for ED approval before drawing down Title IV funds. ED may place an institution that is in the zone on the HCM2 or reimbursement methods of payment. An institution on the HCM1, HCM2 or reimbursement payment methods must pay any credit balances due to a student or parent before drawing down funds from ED for the amount of disbursements made to the student or parent.
If an institution's composite score is below 1.0, the institution is considered by ED to lack financial responsibility. If ED determines that an institution does not satisfy ED's financial responsibility standards, depending on its composite score and other factors, that institution may establish its financial responsibility on an alternative basis by, among other things:
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posting a letter of credit in an amount equal to at least 50% of the total Title IV Program funds received by the institution during its most recently completed fiscal year, or
posting a letter of credit in an amount equal to at least 10% of such prior year's Title IV Program funds, accepting provisional certification for a period of no more than three years, complying with additional ED notification and operating requirements and conditions and agreeing to receive Title IV Program funds under an arrangement other than ED's standard advance funding arrangement.
If an institution is unable to establish financial responsibility on an alternative basis, the institution may be subject to financial penalties, restrictions on operations and loss of external financial aid funding. See "Risk Factors" included elsewhere in this Report on Form 10-K for additional information. If an institution does not establish its financial responsibility by the end of the period for which ED provisionally certified the institution, ED may continue to provisionally certify the institution, but may require one or more persons or entities that exercise substantial control over the institution, as defined by ED regulations, to provide ED with financial protection for an amount determined by ED and to be jointly and severally liable for any liabilities that may arise from the institution’s participation in the Title IV programs.
ED published final regulations that were scheduled to take effect on July 1, 2017, but that ED delayed until July 1, 2018 and has proposed delaying until July 1, 2019 under a proposal published by ED on October 24, 2017, that would amend the financial responsibility regulations to expand the list of actions or events that require an institution to provide ED with a letter of credit or other form of acceptable financial protection. The regulations also, among other things, may increase the amount of the letter of credit or other form of financial protection that an institution must provide to ED if the institution has a composite score below 1.0, no longer qualifies for the Zone Alternative, or does not comply with other applicable requirements of the financial responsibility regulations. The regulations also would permit ED to recalculate an institution’s composite score to account for its estimate of actual or potential losses resulting from certain events identified in the new Defense to Repayment Regulations. See “Regulation of Federal Student Financial Aid Programs - Defense To Repayment Regulations.”
ED has historically evaluated the financial condition of our institutions on a consolidated basis based on the financial statements of Universal Technical Institute, Inc. as the parent company. ED’s regulations permit ED to examine the financial statements of Universal Technical Institute, Inc., the financial statements of each institution and the financial statements of any related party. For our 2017 fiscal year, we calculated our composite score to be 2.2. However, the composite score calculations and resulting requirements imposed on our institutions are subject to determination by ED once it receives and reviews our audited financial statements.
Return of Title IV Funds. An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program funds that have been disbursed to students who withdraw from their educational programs before completing them. The institution must return those unearned funds to ED or the appropriate lending institution in a timely manner, which is generally within 45 days from the date the institution determines that the student has withdrawn.
If an institution is cited in an audit or program review for returning Title IV Program funds late for 5% or more of the students in the audit or program review sample, the institution must post a letter of credit in favor of ED in an amount equal to 25% of the total Title IV Program funds that should have been returned in the previous fiscal year. Our 2017 Title IV compliance audits did not cite any of our institutions for exceeding the 5% late payment threshold.
Institution Acquisitions. When a company acquires an institution that is eligible to participate in Title IV Programs, that institution undergoes a change of ownership resulting in a change of control as defined by ED. Upon such a change of control, an institution’s eligibility to participate in Title IV Programs is generally suspended until it has applied for recertification by ED as an eligible institution under its new ownership, which requires that the institution also re-establish its state authorization and accreditation. ED may temporarily and provisionally
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certify an institution seeking approval of a change of control under certain circumstances while ED reviews the institution’s application. The time required for ED to act on such an application may vary substantially. ED’s recertification of an institution following a change of control is typically on a provisional basis. Our expansion plans are based, in part, on our ability to acquire additional institutions and have them certified by ED to participate in Title IV Programs following affirmation of state licensure and accreditation. Although we believe we will be able to obtain all necessary approvals from ED, ACCSC and the applicable state and federal agencies for our expansion plans, we cannot ensure that such approvals will be obtained at all or in a timely manner that will not delay or reduce the availability of Title IV Program funds for our students.
Change of Control. In addition to institution acquisitions, other types of transactions can also cause a change of control. ED and most state education agencies and ACCSC have standards pertaining to the change of control of institutions, but these standards are not uniform. ED’s regulations describe some transactions that constitute a change of control, including the transfer of a controlling interest in the voting stock of an institution or the institution’s parent corporation. With respect to a publicly-traded corporation, ED regulations provide that a change of control occurs in one of two ways: (i) if there is an event that would obligate the corporation to file a Current Report on Form 8-K with the SEC disclosing a change of control or (ii) if the corporation has a “Controlling Stockholder”, as defined in ED regulations, that owns or controls through agreement at least 25% of the total outstanding voting stock of the corporation and is the largest stockholder of the corporation, and that stockholder ceases to own at least 25% of such stock or ceases to be the largest stockholder. These change of control standards are subject to interpretation by ED. Most of the states and our accrediting commission include the sale of a controlling interest of common stock in the definition of a change of control. A change of control under the definition of these agencies would require any affected institution to have its state authorization and accreditation reaffirmed by that agency. The requirements to obtain such reaffirmation from the states and our accrediting commission vary widely.
A change of control could occur as a result of future transactions in which our company or our institutions are involved. Some corporate re-organizations and some changes in the board of directors are examples of such transactions. Additionally, the potential adverse effects of a change of control could influence future decisions by us and our stockholders regarding the sale, purchase, transfer, issuance or redemption of our stock. If a future transaction would result in a change of control of our company or our institutions, we would pursue all necessary approvals from ED, ACCSC and the applicable federal and state agencies. However, we cannot ensure that all such approvals can be obtained at all or in a timely manner that will not delay or reduce the availability of Title IV Program funds for our students.
Opening Additional Institutions and Adding Educational Programs. For-profit educational institutions must be authorized by their state education agencies, accredited by an accrediting commission recognized by ED and be fully operational for two years before applying to ED to participate in Title IV Programs. However, an institution that is certified to participate in Title IV Programs may establish an additional location and apply to participate in Title IV Programs at that location without regard to the two-year requirement, if such additional location satisfies all other applicable ED eligibility requirements. Our expansion plans are based, in part, on our ability to open new campuses as additional locations of our existing institutions and take into account ED’s approval requirements. Currently, all of our institutions are eligible to offer Title IV Program funding.
A student may use Title IV Program funds only to pay the costs associated with enrollment in an eligible educational program offered by an institution participating in Title IV Programs. Our expansion plans are based, in part, on our ability to add new educational programs at our existing institutions. Generally, an institution that is eligible to participate in Title IV Programs, and is not provisionally certified, may add a new educational program without ED approval if the new program is licensed by the applicable state agency, accredited by an agency recognized by ED, prepare students for gainful employment in the same or related occupation as an educational program that ED has already approved, and meets certain other requirements. For programs required to lead to gainful employment in a recognized occupation, which includes all of our programs, the institution must also certify that the new program:
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is approved by a recognized accrediting agency or is otherwise included in the institution's accreditation by its recognized accrediting agency;
is programmatically accredited if such accreditation is required by a federal government entity or by a governmental entity in the state in which the institution is located or in which the institution is otherwise required to obtain state approval; and
in the state in which the institution is located, or in which the institution is otherwise required to obtain state approval, satisfies the applicable education prerequisites for professional licensure or certification requirements in that state so that a student who completes the program and seeks employment in that state qualifies to take any licensure or certification examination that is needed for the student to practice or find employment in an occupation that the program prepares students to enter.

Some of the state education agencies and ACCSC also have requirements that may affect our institutions’ ability to open a new location, establish an additional location of an existing institution or begin offering a new or revised educational program. We do not believe that these standards will create significant obstacles to our expansion plans.
Administrative Capability. ED assesses the administrative capability of each institution that participates in Title IV Programs under a series of separate standards listed in the regulations. 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.
Eligibility and Certification Procedures. The HEA specifies the manner in which ED reviews institutions for eligibility and certification to participate in Title IV Programs. Every educational institution seeking Title IV Program funding for its students must be certified to participate and is required to periodically renew this certification. Each institution must apply to ED for continued certification to participate in Title IV Programs before its current term of certification expires, or if it undergoes a change of control. Terms of certification are typically six years, but can be three years or shorter. Furthermore, an institution may come under ED review if it expands its activities in certain ways such as opening an additional location or raising the highest academic credential it offers. The Program Participation Agreement (PPA) document serves as ED’s formal authorization of an institution and its associated additional locations to participate in Title IV Programs for a specified period of time. Universal Technical Institute of Texas was recertified in February 2012 and entered into a new PPA with ED which will expire March 31, 2018.
In December 2016, we were advised by ED that our applications for Title IV program participation recertification with respect to our Universal Technical Institute of Arizona and Universal Technical Institute of Phoenix institutions had been processed. The Universal Technical Institute of Arizona institution has received its program participation agreement, which places the institution on provisional certification until March 31, 2018, based on an open ED program review from April 2015 for which we had not received a report at the time of review. As a result of the institution's placement on provisional certification, ED requires that we apply for and receive approval prior to awarding or disbursing Title IV aid for any new locations or new programs. ED may more closely review any application we file for recertification, new locations, new or revised educational programs, acquisitions of other institutions, increases in degree level or other significant changes. Furthermore, for an institution that is provisionally certified, ED may revoke the institution's certification without advance notice or advance opportunity to challenge the action. In March 2017, we received a standard, non-provisional program participation agreement for the Universal Technical Institute of Phoenix institution with an expiration date of March 31, 2018. This timeframe has been designed to allow for participation alignment of all three of our institutions. We will submit recertification applications for all of our institutions in December 2017 as required.
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Compliance with Regulatory Standards and Effect of Regulatory Violations. Our institutions are subject to audits and program compliance reviews by various external agencies, including ED, ED’s Office of Inspector General, state education agencies, student loan guaranty agencies, the VA and ACCSC, as well as other federal and state agencies. Each of our institutions’ administration of Title IV Program funds must also be audited annually by independent accountants and the resulting audit report submitted to ED for review. If ED or another regulatory agency determined that one of our institutions improperly disbursed Title IV Program funds or violated a provision of the HEA or ED’s regulations, that institution could be required to repay such funds and could be assessed an administrative fine. ED could also transfer the institution from the advance method of receiving Title IV Program funds to a cash monitoring or reimbursement system, which could negatively impact cash flow at an institution. Significant violations of Title IV Program requirements by us or any of our institutions could be the basis for a proceeding by ED to fine the affected institution or to limit, suspend or terminate the participation of the affected institution in Title IV Programs. Generally, such a termination extends for 18 months before the institution may apply for reinstatement of its participation.
In April 2015, ED completed an ordinary course program review of our administration of the Title IV programs in which we participate for our Avondale, Arizona institution main campus and additional locations of that institution. The site visit covered the 2013-2014 and 2014-2015 award years. An initial program review report dated September 22, 2017 has been issued by ED. The report contains nine findings that are not material because they are limited to errors identified in individual student records and to requests to update and strengthen certain financial aid-related disclosures and procedures. None of the findings require us to perform any retroactive file reviews of all of our students for any issues for any time period. This matter is not yet final. We provided our response to ED within the stated deadline of 30 days from the date we received the report.  ED will review and take into consideration our response to the report before issuing its final program review determination letter. ED has not indicated how long it will take to review our response and issue the final program review determination letter.

As previously disclosed, during a review of our methodology for assessing compliance with the 90/10 Rule, we determined that it would be appropriate to revise the manner in which we treat certain stipends, primarily those awarded to recipients of veterans benefits. The revision, which did not impact our current or historical compliance with the 90/10 rule, related to the application of technical regulatory guidance in a circumstance where a student has multiple sources of tuition funding including Title IV funds and a portion of those funds is used as a stipend. In August 2015, we provided this information to ED and requested guidance from ED on any additional procedures they might require. We received a letter from ED in September 2015 requesting additional documentation in connection with revisions to our methodology for performing prior year 90/10 calculations. We provided the requested documentation in September 2015 and have not received a further response from ED.
In connection with the issuance of our Series A Convertible Preferred Stock (Series A Preferred Stock) in June 2016, we received a request from ED to provide a monthly student roster and a biweekly cash flow projection. We began complying with these reporting requirements in July 2016.
There is no ED proceeding pending to fine any of our institutions or to limit, suspend or terminate any of our institutions' participation in Title IV Programs, and we have no written notice that any such proceeding is currently contemplated. Violations of Title IV Program requirements could also subject us or our institutions to other civil and criminal penalties.
ITEM 1A. RISK FACTORS
We provide the following cautionary discussion of risks, uncertainties and possibly inaccurate assumptions relevant to our business. These are factors that, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results. We note these factors for investors within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete
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discussion of all potential risks or uncertainties. You should consider carefully the risks and uncertainties described below in addition to other information contained in this Report on Form 10-K, including our consolidated financial statements and related notes.
Risks Related to Our Industry
Failure of our schools to comply with the extensive regulatory requirements for school operations could result in financial requirements or penalties, restrictions on our operations and loss of external financial aid funding.
In 2017, we derived approximately 71% of our revenues, on a cash basis, from Title IV Programs, administered by ED. To participate in Title IV Programs, an institution must receive and maintain authorization by the appropriate state agencies, be accredited by an accrediting commission recognized by ED and be certified as an eligible institution by ED. As a result, our institutions are subject to extensive regulation by the state agencies, ACCSC and ED. Our institutions also are subject to the requirements of other federal and state regulatory agencies. These regulatory requirements cover the vast majority of our operations, including our educational programs, facilities, instructional and administrative staff, administrative procedures, marketing, recruiting, financial operations and financial condition. These regulatory requirements also affect our ability to acquire, expand or open additional institutions or campuses, add new, or expand our existing educational programs and change our corporate structure and ownership. Most ED requirements are applied on an institutional basis, with an “institution” defined by ED as a main campus and its additional locations, if any. Under ED’s definition, we have three such institutions. The state agencies, ACCSC and ED periodically revise their requirements and modify their interpretations of existing requirements. ED has imposed new regulatory requirements, such as the gainful employment regulations, and proposed the creation of additional regulatory requirements, such as the defense to repayment regulations and the expanded financial responsibility regulations, that apply to our schools. See "Risks Related to Our Industry - Compliance with the Title IV Program Integrity regulations, gainful employment regulations and ongoing negotiated rulemaking could materially and adversely affect our business" and “Risks Related to Our Industry - Failure to maintain eligibility to participate in Title IV Programs could materially and adversely affect our business - Financial Responsibility Standards.”
If our institutions failed to comply with any of these regulatory requirements, our regulatory agencies could impose monetary penalties; bring litigation against us; place limitations on our schools’ operations, such as restricting our ability to recruit or enroll students within certain states or imposing letter of credit requirements; terminate our schools’ ability to grant certificates, diplomas and degrees; revoke our schools’ accreditation; or terminate our schools’ eligibility to receive Title IV Program funds, each of which could adversely affect our cash flows, results of operations and financial condition, and impose significant operating restrictions upon us. Further, ED and other regulators have increased the frequency and severity of their enforcement actions against postsecondary schools which have resulted in the imposition of material liabilities, sanctions, letter of credit requirements and other restrictions and, in some cases, resulted in the loss of schools’ eligibility to receive Title IV funds or in closure of the schools. We cannot predict with certainty how all of these regulatory requirements will be applied or whether each of our schools will be able to comply with all of the requirements in the future. We believe that we have described the most significant regulatory risks that apply to our schools in the following paragraphs.
Failure to maintain eligibility to participate in Title IV Programs could materially and adversely affect our business.
To participate in Title IV Programs, an institution must be authorized to offer its programs by the relevant state education agencies, be accredited by an accrediting commission recognized by ED and be certified as eligible by ED. The substantial amount of federal funds disbursed through Title IV Programs, the large number of students and institutions participating in those programs and instances of fraud and abuse have prompted ED to exercise significant regulatory oversight over institutions participating in Title IV Programs. Accrediting commissions and state agencies also oversee compliance with both their respective standards and with Title IV Program requirements.
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As a result, each of our institutions is subject to detailed oversight and review and must comply with a complex framework of frequently changing laws and regulations and subjective regulatory interpretation of these obligations by various regulating entities. Because ED periodically revises its regulations and changes its interpretation of existing laws and regulations, we cannot predict with certainty how Title IV Program requirements will be applied in all circumstances. Additionally, given the complex nature of the regulations, the fact that they are subject to multiple interpretations, a stated department policy of providing limited or no interpretive guidance on certain issues and the large volume of Title IV transactions in which we are involved, it is reasonable to conclude that, from time to time, in the conduct of our business, we may inadvertently violate such regulations. In such an event, remedial action may be necessary, regulatory proceedings could occur and regulatory penalties could be assessed.
Significant factors relating to Title IV Program eligibility that could adversely affect us include the following:
State Authorization
A campus that grants certificates, diplomas or degrees must be authorized to offer postsecondary education programs in that state by the relevant education agency of the state in which it is located. The recruitment activity of admissions representatives in states where we do not physically have a campus location may also trigger licensing requirements for campuses in those states. Requirements for authorization vary substantially among states. State authorization is also required for students to be eligible for funding under Title IV Programs. Loss of state authorization by any of our campuses from the education agency of the state in which the campus is located would end that campus’ eligibility to participate in Title IV Programs and could cause us to close the campus, which could have a material adverse effect on our cash flows, results of operations and financial condition. Loss of state authorization in a state where we do not physically have a campus location, but we do have admissions representatives recruiting students would mean that our admissions representatives could no longer recruit students in that state. See “Business - Regulatory Environment - State Authorization and Regulation” included elsewhere in this Report on Form 10-K for additional information.
Accreditation
A school must be accredited by an accrediting commission recognized by ED in order to participate in Title IV Programs. Loss of institutional accreditation by any of our institutions (or of any institution that we may acquire or open in the future) would end that institution’s participation in Title IV Programs and could cause us to close the institution, or seek a new accrediting entity.  If an accrediting agency that accredits one of our institutions (or an institution that we may acquire or open in the future) loses its ED recognition, ED may provisionally certify the institution to continue participating in the Title IV Programs for a period of up to 18 months during which time the institution may attempt to obtain accreditation from another ED-recognized accrediting agency.  Moreover, even if ED provisionally certifies the institution for up to 18 months, the loss of ED recognition by an institution’s accrediting agency could result in a more immediate loss of the institution’s state authorization and, in turn, loss of Title IV eligibility, programmatic accreditation, or eligibility to participate in certain federal or state financial assistance programs if accreditation by an ED-recognized accrediting agency is a precondition to such authorization, accreditation or eligibility.
The loss of accreditation by any of our current or future institutions, or the loss of ED recognition of an institution’s accrediting agency, could have a material adverse effect on our cash flows, results of operations and financial condition.  See “Business - Regulatory Environment - Accreditation” included elsewhere in this Report on Form 10-K for additional information.  A change in accreditation to a more restrictive or monitored status could restrict our ability to add new programs, open new campuses or increase recruitment activity.

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The “90/10 Rule”
Under the “90/10 Rule,” a for-profit institution loses its eligibility to participate in Title IV Programs if it derives more than 90% of its revenue from those programs for two consecutive institutional fiscal years, under a cash-basis calculation mandated by ED. The period of ineligibility covers at least the next two succeeding fiscal years, and any Title IV Program funds already received by the institution and its students during the period of ineligibility would have to be returned to ED. If an institution exceeds the 90% level for a single year, ED will place the institution on provisional certification for a period of at least two years and could impose other restrictions or conditions on the institution's Title IV eligibility, including, underimpacted once the new Defense to Repayment regulations that were scheduled to take effect on July 1, 2017, but have been delayed until further notice, the requirement to submit to ED a letter of credit or other form of financial protection. If we are placed on provisional certification status for any reason, ED will require us to obtain prior approval for changes to our programs and locations and may more closely review any application we file for recertification, new locations, new educational programs, revisions to existing educational programs, acquisitions of other schools, increases in degree level or other significant changes. Furthermore, for an institution that is provisionally certified, ED may revoke the institution’s certification without advance notice or advance opportunity to challenge the action. In our 2017 fiscal year, under the regulatory formula prescribed by ED, each of our institutions derived approximately68% to 73% of its revenues from Title IV Programs.rule takes effect.
We received a letter from ED in September 2015 requesting additional documentation in connection with revisions to our methodology for performing prior year 90/10 calculations. We provided the requested documentation in September 2015 and have not received a further response from ED. While the revisions did not cause any of our institutions to exceed the 90% revenue threshold, it is possible that ED may take other actions against our institutions or require us to provide additional information. See “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - the '90/10 Rule'” included elsewhere in this Report on Form 10-K for additional information.
Multiple legislative proposals have been introduced in Congress that would increase the requirements of the 90/10 Rule, such as reducing the 90% maximum under the rule to 85% and/or including military and veterans' funding in the 90% portion of the calculation. If any of our institutions loses eligibility to participate in Title IV Programs, such a loss would adversely affect our students’ access to Title IV Program funds they need to pay their educational expenses, which could reduce our student population and would have a material adverse effect on our cash flows, results of operations and financial condition.

Federal Student Loan Defaults
An institution may lose its eligibility to participate in some or all Title IV Programs if its former students default on the repayment of their federal student loans in excess of specified levels. Based upon the most recent student loan default rates published by ED,none of our institutions have federal student loan default rates that exceed the specified levels. If any of our institutions loses eligibility to participate in Title IV Programs because of high student loan default rates, such a loss would adversely affect our students’ access to various Title IV Program funds, which could reduce our student population and would have a material adverse effect on our cash flows, results of operations and financial condition. See “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Federal Student Loan Defaults” included elsewhere in this Report on Form 10-K for additional information.
Financial Responsibility Standards
To participate in Title IV Programs, an institution must satisfy specific measures of financial responsibility prescribed by ED or post a letter of credit in favor of ED and possibly accept other conditions on its participation in Title IV Programs. The operating conditions that may be placed on a school that does not meet the standards of financial responsibility include being transferred from the advance payment method of receiving Title IV Program
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funds to either the reimbursement or the heightened cash monitoring system, which could result in a significant delay in the institution’s receipt of those funds, require the institution to pay credit balances due to students and parents before drawing down funds from ED for the amount of disbursements made to the student or parent, and increased administrative costs related to those funds. See “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Financial Responsibility Standards” included elsewhere in this Report on Form 10-K for additional information. ED published amendments to the financial responsibility regulations to expand the list of actions or events that would require an institution to provide ED with a letter of credit or other form of acceptable financial protection, but ED delayed the effective date of those regulations until July 1, 2018 and has proposed delaying until July 1, 2019 under a proposal published by ED on October 24, 2017. ED has announced its intent to renegotiate those rules. See “Regulation of Federal Student Financial Aid Programs - Defense To Repayment Proposed Regulations” included elsewhere in this Report on Form 10-K for additional information.
ED has historically evaluated the financial condition of our institutions on a consolidated basis based on the financial statements of Universal Technical Institute, Inc. as the parent company. ED’s regulations permit ED to examine the financial statements of Universal Technical Institute, Inc., the financial statements of each institution and the financial statements of any related party. For our 2017 fiscal year, we calculated our composite score to be 2.2. However, the composite score calculations and resulting requirements imposed on our institutions are subject to determination by ED once it receives and reviews our audited financial statements.
ED has not required us currently to post a letter of credit on behalf of any of our schools. ED has required us to provide certain information on a regular basis following our recent issuance of preferred stock. ED concluded that the transaction did not constitute a change in ownership resulting in a change of control requiring ED approval, but did require us to provide 13-week projected cash flow statements every two weeks and to provide a roster of our current students on a monthly basis. We began providing this information to ED on a regular basis on July 15, 2016.

We may be required to post letters of credit or to comply with limitations on our Title IV participation in the future, which could increase our costs of regulatory compliance or change the timing of receipt of Title IV Program funds. ED has imposed material letters of credit and limitations on some schools and also has denied the eligibility of other schools to continue participating in the Title IV Programs. Our inability to obtain a required letter of credit or the imposition of other limitations on our participation in Title IV Programs could limit or result in the loss of our students’ access to Title IV Program funds, which could reduce our student population and could have a material adverse effect on our cash flows, results of operations and financial condition.
Return of Title IV Funds
A school participating in Title IV Programs must correctly calculate and return funds received for students who withdraw before completing their educational programs whose aid exceeds the amount earned under Title IV Program guidelines. Returns must be completed in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn. If the unearned funds are not properly calculated or timely returned, we may be required to post a letter of credit in favor of ED, pay interest on the late repayment of funds, or be otherwise sanctioned by ED, which could increase our cost of regulatory compliance and adversely affect our results of operations. Additionally, the failure to timely return Title IV Program funds also could result in the termination of eligibility to receive such funds going forward or the imposition of other sanctions. Any of these results could have a material adverse effect on our cash flows, results of operations and financial condition. Given the complex nature of the regulations applicable to Title IV refunds and the fact they are subject to multiple interpretations, and the large volume of such transactions in which we are involved, it is reasonable to conclude that, from time to time, in the conduct of our business, we may inadvertently violate such regulations. In such an event, remedial actions may be necessary, regulatory proceedings could occur and regulatory penalties could be assessed.
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Administrative Capability
ED regulations specify extensive criteria
To continue its participation in Title IV Programs, an institution must satisfy to establishdemonstrate that it hasremains administratively capable of providing the requisite “administrative capability”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. These criteriaPrograms, require among other things, that the institutions:
comply with all Title IV Program regulations;
have capable and sufficient personnelinstitution to administer Title IV Programs;
have acceptable methods of defining and measuring the satisfactory academic progress of its students;
administer Title IV Programs with adequate checks and balances in its system of internal controls over financial reporting;
divide the function of authorizing and disbursing or deliveringrepay Title IV Program funds, so that no office haschange the responsibility for both functions;
establish and maintain records required under Title IV Program regulations;
develop and apply an adequate system to identify and resolve discrepancies in information from sources regarding a student’s application for financial aid under Title IV Programs;
not have a student loan cohort default rate above specified levels;
refer to the Officemethod of the Inspector General any credible information indicating that any applicant, student, employee or agent of the institution has been engaged in any fraud or other illegal conduct involving Title IV Programs;
not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is the cause of debarment or suspension;
provide adequate financial aid counseling to its students;
show no significant problems that affect the administrative ability of the institution;
develop and follow procedures to evaluate the validity of a student's high school completion;
timely submit all reports and financial statements required by the regulations; and
not otherwise appear to lack administrative capability.
If an institution fails to satisfy any of these criteria, ED may, among other things:
require the repaymentpayment of Title IV Program funds;
impose a less favorable payment system for the institution’s receipt of Title IV Program funds;
funds, place the institution on provisional certification status;as a condition of its continued participation or take other actions against the institution.
commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV Programs, or decline to renew the institution’s program participation agreement.


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Three-Year Student Loan Default Rates
Moreover, ED could take one or more of the actions identified above based on an institution’s noncompliance with ED requirements or the pendency of an ongoing audit or review even if ED does not conclude that the institution lacks administrative capability. If we are placed on provisional certification status for any reason, ED will require us to obtain prior approval for changes to our programs and locations and may more closely review any application we file for recertification, new locations, new educational programs, revisions to existing educational programs, acquisitions of other schools, increases in degree level or other significant changes. Furthermore, for an institution that is provisionally certified, ED may revoke the institution’s certification without advance notice or advance opportunity to challenge the action.

If we fail to maintain administrative capability as defined by ED or otherwise fail to comply with ED requirements, we could lose our eligibilityTo remain eligible to participate in Title IV Programs, institutions also must maintain federal student loan cohort default rates below specified levels. ED calculates an institution’s cohort default rate on an annual basis. Under the current calculation, the cohort default rate is derived from student borrowers who first enter loan repayment during a federal fiscal year (“FFY”) ending September 30 and subsequently default on those loans within the two following years; parent borrowers are excluded from the calculation. This represents a three-year measuring period.

The following tables set forth the most recent three-year cohort default rates for our institutions:
Three-Year Cohort Default Rates for
Cohort Years Ended September 30, (1)
Institution:
2019(2)
20182017
Universal Technical Institute of Arizona3.1%11.9%13.8%
Universal Technical Institute of Phoenix3.7%11.9%14.0%
Universal Technical Institute of Texas2.7%12.1%16.1%
MIAT College of Technology(3)
1.9%15.4%21.8%
All proprietary postsecondary institutions (4)
3.1%11.2%14.7%
(1)     Based on information published by ED.
(2)    Due to the COVID-19 pandemic, ED paused all loan payments from March 13, 2020 through December 31, 2022. This has significantly decreased the default rates starting with the 2019 Cohort.
(3) We completed the acquisition of MIAT on November 1, 2021. As a result, the cohort default rates presented here relate to periods prior to our ownership. However, since these rates affect our current collection timing on disbursements of federal student loans, we have included the rates within the table.
(4) Includes other proprietary institutions beyond UTI.

An institution whose cohort default rate exceeds 30% in consecutive fiscal years may be subject to conditions and restrictions, and will lose eligibility if the rate remains above 30% three years in a row. An institution also will lose eligibility if its rate exceeds 40% for any fiscal year. As demonstrated in the table above, none of our institutions had a three-year cohort default rate of 30% or havegreater for 2019, 2018 or 2017, for the three most recent FFYs with published rates. 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, 2022, Universal Technical Institute of Texas and MIAT College of Technology were 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 eligibility adversely conditioned,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 an adverse, qualified, or disclaimed opinion by its accountants in its audited financial statements. Each year, ED also evaluates institutions’ financial responsibility by calculating a “composite score,” which couldutilizes 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.

ED assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0, with negative 1.0 reflecting financial weakness and positive 3.0 reflecting financial strength. ED then assigns a weighting percentage to each ratio and adds the weighted scores for the three ratios together to produce a composite score for the institution. If an institution’s composite score is above 1.5, and it meets all other requirements, it is deemed financially responsible. If its


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composite score is below 1.5, but at least 1.0, the institution is still considered to be financially responsible, but must agree to additional oversight by ED in the form of cash monitoring and other participation requirements.

If an institution’s composite score is below 1.0, the institution is considered by ED to lack financial responsibility. ED may permit the institution to continue to participate in the Title IV Programs if it agrees to, among other things: (1) post a letter of credit in an amount equal to at least 50% of the total Title IV Program funds received by the institution during its most recently completed fiscal year; or (2) post a letter of credit in an amount equal to at least 10% of such prior year’s Title IV Program funds, accept provisional certification for a period of no more than three years, comply with additional ED notification and operating requirements and conditions, and agree to receive Title IV Program funds under an arrangement other than ED’s standard advance funding arrangement. If an institution is unable to establish financial responsibility on an alternative basis, the institution may be subject to financial penalties, restrictions on operations and loss of external financial aid funding.

ED has historically evaluated the financial condition of our institutions on a consolidated basis based on the financial statements of Universal Technical Institute, Inc. as the parent company. ED’s regulations permit ED to examine the financial statements of Universal Technical Institute, Inc., the financial statements of each institution and the financial statements of any related party. ED has not required us currently to post a letter of credit on behalf of any of our schools. ED has required us to provide certain information on a regular basis following our issuance of preferred stock on July 15, 2016, and we continue to provide monthly reports to ED pursuant to such direction. For our year ended September 30, 2022, we calculated our composite score to be 2.3. However, the composite score calculations and resulting requirements imposed on our institutions are subject to determination by ED once it receives and reviews our audited financial statements.

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. Specifically, ED may determine that an institution is not able to meet its financial or administrative obligations if one of the following events occurs:

•The institution incurs a liability from a settlement, final judgment or final determination arising from an administrative or judicial action or proceeding initiated by a federal or state entity and, as a result of that liability, the institution’s recalculated composite score is less than 1.0 as determined by ED under procedures described in the regulations;
•For a proprietary institution whose composite score is less than 1.5, there is a withdrawal of owner’s equity from the institution by any means (as defined by the regulations) and, as a result of that withdrawal, the institution’s recalculated composite score is less than 1.0 as determined by ED under procedures described in the regulations;
•The SEC issues an order suspending or revoking the registration of the institution’s securities or suspends trading of the institution’s securities on any national securities exchange;
•The national securities exchange on which the institution’s securities are traded notifies the institution that it is not in compliance with the exchange’s listing requirements and, as a result, the institution’s securities are delisted;
•The SEC is not in timely receipt of a required report and did not issue an extension to file the report; or
•If two or more “discretionary” triggering events (as described below) take place within a certain time period unless a triggering event is resolved before any subsequent event(s) occurs.

ED may also determine that an institution is not able to meet its financial or administrative obligations if one of the following discretionary triggering events occurs and is likely to have a material adverse effect on our cash flows, resultsthe financial condition of operationsthe institution:

•The accrediting agency for the institution issued an order, such as a show cause order or similar action, that, if not satisfied, could result in the withdrawal, revocation or suspension of institutional accreditation;
•The institution violated a provision or requirement in a security or loan agreement and financial condition.a default, delinquency or other event occurs that triggers or enables the creditor to require or impose on the institution an increase in collateral, a change in contractual obligations, an increase in interest rates or payments, or other sanctions, penalties, or fees;


Compliance
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•The institution’s state licensing agency notifies the institution of an intent to withdraw or terminate the institution’s state licensure if the institution does not take the steps necessary to come into compliance with a state licensing agency requirement;
•The institution did not receive at least 10% of its revenue in compliance with the 90/10 rule for its most recently completed fiscal year as calculated by ED;
•The institution has high annual drop-out rates as calculated by ED; or
•The institution’s two most recent official cohort default rates are 30% or greater, as determined under the regulations and unless the institution has a pending or successful appeal that sufficiently reduces at least one of the rates.
ED regulations give the institution an opportunity to provide information to the agency demonstrating that the triggering event is not material to the institution’s financial position in advance of any final determination regarding the institution’s financially responsibility.

Substantial Misrepresentation

The regulatory definitions of “misrepresentation” and “substantial misrepresentation” enforced by ED are exceptionally broad and do not require intent by the institution to misrepresent, or actual reliance by the person to whom the alleged misrepresentation was made. Therefore, it is possible that a statement made by the institution or one of its service providers or representatives could be construed by ED to constitute a substantial misrepresentation, even if the statement was made in error, without intent to misrepresent, and the person to whom it was made did not actually rely upon it.

Incentive Compensation

The “incentive compensation” prohibition forbids institutions from providing any commission, bonus, or other incentive payment based in any part, directly or indirectly, on success in securing enrollments or the award of financial aid to any person or entity engaged in any student recruiting or admission activities or in making decisions regarding the awarding of Title IV Program Integrity regulations, gainful employment regulations and ongoing negotiated rulemaking could materially and adversely affect our business.
Since the publication of the program integrity regulations in 2010, ED has issued interpretive guidance on the regulations in the form of multiple Dear Colleague Letters and electronic announcements to institutions. The letters and announcements provide sub-regulatory guidance on certain aspects of the regulations, which assists institutions with understanding the regulations in these areas. The laws and regulations governing certain of the requirements do not establish clear criteria for compliance, and ED has indicated that they do not intend to provide additional guidance on certain topics. In particular, the elimination of the 12 safe harbors regarding the incentive compensation prohibition significantly impacted our business. ED published guidance in November 2015 that eliminated certain restrictions on incentive compensation for admissions representatives. Specifically, ED reconsidered its previous interpretation and stated that its regulations do not prohibit compensation for admissions representatives that is based upon students’ graduation from, or completion of, educational programs.  Compensation based on enrolling students, however, continues to be prohibited. For a description of additional information regarding these regulatory changes, see “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Incentive Compensation” included elsewhere in this Report on Form 10-K.funds. We have made adjustments to the compensation practices for our admissions representatives which we believe are compliantcomply with ED's November 2015the current regulations and ED’s guidance. The transition period for the new compensation structure will continue through calendar year 2018. We will continue to evaluate other compensation options under these regulations and guidance.


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 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 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 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 a blended learning format on a permanent basis. Additionally, we intend to continue to invest in our blended learning platform and curriculum to further enhance the student experience and student outcomes.

To date, we have received approval from ACCSC to permanently offer blended format programs that utilize both distance
and on-ground education. Additionally, we have received permanent approvals from all state education authorizing agencies
to offer blended format programs.

Title IV Program Rulemaking
ED publishedis almost continuously engaged in one or more negotiated rulemakings, which is the final gainful employment rule on October 31, 2014,process pursuant to which took effect on July 1, 2015. The final rule includes debtthe agency revisits, revises, and expands the complex and voluminous Title IV Program regulations. Currently, ED is conducting two significant, negotiated rulemaking efforts to earning (DE) metrics and disclosure requirements as well as requirements for program certifications, reporting and disclosure of program information and warnings. For a summary of the finalrevise rules see “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Gainful Employment” included elsewhere in this Report on Form 10-K.
Compliance with final rules could have a material adverse effect on the manner in which we conduct our business and our results of operations. In January 2017, ED issued to our schools final versions of the first set of DE rates to be issued under the new rule. Under these rates for the 2015 debt measure year, none of our programs had failing rates. Nine of our 12 educational programs achieved passing rates, and the other three programs were in the zone. The three programs in the zone are the Collision Repair, Automotive and Motorcycle programs at our Universal Technical Institute of Phoenix institution, which includes our MMI Phoenix, Arizona and Orlando, Florida campuses and our Sacramento, California campus. All of the programs at our Universal Technical Institute of Arizona and Universal Technical Institute of Texas institutions had passing draft DE rates. With respect to future DE rates, we are not able to develop reliable projections of our programs' performance under the final rule because we do not have access to the SSA earnings data that is used in the calculations. Additionally, on August 8, 2017, ED officials announced that ED did not have a timetable for the issuance of completer lists to schools, which isconcerning 16 different issue areas.


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Between October and December of 2021, the first step toward generating the data for calculating new gainful employment rates. Consequently, we cannot predict when ED will begin the process of calculatingAffordability and issuing new draft or final gainful employment rates in the future. We also cannot predict whether the announcement of the intent to initiate gainful employment rulemaking or the extension of certain gainful employment deadlines may result in ED delaying the issuance of new draft or final gainful employment rates in the future.
If a particular program ceased to be eligible for Title IV Program funding, in most cases it would not be practical to continue offering that program under our current business model, which could reduce our enrollment and have a material adverse effect on our cash flows, results of operations and financial condition. In order to prevent this, we may have to explore mitigation strategies which might include preemptively reducing program tuition in an attempt to ensure compliance. Because we cannot calculate the exact impact of such action on the program's DE rates, we may overestimate the required tuition reduction, which would have a negative impact on our tuition revenues. Conversely, we may underestimate the required tuition reduction and fail to improve the program's DE rates, which could result in the loss of Title IV eligibility. Additionally, a decrease in or loss of any non-loan financial aid available to our students, such as financial aid provided by states, as discussed below, could cause the students to incur more loan debt, which would negatively impact our DE rates. Finally, the disclosures and warnings required by the final rule could also negatively impact our enrollment and have a material adverse effect on our cash flows, results of operations and financial condition.
On November 1, 2016, ED published final regulations in the Federal Register establishingStudent Loans committee negotiated new rules regarding, among other things, the ability of borrowersrelating to obtain discharges of their obligations to repay certain Title IV loans and for ED to initiate a proceeding to collect from the institution the discharged and returned amounts and the extensive list of circumstances that may require institutions to provide letters of credit or other financial protection to ED. The new regulations, among other things:

Establish amended procedures and standards for borrowers, either individually or as a group, to assert through an ED-administered process a defense to the borrowers’ obligation to repay certain Title IV loans based on certain acts or omissions of the institution. The regulations also expand the types of defenses available for loans first disbursed on or after July 1, 2017. If ED approves the borrower’s defense to repayment through the applicable administrative process established in the proposed regulations, ED may discharge the borrower’s obligation to repay some or all of the borrower’s student loans and may initiate a separate proceeding to collect from the institution the discharged and returned amounts.

Revise the financial responsibility regulations to expand the list of actions or events that would require an institution to provide ED with a letter of credit or other form of acceptable financial protection and potentially be subject to other conditions and requirements. The specified list of events is extensive and includes, among other potential triggers, certain debts or liabilities arising from settlements or final judgments in judicial or administrative proceedings and certain lawsuits pending for 120 days and initiated by a federal or state authority against the institution with respect to Direct Loans or educational services; certain other lawsuits in which the institution’s summary judgment motion was denied or not filed, certain closures of one or more of the institution’s locations, one or more gainful employment programs with gainful employment rates that could result in the program becoming ineligible in the next award year, certain withdrawals of owner’s equity from the institution including by dividend, failure to comply with the 90/10 Rule for the most recently completed fiscal year, SEC warning that it may suspend trading on the institution’s stock, failure to file certain reports with the SEC, the exchange on which the institution’s stock is traded notifying the institution that it is not in compliance with exchange requirements or that its stock is delisted, cohort default rates of at least 30 percent for its two most recent rates, certain significant fluctuations in Title IV funding, certain citations for failure to comply with state agency requirements, failure to comply with yet to be developed ED financial stress tests, high annual dropout rates, the institution being placed on probation or issued a show-cause or similar action by its accrediting agency, certain violations of loan agreements, expected or pending claims for borrower relief discharges, and certain
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other events that ED might identify as reasonably likely to have a material adverse effect on the financial condition, business or results of operations of the institutions.

Require proprietary institutions with student loan repayment rates, as defined in the regulations, below prescribed thresholds to provide an ED-prepared warning to prospective and enrolled students, as well as placement of the warning on its website and in all promotional materials and advertisements.

Prohibit the use and reliance upon certain contractual provisions regarding dispute resolution processes, such as pre-dispute arbitration agreements or class action waivers, and require certain notifications, contract provisions and disclosures by institutions regarding students’ ability to participate in certain class action lawsuits or initiate certain lawsuits instead of through arbitration.

For a more extended summary of the final rules, see “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Defense to Repayment Regulations” and “Business - Regulatory Environment - Financial Responsibility Regulations” included elsewhere in this Report on Form 10-K. The new regulations had a general effective date of July 1, 2017, but ED delayed the effective date of the majority of these regulations until July 1, 2018 and proposed to further delay the effective date until July 1, 2019 in a proposal published on October 24, 2017. ED convened the first meeting of a negotiated rulemaking committee to develop proposed regulations to revise the regulations on borrower defenses to repayment of Federal student loans and other matters in November 2017 and is scheduled to continue additional meetings of the committee into early 2018. ED intends tonine issue proposed regulations for public comment during the first half of 2018, but ED has not established a final schedule. Any regulations published in final form by November 1, 2018 typically would take effect in July 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations or whether and when ED might end the delay in the effective date of the previously published regulations.
On August 25, 2017, ED announced its plans to convene two public hearings in September and October 2017 for the purpose of seeking input on ED regulations related to postsecondary education that may be appropriate for repeal, replacement or modification. The hearings are in accordance with a February 24, 2017 executive order that, among other things, directed federal agencies to establish a Regulatory Reform Task Force to evaluate existing regulations and make recommendations to the agency head regarding their repeal, replacement or modification. On June 22, 2017, ED published a notice in the Federal Register soliciting written comments from the public to inform its Task Force's evaluation of all of ED's existing regulations and guidance. The public hearings are designed to supplement this effort. ED convened two negotiated rulemaking committees with one committee considering proposed regulations related toareas: (1) borrower defense to repayment, (2) closed school loan discharges, (3) total and permanent disability discharges, (4) false certification discharges, (5) income-driven loan repayment plans, (6) interest capitalization on Federal student loans, (7) pre-dispute arbitration and class action waiver clauses, (8) Pell Grants for prison education programs, and (9) Public Service Loan Forgiveness. Shortly thereafter, between January and March 2022, the Institutional and Programmatic Eligibility committee considered new rules relating to seven issue areas: (1) the 90/10 rule, (2) ability to benefit, (3) certification procedures for participation in Title IV Programs, (4) change of ownership and control, (5) financial responsibility, matters(6) gainful employment, and another committee considering(7) standards of administrative capability.

On October 28, 2022, ED published a final rule amending regulations governing Pell Grants for prison education programs, the 90/10 rule, and changes in ownership and control, effective July 1, 2023. On November 1, 2022, ED published a final rule governing borrower defense to repayment rule, closed school loan discharges, pre-dispute arbitration and class action waiver clauses, interest capitalization on Federal student loans, Public Student Loan Forgiveness, total and permanent disability discharges, and false certification discharges, also effective July 1, 2023. The regulated community is awaiting proposed regulations related to gainful employment.rules on the remaining topics covered by ED’s negotiated rulemakings. We cannot predict whether or when this process, or any other process ED might initiate, will result in the proposal of new regulations or the repeal, replacement or modification of existing regulations, or whether any regulatory changes that might result from this process will or will not be favorable to our institutions.

We have devoteddevote significant effort to understanding the effects of theseED regulations and rulemakings on our business and to developing compliant solutions that also are also congruent with our business, culture, and mission to serve our students and industry relationships. However, these solutions

ED Non-Discrimination Rulemakings

As a condition of receiving federal financial assistance, we are responsible for complying with applicable laws and regulations promulgated by ED regarding non-discrimination. On July 12, 2022, ED published a proposed rule to amend the regulations implementing Title IX of the Education Amendments of 1972 (“Title IX”). This proposed rule represents a significant revision of the current rules. ED also has indicated that it will be proposing a rule to amend regulations related to implementation and compliance with these final rules, including but not limited to cash management, compensation, gainful employment and defense to repayment, may have a material adverse effectnondiscrimination on the mannerbasis of disability in which we conduct our business, our student populationsthe Spring of 2023. We devote significant effort to complying with non-discrimination laws and the natureregulations. We are monitoring all proposed non-discrimination rules and will carefully review any proposed or final regulations promulgated by ED.

Department of Veterans Affairs Benefit Programs

Some of our programs and could havestudents receive financial aid from VA benefit programs. In 2022, we derived approximately 13% of our revenues, on a material adverse effect on our cash flows, results of operations and financial condition. Interpretation of the regulations is subject to change if ED provides further guidance and clarification. The solutions may require further analysis based on the uncertainty noted above and any additional interpretive guidance that is provided. Existing or future understandings could be differentbasis, from ED’s interpretations and thus lead to repayments, restrictions, fines or litigation.

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The loss of funds from Veterans' Benefits programs could materially and adversely affect our business.

To participate in veterans'veterans’ benefits programs, includingwhich include the Post-9/11 GI Bill, the Montgomery GI Bill, the REAP,Reserve Education Assistance Program (“REAP”) and VA Vocational Rehabilitation,Rehabilitation. To continue participation in veterans’ benefits programs, an institution must comply with certain requirements established by the VA. If we failVA, including that the institution report on the enrollment status of eligible students; maintain student records and make such records available for inspection; follow rules applicable to the individual benefits programs; and comply with these requirements, we could lose our eligibility to participate in veterans'applicable limits on the percentage of students receiving certain veterans’ benefits programs, which could reduce our student population. For additional information regarding this activity, see “Business - Regulatory Environment - Other Federalon a program and State Programs - Veterans' Benefits” included elsewhere in this Report on Form 10-K.campus basis.

Other considerations which could impact the funding we receive from veterans' benefits programs include the following:

Access to military installations. Recently, our access to military installations for student recruitment has become highly restricted due to the changes described in “Business - Regulatory Environment - Other Federal and State Programs” included elsewhere in this Report on Form 10-K. Restrictions on access necessary to continue to develop awareness of our programs with this population could reduce our enrollments.

90/10 rule changes. Multiple legislative proposals have been introduced in Congress that would increase the requirements of the 90/10 Rule, such as reducing the 90% maximum under the rule to 85% and/or including military and veteran funding in the 90% portion of the calculation. Implementation of these proposals could have a negative impact on our 90/10 ratio, which could have a negative impact on our eligibility to participate in Title IV Programs. If any of our institutions loses eligibility to participate in Title IV Programs, such a loss would adversely affect our students’ access to Title IV Program funds they need to pay their educational expenses, which could reduce our student population and would have a material adverse effect on our cash flows, results of operations and financial condition.

Funding for veterans' benefits programs. Funding for veterans' benefits programs is dependent upon Congressional appropriations. If appropriations are not maintained at the current level, or if an extended government shutdown were to occur, the VA might not be able to continue funding veterans' benefits.

State Approving Agencies. The VA shares responsibility for VA benefit approval and oversight with designated SAAs.State Approving Agencies (“SAAs”). SAAs play a critical role in evaluating institutions and their programs to determine if they meet VA benefit eligibility requirements. Processes and approval criterioncriteria, as well as interpretation of applicable requirements, can vary from state to state. Therefore, approval in one state does not necessarily result in approval in all states.

The VA imposes limitations on the percentage of students per program receiving benefits under certain veterans’ benefits programs, unless the program qualifies for certain exemptions. This rule, the 85/15 Rule, prohibits paying VA benefits to students enrolling in a program when more than 85% of the students enrolled in that program are having any portion of their tuition, fees, or other charges paid for them by the school or VA. If the ratio of supported students to non-supported students exceeds 85% at the time a new VA student enters or reenters (such as after a break in enrollment), the student cannot be certified to receive benefits in the program.

If the VA determines that a program is out of compliance with these limitations, the VA will continue to provide benefits to current students, but new students will not be eligible to use their veterans’ benefits for an affected program until we demonstrate compliance. Additionally, the VA requires a campus be in operation for two years before it can apply to participate in VA benefit programs. With the exception of our two newest campuses in Austin, Texas and Miramar, Florida which opened between May and August 2022, all of our campuses are eligible to participate in VA education benefit programs.


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In 2012, President Obama signed an Executive Order directing the DOD, VA and ED to establish “Principles of Excellence” (“Principles”), based on certain guidelines set forth in the Executive Order, to apply to educational institutions receiving federal funding for service members, veterans and family members. As requested, we provided written confirmation of our intent to comply with the Principles to the VA in June 2012. We are required to comply with the Principles to continue recruitment activities on military installations. Additionally, there is a requirement to possess a memorandum of understanding (“MOU”) with the DOD as well as with certain individual installations. Our access to bases for student recruitment has become more limited due to recent changes in the Transition Assistance Program (Transition Goals, Plans, Success) and increased enforcement of the MOU requirement. Each of our institutions has an MOU with the DOD. We have MOUs with certain key individual installations and are pursuing MOUs at additional locations; however, some installations will not provide MOUs to institutions that do not teach at the installation. We continue to strengthen and develop relationships with our existing contacts and with new contacts in order to maintain and rebuild our access to military installations.
Other Federal and State Student Aid Programs
Some of our students receive financial aid from federal sources other than Title IV or VA Programs, such as from the DOD or under the Workforce 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.
Consumer Protections Laws and Regulations
As a postsecondary educational institution, we are subject to a broad range of consumer protection and other laws, such as recruiting, marketing, the protection of personal information, student financing and payment servicing, enforced by federal agencies such as the FTC and CFPB and various state agencies and state attorneys general. We devote significant effort to complying with state and federal consumer protection laws.
We received a January 18, 2022 letter from the 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 our 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.
We, along with 69 other proprietary institutions, received an October 6, 2021 letter from the FTC providing notice that engaging in deceptive or unfair conduct in the education marketplace violates consumer protection laws and could lead to significant civil penalties. The notice stated that an institutions receipt of the letter “does not reflect any assessment as to whether they have engaged in deceptive or unfair conduct,” and the FTC did not request any information.
Federal Student Loan Forgiveness
On August 24, 2022, the Biden administration announced a student loan relief plan. Under this plan, the Department will provide up to $20,000 in debt relief to Pell Grant recipients with loans held by the Department and up to $10,000 in debt relief to non-Pell Grant recipients. Borrowers are eligible for this relief if their individual income is less than $125,000 or $250,000 for households. The plan is currently subject to a number of legal challenges in court. Should the plan survive judicial scrutiny, we expect many of our alumni and a portion of our current students as of this filing, would qualify for and take advantage of this relief.

Available Information
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available free of charge on our website at www.uti.edu under the “Investor Relations - Financial Information - SEC Filings” captions, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Reports of our executive officers, directors and any other persons required to file securities ownership reports under Section 16(a) of the Exchange Act are also available through our website. Information contained on our website is not a part of this Annual Report on Form 10-K and is not incorporated herein by reference.



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ITEM 1A. RISK FACTORS

We provide the following cautionary discussion of risks and uncertainties relevant to our business. These are factors that, individually or in the aggregate, could cause our actual results to differ materially from expected and historical results. We note these factors for investors within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. You should consider carefully the risks and uncertainties described below in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.
Risks Related to the Extensive Regulation of Our Business
Our failure to comply with the extensive regulatory requirements for school operations could result in financial requirements or penalties, restrictions on our operations and loss of external financial aid funding.
As detailed in “Business - Regulatory Environment,” our institutions are subject to extensive regulatory requirements imposed by a wide range of federal and state agencies, as well as by our institutional accreditor. These requirements, which are subject to frequent change, cover virtually every aspect of our schools’ operations. The approvals granted by these entities permit our schools to operate and to participate in a variety of government-sponsored financial aid programs, including Title IV Programs, from which we derived approximately 67% of our revenues, on a cash basis, in fiscal year 2022. If our institutions fail to comply with any of these regulatory requirements, our regulators could take an array of actions, including, without limitation, revocation of the approval granted by the agency. Any such adverse action could adversely affect our cash flows, results of operations and financial condition, and could include the imposition of significant operating restrictions upon us. We cannot predict with certainty how each regulatory body will apply its requirements or whether each of our schools will be able to comply with all of the requirements in the future.
Failure to maintain eligibility to participate in Title IV Programs could materially and adversely affect our business.
Title IV Program requirements, as described in “Business - Regulatory Environment-Title IV Programs,” are complex, at times imprecise, and subject to changing interpretations. In the event an institution violates these requirements, ED could impose sanctions or limitations, or terminate an institution’s Title IV Program eligibility. Forms of noncompliance that could result in sanctions or limitations, or cause the institution to lose its eligibility to participate in some or all Title IV Programs, include, without limitation, failures to: maintain state authorizations; maintain institutional accreditations; satisfy ED’s administrative capability standards; satisfy ED’s loan default rate thresholds; correctly calculate and timely return unearned Title IV Program funds received for students who withdraw before completing their educational programs; correctly determine whether students are making satisfactory academic progress in their programs and, as such, remain eligible to receive Title IV Program funds; satisfy ED’s financial responsibility standards; and comply with the 90/10 rule, the substantial misrepresentation rules or the incentive compensation rule. Types of sanctions or limitations ED might impose upon an institution include, without limitation: requiring the repayment of Title IV Program funds; imposing a less favorable payment system for the institution’s receipt of Title IV Program funds; placing an institution on provisional certification status; commencing a proceeding to impose a fine or to limit, suspend, or terminate the institution’s participation in Title IV Programs; or declining to renew the institution’s program participation agreement. Such sanctions or limitations, including the loss of Title IV Program eligibility by any of our current or future institutions, could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition. For more information, see “Business - Regulatory Environment - Title IV Programs.”
Current and future Title IV Program regulations arising out of negotiated rulemakings could materially and adversely affect our business.
ED is almost continuously engaged in negotiated rulemakings, which is the process by which it revisits, revises, and expands the complex and voluminous Title IV Program regulations. These regulations also are frequently challenged through litigation, creating significant uncertainty as to when and what part of the regulations have taken effect, how they should be implemented, and how they will be interpreted and enforced. 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. However, we cannot predict with certainty how these new and developing regulatory requirements will be applied or whether each of our schools will be able to comply with all of the requirements in the future. Significant negotiated rulemakings that could materially and adversely affect our business are discussed in “Business - Regulatory Environment - Title IV Program Rulemaking.”


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The loss of funds from Veterans' benefits programs could materially and adversely affect our business.
As discussed in “Business - Regulatory Environment - Other Federal and State Student Aid Programs,” to participate in veterans’ benefits programs, including the Post-9/11 GI Bill, the Montgomery GI Bill, the REAP, and VA Vocational Rehabilitation, our institutions must comply with certain requirements applicable to these programs. If we are unablefail to comply with these requirements, we could lose our eligibility to participate in veterans’ benefits programs, which could have a material adverse effect on our operations, cash flows, results of operations, or financial condition. Future legislative or regulatory initiatives that could negatively impact the funding we receive from veterans’ benefits programs include, without limitation: (i) proposals to restrict access to military installations for student recruitment; (ii) a reduction in appropriations for veterans’ benefits programs, or an extended government shutdown; (iii) an inability to secure approvals in one or more states, ifdelays in the process for obtaining approvals, or the revocation of an approval takes significant time or if our approval is revoked, we could be required to alterapproval; (iv) changes in the delivery methodology or structureinterpretation and application of the 85/15 rule, which prohibits paying VA benefits to students enrolling in a program where more than 85% of the students enrolled in that program have any portion of their tuition, fees, or experience delays inother charges paid for them by the institution or the loss of a portion of VA funding, or could be required to return a portionVA; and (v) changes in the interpretation and application of the funding received. Students receiving VA funding may not be able to receiverules governing the full benefitclassification and treatment of our Automotiveblended coursework, and Diesel Technology II curricula methodology, which could reduce our enrollments and have a material adverse effect on our cash flows, resultsthe eligibility of operations and financial condition.
Any loss of funds from veterans'such coursework for veterans’ benefits programs could reduce our student population and have a material adverse effect on our cash flows, results of operations and financial condition.

programs.
Congress may change the law or reduce funding for or place restrictions on the use of funds received through Title IV Programs, which could reduce our student population, revenues and/or profit margin.

Congress periodically revises the HEA and other laws, and enacts new laws, governing Title IV Programs and annually determinesdetermining the funding level for each Title IV Program, and may make changes in the laws at any time.Program. Congress most recently reauthorized the HEA in 2008,2008. It is actively working on another HEA reauthorization,
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and is expected to revise and reauthorize the HEA, but it is uncertain whether reauthorizationand when the process will occur in 2018 or be delayed further.completed. Any action by Congress that significantly reduces funding for Title IV Programs or the ability of our schools or students to receive funding through these programs or places restrictions on the use of funds received by an institution through these programs could reducehave a material adverse effect on our student population and revenues.operations, cash flows, results of operations, or financial condition. Such action may occur during HEA reauthorization or such action could also occur as part of separate technical amendments to the HEA or during Congress'Congress’ annual budget and appropriations cycle.

Congressional action may also require us to modify These uncertainties could reduce our practices in ways that could increase administrative costs, reduce the ability of students to finance their education at our schools, and materially decrease student enrollment and result in decreased profitability.

population, revenues and/or profit margin.
Continued Congressionalor increased examination of the for-profit education sector could result in further legislation, or further ED rulemaking restricting Title IV Program participation by for-profit schools in a mannerappropriations, regulations, and enforcement actions that could materially and adversely affectsaffect our business.

Over the last decade, Congress continues to behas focused significantly on for-profit education institutions, specifically regarding participation in Title IV Programs and U.S. DOD oversight of tuition assistance for military service members attending for-profit colleges. For a description of additional information regarding this activity, see “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Congressional Action” included elsewhere in this Report on Form 10-K.

ThisContinued or increased Congressional activity could result in the enactment of more stringent legislation, by Congress, further rulemakings affecting participation in Title IV Programs and other governmental actions, increasing regulation of the for-profit sector. The likelihood of such activity could be increased as a result of elections and appointments. The composition of federal and state executive offices, executive agencies, and legislatures are subject to change based on the results of periodic elections, appointments, and other events. In some cases, candidates for elected positions in federal or state executive or legislative offices or for appointments to positions in federal or state agencies have negative opinions on for-profit education providers or may support initiatives such as eliminating or reducing student aid eligibility for for-profit education providers or providing funding to free or reduced tuition programs at public and other nonprofit postsecondary education institutions, which could adversely impact our ability to compete with such institutions. Action by Congress or other regulators may also increase our administrative costs and require us to modify our practices in order for our institutions to comply with Title IV Program requirements. In addition, concerns generated by this Congressional activity may adversely affect enrollment in for-profit educational institutions such as ours. Any laws that are adopted that limit our or our students’ participation in Title IV Programs or in programs to provide funds for active duty service members and veterans or the amount of student financial aid for which our students are eligible, or any decreases in enrollment related to the Congressional activity concerning this sector, could have a material adverse effect on our operations, cash flows, results of operations, andor financial condition.

Our business could be harmed if we experience a disruption in our ability to process student loans under the Federal Direct Loan Program.
Because all Title IV Program student loans other(other than Perkins loansloans) are now processed under the DLDirect Loan (“DL”) program, any processing disruptions by ED may impact our students’ ability to obtain student loans on a timely basis. If we experience a disruption in our ability to process student loans through the DL program, either because of administrative challenges on our part or the inability of ED to process the increased volume of loans through the DL program on a timely basis, could impact our students’ ability to timely obtain their student loans and have a material adverse effect on our operations, cash flows, results of operations, andor financial condition could be adversely and materially affected.condition.



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Government and regulatory agencies and third parties may conduct compliance reviews, bring claims or initiate litigation against us.
Because we operate in a highly regulated industry, we are subject to compliance reviews and claims of noncompliance by government agencies, regulatory agencies and third parties alleging noncompliance with applicable standards. TheseEach of our institutions’ administration of Title IV Program funds must be audited annually by independent accountants and the resulting audit report must be submitted to ED for review. Moreover, we may be subject to a compliance reviews and claims could also result from our notification to an agency or third party based upon our own internal compliance review.audit as a condition of the Higher Education Emergency Relief Fund (“HEERF”) award. We are also subject to various lawsuits, investigations and claims, covering a wide range of matters, including, but not limited to, alleged violations of federal and state laws, including consumer protection laws applicable to activities of postsecondary educational institutions, false claims made to the federal government and routine employment matters. While we are committed to strict compliance with all applicable laws, regulations, and accrediting standards, if the results of government, regulatory or third party reviews or proceedings are unfavorable to us, or if we are unable to successfully defend successfully
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against lawsuits or claims, we may be required to pay monetary damages or be subject to fines, limitations, loss of regulatory approvals or Title IV Program funding or other federal and state funding, injunctions or other penalties. We could also incur substantial legal costs that are not covered or are in excess of our insurance coverage. Even if we adequately address issues raised by an agency review or successfully defend a lawsuit or claim, we may have to divert significant financial and management resources from our ongoing business operations to address issues raised by those reviews or defend those lawsuits or claims. Additionally, given the significant public scrutiny being placed on the sector we operate in, numerous state attorneys general have initiated investigations either of the operation of the for-profit schools operating in their state. Changes occurring at the federal or state level, as well as our financial performance in recent years, may spur further action or of particular institutions operating in that state.
In September 2012, we received a Civil Investigative Demand (CID) from the Attorney General of the Commonwealth of Massachusetts related to a pending investigation in connection with allegations that we caused false claims to be submitted to the Commonwealth relating to student loans, guarantees and grants provided to students at our Norwood, Massachusetts campus. The CID required us to produce documents and provide written testimony regarding a broad range of our business from September 2006 to September 2012. We responded timely to the request. The Attorney General made a follow-up request for documents, and we complied with this request in February 2013. In response to a status update request from us, the Attorney General requested and we provided in April 2015 additional documents and information related to graduate employment at our Norwood, Massachusetts campus and our policies and practices for determining graduate employment. We have not received any additional requests since April 2015. At this time, we cannot predict the eventual scope, duration, outcomereporting requirements by state attorneys general, Congressional leadership or associated costs of this request, and accordingly we have not recorded any liability in the accompanying consolidated financial statements.

state licensing bodies.
We cannot predict the ultimate outcome of unsettled matters, and we may incur significant defense costs and other expenses in connection with them in excess of our insurance coverage related to these matters. We may be required to pay substantial damages, settlement costs or fines or penalties. Such costs and expenses could have a material adverse effect on our business, cash flows, results of operations and financial condition. An adverse outcome in any of these matters could also materially and adversely affect our licenses, accreditation and eligibility to participate in Title IV programs.

Programs.
Our business and stock price could be adversely affected as a result of regulatory investigations of, or actions commenced against, us or other companies in our industry.
The operations of companies in the education and training services industry, including UTI,us, are subject to intense regulatory scrutiny. In some cases, allegations of wrongdoing on the part of such companies have resulted in formal or informal investigations by the U.S. Department of Justice, the SEC, the FTC, state governmental agencies and attorneys general, ED and other federal agencies. These allegations have attracted adverse media coverage and have been the subject of legislative hearings and regulatory actions at both the federal and state levels, focusing not only on the individual schools but in some cases on the for-profit postsecondary education sector as a whole. These investigations of, or regulatory actions against, specific companies in the education and training services industry could have a negative impact on our industry as a whole and on our stock price. Furthermore, the outcome of such investigations and any accompanying adverse publicity could negatively affect student enrollment and heighten the risk of class action lawsuits against us, which could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, andor financial condition.
Changes in the state regulatory environment, includingstate and agency budget constraints and increased regulatory requirements, may affect our ability to obtain and maintain necessary authorizations or approvals from those states to conduct or change our operations.
Due to state budget constraints and changes in the regulatory environment in some of the states in which we operate, it is possible that some states may reduce the number of employees in, or curtail the operations of, the state education agencies that authorize our schools. A delay or refusal by any state education agency in approving any changes in our operations that require state approval, such as the opening of a new campus, the introduction
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of new programs or the revision of existing programs, a change of control or the hiring or placement of new admissions representatives, could prevent us from making such changes or delay our ability to make such changes, or could require substantial additional costs to accommodate such delay.

State education agencies that authorize our schools continue to revise and/or issue new regulations requiring significant additional reporting and monitoring of student outcomes. Additionally, state education agencies may request additional information or supplemental reporting as a result of our recent financial performance.
The regulations and reporting requirements may


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lengthen the time to obtain necessary state approvals and require us to modify our operations in order to comply with the requirements. This could impose substantial additional costs on our institutions, which could have a material adverse effect on our cash flows, results of operations and financial condition.
Moreover, some statesState legislatures also continue to contemplate creating new performance metrics that would have added regulations that impose additional requirements on our schools and increase the complexityto be satisfied to maintain eligibility. The enactment of existing requirements.  For example, some states, such as California and Massachusetts, have added requirements for institutions to report institutional data to current and prospective students.  California has added requirements to its existing rules for calculating job placement rates for graduates that are more exacting and difficult to substantiate.  Other states have added, or may add in the future, newone or more complex requirements applicable to our institutions.  These requirementsof these proposed laws or similar laws could create new compliance challenges and impose substantial additional costs on our institutions, which could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, andor financial condition.

Budget constraints in states that provide state financial aid to our students could reduce the amount of such financial aid that is available to our students, which could reduce our student population and negatively affect our 90/10 Rule calculation and other compliance metrics.
A significant number ofSome states are facing budget constraints that are causing them to reduce state appropriations in a number of areas. Many of those states provideareas including financial aid to our students. These and other states may decide to reduce or redirect the amount of state financial aid that they provideprovided to students but wethat may attend one of our programs. We cannot predict how significant any of these reductions will be or how long they will last. If the level of state funding available to our students decreases and our students are not able to secure alternative sources of funding, our student population could be reduced, whichit could have a material adverse effect on our profitability. The decreaseoperations, cash flows, results of operations, or loss of this funding could alsofinancial condition, negatively impact our DEcohort default rates, or impact our performance under the gainful employment rule, as well as our cohort default rates. Additionally, loss of state funding would negatively impact ourfederal 90/10 Rule calculation and the cost of our compliance with the 90/10 Rule, as this funding is counted in the non-Title IV Program funds portion of the ratio, and such loss would drive up the percentage of revenue attributable to Title IV Programs.calculation.
If we acquire an institution that participates in Title IV Programs or open an additional location, one or more of our regulators could decline to approve the acquired institution and/or additional location, or could impose material conditions or restrictions, which could prevent or limit the ability of the acquired institution and/or additional location to participate in Title IV Programs and, in turn, impair our ability to operate the acquired institution and/or the additional location as planned or to realize the anticipated benefits from the acquisition of that institution and/or opening of the additional location.
If we acquire an institution that participates in Title IV Program funding and/or open an additional location, we must obtain approval from ED and applicable state education agencies and accrediting commissions in order for the institution and/or additional location to be able to operate and participate in Title IV Programs. While we would attempt to ensure we will be able to receive such approval prior to acquiring an institution and/or opening an additional location, approval may be withheld. An acquisition can result in the temporary suspension of the acquired institution’s participation in Title IV Programs and opening an additional location can result in a delay of the campus’ participation in Title IV Programs unless we submit a timely and materially complete application for approval of the acquisition or the opening of the new location. Upon an acquisition, ED will only grant a temporary certification while it reviews the application. If we were unable to timely establish or re-establish the
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state authorization, accreditation or ED certification of the acquired institution or obtain approval for the new location, our ability to operate the acquired institution and/or open the additional location as planned or to realize the anticipated benefits from the acquisition of that institution and/or the opening of the additional location could be significantly impaired.
Further, ED and applicable state education agencies and accrediting agencies could impose material conditions or restrictions on us and the acquired institution and/or the additional location, including, but not limited to, a material letter of credit, limitations or prohibitions on the ability to add new campuses or add or change educational programs, placement of the institution on the heightened cash monitoring or reimbursement method of payment and reporting and notification requirements. Additionally, an acquired institution may have known or unknown instances of noncompliance with federal, state or accrediting agency requirements, including, but not limited to, noncompliance with gainful employment requirements or with requirements included in the new defense to repayment regulations that could result in liabilities, sanctions, or material conditions or restrictions that we may inherit by acquiring the institution. Although we attempt to conduct thoroughFurther, our due diligence ofefforts relating to institutions that we intend to acquire our due diligence efforts may be unsuccessful and fail to identify noncompliance or other facts that could result in liabilities, sanctions, or material conditions or restrictions. The imposition of liabilities, sanctions, or material conditions or restrictions by one or more regulators could impair our ability to operate the acquired institution and/or open the additional location as planned or to realize the anticipated benefits from the acquisition of that institution and/or the opening of the additional location.

If regulators do not approve additional or revised programs, it could have an adverse effect on our academic or operational initiatives
A student may only use Title IV Program funds to pay the costs associated with enrollment in an eligible educational program offered by an institution participating in Title IV Programs. Our expansion plans are based, in part, on our ability to add new educational programs at our existing institutions. Generally, an institution that is eligible to participate in Title IV Programs, and is not provisionally certified, may obtain ED approval if the new program is licensed by the applicable state agency and accredited by an agency recognized by ED. However, ED, or state education agencies, and our accreditor could decline to approve a new program, or impose material conditions or restrictions on us. Any such denial or material limitation could have a material adverse effect on our operations, cash flows, results of operations, or financial condition.


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If regulators do not approve or delay their approval of transactions involving a change of control of our company or any of our schools, our ability to participate in Title IV Programs may be impaired.
If we or any of our schools experience a change of control under the standards of applicable federal and state agencies, our accrediting commission or ED, we or the affected schools must seek the approval of the relevant regulatory agencies. These agencies do not have uniform criteria for what constitutes a change of control. Transactions or events that constitute a change of control include significant acquisitions or dispositions of our common stock or significant changes in the composition of our board of directors. Some of these transactions or events may be beyond our control. Our failure to obtain, or a delay in receiving, approval of any change of control from ED, our accrediting commission or any state in which our schools are located would impair our ability to participate in Title IV Programs, which would have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, andor financial condition. Our failure to obtain, or a delay in obtaining, approval of any change of control from any state in which we do not have a school but in which we recruit students could require us to suspend our recruitment of students in that state until we receive the required approval. The potential adverse effects of a change of control with respect to participation in Title IV Programs could influence future decisions by us and our stockholders regarding the sale, purchase, transfer, issuance or redemption of our stock.
Risks Related to Our Business
Public health pandemics, epidemics or outbreaks, including the COVID-19 pandemic, could have a material adverse effect on our business and operations.
The COVID-19 pandemic and the resulting containment measures have caused economic and financial disruptions globally. The extent to which COVID-19, like any other rapidly spreading contagious illness, may impact our business and operations will depend on a variety of factors beyond our control, including the actions of governments, businesses and other enterprises in response to the COVID-19 pandemic, the effectiveness of those actions, and vaccine availability, distribution and adoption, all of which cannot be predicted with any level of certainty. We believe that the spread of COVID-19 could adversely impact our business and operations, including as a result of workforce limitations and travel restrictions and related government actions. If we fail to effectively fill our existing capacity, we may experience a deteriorationsignificant percentage of our profitabilityworkforce is unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks, our operations and operating margins.enrollment may be negatively impacted. Finally, state and federal regulators, including the ED, are augmenting existing regulatory processes, waiving others, and overseeing various emergency relief and aid programs.It is highly uncertain how long such regulatory accommodations will continue, or how long and in what amount emergency relief and aid funds will continue to be available.We also cannot predict the types of conditions that may be attached to participation in emergency relief and aid programs, and whether and to what extent compliance with such conditions will be monitored and enforced.
If further outbreaks occur and students elect to take a leave of absence, withdraw, or do not make up the required in person labs on a timely basis, our revenues could be impacted in fiscal 2023.
The occurrence of natural or man-made catastrophes, including those caused by climate change and other climate-related causes, could materially and adversely affect our business, financial condition, results of operations and prospects.
Our business and operations could be materially adversely affected in the event of earthquakes, hurricanes, severe storms, blackouts or other power losses, floods, fires, telecommunications failures, break-ins, acts of terrorism, public health crises, including the ongoing COVID-19 pandemic, other inclement weather or similar events.
We teach our UTI and MMI programs at leased campus locations in Orlando, Florida, and have underutilized seating capacity at severalsigned a lease for a new campus in Miramar, Florida, both areas that can experience tropical storms and hurricanes, severe storms, floods, coastal storms, tornadoes and power outages. We also lease three campus locations in California and four campus locations in Texas, all in areas that have historically been susceptible to severe weather events.
If floods, fire, inclement weather, including extreme rain, wind, heat, or cold, or accidents due to human error were to occur and cause damage to our campus facilities, or limit the ability of our campuses. Ourstudents or faculty to participate in or contribute to our academic programs or our ability to comply with federal and state educational requirements or our agreements with our vendors, our business may be adversely effected, especially if such events were to occur in the midst of ongoing effortsacademic programs during an academic cycle. Such disruptions may also result in increases in student attrition, voluntary or mandatory closure of some or all of our facilities, or our inability to fill existing seating capacity may strain our management, operations, employeesprocure essential supplies or other resources.travel during the pendency of mandated travel restrictions. We may not be able to maintaineffectively shift our current seating capacity utilization rates, effectively manageoperations due to disruptions arising from the occurrence of such events, and our operationbusiness and results of operations could be affected adversely as a result. Moreover, damage to or achieve planned capacity utilization on a timelytotal


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destruction of our campus facilities from various weather events may not be covered in whole or profitable basis. If we are unable to fill our underutilized seating capacity,in part by any insurance we may experience operating inefficiencieshave.
Macroeconomic conditions and aversion to debt could adversely affect our business.
We believe that likely willour enrollment, which tends to be counter cyclical, is affected by changes in economic conditions. During periods when the unemployment rate declines or remains stable, prospective students have more employment options and recruiting new students has traditionally been more challenging. In addition, affordability concerns associated with increased living expenses, relocation expenses and the availability of full- and part-time jobs for students attending classes have made it more challenging for us to attract and retain students.

Conversely, an increase our costs more than we had planned resulting in a deteriorationthe unemployment rate and weaker macroeconomic conditions could reduce the willingness of employers to sponsor educational opportunities for their employees and affect the ability of our profitability and operating margins.
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Our proprietary loan program could have a negative effect on our results of operations.

Our proprietary loan program enables students who have utilized all available government-sponsored or other financial aid and have not been successful in obtaining private loans from other financial institutions, for independent students, or PLUS loans, for dependent students to borrow a portion of their tuition if they meet certain criteria.

Underfind employment in the proprietary loan program, the bank originates loans for our students who meet our specific credit criteria with the related proceeds to be used exclusively to fund a portion of their tuition. We then purchase all such loans from the bank at least monthly and assume all the related credit and collection risk. See Note 2 of the notes to our consolidated financial statements within Part IV of this Report on Form 10-K for further discussion of activity under our proprietary loan program.

Factorsindustries that may impact our ability to collect these loans include the following: current economic conditions; compliance with laws applicable to the origination, servicing and collection of loans; the quality of our loan servicers’ performance; a decline in graduate employment opportunities and the priority that the borrowers under this loan program attach to repaying these loans as compared to other obligations, particularly students who did not complete or were dissatisfied with their programs of study. Because we record revenues upon the receipt of cash payments, if we are unable to collect on these loans, our revenues and profitability may continue to be adversely impacted.

Federal, state and local laws and general legal and equitable principles relating to the protection of consumers can apply to the origination, servicing and collection of the loans under our proprietary loan program. Any violation of various federal, state or local laws, including, in some instances, violations of these laws by parties not under our control, may result in losses on the loans or may limit our ability to collect all or part of the principal or interest on the loans. This may be the case even if we are not directly responsible for the violations by such parties.

Our proprietary loan program may also be subject to oversight by the CFPB, which could result in additional reporting requirements or increased scrutiny. Other proprietary postsecondary institutions have been subject to recent information requests from the CFPB with regard to their private student loan programs. The possibility of litigation, and the associated cost, are risks associated with this student loan program. At least two proprietary education institutions have been subject to recent lawsuits under the Consumer Financial Protection Act of 2010; the institutions are accused of having unfair private student loan programs and of allegedly engaging in certain abusive practices, including interfering with students' ability to understand their debt obligations and failing to provide certain material information.

Changes in laws or public policy could negatively impact the viability of this student loan program and cause us to delay or suspend the program. Additionally, depending on the terms of the loans, state consumer credit regulators may assert that our activities in connection with the student loan program require us to obtain one or more licenses, registrations or other forms of regulatory approvals,serve, any of which may not be able to be obtained in a timely manner, if at all. All of these factors could result in the proprietary loan program havinghave a material adverse effect on our cash flows, results of operations and financial condition.


Adverse market conditions for consumer and federally guaranteed student loans could negatively impact the ability of borrowers with little or poor credit history, such as many of our students, to borrow the necessary funds at an acceptable interest rate. These events could adversely affect the ability or willingness of our former students to repay student loans, which could increase our student loan cohort default rate and require increased time, attention and resources to manage these defaults.

Competition could decrease our market share and create tuition pricing concerns.

The postsecondary education market is highly competitive. We continue to experience a high level of competition for higher quality students not only from similar programs, but also from the overall employment market and the military. Some traditional public and private colleges and universities and community colleges, as well as other private career-oriented schools, offer programs that may be perceived by students to be similar to ours. We compete with local community colleges for students seeking programs that are similar to ours, mainly due to local accessibility, low tuition rates and in certain cases free tuition. Most public institutions are able to charge lower tuition than our schools, due in part to government subsidies and other financial sources not available to for-profit schools.

Prospective students may choose to forego additional education and enter the workforce directly, especially during periods when the unemployment rate declines or remains stable as it has in recent years. This may include employment with our industry partners or with other manufacturers and employers of our graduates. Additionally, the military often recruits or retains potential students when branches of the military offer enlistment or re-enlistment bonuses.

We rely on third partiesmay limit tuition increases or increase spending in response to originate, process and service loans under our proprietary loan program. If these companies failcompetition in order to retain or discontinue providing such services, our business could be harmed.
A state chartered bank with a smallattract students or pursue new market capitalization originates loans under our proprietary loan program. If the bank no longer provides service under the contract,opportunities; however, if we do not currently have an alternative bankcannot effectively respond to fulfill the demand. There are a limited number of banks that are willing to participate in a program such as our proprietary loan program. The timecompetitor changes, it could take us to replace the bank could result in an interruption in the loan origination process, which could result in a decrease inreduce our enrollments and our student populations. Furthermore, a single companyWe cannot be sure that we will be able to compete successfully against current or future competitors or that competitive pressures faced by us will not adversely affect our market share, revenues and operating margin.

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our programs among high school graduates, military personnel and adults seeking advanced training.


processes loan applicationsThe awareness of our programs among high school graduates, military personnel and servicesworking adults seeking advanced training is critical to the loans undercontinued acceptance and growth of our proprietary loan program. There is a 90-day termination clause in the contract under which they provide these services. If this company wereprograms. Factors that could impact our ability to terminate the contract, weincrease such awareness include: continued school district limitations on access to students by for-profit institutions; actions that would limit our access to military bases and installations; and our failure to maintain relationships with automotive, diesel, collision repair, motorcycle and marine manufacturers and suppliers. Our inability to continue to develop awareness of our programs could experience an interruption in loan application processing or loan servicing,reduce our enrollments, which could result inhave a decrease inmaterial adverse effect on our student populations.cash flows, results of operations and financial condition.



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Failure on our part to maintain and expand existing industry relationships and develop new industry relationships with our industry customers could impair our ability to attract and retain students.
We have extensive industry relationships that we believe afford us significant competitive strength and support our market leadership. These relationships enable us to support undergraduate enrollment in our core programs by attracting students through brand name recognition and the associated prospect of high-quality employment opportunities. Additionally, these relationships allow us to diversify funding sources, expand the scope and increase the number of programs we offer and reduce our costs and capital expenditures due to the fact that, pursuant to the terms of the underlying contracts with OEMs,manufacturer brand partners, we provide a variety of specialized training programs and typically do so using tools, equipment and vehicles provided by the OEMs.manufacturer brand partners. These relationships also provide additional incremental revenue opportunities from training the employees of our industry customers. Our success depends in part on our ability to maintain and expand our existing industry relationships and to enter into new industry relationships. Certain of our existing industry relationships, including those with American Honda Motor Co.Company, Inc.; Mercury Marine, a division of Brunswick Corp.;Corporation; Volvo Penta of the Americas, Inc. and Yamaha Motor Corp.,Corporation, USA,are not memorialized in writing and are based on verbal understandings. As a result, the rights of the parties under these arrangements are less clearly defined than they would be had they been in writing. Additionally, certain of our written agreements may be terminated without cause by the OEM. Finally, certain of our existing industry relationship agreements expire within the next six months. We are currently negotiating to renew these agreements and intend to renew them to the extent we can do so on satisfactory terms. The reduction or elimination of, or failure to renew any of our existing industry relationships, or our failure to enter into new industry relationships, could impair our ability to attract and retain students, require additional capital expenditures or increase expenses and have a material adverse effect on our cash flows, results of operations and financial condition.

Competition could decrease our market share and create tuition pricing concerns.

The postsecondary education market is highly competitive. We continue to experience a high level of competition for higher quality students. Some traditional public and private colleges and universities and community colleges, as well as other private career-oriented schools, offer programs that may be perceived by students to be similar to ours.  Most public institutions are able to charge lower tuition than our schools, due in part to government subsidies and other financial sources not available to for-profit schools. Additionally, recent executive branch proposals and state initiatives have included two years of free tuition at community colleges for certain students, who must attend school at least half time, maintain a grade point average of 2.5 or higher and make steady progress toward a degree or transferring to a four-year institution.  

Prospective students may also choose to forego additional education and enter the workforce directly, especially during periods when the unemployment rate declines or remains stable as it has in recent years. This may include employment with our industry partners or with other manufacturers and employers of our graduates.
Additionally, the military often recruits or retains potential students when branches of the military offer enlistment or re-enlistment bonuses.

We may limit tuition increases or increase spending in response to competition in order to retain or attract students or pursue new market opportunities; however, if we cannot effectively respond to competitor changes, it could reduce our enrollments and our student populations. We cannot be sure that we will be able to compete successfully against current or future competitors or that competitive pressures faced by us will not adversely affect our market share, revenues and operating margin.

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Our success depends in part on 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.

Prospective employers of our graduates demand that their entry-level employees possess appropriate technological skills. These skills are becoming more sophisticated in line with technological advancements in the automotive, diesel, collision repair, motorcycle and marine industries. Accordingly, educational programs at our schools must keep pace with those technological advancements. Additionally, the method used to deliver curriculum has been evolvingevolved to include on-lineonline delivery. The expansion ofupdates to our existing programs and the development of new programs, including our Automotive and Diesel Technology II curricula, and changes in the method in which we deliver them, may not be accepted by our students, prospective employers or the technical education market. Even if we are able to develop acceptable new programs, we may not be able to introduce these new programs as quickly as the industries we serve require or as quickly as our competitors. If we are unable to adequately respond to changes in market requirements due to unusually rapid technological changes or other factors, our ability to attract and retain students could be impaired and our graduate employment rates could suffer.
Our Automotive and Diesel Technology II curricula are a blend of daily instructor-led theory and hands-on lab training complimented by interactive web-based learning, which is reflective of current industry training methods and standards. The blended learning model combines several methodologies for communicating training information and incorporates on-site classes, real-time web-based learning sessions and independent learning and is the standard used by our OEMs to provide continuous technical education. If
Additionally, if we are unable to address and respond to requirements for new or updated curricula such as training instructors to teach the curricula, develop an IT infrastructure that would effectively support this program, obtainobtaining the appropriate equipment to teach this programthe curricula to our students, or obtainobtaining the appropriate regulatory approvals, to teach and fund this program, we may not be able to successfully roll out the curricula to new or existingour campuses in a timely and cost-effective manner. If we are not able to effectively and efficiently integrate the curricula, or experience delays in development, this could have a material adverse effect on our cash flows, results of operations and financial condition.
Macroeconomic conditions, particularly unemployment,
Expanding our blended learning format could adversely affect our business.be difficult for us.

The U.S. economyexpansion of existing and the economiescreation of other key industrialized countries have experienced difficult and uncertain economic characteristics. While the economy has shown signs of recovery, the impact hasnew blended programs may not been equal, and certain sectors and socioeconomic groups continue to be negatively impacted. We believe that our enrollment isaccepted by students or employers. Our efforts may be materially adversely affected by changes in economic conditions, although the nature and magnitude of this effect are uncertain and may change over time. While these conditions may have contributed to a portion of the past growth in our average full-time undergraduate student population as individuals sought to advance their education and improve their employment opportunities, during periods when the unemployment rate declines or remains stable as it has in recent years, prospective students have more employment options and recruiting new students has traditionally been more challenging. Affordability concerns associated with increased living expenses and the availability of full- and part-time jobs for students attending classes have made it more challenging for us to attract and retain students. The state of the general macroeconomic environment has had a negative impact on price sensitivity and on the ability and willingness of students and their families to incur debt. Furthermore, these circumstances may continue to reduce the willingness of employers to sponsor educational opportunities for their employees, and affect the ability of our students to find employmentcompetition in the auto, diesel, collision repair, motorcycleonline or marine industries, anyblended education market, or because of which could materially and adversely affectperformance or reliability issues with our business, cash flows, results of operations and financial condition.blended program infrastructure.
Adverse market conditions for consumer and federally guaranteed student loans could adversely impact the ability of borrowers with little or poor credit history, such as many of our students, to borrow the necessary funds at an acceptable interest rate. These events could adversely affect the ability or willingness of our former students to repay student loans, which could increase our student loan cohort default rate and require increased time, attention and resources to manage these defaults.
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We relyare heavily dependent on the reliability and performance of an internally developed student management and reporting system, and any difficulties in maintaining this system may result in service interruptions, decreased customer service or increased expenditures.

The software that underlies our student management and reporting has been developed primarily by our own employees. The reliability and continuous availability of this internal system and related integrations are critical to our business. Any interruptions that hinder our ability to timely deliver our services, or that materially impact the efficiency or cost with which we provide these services, or our ability to attract and retain computer programmers with knowledge of the appropriate computer programming language, would adversely affect our reputation and profitability and our ability to conduct business


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and prepare financial reports. Additionally, many of the software systems we currently use will need to be enhanced over time or replaced with equivalent commercial products, either of which could entail considerable effort and expense.

System disruptions and security threats to our computer networks, including breach of the personal information we collect, could have a material adverse effect on our business and our reputation.

Our computer systems as well as those of our service providers are vulnerable to interruption, malfunction or damage due to events beyond our control, including malicious human acts committed by foreign or domestic persons, natural disasters, and network and communications failures. We have established a written data breach incident response policy, which we test informally and formally at least annually. Additionally, we periodically perform vulnerability self-assessments and engage service providers to perform independent vulnerability assessments and penetration tests. However, despite network security measures, our servers and the servers at our service providers are potentially vulnerable to physical or electronic unauthorized access, computer hackers, computer viruses, malicious code, organized cyber attacks and other security problems and system disruptions. Increasing socioeconomic and political instability in some countries has heightened these risks. Despite the precautions we and our service providers have taken, our systems may still be vulnerable to these threats. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations.


Additionally, the personal information that we collect subjects us to additional risks and costs that could harm our business and our reputation. We collect, retain and use personal information regarding our students and their families and our employees, including personally identifiable information, tax return information, financial data, bank account information and other data. Although we employ various network and business security measures to limit access to and use of such personal information, we cannot guarantee that a third party will not circumvent such security measures, resulting in the breach, loss or theft of the personal information of our students and their families and our employees. Possession and use of personal information in our operations also subjects us to legislative and regulatory burdens that could restrict our use of personal information and require notification of data breaches. A violation of any laws or regulations relating to the collection, retention or use of personal information could also result in the imposition of fines or lawsuits against us.

Sustained or repeated system failures or security breaches that interrupt our ability to process information in a timely manner or that result in a breach of proprietary or personal information could have a material adverse effect on our operations and our reputation. Although we maintain insurance in respect of these types of events, available insurance proceeds may not be adequate to compensate us for damages sustained due to these events.


We may not be able to retain our key personnel or hire and retain the personnel we need to sustain and grow our business.

Our success to date has depended, and will continue to depend, largely on the experience, skills, efforts and motivation of our executive officers who generally have significant experience with our company and within the technical education industry.officers. Our success also depends in large part upon our ability to attract and retain highly qualified faculty, campus presidents, administrators and corporate management. Due to the nature of our business, we face
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significant competition in the attraction and retention of personnel who possess the skill sets that we seek. The for-profit education sector is undercan experience periods of significant regulatory and government scrutiny, which may make it more difficult to attract and retain talent. If we are unable to, or are perceived to be unable to, attract and retain experienced and qualified personnel, our business, financial condition and results of operations may be materially adversely affected. Additionally, key personnel may leave us and subsequently compete against us. Because we do not currently carry “key man” life insurance, the loss of the services of any of our key personnel, or our failure to attract and retain other qualified and experienced personnel on acceptable terms, could impair our ability to successfully manage our business.

If we are unable to hire, retain and continue to develop and train our admissions representatives, the effectiveness of our student recruiting efforts would be adversely affected.

In order to support revenue growth and student enrollment, we need to hire and train new admissions representatives, as well as retain and continue to develop our existing admissions representatives, who are our employees dedicated to student recruitment. Our ability to develop a strong admissions representative team may be affected by a number of factors, includingincluding: competition in hiring qualified persons; limitations on compensation payable to admissions representatives arising from the following:incentive compensation rule; and our ability to integrateadequately train and motivate our admissions representatives; our ability to effectively train our admissions representatives; the length of time it takes new admissions representatives to become productive; the competition we face from other companies in hiring, compensating and retaining admissions representatives and our ability to effectively manage a multi-location educational organization. We previously made modifications to our employee compensation structure in order to comply with the incentive compensation rule which affected the compensation structure for our admissions representatives, including the elimination of their variable compensation. As a result of these changes and the macroeconomic conditions impacting our business, we experienced a decrease in our enrollment rates. ED published guidance in November 2015 that eliminated certain restrictions on incentive compensation for admissions representatives. Specifically, ED reconsidered its previous interpretation and stated that its regulations do not prohibit compensation for admissions representatives that is based upon students’ graduation from, or completion of, educational programs.  Compensation based on enrolling students, however, continues to be prohibited. For a description of additional information regarding these regulatory changes, see “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Incentive Compensation” included elsewhere in this Report on Form 10-K. We have made adjustments to the compensation practices for our admissions representatives which we believe will be compliant with ED's November 2015 guidance. The transition period for the new compensation structure will continue through calendar year 2018. We will continue to evaluate other compensation options under these regulations and guidance. Our existing compensation structure and any future changes to admissions representative compensation may result in a continued decrease in our enrollment rates. If we are unable to hire, develop or retain quality admissions representatives, the effectiveness of our student recruiting efforts would be adversely affected.



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If we fail to reduce our underutilized capacity, we may experience a deterioration of our profitability and operating margins.
We have underutilized capacity at a number of our campuses. Our ongoing efforts to increase utilization may strain our management, operations, employees or other resources. We may not be able to maintain our current capacity utilization rates, effectively manage our operations or achieve planned capacity utilization on a timely or profitable basis. If we are unable to improve our underutilized capacity, we may experience operating inefficiencies at a level that would result in higher than anticipated costs, which would adversely affect our profitability and operating margins.

Our financial performancesuccess depends, in part, on the effectiveness of our marketing and advertising programs in recruiting new students.

In order to maintain and increase our revenues and margins, we must continue to develop our admissions programs and attract new students in a cost-effective manner. The level of marketing and advertising and types of strategies used are affected by the specific geographic markets, regulatory compliance requirements and the specific individual nature of each institution and its students. The complexity of these marketing efforts contributes to their cost. If we are unable to advertise and market our institutions and programs successfully, our ability to continueattract and enroll new students could be materially adversely affected and, consequently, our financial performance could suffer. We use marketing tools such as the Internet, radio, television and print media advertising to develop awarenesspromote our institutions and acceptanceprograms. Our representatives also make presentations at high schools and career fairs. Additionally, we rely on the general reputation of our institutions and referrals from current students, alumni and employers as a source of new enrollment. As part of our marketing and advertising, we also subscribe to lead-generating databases in certain markets, the cost of which may increase. Among the factors that could prevent us from marketing and advertising our institutions and programs amongsuccessfully are the failure of our marketing tools and strategies to appeal to prospective students, regulatory constraints on marketing, current student and/or employer dissatisfaction with our program offerings or results and diminished access to high school graduates,campuses and military personnelbases. In order to maintain our growth, we will need to attract a larger percentage of students in existing markets and adults seeking advanced training.increase our addressable market by adding locations in new markets and rolling out new academic programs. Any failure to accomplish this may have a material adverse effect on our future growth.
The awareness of
Failure on our programs among high school graduates, military personnelpart to effectively identify, establish and working adults seeking advanced training is critical to the continued acceptance and growth of our programs. Our inability to continue to develop awareness of our programsoperate additional schools or campuses could reduce our enrollments,ability to implement our growth strategy.

As part of our business strategy, we anticipate opening and operating new schools or campuses. Establishing new schools or campuses poses unique challenges and requires us to make investments in management and capital expenditures, incur marketing expenses and devote other resources that are different, and in some cases greater, than those required with respect to the operation of acquired schools. Accordingly, when we open new schools, initial investments could reduce our profitability. To open a new school or campus, we would be required to obtain appropriate state and accrediting commission approvals, which may be conditioned or delayed in a manner that could significantly affect our growth plans. Additionally, to be eligible for Title IV Program funding, a new school or campus would have to be certified by ED. We cannot be sure that we will be able to identify suitable expansion opportunities to maintain or accelerate our current growth rate or that we will be able to successfully integrate or profitably operate any new schools or campuses. Our failure to effectively identify, establish, license, accredit, obtain necessary approvals and manage the operations of newly established schools or campuses could slow our growth and make any newly established schools or campuses more costly to operate than we have historically experienced.

We may be unable to successfully complete or integrate future acquisitions.

We may consider selective acquisitions in the future. We may not be able to complete any acquisitions on favorable terms or, even if we do, we may not be able to successfully integrate the acquired businesses into our business. Integration challenges include, among others, regulatory approvals, significant capital expenditures, assumption of known and unknown liabilities, our ability to control costs and our ability to integrate new personnel. The successful integration of future acquisitions may also require substantial attention from our senior management and the senior management of the acquired schools, which could decrease the time that they devote to the day-to-day management of our business. If we do not successfully address risks and challenges associated with acquisitions, including integration, future acquisitions could harm, rather than enhance, our operating performance. Additionally, if we consummate an acquisition, our capitalization and results of operations may change significantly. A future acquisition could result in the incurrence of debt and contingent liabilities, an increase in interest expense, amortization expenses, goodwill and other intangible assets, charges relating to integration costs or an increase in the number of shares outstanding. In addition, our acquisition of a school is a change of ownership of that school,


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which may result in the temporary suspension of that school’s participation in federal student financial aid programs until it obtains ED’s approval. These results could have a material adverse effect on our cash flows, results of operations and financial condition. The followingcondition or result in dilution to current stockholders.

We are someparty to debt arrangements that contain restrictive covenants, and if we are unable to comply with these covenants then the lenders could declare an event of default wherein we may need to immediately repay the amounts due under the respective debt arrangements.

On May 12, 2021, we entered into a Credit Agreement with Fifth Third Bank, National Association to finance the Avondale, Arizona property that we purchased in December 2020, via a term loan in the maximum principal amount of $31.2 million with a maturity of seven years (the “Avondale Loan”). We are required to make monthly payments of principal plus accrued interest. As of September 30, 2022, $30.1 million in principal was outstanding under the Avondale Loan. In addition, borrowings under the Credit Agreement are secured by a first priority lien on our Avondale, Arizona property, including all land and improvements.

On April 14, 2022, our subsidiary entered into a new Loan Agreement with Valley National Bank, to fund the acquisition and retirement of the factorsterm loan acquired with the Lisle Campus, via a term loan in the original principal amount of $38.0 million with a maturity of seven years (the “Lisle Loan”). We are required to make monthly payments of principal plus accrued interest. As of September 30, 2022, $38.0 million in principal was outstanding under the Lisle Loan. The Lisle Loan is secured by a mortgage on the Lisle Campus and is guaranteed by the Company.

Both the Avondale Loan and the Lisle Loan (collectively the “Term Loans”) impose various restrictions and contain customary affirmative and restrictive covenants, including, without limitation, certain reporting obligations and certain limitations on restricted payments; and limitations on liens, encumbrances and indebtedness. If we fail to comply with the covenants or payments specified in the Term Loans, the lenders could declare an event of default, which would give it the right to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable. The amount of our outstanding indebtedness could have an adverse effect on our operations and liquidity, including by, among other things: (i) making it more difficult for us to pay or refinance our debts as they become due during adverse economic and industry conditions, because we may not have sufficient cash flows to make our scheduled debt payments; (ii) causing us to use a larger portion of our cash flows to fund interest and principal payments, thereby reducing the availability of cash to fund working capital, capital expenditures and other business activities; (iii) making it more difficult for us to take advantage of significant business opportunities, such as acquisition opportunities or other strategic transactions, and to react to changes in market or industry conditions; and (iv) limiting our ability to borrow additional monies in the future to fund the activities and expenditures described above and for other general corporate purposes as and when needed, which could force us to suspend, delay or curtail business prospects, strategies or operations.

An increase in interest rates would increase the cost of servicing our debt and could reduce our profitability.

A portion of our Term Loans bear interest at variable rates. We have entered into interest rate swap agreements with the lenders that effectively fix the interest rates on 50% of the principal amount of the loan at 3.5% for the Avondale Loan and at 4.69% for the Lisle Loan. However, increases in interest rates with respect to any amount of our debt not covered by the interest rate swaps could prevent usincrease the cost of servicing our debt and could reduce our profitability and cash flows. Such increases may occur from successfully marketingchanges in regulatory standards or industry practices, such as the upcoming transition away from LIBOR as a benchmark reference for short-term interests. Such a transition may result in the usage of a higher reference rate for our programs:variable rate debt. Excluding the effect of the interest rate swaps on the Term Loans, each 10.0% increase in interest rates on the Term Loans would increase our annual interest expense by $3.4 million based on balances outstanding under the Term Loans as of September 30, 2022.

The proprietary loan program could have a negative effect on our results of operations.

The proprietary loan program enables students who have utilized all available government-sponsored or other financial aid and have not been successful in obtaining private loans from other financial institutions, for independent students, or PLUS loans, for dependent students, to borrow a portion of their tuition if they meet certain criteria.

Under the proprietary loan program, the bank originates loans for our students who meet specific credit criteria with the related proceeds to be used exclusively to fund a portion of their tuition. We then purchase all such loans from the bank at least monthly and assume all the related credit and collection risk. See Note 2 of the notes to our Consolidated Financial


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Statements within Part II. Item 8 of this Annual Report on Form 10-K for further discussion of activity under the proprietary loan program.

Factors that may impact our ability to collect these loans include the following, without limitation: current economic conditions; compliance with laws applicable to the origination, servicing and collection of loans; the quality of our loan servicers’ performance; and a decline in graduate employment opportunities and the priority that the borrowers under this loan program attach to repaying these loans as compared to other obligations, particularly students who did not complete or were dissatisfied with their programs of study.

The portion of a student's tuition revenue related to the proprietary loan program is considered a form of variable consideration. We estimate the amount we ultimately expect to collect from the portion of tuition that is funded by the proprietary loan program, resulting in a note receivable. The estimated amount is determined at the inception of the contract, and we recognize the related revenue as the student dissatisfactionprogresses through school. Each reporting period, we update our assessment of the variable consideration associated with the proprietary loan program. Estimating the collection rate requires significant management judgment. If we are unable to accurately assess the variable consideration, our revenues and profitability may be adversely impacted.

Federal, state and local laws and general legal and equitable principles relating to the protection of consumers can apply to the origination, servicing and collection of the loans under the proprietary loan program. Any violation of various federal, state or local laws, including, in some instances, violations of these laws by parties not under our control, may result in losses on the loans or may limit our ability to collect all or part of the principal or interest on the loans. This may be the case even if we are not directly responsible for the violations by such parties.

The proprietary loan program may also be subject to oversight by the CFPB, which could result in additional reporting requirements or increased scrutiny. Other proprietary postsecondary institutions have been subject to information requests from the CFPB with regard to their private student loan programs. The possibility of litigation, and the associated cost, are risks associated with the proprietary loan program. At least two proprietary education institutions have been subject to lawsuits under the Consumer Financial Protection Act of 2010; the institutions are accused of having unfair private student loan programs and services;of allegedly engaging in certain abusive practices, including interfering with students' ability to understand their debt obligations and failing to provide certain material information.
diminished access
Changes in laws or public policy could negatively impact the viability of the proprietary loan program and cause us to high school student populations, including school district limitationsdelay or suspend the program. Additionally, depending on accessthe terms of the loans, state consumer credit regulators may assert that our activities in connection with the proprietary loan program require us to students by for-profit institutions;
reduced access to military bases and installations;
our failure to maintainobtain one or expand our brandmore licenses, registrations or other forms of regulatory approvals, any of which may not be able to be obtained in a timely manner, if at all. All of these factors relatedcould result in the proprietary loan program having a material adverse effect on our cash flows, results of operations and financial condition.

We rely on third parties to originate, process and service loans under our proprietary loan program. If these companies fail or discontinue providing such services, our business could be harmed.

A state chartered bank with a small market capitalization originates loans under the proprietary loan program. If the bank no longer provides service under the contract, we do not currently have an alternative bank to fulfill the demand. There are a limited number of banks that are willing to participate in a program such as the proprietary loan program. The time it could take us to replace the bank could result in an interruption in the loan origination process, which could result in a decrease in our student populations. Furthermore, a single company processes loan applications and services the loans under the proprietary loan program. There is a 90-day termination clause in the contract under which they provide these services. If this company were to terminate the contract, we could experience an interruption in loan application processing or loan servicing, which could result in a decrease in our student populations.

We have goodwill, which may become impaired and subject to a write-down.

Goodwill represents the excess of the cost of an acquired business over the estimated fair values of the assets acquired and liabilities assumed. Goodwill is reviewed at least annually for impairment, which might result from the deterioration in the operating performance of acquired businesses, adverse market conditions, adverse changes in applicable laws or regulations and a variety of other circumstances. Any resulting impairment charge is recognized as an expense in the period in which impairment is identified. Our total recorded goodwill was $16.9 million as of September 30, 2022. Of this balance, $8.6


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million relates to our marketing or advertising practices;
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MIAT in November 2021. The remaining $8.2 million relates to our inability to maintain relationships with automotive, diesel, collision repair,MMI Orlando, Florida campus and resulted from the acquisition of our motorcycle and marine manufacturerseducation business in 1998. We perform our annual goodwill impairment assessment as of August 1 of each fiscal year. Future assessments of goodwill could result in reductions. Any reduction in net income and suppliers;
availabilityoperating income resulting from the write-down or impairment of funding sources acceptablegoodwill could adversely affect our financial results. If economic or industry conditions deteriorate or if market valuations decline, including with respect to our students;common stock, we may be required to impair goodwill in future periods.

Risks Related to Investing in Our Common Stock

Holders of our Series A Preferred Stock own a significant percentage of our capital stock, are able to influence and control certain corporate matters and could in the future substantially dilute the ownership interest of holders of our common stock.
recruitment
On June 24, 2016, we entered into a purchase agreement (the “Coliseum Securities Purchase Agreement”) pursuant to which we sold 700,000 shares of veteransSeries A Preferred Stock to Coliseum Holdings I, LLC (“Coliseum Holdings”), and filed a Certificate of Designation, Preferences and Rights of Series A Convertible Preferred Stock (the “Certificate of Designations”) with the Secretary of State of the State of Delaware. The Certificate of Designations authorized a total of 700,000 shares of Series A Preferred Stock, all of which were purchased by Coliseum Holdings, and set forth the negotiated rights, powers, preferences and privileges of the Series A Preferred Stock, including the terms of a Conversion Cap and an Investor Voting Cap (each as defined in the Certificate of Designations), which generally prohibit: (i) the conversion of Series A Preferred Stock into common stock; and (ii) the voting of common stock issuable upon conversion of the Series A Preferred Stock, to the extent that such conversion results in the issuance of a number of shares of common stock exceeding 4.99% of our outstanding shares of common stock as of June 24, 2016 or that has voting power that exceeds 4.99% of the voting power of our outstanding shares of common stock as of June 24, 2016.

The Certificate of Designations provides that the Conversion Cap and the Investor Voting Cap may only be removed upon our receipt of: (i) certain stockholder approvals required by Section 312.03 of the New York Stock Exchange Listed Company Manual (“NYSE Rule 312”); and (ii) either (A) Education Regulatory Approval (as defined in the Certificate of Designations), or (B) a good faith determination by our board of directors that Education Regulatory Approval is not required. Our stockholders approved a proposal at the annual meeting of stockholders on February 27, 2020, in accordance with the listing standards of the New York Stock Exchange (“NYSE”), that satisfied NYSE Rule 312.

In September 2020, Coliseum Holdings distributed all of its 700,000 shares of Series A Preferred Stock to its members, who subsequently distributed their shares to (i) limited partners affiliated with Coliseum Holdings and certain other entities for whom Coliseum Capital Management, LLC (an affiliate of Coliseum Holdings) holds voting and dispositive power with respect to the Series A Preferred Stock (the “Affiliated Holders”), which Affiliated Holders, following such distribution, owned Series A Preferred Stock that represented, on an as converted basis, approximately 24.9% of our outstanding shares of common stock and voting power, and (ii) limited partners unaffiliated with Coliseum Holdings (the “Unaffiliated Holders”), which Unaffiliated Holders, following such distribution, each owned shares of Series A Preferred Stock that represented, on an as converted basis, 9.9% or less of our outstanding shares of common stock and voting power (collectively, the “Distributions”).

In connection with the Distributions, our board of directors made a good faith determination that: (i) no Education Regulatory Approval would be required for the Unaffiliated Holders to remove the Conversion Cap and the Investor Voting Cap with respect to the Series A Preferred Stock acquired in the Distributions; and (ii) as to the Series A Preferred Stock held by the Affiliated Holders, no Education Regulatory Approval would be required prior to the Affiliated Holders (A) converting a number of shares of Series A Preferred Stock into common stock provided that the number of shares of common stock issued pursuant to such conversion, in the aggregate, is less than or equal to 9.9% of the number of shares of common stock outstanding on an as converted basis as of the date of the Distributions, and (B) voting a number of shares of Series A Preferred Stock provided that the voting power of such Series A Preferred Stock and any shares of common stock issued upon conversion of such Series A Preferred Stock is less than or equal to 9.9% of the voting power of the common stock outstanding as of the date of the Distributions (the foregoing limitations, the “Continuing Caps”).

In September 2020, the Distributions were completed and the removal of the Conversion Cap and Investor Voting Cap became effective, subject to the Continuing Caps remaining in place with respect to the Series A Preferred Stock distributed to the Affiliated Holders. Education Regulatory Approval continues to be required for, and the Continuing Caps will remain in place with respect to, the Series A Preferred Stock acquired by the Affiliated Holders in the Distributions to the extent such


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shares, on an as converted basis, represent in excess of 9.9% of our common stock and voting power as of the date of the Distributions. The Affiliated Holders may, at any time, request that we seek Education Regulatory Approval or make a good faith determination that such approval is not required. If we are required to or elect to obtain Education Regulatory Approval and if such approvals are not obtained within the 120-day time period set forth in the Certificate of Designations, the dividend rates with respect to the Cash Dividend and Accrued Dividend (each as defined in the Certificate of Designations) will be increased by 5.0% per year, not to exceed a maximum of 14.5% per year, subject to downward adjustment on obtaining the foregoing approvals.

As of September 30, 2022, as a result of the removal of the Conversion Cap and the Investor Voting Cap, but subject to the Continuing Caps remaining in place with respect to the Series A Preferred Stock distributed to the Affiliated Holders, the Unaffiliated Holders and the Affiliated Holders were entitled to vote their Series A Preferred Stock in an amount equal to 12,288,260 shares of common stock on a fully diluted basis. Those holders may also convert such shares of Series A Preferred Stock and receive approximately 30.03 shares of common stock for each share of Series A Preferred Stock converted, resulting in our issuance of up to 12,288,260 shares of common stock if such shares of Series A Preferred Stock were all converted. On a fully converted basis, the shares of Series A Preferred Stock are convertible into 20,296,847 shares of common stock. Holders of shares of Series A Preferred Stock are entitled to vote with the holders of shares of common stock and any other class or series similarly entitled to vote with the holders of common stock and not as a separate class, at any annual or special meeting of stockholders, and may act by written consent in the same manner as the holders of common stock, on an as converted basis. Shares of Series A Preferred Stock are convertible to common stock at any time at the option of the holder, subject to the Continuing Caps.

Any conversion of Series A Preferred Stock into common stock would dilute the ownership interest of existing holders of our common stock, and any sales in the public market of the common stock issuable upon such conversion could adversely affect prevailing market prices of our common stock. We have granted Coliseum Holdings and certain recipients of Series A Preferred Stock in the Distributions registration rights in respect of the shares of Series A Preferred Stock and any shares of common stock issued upon conversion thereof. These registration rights could facilitate the resale of such securities into the public market, and any resale of these securities would increase the number of shares of our common stock available for public trading. Sales of a substantial number of shares of our common stock in the public market, or the perception that such sales might occur, could have a material adverse effect on the price of our common stock.

Additionally, a majority of the voting power of the Series A Preferred Stock must approve certain significant corporate actions, such as (i) amendments to our Certificate of Incorporation or bylaws in a manner adverse to the rights, preferences, privileges or voting powers of the holders of Series A Preferred Stock, (ii) the creation or issuance of a series of stock, or other potential students without formal educationsecurity convertible into a series of stock, with equal or greater rights than those of the holders of Series A Preferred Stock, (iii) the issuance of equity securities, or securities convertible into equity securities, at a price that is 25% below fair market value at the time of issuance, (iv) subject to certain exceptions, the incurrence of indebtedness, (v) subject to certain exceptions, the sale or licensing of any of our material assets, (vi) subject to certain exceptions, the consummation of acquisitions (of stock or assets), (vii) subject to certain exceptions, the payment of certain dividends or distributions with respect to a series of stock junior to the Series A Preferred Stock, (viii) the voluntary liquidation, dissolution or winding-up of UTI if the Series A Preferred Stock would not have the option to receive the liquidation preference then in effect upon such liquidation, dissolution or winding-up, or (ix) subject to certain exceptions, any merger, consolidation, recapitalization, reclassification or other transaction in which substantially all of our common stock is exchanged or converted into cash, securities or property and in which the holders of the Series A Preferred Stock shall not have the option to receive the full liquidation preference as a result of that transaction.

The interests of the holders of the Series A Preferred Stock may not always coincide with the interests of our other stockholders and Coliseum Holdings’ concentration of ownership may have the effect of delaying or preventing a change of control of UTI otherwise favored by our industry partnersother stockholders and could depress our stock price.

The price of our common stock has fluctuated significantly in the past and may continue to do so in the future. As a result, you could lose all or part of your investment.

Volatility in the market price of our common stock may prevent you from being able to sell your shares at or above the price you paid for your shares. The market price of our common stock has fluctuated significantly in the past, and may continue to fluctuate significantly for a variety of different reasons, including, without limitation, developments in our industry; our quarterly or annual earnings or those of other companies in our industry; changes in earnings estimates or recommendations by research analysts who track our common stock or the stocks of other companies in our industry; negative publicity,


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including government hearings and other manufacturers.public lawmaker or regulator criticism, regarding our industry or business; changes in enrollment; and changes in general conditions in the United States and global economies or financial markets, including those resulting from health epidemics, war, incidents of terrorism or responses to such events. In addition, in recent years, the stock market has experienced extreme price and volume fluctuations. This volatility has had a significant impact on the market price of securities issued by many companies, including companies in our industry. Changes may occur without regard to the operating performance of these companies. The price of our common stock could fluctuate based upon factors that have little or nothing to do with our company.


Seasonal and other fluctuations in our results of operations could adversely affect the trading price of our common stock.
In reviewing our results of operations, you should not focus on quarter-to-quarter comparisons. Our results in any quarter may not indicate the results we may achieve in any subsequent quarter or for the full year. Our revenues normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population. Student population varies as a result of new student enrollments, graduations and student attrition. Historically, our schools have had lower student populations in our third fiscal quarter than in the remainder of our fiscal year because fewer students are enrolled during the summer months. Our expenses, however, do not generally vary at the same rate as changes in our student population and revenues and, as a result, such expenses do not fluctuate significantly on a quarterly basis. We expect quarterly fluctuations in results of operations to continue as a result of seasonal enrollment patterns. Such patterns may change, however, as a result of acquisitions, new school openings, new program introductions and increased enrollments of adult students. Additionally, our revenues for our first fiscal quarter are adversely affected by the fact that we do not recognize revenue during the calendar year-end holiday break, which falls primarily in that quarter. These fluctuations may result in volatility or have an adverse effect on the market price of our common stock.
If we fail to maintain effective internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud. As a result, current and potential stockholders could lose confidence in our financial reporting, which would harm our business and the trading price of our stock.
Internal control over financial reporting is a process designed by or under the supervision of our principal executive and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Our internal control structure is also designed to provide reasonable assurance that fraud would be detected or prevented before our financial statements could be materially affected.

Because of inherent limitations, our internal controls over financial reporting may not prevent or detect all misstatements. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risks that our controls may become inadequate as a result of changes in conditions or the degree of compliance with our policies and procedures may deteriorate.

If our internal control over financial reporting was not effective, our historical financial statements could require restatement which could negatively impact our reputation and lead to a decline in our stock price.
Failure on our part to effectively identify, establish and operate additional schools or campuses could reduce our ability to implement our growth strategy.
As part of our business strategy we anticipate opening and operating new schools or campuses. Establishing new schools or campuses poses unique challenges and requires us to make investments in management and capital expenditures, incur marketing expenses and devote other resources that are different, and in some cases greater, than those required with respect to the operation of acquired schools. Accordingly, when we open new schools, initial investments could reduce our profitability. To open a new school or campus, we would be required to obtain appropriate state and accrediting commission approvals, which may be conditioned or delayed in a manner
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that could significantly affect our growth plans. Additionally, to be eligible for Title IV Program funding, a new school or campus would have to be certified by ED. We cannot be sure that we will be able to identify suitable expansion opportunities to maintain or accelerate our current growth rate or that we will be able to successfully integrate or profitably operate any new schools or campuses. Our failure to effectively identify, establish, license, accredit, obtain necessary approvals and manage the operations of newly established schools or campuses could slow our growth and make any newly established schools or campuses more costly to operate than we have historically experienced.
We may be unable to successfully complete or integrate future acquisitions.
We may consider selective acquisitions in the future. We may not be able to complete any acquisitions on favorable terms or, even if we do, we may not be able to successfully integrate the acquired businesses into our business. Integration challenges include, among others, regulatory approvals, significant capital expenditures, assumption of known and unknown liabilities, our ability to control costs and our ability to integrate new personnel. The successful integration of future acquisitions may also require substantial attention from our senior management and the senior management of the acquired schools, which could decrease the time that they devote to the day-to-day management of our business. If we do not successfully address risks and challenges associated with acquisitions, including integration, future acquisitions could harm, rather than enhance, our operating performance. Additionally, if we consummate an acquisition, our capitalization and results of operations may change significantly. A future acquisition could result in the incurrence of debt and contingent liabilities, an increase in interest expense, amortization expenses, goodwill and other intangible assets, charges relating to integration costs or an increase in the number of shares outstanding. In addition, our acquisition of a school is a change of ownership of that school, which may result in the temporary suspension of that school’s participation in federal student financial aid programs until it obtains ED’s approval. These results could have a negative effect on our cash flows, results of operations and financial condition or result in dilution to current stockholders.
We have recorded a significant amount of goodwill, which may become impaired and subject to a write-down.
Goodwill represents the excess of the cost of an acquired business over the estimated fair values of the assets acquired and liabilities assumed. Goodwill is reviewed at least annually for impairment, which might result from the 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. Any resulting impairment charge is recognized as an expense in the period in which impairment is identified.

Our goodwill resulted primarily from the acquisition of our motorcycle and marine education business in 1998. We recorded an impairment charge of $12.4 million related to the goodwill allocated to our MMI Phoenix, Arizona campus during the year ended September 30, 2015. The remaining $8.2 million of goodwill from this acquisition is allocated to our MMI Orlando, Florida campus that provides the related educational programs. Additionally, we recorded $0.8 million of goodwill related to the acquisition of BrokenMyth Studios, LLC in February 2016. Our total recorded goodwill was $9.0 million as of September 30, 2017.We perform our annual goodwill impairment assessment during the fourth quarter of each fiscal year.Goodwill is reviewed at least annually for impairment, which might result from the 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. Actual experience may differ from the amounts included in our assessment, which could result in impairment of our goodwill in the future.

Our principal stockholder owns a significant percentage of our capital stock, is able to influence certain corporate matters and could in the future gain substantial control over our company.
As of September 30, 2017, Coliseum Capital Management, LLC and its affiliates (Coliseum) beneficially owned, in the aggregate, approximately 14.6% of our outstanding common stock and 100% of our outstanding Series A Preferred Stock, which votes on an as-converted basis subject to a voting cap, as described
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below. The voting power of Coliseum, including the common stock and the as-converted preferred stock with the voting cap, is approximately 18.8% as of September 30, 2017.
Pursuant to the Certificate of Designations of Series A Preferred Stock (Certificate of Designations), the Series A Preferred Stock may be converted into common stock, subject to certain conditions. Until stockholder approval, as required under the listing standards of the NYSE, and approval of the applicable educational regulatory agencies (Required Approvals), including ED, is obtained, the Series A Preferred Stock beneficially owned by the holders of Series A Preferred Stock and their respective affiliates may only be converted into common stock to the extent that, after giving effect to such conversion, the amount of common stock the holder thereof together with its affiliates would beneficially own pursuant to such conversion, in the aggregate, is less than or equal to 4.99% of the common stock outstanding on the date of issuance of the Series A Preferred Stock (Conversion Cap). The Conversion Cap will not apply to the Series A Preferred Stock once we obtain the Required Approvals.

Holders of shares of Series A Preferred Stock are entitled to vote with the holders of shares of common stock and any other class or series similarly entitled to vote with the holders of common stock and not as a separate class, at any annual or special meeting of stockholders of our company, and may act by written consent in the same manner as the holders of common stock, on an as-converted basis. Prior to the receipt of the Required Approvals, the Series A Preferred Stock beneficially owned by each holder of Series A Preferred Stock, or any of its respective affiliates may only be voted to an extent not to exceed 4.99% of the aggregate voting power of all of our voting stock outstanding at the close of business on the issue date (Voting Cap). Additionally, a majority of the voting power of the Series A Preferred Stock must approve certain significant actions of our company, such as (i) amendments to our Certificate of Incorporation or bylaws in a manner adverse to the rights, preferences, privileges or voting powers of the Series A Preferred Stock, (ii) the creation or issuance of a series of stock, or other security convertible into a series of stock, with equal or greater rights than the Series A Preferred Stock, (iii) the issuance of equity securities, or securities convertible into equity, at a price that is 25% below fair market value at the time of issuance, (iii) subject to certain exceptions, the incurrence of indebtedness, (iv) subject to certain exceptions, the sale or licensing of any material asset of our company, (v) subject to certain exceptions, the consummation of acquisitions (of stock or assets), (vi) subject to certain exceptions, the payment of certain dividends or distributions with respect to a series of stock junior to the Series A Preferred Stock, (vii) the voluntary liquidation, dissolution or winding-up of our company if the Series A Preferred Stock would not have the option to receive the liquidation preference then in effect upon such liquidation, dissolution or winding-up of our company or, (viii) subject to certain exceptions, any merger, consolidation, recapitalization, reclassification or other transaction in which substantially all of the common stock of our company is exchanged or converted into cash, securities or property and in which the holders of the Series A Preferred Stock shall not have the option to receive the full liquidation preference as a result of that transaction.
In the event that the Required Approvals are obtained in the future, Coliseum could gain substantial control over our company. For example, if the Required Approvals had been obtained as of September 30, 2017, Coliseum’s aggregate voting power would have increased from 18.8% to 53.6%. As a consequence, Coliseum would be able to control matters requiring stockholder approval, including the election of directors. The interests of Coliseum may not always coincide with the interests of our other stockholders. For instance, this concentration of ownership may have the effect of delaying or preventing a change of control of our company otherwise favored by our other stockholders and could depress our stock price.

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.

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ITEM 2. PROPERTIES

Campuses and Other Properties

The following sets forth certain information relating to our campuses and corporate headquarters:headquarters as of September 30, 2022. Many of the leases are renewable for additional terms at our option. Our facilities are utilized consistent with management’s expectations, and we believe such facilities are suitable and adequate for currently identifiable requirements and that additional space, if needed, can be obtained on commercially reasonable terms to meet any future requirements.

LocationLocationBrandBrandApproximate Square FootageLeased or OwnedLease Expiration Date
Campuses:Campus locations:Arizona (Avondale)UTI265,700 LeasedJune 2024
Arizona (Avondale)(1)
Arizona (Phoenix)UTI/MMIMMI283,000125,900Owned LeasedDecember 2022N/A
Arizona (Phoenix)(1)
MMI33,000 LeasedDecember 2022
California (Long Beach)UTI138,000137,000LeasedAugust 2030
California (Rancho Cucamonga)UTI187,300148,000 LeasedSeptember 20192031
California (Sacramento)UTI237,800117,000 LeasedJuly 2022February 2033
Florida (Miramar)Florida (Orlando)UTIUTI/MMI103,000272,800Leased LeasedAugust 2022March 2032
Florida (Orlando)(2)
Illinois (Lisle)UTI/MMIUTI188,000175,000 Leased LeasedNovemberAugust 2029 and
April 2031
Illinois (Lisle)Massachusetts (Norwood)UTIUTI187,000234,200Owned LeasedOctober 2022N/A
Michigan (Canton)MIAT125,000LeasedApril 2036
New Jersey (Bloomfield)UTI102,000LeasedDecember 2030
North Carolina (Mooresville)NASCAR Tech146,000 LeasedSeptember 2022October 2030
Pennsylvania (Exton)UTI186,900129,000 LeasedDecember 2020October 2029
Texas (Dallas/Ft. Worth)UTI95,000 OwnedN/A
Texas (Houston)UTI212,800Owned/leased*December 2018*
Corporate Headquarters:Arizona (Scottsdale)Headquarters64,700 LeasedDecember 2019
*We own 172,200


35

LocationBrandApproximate Square FootageLeased or OwnedLease Expiration Date
Texas (Houston)UTI172,000 OwnedN/A
Texas (Houston)MIAT54,000LeasedJune 2029
Texas (Austin)UTI107,000LeasedOctober 2032
Other locations:
Arizona (Phoenix)(3)
Corporate Headquarters21,000 LeasedFebruary 2027
(1)    During fiscal 2021, we purchased our Avondale, Arizona campus for approximately $45.2 million, including closing costs and other fees. During fiscal 2022, we completed the consolidation of our MMI Phoenix, Arizona campus into the Avondale, Arizona location which resulted in a reduction of approximately 164,000 leased square feet. The square footage noted for MMI Phoenix represents the remaining unoccupied space as of September 30, 2022 under the lease obligation that expires as of December 31, 2022.
(2)    During fiscal 2022, we completed the consolidation of our Orlando, Florida campus into one site with 188,000 square feet. The net square footage reduction as a result of the campus optimization plan was approximately 75,000 square feet.
(3)    In September 2022, we executed an amendment for our Corporate Headquarters lease which reduced the leased square footage by approximately 8,000 square feet and extended the lease the remaining 40,600 square feet.term to February 2027.

Many of the leases are renewable for additional terms at our option.
We anticipate opening our Bloomfield, New Jersey campus in fall 2018.

ITEM 3. 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.


In September 2012, we received a Civil Investigative Demand (CID) from the Attorney General of the Commonwealth of Massachusetts related to a pending investigation in connection with allegations that we caused false claims to be submitted to the Commonwealth relating to student loans, guarantees and grants provided to
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students at our Norwood, Massachusetts campus. The CID required us to produce documents and provide written testimony regarding a broad range of our business from September 2006 to September 2012. We responded timely to the request. The Attorney General made a follow-up request for documents, and we complied with this request in February 2013. In response to a status update request from us, the Attorney General requested and we provided in April 2015 additional documents and information related to graduate employment at our Norwood, Massachusetts campus and our policies and practices for determining graduate employment. We have not received any additional requests since April 2015. At this time, we cannot predict the eventual scope, duration, outcome or associated costs of this request, and accordingly we have not recorded any liability in the accompanying consolidated financial statements.

ITEM 4. MINE SAFETY DISCLOSURES
None.

EXECUTIVE OFFICERS OF UNIVERSAL TECHNICAL INSTITUTE, INC.
The executive officers of UTI are set forth in this table. All executive officers serve at the direction of the Board of Directors. Ms. McWaters also serves as a director of UTI.36
NameAgePosition
Kimberly J. McWaters53President and Chief Executive Officer
Bryce H. Peterson39Executive Vice President and Chief Financial Officer
Chad A. Freed44General Counsel, Executive Vice President of Corporate Development
Jerome A. Grant54Executive Vice President and Chief Operating Officer
Piper P. Jameson56Executive Vice President and Chief Marketing Officer
Sherrell E. Smith54Executive Vice President of Admissions and Operations
Rhonda R. Turner44Senior Vice President, People Services
Kimberly J. McWaters has served as our Chief Executive Officer since October 2003 and as our President from 2000 to 2011 and subsequently from September 2016 to present. Ms. McWaters has served as a director on our Board since February 2005 and as the Chairman of our Board of Directors from December 2013 to September 2017. From 1984 to 2000, Ms. McWaters held several positions with UTI, including Vice President of Marketing and Vice President of Sales and Marketing. Ms. McWaters also serves as a director of Penske Automotive Group, Inc. and Mobile Mini, Inc. Ms. McWaters received a BS in Business Administration from the University of Phoenix.
Bryce H. Peterson has served as our Executive Vice President and Chief Financial Officer since September 2016. Mr. Peterson served as Senior Vice President, Information Technology from June 2012 to September 2016, as Vice President of Information Technology from March 2011 to June 2012, as Vice President of Internal Audit Services from March 2010 to March 2011 and as Information Technology Audit Manager from October 2008 to February 2010. Prior to joining UTI, Mr. Peterson served in a variety of positions at KPMG, LLP; Brigham Young University; and Fenton Enterprises. Mr. Peterson received his MS in Information Systems Management and holds a BS in Business Management from Brigham Young University. Mr. Peterson is a certified public accountant licensed in the state of Arizona.
Chad A. Freed has served as our General Counsel, Executive Vice President of Corporate Development since June 2015 and is also our Corporate Secretary. Mr. Freed served as Senior Vice President of Business Development from March 2009 to June 2015, as Senior Vice President, General Counsel from February 2005 to March 2009 and as inside legal counsel since March 2004. Prior to joining UTI, Mr. Freed was a Senior Associate
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in the Corporate Finance and Securities department at Bryan Cave LLP. Mr. Freed received his Juris Doctor from Tulane University and holds a BS in International Business and French from Pennsylvania State University.
Jerome A. Grant has served as our Executive Vice President and Chief Operating Officer since November 2017. Prior to joining UTI, Mr. Grant served as Senior Vice President, Chief Services Officer with McGraw-Hill Education, Inc. from June 2015 to April 2017. Prior to joining McGraw Hill, Mr. Grant served in several senior leadership roles with Pearson Education including SVP of Technology Strategy from 2014 to 2015; SVP of Digital Products from 2012 to 2014; President of Higher Education Business, Technology and the New York Institute of Finance from late 2000 through 2011; and VP of Sales in 1999 though 2000. Mr. Grant holds a Bachelor of Business Administration degree in labor relations and marketing from the University of Wisconsin-Milwaukee.
Piper P. Jameson has served as our Executive Vice President and Chief Marketing Officer since February 2017. During her previous tenure with UTI from 1994 to 2005, she held several operational and executive positions including Senior Vice President, Marketing. Prior to her return to UTI, Ms. Jameson served as Chief Marketing Officer at Northern Arizona University - Extended Campuses and as the Executive Vice President and Chief Marketing Officer at Lincoln Educational Services. Ms. Jameson received her masters degree in Strategic Communication and Leadership from Seton Hall University and holds a BS in Marketing and Business Management from the University of Phoenix.
Sherrell E. Smith has served as our Executive Vice President of Admissions and Operations since June 2015. Mr. Smith served as Senior Vice President, Operations from August 2012 to June 2015. During his previous tenure with UTI from 1986 to 2009, Mr. Smith held several positions with UTI including Campus President, Regional Vice President of Operations, Senior Vice President of Operations and Education and Executive Vice President of Operations. Prior to his return to UTI, Mr. Smith advised a private equity firm on acquisition opportunities in the education field and served as the Chief Executive Officer of the American Institute of Technology. Mr. Smith received a BS in Management from Arizona State University.
Rhonda R. Turner has served as our Senior Vice President of People Services since June 2010. In addition to leading our People Services (Human Resources) function, from October 2014 through March 2016, Ms. Turner provided leadership for our Advanced Training Recruitment and Industry Employment functions. Prior to her current role, Ms. Turner served as Vice President of People Services from August 2009 to May 2010, as Vice President of People Services Partnerships & Training from January 2008 to July 2009 and as Director, People Services Partnerships, from January 2006 to December 2007. Prior to joining UTI, Ms. Turner served in human resources leadership positions at ConocoPhillips, Circle K and Main Street Restaurant Group, Inc., a TGI Friday’s franchisee. Ms. Turner received her BS in Human Resources Management from Arizona State University.

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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES


Market Information


Our common stock is listed on the New York Stock Exchange (NYSE)NYSE under the symbol “UTI”.“UTI.”

The following table sets forth the range of high and low sales prices per share for our common stock, as reported by the NYSE, for the periods indicated.

   Price Range of
    Common Stock
   High Low
Fiscal Year Ended September 30, 2017:    
      
      
 First Quarter $5.38
 $1.42
 Second Quarter $3.80
 $2.81
 Third Quarter $3.87
 $3.30
 Fourth Quarter $3.78
 $3.08

   Price Range of
    Common Stock
   High Low
Fiscal Year Ended September 30, 2016:    
      
      
 First Quarter $5.88
 $3.28
 Second Quarter $5.12
 $2.81
 Third Quarter $4.53
 $2.06
 Fourth Quarter $2.91
 $1.51

The closing price of our common stock as reported by the NYSE on November 21, 2017December 5, 2022 was $3.47$7.30 per share. As of November 21, 2017,December 5, 2022, there were3122 holders of record of our common stock.


Dividends


On October 5, 2015; December 18, 2015 and March 31, 2016, we paid cash dividends of $0.02 per share to common stockholders of record as of September 28, 2015; December 4, 2015 and March 21, 2016, respectively, totaling approximately $1.5 million. On December 19, 2014; March 31, 2015 and June 30, 2015, we paid cash dividends of $0.10 per share to common stockholders of record as of December 8, 2014; March 20, 2015 and June 19, 2015, respectively, totaling approximately $7.3 million. On June 9, 2016, our Boardboard of Directorsdirectors 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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We continuously evaluate our cash position in light of growth opportunities, operating results and general market conditions.


Repurchase of Securities


On December 20, 2011,10, 2020, our Board of Directors authorized a new share repurchase plan that would allow for the repurchase of up to $25.0$35.0 million of our common stock in the open market or through privately negotiated transactions. As of September 30, 2017, we have purchased an aggregate of 1,677,570 shares of our common stock for an aggregate purchase price of $15.3 millionThis new share repurchase plan replaced the previously authorized plan from fiscal 2012. Any repurchases under this stock repurchase program. During the year ended September 30, 2017, we made no purchases under this stock repurchase program. Any future repurchases under thisnew stock repurchase program require the approval of a majority of the voting power of our Series A Preferred Stock.

The following table summarizes our share repurchases to settle individual employee tax liabilities. These are We did not included inrepurchase any shares during the repurchase plan totals as they were approved in conjunction with restricted share awards, during each period in the three monthsyear ended September 30, 2017. Shares from share repurchases in lieu of taxes are returned to the pool of shares issuable under our 2003 Incentive Compensation Plan.2022.
ISSUER PURCHASES OF EQUITY SECURITIES
Period (a) Total Number of Shares Purchased (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (d) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans Or Programs
(In thousands)
Tax Withholdings        
July 1-31, 2017 —
 $—
 —
 $—
August 1-31, 2017 —
 $—
 —
 $—
September 1-30, 2017 172,885
 $3.38
 —
 $—
Total 172,885
 $3.38
 —
 $—


Stock Performance Graph


The following Stock Performance Graph and related information shall not be deemed “soliciting material” or “filed” with the Securities and Exchange Commission,SEC, nor should such information be incorporated by reference into any future filings under the Securities Act or the Securities Exchange Act except to the extent that we specifically incorporate it by reference in such filing.


ThisThe graph below compares totalour annual percentage change in cumulative stockholdertotal return on our common stock duringshares over the period from September 30, 2012 through September 30, 2017past five years with the cumulative total return onof companies comprising the NYSE Stock MarketRussell 2000 Index (U.S. Companies) and a Peer Issuer Group Index.our peer group index. The peer issuer group consists of the companies identified below, which were selected on the basis of the similar nature of their business. The graphThis presentation assumes that $100 was invested in shares of the relevant issuers on September 30, 2012,2017, and anythat dividends received were reinvested onimmediately invested in additional shares. The graph plots the date on which they were paid.value of the initial $100 investment at one-year intervals for the fiscal years shown.
uti-20220930_g1.jpg
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37



CRSP Total Returns Index for:09/201709/201809/201909/202009/202109/2022
Universal Technical Institute, Inc.$100.00 $76.66 $156.77 $146.40 $194.81 156.77
Russell 2000100.00 115.24 104.99 105.40 155.66 119.08
New Peer Group100.00 142.03 128.43 96.82 96.49 83.01
SymbolCRSP Total Returns Index for:09/2012
09/2013
09/2014
09/2015
09/2016
09/2017
uUniversal Technical Institute, Inc.100.0
91.8
73.0
28.5
14.6
28.4
nNYSE Stock Market (US Companies)100.0
121.5
141.3
135.9
155.5
181.1
pPeer Group100.0
106.0
123.0
81.7
77.0
135.8

Companies in the Self-Determined Peer Group
Adtalem Global Education Inc. (formerly DeVry Education Group Inc.)
Apollo Group, Inc.1
Bridgepoint Education, Inc.Career Education Corporation
Grand Canyon Education, Inc.Lincoln Educational Services Corporation
Strayer Education, Inc.
1 Included through the last date of trading.
Notes:Companies in the Self-Determined Peer Group:
A. Adtalem Global Education, Inc.Lincoln Educational Services Corporation
American Public Education, Inc.Perdoceo Education Corporation
Aspen Group, Inc.Strategic Education, Inc.

Notes:
•The lines represent quarterlymonthly index levels derived from compounded daily returns that include all dividends.
B. Peer group indices use beginning of period
•The indexes are reweighted daily, using the market capitalization weighting.on the previous trading day.
C.
•If the quarterlymonthly interval, based on the fiscal year-end, is not a trading day, the preceding trading day is used.
D.
•The index level for all series was set to $100 on 09/30/2012.September 30, 2017.
•Russell 2000 Index Data: Copyright Russell Investments. Used with permission. All rights reserved. Copyright 1980-2022.
Prepared by Zacks Investment Research, Inc. Used with permission. All rights reserved.

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ITEM 6. SELECTED FINANCIAL DATA[RESERVED]


The following table sets forth our selected consolidated financial and operating data as of and for the periods indicated. You should read the selected financial data set forth below together with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements included elsewhere in this Report on Form 10-K. The selected consolidated statement of operations data and the selected consolidated balance sheet data as of and for the years ended September 30, 2017, 2016, 2015, 2014, and 2013 have been derived from our audited consolidated financial statements.
  Year Ended September 30,
  2017 2016 2015 2014 2013
 ($'s in thousands, except per share amounts)
Statement of Operations Data: (1)
          
Revenues (2)
 $324,263
 $347,146
 $362,674
 $378,393
 $380,322
Operating expenses:          
Educational services and facilities (3)
 181,027
 194,395
 194,416
 200,054
 199,540
Selling, general and administrative (3) (4)
 145,060
 171,374
 177,481
 172,002
 174,757
Total operating expenses (3) (4)
 326,087
 365,769
 371,897
 372,056
 374,297
Income (loss) from operations (2) (3) (4)
 (1,824) (18,623) (9,223) 6,337
 6,025
Interest (expense) income, net (5) (11)
 (2,481) (3,196) (2,125) (1,624) 234
Equity in earnings of unconsolidated affiliate (6)
 484
 342
 527
 471
 —
Other income, net 1,090
 (49) 140
 563
 655
Income (loss) before taxes (2) (3)
 (2,731) (21,526) (10,681) 5,747
 6,914
Income tax expense (benefit) (7)
 5,397
 26,170
 (1,532) 3,710
 3,013
Net income (loss) (4) (7)
 $(8,128) $(47,696) $(9,149) $2,037
 $3,901
Preferred stock dividends (8)

5,250

1,424

—

—

—
Income (loss) available for distribution (8)

$(13,378)
$(49,120)
$(9,149)
$2,037

$3,901
Net income (loss) per share:          
   Basic $(0.54) $(2.02) $(0.38) $0.08
 $0.16
   Diluted $(0.54) $(2.02) $(0.38) $0.08
 $0.16
Weighted average shares (in thousands):          
   Basic 24,712
 24,313
 24,391
 24,640
 24,515
   Diluted 24,712
 24,313
 24,391
 24,920
 24,704
Cash dividends declared per common share $—
 $0.04
 $0.32
 $0.40
 $0.40
Other Data: (1)
          
Depreciation and amortization (6) (9)
 $16,886
 $17,749
 $19,155
 $20,474
 $22,156
Number of campuses 
 12
 12
 12
 11
 11
Average undergraduate enrollments 10,900
 12,000
 13,200
 14,400
 15,000
Balance Sheet Data: (1)
          
Cash and cash equivalents (8) (10) (11)
 $50,138
 $119,045
 $29,438
 $38,985
 $34,596
Current assets (7) (8) (10)
 $146,826
 $161,949
 $108,057
 $127,532
 $134,079
Working capital (8)
 $60,437
 $67,389
 $11,563
 $25,197
 $41,380
Total assets (4) (6) (7)
 $274,102
 $297,159
 $274,302
 $288,069
 $280,194
Total shareholders' equity (8)
 $125,776
 $136,614
 $113,475
 $133,192
 $139,164

(1)In 2015, we opened a campus in Long Beach, California, which contributed to the fluctuation in operations
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and financial position during 2015, 2016 and 2017.

(2)The decline in our average undergraduate full-time student enrollment from 2013 to 2017 contributed to the decrease in revenues, income (loss) from operations, and income (loss) before taxes.

(3)In September and November 2016, we completed reductions in workforce impacting approximately 145 employees, which decreased operating expenses and decreased loss from operations and loss before taxes in 2017.

(4)In 2015, we recorded a non-cash impairment charge of $12.4 million to write off goodwill for our MMI Phoenix, Arizona campus based on our annual impairment test.

(5)In 2015 and 2014, we began recording interest expense related to amortization of the financing obligations for our Long Beach, California campus and for our Lisle, Illinois campus, respectively.

(6)In October 2014, we entered into a 15-year lease agreement for a build-to-suit facility related to the design and construction of a new campus in Long Beach, California. We recorded approximately $20.3 million in property and equipment and a financing obligation of approximately $12.3 million as of September 30, 2015 related to this lease agreement.

In 2014, we entered into amended lease agreements for certain buildings on our Orlando, Florida campus, which extended the lease terms, modified the scheduled rental payments and allowed us to expand the square footage of one building. Construction occurred during June through October 2014. For accounting purposes, we were considered the owner during the construction period, and during that period, the existing building and the addition were considered one unit of account. Accordingly, as of September 30, 2014, we recorded the existing building and a corresponding short-term financing obligation of approximately $4.6 million on our consolidated balance sheet. The facility was placed into service effective November 1, 2014. We determined that we do not have continuing involvement after the construction period was complete, and that the lease will be accounted for as an operating lease. Accordingly, the asset and the corresponding short-term financing obligation were derecognized from our consolidated balance sheet.

Pursuant to various agreements to relocate our Glendale Heights, Illinois to and design and build a campus in Lisle, Illinois in 2012, we invested approximately $4.0 million to acquire an equity interest of approximately 28% in a related joint venture. As of September 30, 2014, we recorded $33.5 million in property and equipment with a corresponding financing obligation. The September 30, 2013 balance reflects $25.2 million in property and equipment with a corresponding amount recorded as a construction liability. We recognize our proportionate share of the joint venture's net income or loss during each accounting period as a change in our investment.

(7)In 2016, we recorded a full valuation allowance on our deferred tax assets which impacted income tax expense by $34.2 million for the year ended September 30, 2016.

(8)In 2016, we paid common stock cash dividends of $0.02 per share in December and March totaling $1.0 million. On June 9, 2016, our Board of Directors voted to eliminate the quarterly cash dividend on our common stock. In 2015, we paid cash dividends of $0.10 per share in December, March and June totaling $7.3 million. In 2014 and 2013, we paid quarterly cash dividends of $0.10 per share totaling $9.9 million and $9.8 million, respectively.

In 2016, we sold 700,000 shares of Series A Preferred Stock for $70.0 million in cash. We paid preferred stock cash dividends of $5.3 million during the year ended September 30, 2017 and $1.4 million during the year ended September 30, 2016.

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In 2015, 2014, and 2013, we used cash and cash equivalents to repurchase approximately $6.6 million, $1.4 million, and $5.4 million, respectively, of our common shares.

(9)Excludes depreciation of training equipment obtained in exchange for services of $1.3 million, $1.3 million, $1.2 million, $1.2 million and $1.1 million for the years ended September 30, 2017, 2016, 2015, 2014 and 2013, respectively.

(10)In 2015, we purchased the majority of the buildings and land for our Houston, Texas campus. The purchase price of $9.4 million, excluding fees, was allocated between buildings ($7.7 million) and land ($1.7 million) based on the ratio of appraised values, which decreased cash and current assets. At the time of purchase, we had leasehold improvements related to the purchased building recorded at $5.0 million in historical cost and $4.3 million of accumulated depreciation. The historical cost and accumulated depreciation for these assets were removed from the related classification and the net book value was recorded into building and building improvements. The buildings and building improvements are being depreciated over a useful life of 30 years.

(11)In the third quarter of 2017, we began investing in various bond funds, which decreased cash and cash equivalents and increased interest income.






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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


You should read the following discussion together with the "Selected Financial Data" and the consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. This discussion contains forward-looking statements that are based on our current expectations, estimates and projections about our business and operations. Our actual results may differ materially from those currently anticipated and expressed in such forward-looking statements as a result of a number of factors, including those we discuss under “Risk Factors” “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Annual Report on Form 10-K.


General Overview


We are theFounded in 1965, with more than 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, motorcycletransportation and marine technicians as measured by total average undergraduate full-time enrollment and graduates. We offertechnical training programs. As of September 30, 2022, we offered certificate, diploma or undergraduate degree programs at 1216 campuses across the United States. We alsoStates under the banner of several well-known brands, including Universal Technical Institute (“UTI”), Motorcycle Mechanics Institute and Marine Mechanics Institute (collectively, “MMI”), NASCAR Technical 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. We have provided technical education for 52 years.offer the majority of our programs in a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.


Revenues

Our revenues consist principallyprimarily of student tuition and fees derived from the programs we provide and are presented after reductions related toare made for discounts and scholarships that we sponsor and for refunds for students who withdrawwithdraw from our programs prior to specified datesdates. Tuition and the portion of tuition students have funded through our proprietary loan program. We generally recognize tuitionfee revenue and feesis recognized ratably over the termsterm of the various programs we offer.course or program offered. Approximately 99% of our revenues for each of the years ended September 30, 2022, 2021 and 2020, respectively, consisted of gross tuition. We supplement our tuition and fee revenues with additional revenues from sales of textbooks and program supplies and other revenues, such as those from BrokenMyth Studios or other non-Title IV sources, all of which are recognized as sales occurthe transfer of goods or services are performed. In aggregate, these additional revenues represented approximately 2% or lessoccurs. Through the proprietary loan program, the bank provides the students who participate in this program with extended payment terms for a portion of their tuition. Under ASC 606, the portion of tuition revenue related to the proprietary loan program is considered a form of variable consideration. We estimate the amount we ultimately expect to collect from the portion of tuition that is funded by the proprietary loan program, resulting in a note receivable. Estimating the collection rate requires significant management judgment. Upon adoption of


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ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) as of October 1, 2020, we revised our total revenues in each year forestimated collection rate to only include historical collections from the three-yearpast ten years as we determined that such population better represents our current expected collections. The estimated amount is determined at the inception of the contract and we recognize the related revenue as the student progresses through school. Each reporting period, ended September 30, 2017.we update our assessment of the variable consideration associated with the proprietary loan program. 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 this collection rate. Tuition revenue and fees generally vary based on the average number of students enrolled and average tuition charged per program. We also provide dealer technician training or instructor staffing services to manufacturers, and we recognize revenue as the transfer of services occurs.


Student Enrollment and Tuition

Average undergraduate full-time student enrollments vary depending on, among other factors, the number of continuing students at the beginning of a period, new student enrollments during the period, students who have previously withdrawn but decide to re-enroll during the period, graduations and withdrawals during the period. Our average undergraduate full-time student enrollments are influenced by: the attractivenessby the:

•Attractiveness of our program offerings to high school graduates and potential adult students; the effectiveness
•Effectiveness of our marketing efforts; the depth
•Depth of our industry relationships; the strength
•Strength of employment markets and long termlong-term career prospects; the quality
•Quality of our instructors and student services professionals; the persistence
•Persistence of our students; the length of our education programs; the availability
•Availability of federal and alternative funding for our programs; the numberand
•Number of graduates of our programs who elect to attend the advanced training programs we offer and general economic conditions. Our

The introduction of additional program offerings at existing campuses and opening additional campuses is expected to influence our average undergraduate full-time student enrollment. We currently offer start dates at our campuses that range from every three to six weeks throughout the year in our undergraduatecore programs. The number of start dates of advanced training programs varies by the duration of those programs and the needs of the manufacturers which sponsor them.


Our tuition charges vary by type and length of our programs and the program level, such as undergraduatecore or advanced training. We implemented tuition rate increases of up to 3%2.5%, 2.5% and 3.5% for each of the years ended September 30, 2017, 20162022, 2021 and 2015.2020, respectively. We regularly evaluate our tuition pricing based on individual campus markets, the competitive environment and ED regulations.


Financial Aid

Most students at our campuses rely on funds received under various government-sponsored student
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financial aid programs, predominantly Title IV Programs and various veteransveterans' benefits programs, to pay a substantial portion of their tuition and other education-related expenses. Approximately 65%67% of our revenues, on a cash basis, were collected from funds distributed under Title IV Programs for the year ended September 30, 2017. This percentage differs from our Title IV percentage2022 as calculated under the 90/10 rule due to the prescribed treatment of certain Title IV stipends under the rule. Additionally, approximately 19%13% of our revenues, on a cash basis, were collected from funds distributed under various veteransveterans' benefits programs for the year ended September 30, 2017.2022.


We extend credit for tuition and fees, for a limited period of time, to the majority of our students. Our credit risk is mitigated through the students’ participation in federally funded financial aid and veteransveterans' benefit programs unless students withdraw prior to the receipt by us of Title IV or veteransveterans' benefit funds for those students. The financial aid and veteransveterans' benefits programs are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations govern the financial assistance programs in which our students participate. Our administration of these programs is periodically reviewed by various regulatory agencies. Any regulatory violation could be the basis for the initiation of potential adverse actions, including a suspension, limitation, placement on reimbursement status or termination proceeding, which could have a material adverse effect on our business.


If any of our institutions were to lose its eligibility to participate in federal student financial aid or veteransveterans' benefit programs, the students at that institution, and other locations of that institution, would lose access to funds derived from those programs


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and would have to seek alternative sources of funds to pay their tuition and fees. The receipt of financial aid and veterans benefit funds reduces the students’ amounts due to us and has no impact on revenue recognition, as the transfer relates to the source of funding for the costs of education which may occur through Title IV, veterans benefit or other funds and resources available to the student. Additionally, we bear all credit and collection risk for the portion of our student tuition that is funded through ourthe proprietary loan program.


Operating Expenses

We categorize our operating expenses as (i) educational services and facilities and (ii) selling, general and administrative.


Major components of educational services and facilities expenses includeinclude: faculty and other campus administration employeesemployees’ compensation and benefits,benefits; facility rent, maintenance, utilities,rent; maintenance; utilities; depreciation and amortization of property and equipment used in the provision of educational services, tools,services; tools; training aids,aids; royalties under our licensing arrangementsarrangements; and other costs directly associated with teaching our programs and providing educational services to our students.


Selling, general and administrative expenses includeinclude: compensation and benefits of employees who are not directly associated with the provision of educational services, such as: executive management;management, finance and central accounting;accounting, information technology; legal;technology, legal, human resources;resources, marketing and student admissions; marketing and student enrollment expenses, including compensation and benefits of personnel employed in marketing and student admissions; costs ofexpenses; professional services; bad debt expense; costs associated with the implementation and operation of our student management and reporting system; rent for our corporate office headquarters; depreciation and amortization of property and equipment that is not used in the provision of educational servicesservices; and other costs that are incidental to our operations. All marketing and student enrollment expenses are recognized in the period incurred. Costs related to the opening of new facilities, excluding related capital expenditures, are expensed in the period incurred or when services are provided.


20172022 Overview


OperationsStudent Metrics


Lower student population levels as we began 2017, combined with lower
September 30, 2022September 30, 2021% Change
Total new student starts13,374 13,028 2.7 %
Average undergraduate full-time active students12,838 11,489 11.7 %
End of period undergraduate full-time active students14,380 13,6825.1 %

The increase in new student starts, throughout the year, resulted in a 9.2%decline in our average undergraduate full-time active students and end of period undergraduate full-time active students was due to strong student enrollment to approximatelydemand throughout fiscal 2021 and the acquisition of MIAT in November 2021. The opening of new campuses in Austin, TX and Miramar, FL during fiscal 2022 also contributed positively.
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10,900 students for the year ended September 30, 2017. We started approximately 10,600 students during the year ended September 30, 2017, which represents a decrease of 6.2% as compared to a decrease of 8.9% for the year ended September 30, 2016. The decrease in starts was primarily the result of certain macro-economic headwinds, our continuing regulatory environment and internal execution challenges early in 2017 which negatively impacted our student inquiry volume.

Several factors continue to challenge ourOur ability to start new students including the following:

Competition for prospective students continues to increase from within our sector and from market employers, as well as with traditional post-secondary educational institutions;
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;
Unemployment; during periods when thebe influenced by various factors including: unemployment rate declines or remains stable as it has in recent years, prospective students have more employment options; and
Adverserates; 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.
In response to these challenges, we continue to focuslight; and the state of the general macro-economic environment and its impact on our key strategies. We continue to addprice sensitivity and renew contracts with our OEM partners as well as other employers to provide career opportunitiesthe ability and tuition reimbursement for our graduates. We are seeking opportunities to expand into new geographic markets either organically or through strategic acquisitions. We recently began offering our associate level degree programs at our Rancho Cucamonga, California, Sacramento, California and Dallas/Ft. Worth, Texas campuses. Additionally, we began offering two new programs during the fourth quarterwillingness of 2017; our welding program opened at our Rancho Cucamonga, California campus in July 2017 and our CNC (computer numeric control) machining program opened at our NASCAR Tech campus in Mooresville, North Carolina in August 2017. We plan to begin offering our welding program at our Avondale, Arizona campus in January 2018. And in November 2017, we signed an agreement with BMW to manage their Military Service Technician Education Program pilot at Camp Pendleton. We work to help students choose course and program structures that make getting an education more affordable and to balance our scholarship offerings with increased financial support from employers of our graduates. As part of our affordability initiatives, we are working to fine-tune our institutional scholarship and grant programs based on financial need, merit, or to assist in managing student loan debt, and we are working with employers to create comprehensive recruitment and retention strategies including tuition reimbursement programs for qualifying students and graduates. We are continuing our initiative designedtheir families to shift perceptions and build advocacy with key policy makers and influencers. Finally, we remain focused on operating our business as efficiently as possible and managing discretionary operating costs. The Financial Improvement Plan that we implemented in September 2016, which included reductions in workforce impacting approximately 70 employees at our corporate office and approximately 75 employees at our campus locations, as well as changes to our marketing strategy and admissions structure and a number of process improvement initiatives, contributed to the year-over-year decline in operating expenses of approximately $39.7 million.incur debt. For more information, see Item 1A. “Risk Factors.”


ED published guidance in November 2015 that eliminated certain restrictions on incentive compensation for admissions representatives. Specifically, ED reconsidered its previous interpretation and stated that its regulations do not prohibit compensation for admissions representatives that is based upon students’ graduation from, or completion of, educational programs.  Compensation based on enrolling students, however, continues to be prohibited. Please see further discussion in “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Incentive Compensation” included elsewhere in this Report on Form 10-K. We have made adjustments to the compensation practices for our admissions representatives which we believe will be compliant with ED's November 2015 guidance. The transition period for the new compensation structure willOperations
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continue through calendar year 2018. We will continue to evaluate other compensation options under these regulations and guidance.


Our revenues for the year ended September 30, 20172022 were $324.3$418.8 million, a declinean increase of $22.8$83.7 million, or 6.6%25.0%, from the prior year. We had an operating lossThe increase in revenue was due to growth in students, increased revenue per student due to the impact of $1.8 million compared to $18.6 million for the same periodCOVID-19 pandemic in the prior year. The improvement in ouryear, and the acquisition of MIAT.

In fiscal 2022, we had operating results was due to decreases in compensation, advertising, contract services, supplies and maintenance and depreciation and amortization expense. These declines were partially offset by the decline in revenues, which were negatively impacted by the decline in our average undergraduate full-time student enrollment. We incurred a net lossincome of $8.1$22.4 million, as compared to $47.7$14.9 million in the prior year. During 2016,Our operating expenses for fiscal 2022 increased 23.8% as compared to the prior year primarily due to support activities related to the increase in student enrollment and the acquisition of MIAT. Productivity improvements and proactive cost actions have been a key part of our operating model for the past several years, and we determined that a valuation allowancecontinue to identify and execute on efficiency


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opportunities throughout our deferred tax assetscost structure, while improving and investing in the overall student experience. Net income for the year ended September 30, 2022 was necessary. $25.8 million compared to $14.6 million in the prior year.

Business Strategy
Our core business strategies are aligned with our mission to serve students, partners and communities by providing quality education and training for in-demand careers. Additionally, as we evolve our business model, we are focused on growth and 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 year ended September 30, 2017,2022, we determined that an additional valuation allowance on our deferred tax assets was necessary, which resulted in income tax expense of $6.2 million.

Veterans' Benefits

The percentageexecuted the following as part of our revenues,growth and diversification strategy:

Acquisitions

•Entered into a definitive agreement to acquire Concorde Career Colleges, Inc. (“Concorde”) in May 2022. Concorde is a leading provider of industry-aligned healthcare education programs in fields such as nursing, dental hygiene and medical diagnostics. Concorde currently operates 17 campuses across eight states with approximately 8,000 students, and offers its programs in ground, hybrid and online formats. The acquisition aligns with our growth and diversification strategy, which is focused on offering a cash basis,broader array of high-quality, in-demand workforce solutions which were collectedboth prepare students for a variety of careers in fast-growing fields and help close the country's skills gap by leveraging key industry partnerships. On December 1, 2022, we closed the Concorde acquisition.
•Completed the acquisition of MIAT College of Technology (“MIAT”) from funds distributed under various veterans' benefits programs wasHCP & Company on November 1, 2021. MIAT had an average of approximately 19%, 19%, and 20% for950 undergraduate full-time active students during the yearsyear ended September 30, 2017, 20162022 through its campuses in Canton, Michigan and 2015, respectively.Houston, Texas. MIAT 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 enables us to further expand our program offerings into growing industry sectors and rapidly expanding fields likely to be bolstered by technological innovation and the country’s focus on sustainable energy.


ThereCampus Openings and Optimization

•Expanded our operations through the opening of our new campuses in Austin, Texas and Miramar, Florida. Austin is our third school in Texas and Miramar is our second school in Florida. Both campuses help to broaden the reach of our skilled trade programs to high demand geographies.
•Completed the consolidation and reconfiguration of our UTI and MMI Orlando, Florida campus facilities into one site and the consolidation of the MMI Phoenix campus into our Avondale, Arizona building.
•Purchased the Lisle, Illinois campus (“Lisle Campus”) in February 2022, for approximately $28.7 million in cash consideration, including closing costs and other fees and assumed debt of $18.3 million. In April 2022, we completed the financing for the purchase which retired the assumed debt and replenished approximately $20.0 million of the funds used to purchase the campus. See Notes 9, 12, 13 and 15 of the notes to our consolidated financial statements herein for additional details on the purchase and related debt and interest rate swap.

Program Expansion and New Industry Partnerships

•Executed on the next phase of our growth and diversification strategy by announcing the addition of 15 new programs across our campus footprint, including Aviation, HVACR, Robotics, Industrial Maintenance and Wind Energy Technician training to UTI and NASCAR Tech branded campuses, and initiated efforts to add Auto and Diesel Essentials to the MIAT Canton, Michigan campus. Pending all regulatory approvals, the initial planned program additions are projected to begin launching in the second quarter of 2023.
•Launched electric vehicle (“EV”) technician training coursework to meet increasing demand for clean cars and trucks. This enhanced training is the initial step in our overall EV strategy to prepare future technicians for anticipated increasing EV sales in the coming decades.
▪As part of this initiative, we rolled out new curriculum in our Ford Accelerated Credential Training program to prepare students for 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,


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EV battery components and operation and an introduction to high voltage battery service, as well as a Ford instructor-led class on hybrid and EV operation and diagnosis.
▪We have also selected Bosch to support the development of new courseware that helps meet the needs of the growing EV market, which continues to be Congressional activity aroundsee record sales and a demand for skilled technicians.
•Expanded our welding technology program to our Mooresville, North Carolina and Exton, Pennsylvania campuses in January and July 2022, respectively.
•Launched the requirements of the 90/10 Rule, such as reducing the 90% maximum under the rule to 85% or including military and veteran funding in the 90% portion of the calculation. Potential changes to the 90/10 Rule could negatively impact our eligibility to participate in Title IV Programs. A loss of eligibility would adversely affect our students’ access to Title IV Program funds they need to pay their educational expenses.

As described in “Business - Regulatory Environment - Other Federal and State Programs - Veterans' Benefits” included elsewhere in this Report on Form 10-K, we are subject to limitations on the percentage of students perBMW Fast Track program receiving benefits under certain veterans’ benefits programs, unless the program qualifies for certain exemptions. If the VA determines that an institution is out of compliance with the applicable limit, the VA will continue to provide benefits to current students but will not provide benefits to newly enrolled students until the institution demonstrates compliance.
Our access to military installations for student recruitment has become more limited due to recent changes in the Transition Assistance Program (Transition Goals, Plans, Success) and increased enforcement of the requirement to possess an MOU with certain individual military installations. Each of our institutions has an MOU with the U.S. DOD. We have MOUs with certain key individual installations and are pursuing MOUs at additional locations. We continue to strengthen and develop relationships with our existing contacts and with new contacts in order to maintain and rebuild our access to military installations.

Automotive Technology and Diesel Technology II Integration
We currently offer the Automotive Technology and Diesel Technology II curricula at our Avondale, Arizona; Dallas/Ft. Worth, Texas; Long Beach, California;Arizona and Orlando, Florida; Rancho Cucamonga, California and Sacramento, California campuses. We will prioritize implementation of the Automotive and Diesel Technology II curricula at new campus locations.

Graduate Employment

Identifying employment opportunities and preparing our graduates for these careers is critical to our ability to help our graduates benefit from their education.  Accordingly, we dedicate significant resources to maintaining an effective employment team, as describedFlorida campuses in "Business - Graduate Employment" included in Part I, Item 1 of this Report on Form 10-K. We believe that our graduate employment services provide our students with a compelling
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value proposition and enhance the employment opportunities for our graduates. The rate has remained consistent for our Collision Repair program, while the rate has declined for our Automotive and Diesel Technology, Marine and Motorcycle programs. There are multiple factors contributing to the declines, including graduates who receive higher compensating jobs outside their field of study, changing regulatory standards and guidance on employment classification and availability for employment and fewer internal resources dedicated to employment verification following our reductions in force during 2016.

Our employment rate for 2016 graduates was86%, compared to 88% for 2015 graduates. The employment calculation is based on all graduates, including those that completed manufacturer specific advanced training programs, from October 1, 2015 to September 30, 2016 and October 1, 2014 to September 30, 2015, respectively, excluding graduates not available for employment because of continuing education, military service, health, incarceration, death or international student status. Graduates are counted as employed based on a verified understanding of the graduate's job duties to assess and confirm that the graduates primary job responsibilities are in his or her field of study. See Business - Graduate Employment" in this Report on Form 10-K for further discussion of our graduate employment activities. For 2016, we had approximately 9,200 total graduates, of which approximately 8,600 were available for employment. Of those graduates available for employment, approximately 7,400 were employed within one year of their graduation date, for a total of 86%. For 2015, we had approximately 9,700 total graduates, of which approximately 9,100 were available for employment. Of those graduates available for employment, approximately 8,000 were employed within one year of their graduation date, for a total of 88%.

Regulatory Environment

For a detailed discussion of the regulatory environment and related risks, see “Business - Regulatory Environment”, and Item 1A, “Risk Factors”, included elsewhere in this Report on Form 10-K.

Accreditation

The procedures of our accrediting agency for the renewal of accreditation of a campus require a team of professionals to conduct an on-site visit at the campus and issue a Team Summary Report, which includes an assessment of the school’s compliance with accrediting standards.  On July 20, 2017, we received a Team Summary Report from ACCSC that summarized three findings from its visit toJanuary 2022, our Long Beach, California campus in connection with renewing the campus’ accreditation.  The first finding related to the campus’ application for a hybrid-distance education model, which is usedApril 2022, our Houston, Texas campus in several programs.  The second finding related to the campus’ application of ACCSC’s standards for the calculation of credit hours.  The third finding related to the campus’ application of certain aspects of its leave of absence policy. Under ACCSC procedures, we submitted our response to the Team Summary Report on August 29, 2017.  ACCSC has indicated that our response will be considered at the November 2017 meeting. If ACCSC determines our responses or remedial efforts are sufficient, it may close the findingsMay 2022 and provide a five year renewal of accreditation for the Long Beach, California campus.  If ACCSC ultimately determines our responses or remedial efforts are insufficient, program accreditation and Title IV awards for students at our campuses could be negatively impacted.

On July 20, 2017, we also received the Team Summary Reports that summarize the findings from the renewal of accreditation evaluations for our Norwood, Massachusetts and Sacramento, California campuses. One of the programs at the Norwood campus did not meet the graduation benchmark set by ACCSC. We anticipate discontinuing this program and we submitted our response to the Team Summary Report on August 4, 2017. One of the programs at the Sacramento campus did not meet the employment benchmark set by ACCSC; this program has since met the benchmark. We submitted our response to ACCSC on August 29, 2017. We are continuing to implement initiatives designed to improve our graduation and employment rates.

In June 2017, our Exton, Pennsylvania campus in August 2022. We expect to launch the program at our Lisle, Illinois campus in Spring 2023 and Dallas/Ft. Worth, Texas campuses received the “School of Excellence” designation by ACCSC.Miramar, Florida campus in Summer 2023.
•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 School of Excellence Award recognizes ACCSC-accredited institutions for their commitment to the expectations and rigors of ACCSC accreditation, as well as the efforts made by the
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institution in maintaining high-levels of achievement among their students. In order to be eligible for the School of Excellence Award, an ACCSC-accredited institution must meet the conditions of renewing accreditation without any finding of non-compliance, satisfy all requirements necessary to be in good standing with ACCSC and demonstrate that the majorityinitial stage of the schools’ student graduationpartnership will impact UTI, MMI and graduate employment rates for all programs offered meet or exceed the average rates of graduationNASCAR Tech campuses and employment among all ACCSC-accredited institutions.  Additionally, each of thesemay be expanded to MIAT-branded campuses received a six-year renewal of accreditation instead of the standard five-year renewal.

In March 2017, ACCSC conducted an unannounced site visit at our Houston, Texas campus. One program in the automotive division did not achieve the graduation benchmark set by ACCSC and was placed on heightened monitoring status effective June 9, 2017. We are continuing to implement retention strategies designed to improve our graduation rates.future.


Regulation of Federal Student Financial Aid Programs

Gainful Employment. In June 2017, ED announced its intent to convene a negotiated rulemaking committee to develop proposed regulations to revise the gainful employment regulations. ED has announced that the committee will convene in December 2017 and in early 2018 and issue proposed regulations for public comment during the first half of 2018, but ED has not established a final schedule for publication of proposed or final regulations. Any regulations published in final form by November 1, 2018 typically would take effect on July 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations.

On June 30, 2017, ED announced the extension of the compliance date for certain gainful employment disclosure requirements from July 1, 2017 to July 1, 2018. ED stated that institutions are still required to comply with other gainful employment disclosure requirements by July 1, 2017. On August 8, 2017, ED officials announced that ED did not have a timetable for the issuance of completer lists to schools, which is the first step toward generating the data for calculating new gainful employment rates. Consequently, we cannot predict when ED will begin the process of calculating and issuing new draft or final gainful employment rates in the future. We also cannot predict whether the announcement of the intent to initiate gainful employment rulemaking or the extension of certain gainful employment deadlines may result in ED delaying the issuance of new draft or final gainful employment rates in the future. While we have implemented a mitigation strategy for those programs identified as in the zone, because we cannot calculate the exact impact of such action on a program's debt to earnings rates, we may overestimate the required tuition reduction, which would have a negative impact on our tuition revenues. Conversely, we may underestimate the required tuition reduction and fail to improve the program's debt to earnings rates.

Borrower Defense to Repayment Regulations. In November 2016, ED published final regulations establishing new rules regarding, among other things, the ability of borrowers to obtain discharges of their obligations to repay certain Title IV loans and for ED to initiate a proceeding to collect from the institution the discharged and returned amounts and the extensive list of circumstances that may require institutions to provide letters of credit or other financial protection to ED. These regulations are discussed at “Business - Regulation of Federal Student Financial Aid Programs - Defense To Repayment Regulations” included elsewhere in this Report on Form 10-K. In June 2017, ED announced a delay until further notice in the effective date of the majority of these regulations. ED also announced its intent to convene a negotiated rulemaking committee to develop proposed regulations to revise the regulations on borrower defenses to repayment of Federal student loans and other matters published on November 1, 2016. On October 24, 2017, ED published an interim final rule that delayed until July 1, 2018 the effective date of the majority of these regulations. On the same date, ED also published a notice of proposed rulemaking that proposed to further delay, until July 1, 2019, the effective date of the majority of the regulations to ensure that there is adequate time to conduct negotiated rulemaking and, as necessary, develop revised regulations. ED provided the public until November 24, 2017 to submit comments to its proposal. ED convened the first meeting of negotiated rulemaking in November 2017 and is scheduled to continue additional meetings into early 2018. ED intends to issue proposed regulations for public comment during the first half of
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2018, but ED has not established a final schedule. Any regulations published in final form by November 1, 2018 typically would take effect on July 1, 2019, but we cannot provide any assurances as to the timing or content of any such regulations or whether and when ED might end the delay in the effective date of the previously published regulations.

Compliance with Regulatory Standards and Effect of Regulatory Violations. In April 2015, ED completed an ordinary course program review of our administration of the Title IV programs in which we participate for our Avondale, Arizona institution main campus and additional locations of that institution. The site visit covered the 2013-2014 and 2014-2015 award years. An initial program review report dated September 22, 2017 has been issued by ED. The report contains nine findings that are not material because they are limited to errors identified in individual student records and to requests to update and strengthen certain financial aid-related disclosures and procedures. None of the findings require us to perform any retroactive file reviews of all of our students for any issues for any time period. This matter is not yet final. We provided our response to ED within the stated deadline of 30 days from the date we received the report.  ED will review and take into consideration our response to the report before issuing its final program review determination letter. ED has not indicated how long it will take to review our response and issue the final program review determination letter.

90/10 Rule. A for-profit institution loses its eligibility to participate in Title IV Programs if it derives more than 90% of its revenue from Title IV Programs for two consecutive fiscal years as calculated under a cash basis formula mandated by ED. The loss of such eligibility would begin on the first day following the conclusion of the second consecutive year in which the institution exceeded the 90% limit and, as such, any Title IV Program funds already received by the institution and its students during a period of ineligibility would have to be returned to ED or a lender, if applicable. Additionally, if an institution exceeds the 90% level for a single year, ED will place the institution on provisional certification for a period of at least two years, and could impose other restrictions or conditions on the institution's Title IV eligibility. For the years ended September 30, 2017, 2016 and 2015 approximately 71%, 72% and 73% respectively, of our revenues, on a cash basis, were derived from funds distributed under Title IV Programs, as calculated under the 90/10 rule.

2018 Outlook

For the year ending September 30, 2018, we expect new student starts to grow in the low single-digits. New student start growth will be weighted toward the back half of the year. The average student population for the year ending September 30, 2018 is anticipated to be down in the mid single digits as a result of the lower beginning population and the timing of the anticipated start growth. We expect full-year revenue to range between $310 million and $320 million, as compared to $324 million in 2017.

We expect our operating expenses will range between $340 million and $345 million, resulting in an an operating loss of between $20 million and $25 million and negative EBITDA. The operating loss is a result of the lower total revenue expected in 2018 as compared to 2017, along with the financial impact of opening our Bloomfield, New Jersey campus that is expected to open in fall 2018, our planned investments in marketing and admissions to support start growth and the planned expansion of our welding program.

Capital expenditures are expected to be between $24 million and $25 million, including $11 million for our Bloomfield, New Jersey campus that is expected to open in fall 2018; approximately $4 million to expand our welding program to two additional campuses; $7 million for new and replacement equipment for our existing campuses; and approximately $2.5 million for real estate consolidation. We expect our efforts to rationalize our real estate footprint will provide net cost savings of $3 million to $4 million on an annualized basis starting in 2019.
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Results of Operations
The following table sets forth selected statements of operations data as a percentage of revenues for each of the periods indicated.
 Year Ended September 30,
 202220212020
Revenues100.0 %100.0 %100.0 %
Operating expenses:
Educational services and facilities49.5 %49.8 %51.9 %
Selling, general and administrative45.2 %45.8 %49.4 %
Total operating expenses94.7 %95.6 %101.3 %
Income (loss) from operations5.3 %4.4 %(1.3)%
Interest (expense) income, net(0.4)%(0.1)%0.4 %
Other (expense) income(0.1)%0.2 %— %
Total other (expense) income, net(0.5)%0.1 %0.4 %
Income (loss) before income taxes4.8 %4.5 %(0.9)%
Income tax benefit (expense)1.3 %(0.2)%3.5 %
Net income6.1 %4.3 %2.6 %
Preferred stock dividends(1.2)%(1.6)%(1.8)%
Income available for distribution4.9 %2.7 %0.8 %
Income allocated to participating securities(1.9)%(1.1)%(0.4)%
Net income available to common shareholders3.0 %1.6 %0.4 %

  Year Ended September 30,
  2017 2016 2015
Revenues 100.0 % 100.0 % 100 %
Operating expenses:      
Educational services and facilities 55.8 % 56.0 % 53.6 %
Selling, general and administrative 44.8 % 49.4 % 48.9 %
Total operating expenses 100.6 % 105.4 % 102.5 %
Income (loss) from operations (0.6)% (5.4)% (2.5)%
Interest income (expense), net (0.8)% (0.9)% (0.5)%
Other income 0.6 % 0.1 % 0.1 %
Total other income (expense) (0.2)% (0.8)% (0.4)%
Income (loss) before income taxes (0.8)% (6.2)% (2.9)%
Income tax expense (benefit) 1.7 % 7.5 % (0.4)%
Net income (loss) (2.5)% (13.7)% (2.5)%
Preferred stock dividends 1.6 % 0.4 % — %
Income (loss) available for distribution
 (4.1)% (14.1)% (2.5)%

Year Ended September 30, 20172022 Compared to Year Ended September 30, 20162021
Revenues.
Our revenues for the year ended September 30, 20172022 were $324.3$418.8 million,, a decrease an increase of $22.8$83.7 million,, or 6.6%25.0%, as compared to revenues of $347.1$335.1 million for the year ended September 30, 2016.2021. During fiscal 2022, our average full-time student enrollment increased by 11.7% and our new student starts increased 2.7%, driven primarily by the addition of MIAT and the opening of the two new campuses in Austin, Texas and Miramar, Florida. The 9.2% decreaseincrease in ourrevenue is due to the growth in the average undergraduate full-time students and an increase in the average revenue per student enrollment resulted in a decrease in revenuesas compared to the prior year which was impacted by the timing of approximately $32.6 million. Additionally, there were two fewer earning days in 2017, which resulted in a declinecompletion of approximately $2.5student make-up lab work and slower student progression due


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to the ongoing but diminishing impacts of COVID-19. The acquisition of MIAT also contributed to our revenue growth, accounting for $23.6 million in revenue. The decrease was partially offset by tuition rate increases of up to 3%, depending on the program. Our revenues for the yearsyear ended September 30, 2017 and 2016 excluded $16.3 million and $18.7 million, respectively, of tuition related to students participating in our proprietary loan program. 2022.
We recognized $8.0$9.1 million and $7.2 million ofon an accrual basis related to revenues and interest under the proprietary loan program for the yearsyear ended September 30, 2017 and 2016, respectively. Revenues for our Long Beach, California campus, which opened in August 2015, were $18.32022, as compared to $9.7 million recognized for the year ended September 30, 2017 as compared to $12.2 million for the year ended September 30, 2016. Additionally, industry training revenue increased by $2.4 million compared to the prior year primarily due to increased dealer training.2021.
Educational services and facilities expenses.
Our educational services and facilities expenses for the year ended September 30, 20172022 were $181.0$207.2 million,, representing a decreasean increase of $13.4$40.4 million, or 6.9%24.2%, as compared to $194.4$166.8 million for the year ended September 30, 2016.2021.
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The following table sets forth the significant components of our educational services and facilities expenses:expenses (in thousands):
Year Ended September 30,
20222021
Salaries expense$88,632 $75,561 
Employee benefits and tax17,384 11,689 
Bonus expense2,335 1,985 
Stock-based compensation240 60 
Compensation and related costs108,591 89,295 
Occupancy costs35,408 31,409 
Depreciation and amortization expense15,709 13,232 
Supplies and maintenance expense17,387 13,069 
Student expense4,908 4,158 
Contract services expense4,764 2,516 
Taxes and licensing expense2,749 2,422 
Other educational services and facilities expenses17,717 10,717 
Total educational services and facilities expense$207,233 $166,818 
  Year Ended September 30,
  2017 2016
  (In thousands)
Salaries expense $80,575
 $88,240
Employee benefits and tax 17,016
 17,763
Bonus expense 1,169
 1,145
Stock-based compensation 166
 280
Compensation and related costs 98,926
 107,428
Occupancy costs 35,693
 36,292
Depreciation and amortization expense 15,478
 16,548
Other educational services and facilities expense 13,349
 14,097
Supplies and maintenance 7,687
 8,924
Tools and training aids expense 6,442
 6,606
Contract services expense 3,452
 4,500
  $181,027
 $194,395

Compensation and related costs decreased $8.5increased $19.3 million for the year ended September 30, 2017,2022, as compared to the prior year:
•year. Salaries expense decreased $7.6increased $13.1 million largely attributable to a decrease in the number of employeesprimarily related to incremental headcount for the reductions in workforce undertaken in Septembertwo new campuses and November 2016, which primarily impacted non-instructor positionstwo new welding programs launched during the year, as well as other programs and related salaries expense. Partially offsetting this decrease was an increaseneeds to continue enhancing the student experience. The acquisition of $0.8MIAT represented $7.3 million in salaries expense for our Long Beach, California campus, which opened in August 2015.of the increase.
•Employee benefits and tax decreased $0.8
Occupancy costs increased $4.0 million during fiscal year 2022. Our occupancy cost increased due to the reduction in employee headcountaddition of the new Austin, Texas and other changes to employee benefits. The decrease was partially offset by an increase in self-insurance medical claims.Miramar, Florida campus locations as well as the two MIAT campus locations.


Depreciation and amortization expense decreased $1.0increased $2.5 million during the year ended September 30, 2017 as a higher percentage2022 primarily due to the purchase of our fixed assets are fully depreciated.the Lisle Campus during fiscal year 2022.

Supplies and maintenance expense decreasedincreased by $4.3 million primarily due to $1.9 million in technical supplies due to the addition of the Austin, Texas and Miramar, Florida campuses and $1.2 million duringin repairs and maintenance for the year ended September 30, 2017buildings and ground due to the consolidation of the MMI Phoenix, Arizona campus into the Avondale, Arizona building and the consolidation of the Orlando, Florida campus into one site.

Student expense increased by $0.8 million primarily as a result of cost savings efforts across our campus locations. The decrease was attributabledue to a higher level of spending$0.3 million increase in the prior yearstudent housing expenses.

Other educational services and facilities expense increased by $7.0 million. The increase is primarily related to classroom renovations at certainan increased cost of tools of $2.1 million due to our new campus locationsopenings and purchases relatedbooks of $1.3 million due to the openingour increased number of our Long Beach, California campus, as well as increased focus on cost control initiatives during the current year.students.


Contract services expense decreased $1.0 million during the year ended September 30, 2017 primarily as a result of a decreased need for interpreter services.



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Selling, general and administrative expenses.

Our selling, general and administrative expenses for the year ended September 30, 20172022 were $145.1$189.2 million, representing a decreasean increase of $26.3$35.8 million, or 15.4%23.4%, as compared to $171.4$153.3 million for the year ended September 30, 2016.2021.
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The following table sets forth the significant components of our selling, general and administrative expenses:expenses (in thousands):
 Year Ended September 30,
20222021
Salaries expense$63,319 $56,644 
Employee benefits and tax11,734 10,965 
Bonus expense14,329 14,671 
Stock-based compensation4,172 1,748 
Compensation and related costs93,554 84,028 
Advertising expense51,546 38,748 
Other selling, general and administrative expenses26,314 18,828 
Contract services expense5,815 5,509 
Professional services expense8,755 5,409 
Intangible asset impairment expense2,000 — 
Depreciation and amortization expense1,174 796 
Total selling, general and administrative expenses$189,158 $153,318 
  Year Ended September 30,
  2017 2016
  (In thousands)
Salaries expense $57,613
 $71,153
Employee benefits and tax 13,170
 15,817
Bonus expense 3,061
 4,793
Stock-based compensation 2,829
 4,624
Compensation and related costs 76,673
 96,387
Advertising expense 38,561
 41,191
Other selling, general and administrative expenses 21,818
 24,684
Contract services expense 4,490
 5,416
Depreciation and amortization expense 2,691
 2,543
Bad debt expense 827
 1,153
  $145,060
 $171,374

Compensation and related costs decreased $19.7increased by $9.5 million for the year ended September 30, 2017,2022 as compared to the prior year:
•Salaries expense decreased approximately $13.6 million,year, primarily due to savings realized following the September 2016 reduction in workforce and the restructuring of our campus admissions organization in June 2016. Additionally, severance expense decreased $3.6 million as compared to the prior year.
•Employee benefits and tax decreased $2.6 million due to the reduction in employee headcount and other changes to employee benefits. The decrease was partially offset by an increase in self-insurance medical claims.
•Bonusheadcount to support our growth and diversification initiatives, along with an increase in stock-based compensation expense decreased $1.7 million, primarily due to minimal attainment on our largest bonus plan. This decrease was partially offset byreflecting the implementationcumulative impact of annual grants being resumed in late 2016 of a graduate-based incentive compensation program for our admissions representatives.
•Stock-based compensation decreased $1.8 million, primarily due to a lower level of grants during 20162020 and 2017.
We anticipate our compensation andadjustments related costs will increase by approximately 8% for the year ending September 30, 2018; the increase is primarily attributable to the substantial completionperformance conditions in the prior year. The acquisition of MIAT represented $2.9 million of the conversion of our admissions representatives to a graduate-based incentive compensation program as well as the expansion of our executive team in November 2017.increase.
Advertising expense decreased $2.6increased by $12.8 million for the year ended September 30, 2017,2022, as compared to the prior year. We have reduced or eliminated spending on certain channelsThe increase was primarily attributable to incremental spend in support of our media mix, reviewed our lead generation sourcesnew campuses and eliminated lower-quality inquiries. Additionally, we invested approximately $1.5programs launched during the current year. Advertising expense for MIAT accounted for $5.1 million in additional success-based marketing initiatives.of the increase. Advertising expense as a percentage of revenues increased to 12.3% for the year ended September 30, 2017 was approximately 11.9%. We anticipate our advertising expense will be2022 as compared to 11.6% in the range of 12.5%—13.5% of revenue for the year ending September 30, 2018.prior year.
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Contract services expense decreased $0.9Other selling, general and administrative expenses increased by $7.5 million for the year ended September 30, 2017, due to a combination of decreased outplacement fees for terminated employees and the elimination of certain contracts with external vendors.

Other expense. Our other expense for the year ended September 30, 2017 was $0.9 million, a decrease of $2.0 million2022, as compared to $2.9the prior year, due to an increase of $1.9 million in travel and entertainment costs, $1.0 million for software, and $0.8 million for bad debt expense. The increase was also due to acquisition of MIAT which represented $3.9 million.

Professional services increased by $3.3 million and contract services expense increased by $0.3 million for the year ended September 30, 2016.2022. The year ended September 30, 2016 included an impairment charge of $0.8 millionincreases were primarily due to costs incurred related to our investmentgrowth and diversification initiatives, including the acquisition of MIAT which closed in Pro-MECH. Additionally,November 2021 and pre-closing costs associated with the decrease is partially attributable to increased interest income and amortizationacquisition of discounts on held to maturity securities as a result of higher investment balances duringConcorde, which closed in December 2022.

During the year ended September 30, 2017.
Income taxes. Our income tax expense2022, we recorded an intangible asset impairment charge of $2.0 million for the year ended September 30, 2017 was $5.4 million, or 197.6% of pre-tax loss, comparedMIAT trademarks and trade name due to $26.2 million, or 121.6% of pre-tax loss, forchanging the year ended September 30, 2016. The decrease in income tax expense was due primarilyuseful life from indefinite to the establishment of a valuation allowance on our deferred tax assets during the year ended September 30, 2016. We will maintain a valuation allowance on our deferred tax assets until sufficient positive evidence exists to support its reversal. The effective income tax rate in each period also differed from the federal statutory tax rate of 35% as a result of state income taxes, net of related federal income tax benefits.four years. See Note 12Notes 2 and 11 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion.
As discussed in Note 12, certain deductions and losses are subject to an annual Section 382 limitation.  The limitation will affect the timing of when these deductions and losses can be used and may cause us to make
Other (expense) income, tax payments even if a pre-tax loss is recorded in future periods.  The limitation may also cause the deductions and losses to expire unused.net

Net income (loss). As a result of the foregoing, we reported net lossOther expense for the year ended September 30, 20172022 was $1.9 million, a decrease of $8.1$2.2 million as compared to $47.7other income of $0.2 million for the year ended September 30, 2016.2021. The $1.9 million of other expense in fiscal 2022 was comprised primarily of $2.0 million of interest expense on our additional term loan entered into during 2022 and increased interest rates due to the increased federal reserve rate, as discussed further below, partially offset by interest income of $0.5 million.



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Income taxes
Our income tax benefit for the year ended September 30, 2022 was $5.4 million, or 26.5% of pre-tax income, compared to an income tax expense of $0.6 million, or 4.0% of pre-tax income, for the year ended September 30, 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. The tax benefit recorded during the year ended September 30, 2022 primarily relates to the $12.1 million release of the valuation allowance during the period and the impact of the MIAT deferred tax liability for indefinite lived intangibles which are available to offset a portion of our indefinite lived deferred tax assets. Our income tax expense during the year ended September 30, 2021 was impacted by a decrease in the valuation allowance of $3.2 million. See Note 17 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion.

Preferred stock dividends. 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 this sale,the terms of the certificate of designation defining the rights, preferences, and privileges of the Series A Preferred Stock, we paid preferred stock cash dividends totaling $5.2 million and $5.3 million during the yearyears ended September 30, 2017 as compared to $1.4 million during the year ended September 30, 2016.2022 and 2021, respectively. See Note 1419 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further discussion of the preferred stock transaction.stock.


Income (loss) available for distribution.distribution

Income (loss) available for distribution refers to net income or loss reduced by dividends on our Series A Preferred Stock. As a result of the foregoing, we reported a lossincome available for distribution for the years ended September 30, 2022 and 2021 of $20.7 million and $9.3 million, respectively.

Income allocated to participating securities

Our Series A Preferred Stock is considered a participating security because, in the event that we pay a dividend or make a distribution on the outstanding common stock, we shall also pay each holder of the Series A Preferred Stock a dividend on an as-converted basis. The two-class method is an earnings allocation formula that determines earnings per share 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 amount of income allocated to the participating securities for the years ended September 30, 2022 and 2021 was $7.8 million and $3.6 million, respectively.
Net income available to common shareholders
After allocating the income to the participating securities, we had $12.8 million and $5.7 million of net income available to common shareholders for the years ended September 30, 2022 and 2021, respectively.
For a discussion of the financial results of operations for the year ended September 30, 2017 of $13.4 million, as2021 compared to $49.1 million for the year ended September 30 2016.    

Year Ended September 30, 2016 Compared2020, refer to Year Ended September 30, 2015
Revenues. Our revenues forPart II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” of our 2021 Form 10-K filed with the year ended September 30, 2016 were $347.1 million, a decreaseSEC on December 2, 2021 which discussion is incorporated herein by reference and which is available free of $15.6 million, or 4.3%, as compared to revenues of $362.7 million for the year ended September 30, 2015. The 9.1% decrease in our average undergraduate full-time student enrollment resulted in a decrease in revenues of approximately $32.3 million. Partially offsetting this decrease was one additional earning day in 2016, which contributed $1.3 million in revenue. Additionally, the decrease was partially offset by tuition rate increases of up to 3%, dependingcharge on the program. Our revenues for the years ended September 30, 2016 and 2015 excluded $18.7 million and $21.1 million, respectively, of tuition related to students participating in our proprietary loan program. We recognized $7.2 million and $5.4 million of revenues and interest under the proprietary loan program for the years ended September 30, 2016 and 2015, respectively. Revenues for our Long Beach, California campus were $12.2 million for the year ended September 30, 2016, as compared to $0.7 million for the year ended September 30, 2015.
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Educational services and facilities expenses. Our educational services and facilities expenses for the year ended September 30, 2016 were $194.4 million, consistent with $194.4 million for the year ended September 30, 2015.
Our educational services and facilities expenses for our Long Beach, California campus were $11.2 million and $4.1 million for the years ended September 30, 2016 and 2015, respectively, including corporate allocations of $0.8 million and $0.2 million, respectively.

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

  Year Ended September 30,
  2016 2015
  (In thousands)
Salaries expense $88,240
 $86,025
Employee benefits and tax 17,763
 15,643
Bonus expense 1,145
 1,225
Stock-based compensation 280
 294
Compensation and related costs 107,428
 103,187
Occupancy costs 36,292
 36,127
Depreciation and amortization expense 16,548
 17,805
Other educational services and facilities expense 18,597
 18,357
Supplies and maintenance 8,924
 9,981
Tools and training aids expense 6,606
 8,959
  $194,395
 $194,416
Compensation and related costs increased $4.2 million for the year ended September 30, 2016 as compared to the prior year:
•Salaries expense increased $2.2 million primarily due to normal salary merit increases. Additionally, we recorded severance expense of $0.4 million related to the previously discussed reduction in workforce undertaken in September 2016, which primarily impacted non-instructor positions and related salaries expense.
•Employee benefits and tax increased $2.2 million as a result of an increase in self-insurance medical claims.

Compensation and related costs for our Long Beach, California campus were $4.6 million for the year ended September 30, 2016 as compared to $0.9 million in the prior year.

Depreciation and amortization expense decreased $1.3 million during the year ended September 30, 2016 as a higher percentage of our fixed assets are fully depreciated.
Supplies and maintenance expense decreased $1.1 million during the year ended September 30, 2016 primarily as a result of cost savings efforts across our campus locations.

Tools and training aids expense decreased $2.4 million during the year ended September 30, 2016. The decrease was attributable to a higher level of purchases in the prior year related to the opening of our Long Beach,
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California campus and the rollout of our diesel and industrial programsSEC’s website at our Orlando, Florida campus in January 2015. Additionally, there was a lower level of purchases across our campus locations in the current year.

Selling, general and administrative expenses. Our selling, general and administrative expenses for the year ended September 30, 2016 were $171.4 million, representing a decrease of $6.1 million, or 3.4%, as compared to $177.5 million for the year ended September 30, 2015.

Our selling, general and administrative expenses for our Long Beach, California campus were $8.8 million and $3.5 million for the years ended September 30, 2016 and 2015, respectively, including corporate allocations of $5.6 million and $2.3 million, respectively.

The following table sets forth the significant components of our selling, general and administrative expenses:
  Year Ended September 30,
  2016 2015
  (In thousands)
Salaries expense $71,153
 $66,570
Employee benefits and tax 15,817
 13,221
Bonus expense 4,793
 4,016
Stock-based compensation
 4,624
 3,971
Compensation and related costs 96,387
 87,778
Advertising expense 41,191
 44,688
Other selling, general and administrative expenses 30,100
 28,551
Goodwill impairment expense —
 12,357
Depreciation and amortization expense
 2,543
 2,518
Bad debt expense 1,153
 1,589
  $171,374
 $177,481
Compensation and related costs increased $8.6 million for the year ended September 30, 2016 as compared to the prior year:
•Salaries expense increased approximately $4.6 million. We recorded $2.7 million in severance charges as a result of the reduction in workforce undertaken in September 2016. The remainder of the increase was primarily due to normal salary merit increases. The increases were partially offset by savings realized following the restructuring of our campus admissions organization in June 2016.
•Employee benefits and tax increased $2.6 million as a result of an increase in self-insurance medical claims.
•Bonus expense increased $0.8 million primarily due to attainment of both financial and non-financial metrics at a rate higher than the prior year. Additionally, bonus expense increased as a result of long-term incentive cash awards granted beginning in 2014 in lieu of stock compensation for certain employees.
Compensation and related costs for our Long Beach, California campus were $3.2 million for the year ended September 30, 2016 as compared to $1.2 million in the prior year.
Advertising expense decreased $3.5 million for the year ended September 30, 2016, as compared to the prior year. The decrease was primarily attributable to lower inquiry generation expenses, as we reduced spending
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on lower quality lead sources in a continued effort to optimize our media mix. Additionally, spending on tradeshows and on local advertising decreased related to the prior year, which included expense related to the opening of our Long Beach, California campus in August 2015. We continue to focus on identifying the optimal balance between quality and quantity of inquiries from potential students. Advertising expense as a percentage of revenues for the year ended September 30, 2016 was approximately 11.9%.

We recorded a non-cash goodwill impairment charge of $12.4 million during 2015 to write off the full carrying value of goodwill at our MMI Phoenix, Arizona campus. This non-cash charge had no impact on liquidity or cash flows from operations. No goodwill impairment was incurred in 2016.

Other expense. Our other expense for the year ended September 30, 2016 was $2.9 million, an increase of $1.4 million as compared to $1.5 million for the year ended September 30, 2015. The increase is primarily attributable to an increase in interest expense due to amortization of the financing obligations related to our Lisle, Illinois and Long Beach, California campuses. Additionally, other expense included an impairment charge of $0.8 million related to our investment in Pro-MECH for the year ended September 30, 2016.
Income taxes. Our income tax expense for the year ended September 30, 2016 was $26.2 million, or 121.6% of pre-tax loss, compared to an income tax benefit of $1.5 million, or 14.3% of pre-tax loss, for the year ended September 30, 2015. The increase in income tax expense was due primarily to the increase in the valuation allowance established on our deferred tax assets. The effective income tax rate in each period also differed from the federal statutory tax rate of 35% as a result of state income taxes, net of related federal income tax benefits, and due to tax expense related to share-based compensation.

At the time of our initial public offering in December 2003, we began awarding stock-based compensation in the form of stock options with a contractual life of 10 years. In subsequent years, we have awarded other forms of stock-based compensation with varying terms. In 2006, we adopted the authoritative guidance on accounting for stock-based compensation, which gave rise to deferred tax assets related to stock-based compensation timing differences between book expense and tax deductions, as well as a pro forma pool of windfall tax benefits. When tax deductions from stock-based compensation awards are less than the cumulative book compensation expense, the tax effect of the resulting difference (shortfall) is charged first to additional paid-in capital to the extent of our pro forma pool of windfall tax benefits, with any remainder written off to income tax expense. Such write-offs may be the result of expiration, exercise or vesting of prior stock-based compensation awards. The write-off of the deferred tax asset is a non-cash charge and is not a result of current operations.
During the six months ended March 31, 2016, the write-off of the deferred tax asset related to stock-based compensation resulted in income tax expense of less than $0.1 million. As of March 31, 2016, we recorded a full valuation allowance on our deferred tax assets. As a result, any write-offs of deferred tax assets related to stock-based compensation will have no impact on income tax expense until such time that sufficient positive evidence exists to support the reversal of the deferred tax asset valuation allowance. Subsequent to March 31, 2016, we wrote off $1.8 million related to stock-based compensation.
Net income (loss). As a result of the foregoing, we reported net loss for the year ended September 30, 2016 of $47.7 million, as compared to $9.1 million for the year ended September 30, 2015.

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 this sale, we paid a preferred stock cash dividend of $1.4 million on September 28, 2016.

Income (loss) available for distribution. Income (loss) available for distribution refers to net income or loss reduced by dividends on our Series A Preferred Stock. As a result of the foregoing, we reported a loss available for distribution for the year ended September 30, 2016 of $49.1 million, as compared to $9.1 million for the year ended September 30, 2015.    
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www.sec.gov.
Non-GAAP financial measures

Financial Measures
Our adjusted earnings before interest, tax, depreciation and amortization (adjusted EBITDA)(“EBITDA”) for the years ended September 30, 2017, 20162022, 2021 and 20152020 were $17.9$38.8 million, $0.8$29.5 million and $24.1$9.4 million, respectively. We define EBITDA as net income (loss) for the year, before interest (income) expense, income tax (benefit) expense, and depreciation and amortization.
Adjusted 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 adjusted EBITDA as aan internal performance measure internally.measure. To obtain a complete understanding of our performance, this measure should be examined in connection with net income (loss) determined in accordance with GAAP. Since the items excluded from this measure should be examinedare


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significant components in connection with net income in determiningunderstanding and assessing financial performance under GAAP, this measure should not be considered to be an alternative to net income (loss) or any other measures derived in accordance with GAAP 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 adjusted 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.

Adjusted EBITDA reconciles to net lossincome as follows:follows (in thousands):
 Year Ended September 30,
 202220212020
Net income$25,848 $14,581 $8,008 
Interest expense (income), net1,495 282 (1,142)
Income tax (benefit) expense(5,407)602 (10,602)
Depreciation and amortization (1)
16,883 14,028 13,150 
EBITDA$38,819 $29,493 $9,414 
  Year Ended September 30,
  2017 2016 2015
     
Net loss $(8,128) $(47,696) $(9,149)
Interest expense, net 2,481
 3,196
 2,125
Income tax expense (benefit) 5,397
 26,170
 (1,532)
Depreciation and amortization (1)
 18,169
 19,091
 20,323
Goodwill impairment expense —
 —
 12,357
Adjusted EBITDA $17,919
 $761
 $24,124

(1)     Includes depreciation of training equipment obtained in exchange for services of $1.3$0.9 million, $1.3$1.2 million, and $1.2$1.3 million for the years ended September 30, 2017, 20162022, 2021 and 2015,2020, respectively.

Student retention/completion rate

Our consolidated student retention/completion rate is based on new students that began one of our programs during a fiscal year and completed or are still attending as of September 30 of the following fiscal year. The following table sets forth our consolidated student retention/completion rate during each of the periods indicated:
  Year Ended September 30,
  2017 2016 2015
       
Consolidated student retention/completion 67% 66% 65%

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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 commitments and other liquidity requirements associated with our existing operations, as well as the expansion of programsannounced growth and diversification initiatives through at existing campuses throughleast the next 12 months.

We believe that the strategic use of ourfiscal year. Our cash resources includes subsidizing funding alternatives for our students. Additionally, we evaluate the repurchase of our common stock, consideration of strategic acquisitions, expansion of programs at existing campuses, opening additional campus locations and other potential uses of cash. We have selected a location for a new Bloomfield, New Jersey campus on a scale similar to our Long Beach, California and Dallas/Ft. Worth, Texas campuses, which we expect to open in fall 2018.

On June 9, 2016, our Board of Directors voted to eliminate the quarterly cash dividend on our common stock. On June 24, 2016, we issued 700,000 shares of Series A Preferred Stock for a total purchase price of $70.0 million. The proceeds from the offering are intended to be usedposition is available to fund strategic long-term growth initiatives, including the expansion toopening additional campuses in new markets of campuses on a scale similar to our Long Beach, California and Dallas/Ft. Worth, Texas campuses and the creation and expansion of new programs, such as welding, in existing markets with under-utilizedand campus facilities.

Our total liquidity as of September 30, 2022 was $95.4 million, including cash and cash equivalents of $66.5 million and $28.9 million of held-to-maturity investments. This represents a decrease of $38.4 million from our total liquidity as of September 30, 2021.

Strategic Uses of Cash

We believe that additional strategic uses of our cash resources may useinclude consideration of acquisitions, the proceeds to fund strategic acquisitions that complementrepurchase of common stock, purchase of real estate assets, new campus openings or expansion of programs at existing campuses and subsidizing funding alternatives for our core business.students, among others. To the extent that potential acquisitions are large enough to require financing beyond cash from operations, cash and cash equivalents, and held-to-maturity investments, on hand or we need capital to fund operations or other new campus openings or expansion of programs at existing campuses,organic investments, we may enter into aadditional credit facility,facilities, issue debt or issue additional equity.

On November 1, 2021, using operating cash on hand, we acquired all of 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 our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on the acquisition.

During February 2022, we purchased the Lisle Campus for approximately $28.7 million, in cash plus assumed debt, including closing costs and other fees. Due to the timing of the close for the Lisle Campus, we used available operating cash for the purchase. On April 14, 2022, our wholly owned subsidiary entered into a new loan agreement to fund the acquisition and retirement of the Lisle Term Loan - WA, via a term loan in the original principal amount of $38.0 million with a maturity of seven years. The net proceeds from the new loan agreement after fees and the retirement of the Lisle Term Loan - WA were approximately $20.0 million. See Notes 9, 15 and 16 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on the purchase and related debt and interest rate swap.



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On May 3, 2022, we entered into a definitive agreement to acquire Concorde for a base purchase price of $50.0 million in cash, subject to closing working capital adjustments. The closing is subject to customary closing conditions, including the receipt of a pre-acquisition review notice from ED that does not contain certain letter of credit requirements. On December 1, 2022, the company completed the Concorde acquisition. See Note 26 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on this acquisition.

Long-term Debt

As of September 30, 2022, we had $68.1 million of long-term debt outstanding, which is comprised of two term loans. Of the $68.1 million outstanding, $30.1 million relates to a term loan that bears interest at the rate of LIBOR plus 2.0% over the seven year term secured in connection with the Avondale, Arizona campus property purchased in December 2020. The remaining $38.0 million relates to a term loan that bears interest at the rate of SOFR plus 2.0% over the seven year term, secured in connection with the purchase of the Lisle Campus property in February 2022. See Note 15 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on the term loans.

On November 18, 2022, we entered into a revolving credit facility with Fifth Third Bank, a national banking association with a three year term (the “Credit Facility”). Availability under the Credit Facility is $100.0 million with a $20.0 million sub-facility available for letters of credit. On November 28, 2022, we drew $90.0 million from the credit facility in support of the closing of the Concorde acquisition. See Note 26 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for additional details on this subsequent event item.

Dividends

We currently do not pay a cash dividend on our common stock. For our outstanding Series A preferred shares, we paid preferred stock cash dividends of $5.2 million and $5.3 million during the yearyears ended September 30, 2017.2022 and 2021, respectively. The preferred stock dividends are subject to adjustment for any preferred stock conversions that occur during the year.


To the extent that we enter into leasing transactions that result in financing obligations or capital leases, our interest expense would increase. Our aggregate cash and cash equivalents and current investments were $97.9 million and $120.7 million asPrincipal Sources of September 30, 2017 and 2016, respectively.Liquidity


Our principal source of liquidity is operating cash flows and existing cash and cash equivalent and investment balances.equivalents. A majority of our revenues are derived from Title IV Programs and various veterans benefits programs. Federal regulations dictate the timing of disbursements of funds under Title IV Programs. Students must apply for new funding for each academic year consisting of thirty-week30-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 sixteenth16th week from the start of the student’s academic year. Under ourthe proprietary loan program, we bear all credit and collection risk and students are not required to begin repayment until six months after the student completes or withdraws from his or her program. These factors, together with the timing of when our students begin their programs, affect our operating cash flow.


Surety Bonds

Each of our campuses must be authorized by the applicable state education agency in which the campus is located to operate and to grant certificates, diplomas or degrees to its students. Our campuses are subject to extensive, ongoing regulation by each of these states. Additionally, our campuses are required to be authorized by the applicable state education agencies of certain other states in which our campuses recruit students. Our insurers issue surety bonds for us on behalf of our campuses and admissions representatives with multiple states to maintain authorization to conduct our business. We are obligated to reimburse our insurers for any surety bonds that are paid by the insurers. As of September 30, 2022, the total face amount of these surety bonds was approximately $20.5 million.

Operating Activities


Our net cash used inprovided by operating activities was $10.0$46.0 million and $55.2 million for the years ended September 30, 2022 and 2021, respectively.



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Net income, after adjustments for non-cash items, provided cash of $64.8 million for the year ended September 30, 2017. Our net cash provided by operating activities were $7.4 million, and $8.22022. The non-cash items included $16.9 million for the years ended September 30, 2016depreciation and 2015, respectively. The cash used inamortization expense, $15.9 million for amortization of right-of-use assets for operating activities in 2017 was primarily attributable to net loss of $8.1leases, $4.3 million for stock-based compensation expense and a cash outflow of $20.8$2.5 million related to the change in our operating assets and liabilities,for bad debt expense, partially offset by adjustmentsan adjustment of $19.0deferred taxes of $6.0 million for non-cash and other items.due primarily to the release of our valuation allowance during the year.


Changes in operating assets and liabilities
For for the year ended September 30, 2017,2022 used cash of $18.8 million primarily due to the changesfollowing:

•Changes in our operating assets and liabilities resulted in cash outflowslease liability as a result of $20.8 million. The outflows were primarily attributable to changes in restricted cash, accounts payable
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and accrued expenses, deferred revenue, receivables, and deferred rent. The outflow was partially offset by a change in income tax from a receivable position to a payable position.
The outflow in restrictedrent payments used cash of $11.1 million was primarily related to the collateralization of surety bonds. The decrease$14.0 million.
•Changes in our accounts payable and accrued expenses resulted in a cash outflow of $4.8 million due to decreases in accrued bonus due to minimal attainment on largest bonus plan compared to prior year, accrued severance from the November 2016 reduction in workforce and accrued expenses primarily due to the timing of when we purchase loans from tuition loan program. The decrease was partially offset by an increase in accrued advertising costs for marketing initiatives. payments provided cash of $5.7 million.
•The decrease in deferred revenue resulted in aused cash outflow of $3.1$5.3 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 September 30, 20172022 as compared to September 30, 2016. 2021.
•The increase in receivables resulted in aprepaid expense and other current assets used cash outflow of $3.0$1.7 million and was primarily attributablerelated to the timing of cash receipts on behalf of our students, and a decrease in our allowance for doubtful accounts. The decrease in deferred rent liability resulted in a cash outflow of $2.1 million and was primarily due to amortization of the deferred rent balance associated with our home office lease. Partially offsetting the cash outflows was a change in training equipment credits earned as of September 30, 2022.

Net income, tax from a receivable position to a payable position, which resulted in a cash inflow of $2.7 million and was primarily due to the loss carrybacks that occurred in the prior year and the timing of tax payments and refunds.
Forafter adjustments for non-cash items, for the year ended September 30, 2016, the changes2021 provided cash of $47.7 million. The non-cash items included $15.6 million for amortization of right-of -use assets for operating leases, $14.0 million for depreciation and amortization expense, $1.7 million for stock-based compensation expense, and $1.7 million for bad debt expense.

Changes in our operating assets and liabilities resulted in cash inflows of $3.6 million. The inflows were primarily attributable to changes in receivables and accounts payable and accrued expenses. The decrease in receivables resulted in a cash inflow of $8.2 million, and was primarily attributable to the timing of cash receipts on behalf of our students, and a decrease in our allowance for doubtful accounts. The increase in accounts payable and accrued expenses resulted in a cash inflow of $1.9 million and was primarily due to the timing of invoices. Partially offsetting the increases was a change in income tax from a payable position to a receivable position, which resulted in a cash outflow of $3.4 million and was primarily due to loss carrybacks and the timing of tax payments and receipts.
For the year ended September 30, 2015, the changes in our operating assets and liabilities resulted in2021 used cash outflows of $14.8 million. The outflows were primarily attributable to changes in receivables, income tax payable and deferred revenue. The increase in receivables resulted in a cash outflow of $11.4$7.4 million and was primarily attributable to the timing of cash receipts on behalf of our students and a decrease in our allowance for doubtful accounts. The decrease in income tax payable resulted in a cash outflow of $3.1 million and was primarily due to the timing of tax payments. following:

•The decreaseincrease in deferred revenue resulted in aused cash outflow of $1.7$17.0 million and was primarily attributable to the timing of student starts, the lower number of students in school and where they were at period end in relationrelations to the completion of their program at September 30, 20152021 as compared to September 30, 2014. Partially offsetting the2019.
•The decrease in receivables provided cash outflows for the year ended September 30, 2015 was a cash inflow of $4.4$8.5 million resulting from increases in accounts payable and accrued expenses and accrued tool sets and other current liabilities. The increase in accounts payable and accrued expenses was primarily due to the openingtiming of Title IV disbursements and other cash receipts on behalf of our Long Beach, California campusstudents.
•The decrease in 2015,the income taxes receivable provided cash of $7.1 million and was primarily attributable to receipt of the remaining income tax refund originally recorded in fiscal 2020 as a result of the CARES Act which allowed us to carryback NOLs from previous years.
•Changes in our operating lease liability as a result of rent payments used cash of $20.5 million.
•The increase in accrued tool setsprepaid expense and other current liabilities was attributedused cash of $4.4 million primarily related to the dividend payable at September 30, 2015.timing of payments to vendors and bonus accruals.


Investing Activities

For the year ended September 30, 2017,2022, net cash used in investing activities was $52.2$134.6 million. We hadThe cash outflows foroutflow was primarily related to the purchase of trading securitiesproperty and held to maturity investmentsequipment of $42.7$79.5 million, and $9.7 million, respectively. We had cash outflows of $8.2which $28.7 million related to the purchasespurchase of the Lisle Campus. Other capital expenditures included investments for new campuses in Austin, Texas and Miramar, Florida, the consolidation of the Orlando, Florida and Arizona campuses, and the rollout of new and replacement training equipment for our ongoing operations.We had cash inflows of $3.6 million and $2.7 million from proceeds received upon the maturity of our investments and proceeds received from sales of trading securities, respectively.
For the year ending September 30, 2018, we anticipate investing in capital expenditures in the range of $24 million to $25 million. Of this total, approximately $11 million is attributable to the property and equipment
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required to begin teaching classesprograms at our Bloomfield, New Jersey campus, with an additional $4campuses. We purchased $28.8 million related to the expansion of programs at existing campuses.short term held-to-maturity investments. Additionally, we purchased MIAT for $26.5 million, net of cash consideration received.

For the year ended September 30, 2016,2021, net cash provided byused in investing activities was $17.3$23.0 million. We hadThe cash inflowsoutflow was primarily related to the purchase of $27.7property and equipment of $61.6 million, of proceeds received upon the maturity of our investments. We had cash outflows of $7.5which $45.2 million related to the purchasespurchase of newthe building and replacement trainingland at our Avondale, Arizona campus location, while the remaining amount represented capital expenditures for the Lisle, Illinois and Bloomfield, New Jersey welding program expansions, the Orlando, Florida and Sacramento, California consolidations, and other campus investments. The purchase of property and equipment for our ongoing operations. We had a cash outflowwas partially offset by proceeds from maturities of $1.5 million related to the acquisitionheld-to-maturity securities of BMS and a cash outflow of $1.0 million related to an investment in Pro-Mech.$37.7 million.



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Financing Activities

For the year ended September 30, 2015,2022, net cash used in investingprovided by financing activities was $2.7$12.6 million andwhich was primarily related to $29.0 million in purchases of property and equipment and $26.1 millionproceeds from our new term loan for the purchaseLisle Campus of investments. Approximately $9.7$38.0 million of the purchase of property and equipment was related to the purchase of the majority of the buildings and land for our Houston, Texas campus facility and $12.5 million was related to the construction of our new Long Beach, California campus. The remainder was related to the purchases of new and replacement training equipment for our ongoing operations. The cash outflows were partially offset by approximately $51.8the repayment of long-term debt of $19.2 million and the semi-annual payments of proceeds received upon the maturitypreferred stock dividends of our investments.$5.2 million.

Financing Activities
For the year ended September 30, 2017, cash used in financing activities was $6.8 million and related primarily to the payment of preferred stock dividends of $2.6 million on September 25, 2017 and on March 28, 2017, respectively.
For the year ended September 30, 2016,2021, net cash provided by financing activities was $64.9$24.8 million andwhich was primarily attributable to the net cashresult of the $31.2 million in proceeds received from the financing of $68.9 million for the issuanceAvondale, Arizona property in May 2021. This was partially offset by our semi-annual payments of preferred stock. We paid common stock cash dividends in October 2015, December 2015 and March 2016 of $0.02 per share, totaling $1.5$5.3 million. In June 2016,

For a discussion of our Board of Directors voted to eliminate the quarterly cash dividend on our common stock. We paid $1.4 millionliquidity for preferred stock cash dividends in September 2016.
For the year ended September 30 2015, cash used in financing activities was $15.1 million2020, refer to Part II, Item 7, “Management’s Discussion and was primarily attributable to the paymentAnalysis of cash dividends in December 2014, March 2015Financial Position and June 2015Results of $0.10 per share totaling $7.3 million and the repurchase of $6.6 millionOperations,” of our common stock.2021 Form 10-K filed with the SEC on December 2, 2021 which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.

Share Repurchase Program


On December 20, 2011,10, 2020, our Board of Directors authorized a new share repurchase plan that would allow for the repurchase of up to $25.0$35.0 million of our common stock in the open market or through privately negotiated transactions. The timing and actual number of shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements, and prevailing market conditions. We may terminate or limit theThis new share repurchase program at any time without prior notice. Duringplan replaced the year ended September 30, 2017, we did not repurchase any shares. As of September 30, 2017, we have repurchased 1,677,570 shares at an average price per share of $9.09 and a total cost of approximately $15.3 millionpreviously authorized plan from fiscal 2012. Any repurchases under this program. Under the terms of the Purchase Agreement,new stock purchases under thisrepurchase program require the approval of a majority of the voting power of theour Series A Preferred Stock.

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Contractual Obligations

The following table sets forth, as of September 30, 2017, We did not repurchase any shares during the aggregate amounts of our significant contractual obligations and commitments with definitive payment terms that will require cash outlays in the future.

  Payments Due by Period
    Less than 1-3 3-5 More than
  Total 1 year years years 5 years
  (In thousands)
Operating leases, net of sublease income (1)
 $127,659
 $27,351
 $49,398
 $38,565
 $12,345
Purchase obligations (2)
 31,378
 19,495
 4,406
 3,456
 4,021
Other long-term obligations (3)
 78,965
 5,203
 10,182
 10,288
 53,292
Total contractual commitments $238,002
 $52,049
 $63,986
 $52,309
 $69,658

(1)Minimum rental commitments. These amounts do not include property taxes, insurance or normal recurring repairs and maintenance.

(2)Includes all agreements to purchase goods or services of either a fixed or minimum quantity that are enforceable and legally binding. Additionally, purchase orders outstanding as of September 30, 2017, employment contracts and minimum payments under licensing and royalty agreements are included.

(3)Includes lease payments for our Lisle, Illinois and Long Beach, California campuses which are accounted for as financing obligations. See Note 9 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Report on Form 10-K for further discussion.

Off-Balance Sheet Arrangements

Each of our campuses must be authorized by the applicable state education agency in which the campus is located to operate and to grant certificates, diplomas or degrees to its students. Our campuses are subject to extensive, ongoing regulation by each of these states. Additionally, our campuses are required to be authorized by the applicable state education agencies of certain other states in which our campuses recruit students. Our insurers issue surety bonds for us on behalf of our campuses and admissions representatives with multiple states to maintain authorization to conduct our business. We are obligated to reimburse our insurers for any surety bonds that are paid by the insurers. As of September 30, 2017, the total face amount of these surety bonds was approximately $21.4 million. During the yearyears ended September 30, 2017, we renegotiated the bonds required to operate2022, 2021, and collateralized approximately $11.5 million in bonds, which are reflected in restricted cash on our consolidated balance sheets.2020.


Additionally, our consolidated balance sheets do not reflect our operating lease obligations described above in "Contractual Obligations" or our proprietary loan program described below in "Critical Accounting Estimates".

Related Party Transactions


Information concerning certain related party transactions is included in Note 13 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K.


For a description of additional information regarding related party transactions, see the information included in our proxy statement for the 20182023 Annual Meeting of Stockholders under the heading “Certain
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Relationships and Related Transactions”.Transactions.”


Seasonality


Our revenues and operating results normally fluctuate as a result of seasonal variations in our business, principally due to changes in total student population and costs associated with opening or expanding our campuses. Our student population varies as a result of new student enrollments, graduations and student attrition. Historically, we have had lower student populations in our third quarter than in the remainder of our year because fewer students are enrolled during the summer months. Additionally, we have had higher student populations in our fourth quarter than in the remainder of the year because more students enroll during this period. Our expenses, however, do not vary significantly with changes in student population and revenues and, as a result, such expenses do not fluctuate significantly on a quarterly basis. We expect quarterly fluctuations in operating results to continue as a result of seasonal enrollment patterns. Such patterns may change, however, as a result of new school openings, new program introductions, increased enrollments of adult students or acquisitions. Furthermore, our revenues for the first quarter ending December 31 are impacted by the closure of our campuses for a week in December for a holiday break and during which we do not earn revenue.

Revenues
(Dollars shown in thousands)Year Ended September 30,
202220212020
Three Month Period Ending:AmountPercentAmountPercentAmountPercent
December 31$105,075 25.1 %$76,125 22.7 %$87,234 29.0 %
March 31102,086 24.4 %77,709 23.2 %82,717 27.5 %
June 30100,966 24.1 %83,768 25.0 %54,483 18.1 %
September 30110,638 26.4 %97,481 29.1 %76,327 25.4 %
  Fiscal year$418,765 100.0 %$335,083 100.0 %$300,761 100.0 %
Operating income is negatively impacted during the initial start up of new campus openings. We incur marketing and admissions costs as well as campus personnel costs in advance of the campus opening. Typically we begin to incur such costs approximately 12 to 15 months in advance of the campus opening with the majority of the costs being incurred in the nine month period prior to a campus opening.


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 Revenues
 Year Ended September 30,
  2017 2016 2015
Three Month Period Ending: Amount Percent Amount Percent Amount Percent
  ($'s in thousands)
December 31 $84,179
 26.0% $89,773
 25.9% $95,680
 26.3%
March 31 82,497
 25.4% 88,192
 25.4% 91,235
 25.2%
June 30 76,258
 23.5% 82,266
 23.7% 85,106
 23.5%
September 30 81,329
 25.1% 86,915
 25.0% 90,653
 25.0%
  $324,263
 100% $347,146
 100% $362,674
 100%


 Income (Loss) from Operations
 Year Ended September 30,
  2017 2016 2015
Three Month Period Ending: Amount Percent Amount Percent Amount Percent
  ($'s in thousands)
December 31 $1,387
 (76.0)% $(2,193) 11.8% $5,600
 (60.7)%
March 31 687
 (37.7)% (5,770) 31.0% 2,402
 (26.0)%
June 30 (2,784) 152.6 % (5,450) 29.2% (3,996) 43.3 %
September 30 (1,114) 61.1 % (5,210) 28.0% (13,229) 143.4 %
  $(1,824) 100 % $(18,623) 100% $(9,223) 100 %

The declineincrease in revenues for each of the three month periodsmonths ended December 31, 2021, March 31, 2022, June 30, 2022 and September 30, 2017; March 31, June 30, September 30 and December 31, 2016; and December 31, 2015,2022, as compared to the same periods in the prior year,fiscal 2021, was primarily due to a decreasean increase in our student population during fiscal 2022, in 2017conjunction with the acquisition of MIAT. The first three periods also benefited from lower average revenue per student in the prior year period due to lingering impacts of COVID-19.

The increase in revenues from December 31, 2020 to September 30, 2021 was primarily related to student growth and 2016,the rebound in full-time active students during fiscal 2021 as the COVID-19 pandemic became more contained and vaccines became available. Our revenue recognized for active students improved in fiscal 2021 versus fiscal 2020, but was still impacted by COVID-19, with lower average revenue per student versus pre-COVID levels driven by the pace in which students were progressing through their programs and by students retaking courses previously completed or attempted.
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Income (Loss) from Operations
(Dollars shown in thousands)Year Ended September 30,
202220212020
Three Month Period Ending:AmountPercentAmountPercentAmountPercent
December 31$13,578 60.7 %$775 5.2 %$4,254 (109.9)%
March 313,377 15.1 %(1,661)(11.1)%(499)12.9 %
June 301,954 8.7 %3,052 20.4 %(13,779)356.0 %
September 303,465 15.5 %12,781 85.5 %6,153 (159.0)%
Fiscal year$22,374 100.0 %$14,947 100.0 %$(3,871)100.0 %
respectively.
The decrease in our student population also contributed to a declineincrease in income (loss) from operations for the three month periods endedfiscal year 2022 was primarily due to increased revenues well as continued execution of cost control measures.

The increase in income from operations from December 31, 2015 and March 31 and June 30, 2016, as compared2020 to the same periods in the prior year.

For the three month periods ended March 31, June 30, and September 30, 2017, and September 30 and December 31, 2016, income (loss) from operations improved2021 was primarily due to increased revenue as compared to the same periods in the prior year. The increases for the three month periods ended December 31, 2016, March 31, June 30, and September 30, 2017 were primarily attributable towell as continued execution of cost control efforts asmeasures.

Effect of Inflation

To date, inflation has not had a result ofsignificant effect on our Financial Improvement Plan. The increase for the three months ended September 30, 2016 was primarily attributable to the goodwill impairment recorded during the prior year comparable period.operations.


Critical Accounting Estimates


Our discussion of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. During the preparation of these financial statements, we are required to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, ourthe proprietary loan program, allowance for uncollectible accounts, goodwill recoverability, self-insurance claim liabilities, income taxes and contingencies. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements.


Our significant accounting policies are discussed in Note 2 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K. We believe that the following accounting estimates are the most critical to aid in fully understanding and evaluating our reported financial results, and they require management’s most subjective and complex judgments in estimating the effect of inherent uncertainties.


Revenue recognition.recognition

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 anddates. We apply the portion of tuition students have funded through our proprietary loan program for which payment has not been received.five-step model outlined in Accounting Standards Codification Topic 606, Revenue from Contracts from


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Customers (“ASC 606”). Tuition and fee revenue is recognized ratably over the term of the course or program offered. Approximately 98%99% of our revenues for each of the years ended September 30, 2017, 20162022, 2021 and 20152020, respectively, consisted of gross tuition. Our undergraduateThe majority of our UTI programs are typically designed to be completed in 36 to 10290 weeks andwhile our MIAT programs are completed in 28 to 96 weeks. Our advanced training programs range from 12 to 23 weeks in duration.durations. We supplement our revenues with sales of textbooks and program supplies and other revenues. Sales of textbooks and program supplies and other revenuerevenues, which are each recognized as sales occurthe transfer of goods or services are performed.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 consolidated balance sheets because it is expected to be earned within the next 12 months.

We offer the majority of our programs in a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs. We continue to recognize revenue ratably over the term of the course or program offered. All of our campuses were fully operational during fiscal 2022 and 2021. As a result, there was no deferred revenue related to the impact of COVID-19 as of September 30, 2022 and September 30, 2021, while we had $6.1 million of deferred revenue as of September 30, 2020.
Other
We provide dealer technician training or instructor staffing services to manufacturers. Revenues are recognized as transfer of the services occurs.
Proprietary Loan Program.Program
In order to provide funding for students who are not able to fully finance the cost of their education under traditional governmental financial aid programs, veterans benefits, commercial loan programs or other alternative sources, we established a private loan program with a bank. Through the proprietary loan program, the bank provides the students who participate in this program with extended payment terms for a portion of their tuition. Based on historical collection rates, we can demonstrate that 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 this collection rate.
Under the terms of the related agreement,proprietary loan program, the bank originates loans for our students who meet our specific credit criteria with the related proceeds used exclusively to fund a portion of their tuition. We then purchase all such loans from the bank at least monthly and assume all of the related credit risk. The loans bear interest at market rates;rates ranging from approximately 7% to 10%; however, principal and interest payments are not required until six months after the student completes or withdraws from his or her program. After the deferral period, monthly principal and interest payments are required over the related term of the loan. The repayment term is up to 10 years.

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In substance, we provideUnder ASC 606, the students who participate in this program with extended payment terms for a portion of their tuition and as a result, we account for the underlying transactions in accordance with our tuition revenue recognition policy. However, duerelated to the natureproprietary loan program is considered a form of variable consideration. We estimate the amount we ultimately expect to collect from the portion of tuition that is funded by the proprietary loan program, resulting in a note receivable. Estimating the collection rate requires significant management judgment. Upon adoption of ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) as of October 1, 2020, we revised our estimated collection rate to only include historical collections from the past ten years as we determined that such population better represents our current expected collections and aligns with the typical term of the program coupledloan. The estimated amount is determined at the inception of the contract and we recognize the related revenue as the student progresses through school. Each reporting period, we update our assessment of the variable consideration associated with the extended payment terms required under the studentproprietary loan agreements, collectability is not reasonably assured. Accordingly, we recognize tuition and loan origination fees financed by the loan and any related interest income required under the loan when such amounts are collected. All related expenses incurred with the bank or other service providers are expensed as incurred. Since loan collectability is not reasonably assured, the loans and related deferred tuition revenue are not recognized in our consolidated balance sheets.program.

Allowance for uncollectible accounts.accounts
We maintain an allowance for uncollectible accounts for estimated losses resulting from the inability, failure or refusal of our students to make required payments. We offer a variety of payment plans to help students pay that portion of their education expenses not covered by financial aid programs or alternate fund sources, which are unsecured and not guaranteed.

We use estimates that are subjective and require judgment in determining the allowance for doubtful accounts, which are principally based on accounts receivable, historical percentages of uncollectible accounts, customer credit worthiness and changes in payment history when evaluating the adequacy of the allowance for uncollectible accounts. We also monitor and consider external factors such as changes in the economic and regulatory environment. We use an internal group of collectors, augmented by third party collectors as deemed appropriate, in our collection efforts. When a student with Title IV loans withdraws, Title IV rules determine if we are required to return a portion of Title IV funds to the lender. We are then


51

entitled to collect these funds from the students, but collection rates for these types of receivables is significantly lower than our collection rates for receivables for students who remain in our programs.

Although we believe that our allowance is adequate, if we underestimate the allowances required, additional allowances may be necessary, which would result in increased selling, general and administrative expenses in the period such determination is made.

Goodwill and Intangible Assets
Goodwill. Goodwill represents the excess of the cost of an acquired business over the estimated fair values of theWe test goodwill and indefinite-lived intangible assets acquired and liabilities assumed. Goodwill is reviewed at least annually for impairment which might result fromannually 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. Any resulting impairment charge would be recognized as an expense in the period in which impairment is identified.

Our goodwill resulted primarily from the acquisition of our motorcycle and marine education business in 1998. We recorded an impairment charge of $12.4 million related to the goodwill allocated to our MMI Phoenix, Arizona campus during the year ended September 30, 2015. The remaining $8.2 million of goodwill from this acquisition is allocated to our MMI Orlando, Florida campus that provides the related educational programs. Additionally, we recorded $0.8 million of goodwill related to the acquisition of BrokenMyth Studios, LLC in February 2016. Our total recorded goodwill was $9.0 million as of September 30, 2017.We perform our annual goodwill impairment assessment during the fourth quarter of each fiscal year.In performing our impairment tests, we first consider the option to assess qualitative factorscircumstances, to determine whether it is more likely than notmore-likely-than-not that the fair value of a reporting unit or intangible, as applicable, 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 quantitative impairment tests to compare the estimated fair value of the reporting unit to the carrying value of its net assets.

The process of evaluating goodwill and indefinite-lived intangibles for impairment is subjective and requires significant judgment at many points during the analysis. If we elect to perform an optional qualitative analysis, we consider many factors including, but not limited to, general economic conditions, industry and market conditions, our market capitalization, financial performance and key business drivers, long-term operating plans and potential changes to significant assumptions used in the most recent fair value analysis for the reporting unit.
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When performing a quantitative goodwill impairment test, we generally determine Determining the fair value of reporting units using an income-based approach consisting of a discounted cash flow valuation method. The fair value determination consists primarily of using unobservable inputs underindefinite-lived intangible assets is judgmental in nature and involves the fair value measurement standards, and we believe our related assumptions are consistent with a reasonable market participant view while employing the concept of highest and best use of the asset.

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.


2017We 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.

2022 Impairment Testing


Our total recorded goodwill was $16.9 million as of September 30, 2022. Of this balance, $8.6 million relates to our acquisition of MIAT in November 2021. The remaining $8.2 million relates to our MMI Orlando, Florida campus and resulted from the acquisition of our motorcycle and marine education business in 1998. We completed our 20172022 annual goodwill impairment tests and determined that there was no impairment related to our MMI Orlando, Florida campus. We performed a quantitative goodwill impairment test using the fair value method described above. For the goodwill associated with our newly-acquired BMS reporting unit, we performed a qualitative goodwill impairment analysis and determined it was more likely than not that the fair value of the reporting units exceeded the carrying value and concluded that goodwill was not impaired. As a result, we did not perform the quantitative goodwill impairment evaluation.

Our total recorded intangible assets were $14.2 million as of September 30, 2022 which primarily relates to the MIAT acquisition completed on November 1, 2021. During the fourth quarter of 2022, in conjunction with our growth and diversification initiatives, we completed a branding study. As a result of this reporting unitstudy, we determined that the useful life of the MIAT trademarks and trade name was no longer indefinite and a 4 year finite useful life was more appropriate. We completed the required impairment testing when changing from an indefinite to a finite useful life for an intangible asset and determined that the carrying value of the MIAT trademarks and trade name exceeded its carryingfair value. Our analysis included considerationWe determined the fair value of macro-economicintangible asset to be $1.0 million using the relief from royalty method, and company-specific factors as well asrecorded an intangible asset impairment charge of $2.0 million during the synergies we are beginning to realize as we integrate this reporting unit into our business.year ended September 30, 2022. Actual experienceresults may differ from the amounts included in our assessment, which could result in additional impairment of our goodwillintangible assets in the future.

Self-Insurance. We are self-insured for a number of risks including claims There was no impairment related to employee health care and dental care and workers’ compensation. The accounting for our self-insured plans involves estimates and judgments to determine our ultimate liability related to reported claims and claims incurred but not reported. We consider our historical experience, severity factors, actuarial analysis and existing stop loss insurance in estimating our ultimate insurance liability. If our insurance claim trends were to differ significantly from our historic claim experience, we would make a corresponding adjustment to our insurance reserves.other intangible assets.


Income taxes.

We are subject to the income tax laws of the United States, which are complex and subject to different interpretations by the taxpayer and the relevant governmental taxing authorities. As a result, significant judgments and interpretations are required in determining our provision for income taxes.


Each reporting period, we estimate the likelihood that we will be able to recover our deferred tax assets, which represent timing differences in the recognition of revenue and certain tax deductions for accounting and tax purposes. The realization of deferred tax assets is dependent, in part, upon future taxable income. In assessing the need for a valuation allowance, we


52

consider all available evidence, including our historical profitability and projections of future taxable income. If, based on the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, we record a valuation allowance. Such valuation allowance is maintained on our deferred tax assets until sufficient positive evidence exists to support its reversal in future periods. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Significant judgment is required to determine if, and the extent to which, valuation allowances should be recorded against deferred tax assets. Changes in the valuation allowance are included in our statement of operations as a charge or credit to income tax expense.benefit (expense).

As a result of our assessment, income tax expensebenefit (expense) within our statements of lossoperations was impacted by increasesdecreases of $6.2$12.1 million and $34.2$3.2 million in the valuation allowance during the years ended September 30, 20172022 and 2016,2021, respectively. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods if estimates of future taxable income during the carryforward period are increased if objective negative evidence in the form of cumulative losses is no longer present and if additional weight may be given to subjective
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evidence such as our projections for growth. We will continue to evaluate our valuation allowance in future periods for any change in circumstances that causes a change in judgment about the realizability of the deferred tax assets.


Although we believe that our estimates are reasonable, changes in tax laws or our interpretation of tax laws, and the outcome of future tax audits could significantly impact the amounts provided for income taxes in our consolidated financial statements. Additionally, actual operating results and the underlying amount and category of income in future years could render our current assessment of recoverable deferred tax assets inaccurate.


Contingencies. In the ordinary conduct of our business, we are subject to occasional lawsuits, investigations and claims, including, but not limited to, claims involving students and graduates and routine employment matters. 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 record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, we disclose the nature of the specific claim if the likelihood of a potential loss is reasonably possible and the amount involved is material. Generally, we expense legal fees as incurred. There can be no assurance that the ultimate outcome of any of the lawsuits, investigations or claims pending against us will not have a material adverse effect on our financial condition or results of operations.

Recent Accounting Pronouncements


Information concerning recently issued accounting pronouncements which are not yet effective is included in Note 3 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K. As indicated in Note 3, we are still evaluating the impact of the recently issued accounting pronouncements on our financial statements.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Our principal exposure to market risk relates to changes in interest rates.

We invest our cash and cash equivalents and short-term investments in mutualmoney market funds that invest in U.S. treasury notes, U.S. treasury bills and repurchase agreements collateralized by U.S. treasury notes, U.S. treasury billsshort-term corporate and pre-funded municipal bonds collateralized by escrowed-to-maturity U.S. treasury notes.bonds. As of September 30, 2017,2022, we held $50.1$66.5 million in cash and cash equivalents and $47.8$28.9 million in held-to-maturity investments. ForDuring the fiscal year ended September 30, 2017,2022, we earned interest income of $0.9$0.5 million. 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 reasonably possible changes inthe value or liquidity of our cash and cash equivalents and held-to-maturity 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 rates will haveat the rate of LIBOR plus 2.0% with a material effect on our financial position, resultsmaturity of operations or cash flows.

seven years. As of September 30, 2017,2022, the fair value of our long-term debt was $30.1 million and bears interest on the outstanding principal amount at a rate equal to the LIBOR plus 2.0%, which was 4.56% as of September 30, 2022.

On April 14, 2022, we didentered into a credit agreement to finance the Lisle Campus through a $38.0 million term loan that bears interest at the rate of SOFR plus 2.0% with a maturity of seven years. As of September 30, 2022, the fair value of our long-term debt was $38.0 million and bears interest on the outstanding principal amount at a rate equal to the SOFR plus 2.0%, which was 4.51% as of September 30, 2022.

We believe the carrying value of the debt approximates fair value as the interest rate is a floating rate equal to the LIBOR or SOFR 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 and we do not have short-term or long-term borrowings.

Effectbelieve that the value of Inflation

To date, inflationour debt has not had a significant effectbeen significantly impacted by current market events. The variable rate of interest on our operations.long-term debt can expose us to interest rate volatility due to changes in LIBOR and SOFR. To mitigate this exposure, we entered into interest rate swap agreements that effectively fix the interest rates on 50% of the principal amounts of the term loans at 3.5% and 4.69% for the entire loan term on our Avondale debt and Lisle debt, respectively.


During the fiscal year ended September 30, 2022, we recorded interest expense of $2.0 million on our outstanding debt. Assuming all terms of our outstanding long-term debt remained the same, a hypothetical 10.0% change (up or down) in the


53

one-month LIBOR would result in a $3.4 million change to our annual interest expense for the portion of the long-term debt not hedged by the interest rate swap agreement.
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statements of the Company and its subsidiaries are included below on pages F-2 to F-50F-49 of this report:
Page

Number
F- 2
F- 3
F- 56
F- 67
F- 78
F- 89
F- 910
F- 1112


ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE


None.


ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our President and Chief Executive Officer and our Executive Vice President and 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) as of September 30, 2017,2022, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures as of September 30, 20172022 were effective in ensuring that (i) information required to be disclosed by the Company in the reports that it files or submits 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 the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its 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


During the quarter ended September 30, 2017, we have madeThere were no changes toin our internal controls as part of our efforts to adopt the new revenue recognition standard. Those efforts resultedcontrol over financial reporting identified in changes to our accounting processes and procedures. In particular, we enhanced controls related to:

Monitoring the adoption process.
Enhanced the risk assessment process to take into account risks associatedconnection with the new revenue standard.
Gathering the information and evaluating the analyses used in the development of theevaluation required disclosures.

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We evaluated the design of these enhanced controlsby Exchange Act Rules 13a-15(d) or 15d-15(d) that occurred during the quarter ended September 30, 2017.   As we continue the implementation process, we expect2022 that there will be additional changes inhave materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.  However, there were no other material changes in internal controls over financial reporting during the quarter ended September 30, 2017.


Report of Management on Internal Control Over Financial Reporting and Attestation Report of Independent Registered Public Accounting Firm

Management’s Report on Internal Control Over Financial Reporting and the attestation report of our Independent Registered Public Accounting Firm’s reportFirm with respect to the effectiveness of our internal control over financial reporting are included on pages F-2 and F-3, respectively, of this Annual Report on Form 10-K.




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Limitations on Effectiveness of Controls and Procedures

Our management, including our President and Chief Executive Officer and our Executive Vice President and 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.


Management’s Certifications


The Company has filed as exhibits to its Annual Report on Form 10-K for the year ended September 30, 2017,2022, filed with the SEC, the certifications of the President and Chief Executive Officer and the Executive Vice President and Chief Financial Officer of the Company required by Section 302 of the Sarbanes-Oxley Act of 2002.
The Company has submitted to the NYSE the most recent Annual Chief Executive Officer Certification as required by Section 303A.12(a) of the NYSE Listed Company Manual.
ITEM 9B. OTHER INFORMATION
None.

ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not Applicable.




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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Below is a list of our Executive Officers and Board of Directors as of September 30, 2022:
Executive OfficerPosition
Jerome A. GrantChief Executive Officer
Troy R. AndersonExecutive Vice President and Chief Financial Officer
Sherrell E. SmithExecutive Vice President, Campus Operations & Services
Bart H. FespermanSenior Vice President, Chief Commercial Officer
Todd A. HitchcockSenior Vice President, Chief Strategy and Transformation Officer
Christopher E. KevaneSenior Vice President, Chief Legal Officer
Sonia C. MasonSenior Vice President, Chief Human Resources Officer
Eric A. SeversonSenior Vice President, Admissions
Lori B. SmithSenior Vice President, Chief Information Officer
DirectorPosition
Robert T. DeVincenziChairman of the Board, Universal Technical Institute, Inc.; Principal Partner, Lupine Venture Group
David A. BlaszkiewiczPresident and Chief Executive Officer, Invest Detroit
George W. BrochickExecutive Vice President - Strategic Development, Penske Automotive Group, Inc.
Jerome A. GrantChief Executive Officer, Universal Technical Institute, Inc.
LTG (R) William J. LennoxFormer Superintendent of the United States Military Academy at West Point; Chief Executive Officer, Lennox Strategies, LLC
Shannon L. OkinakaExecutive Vice President, Chief Financial Officer and Treasurer of Hawaiian Holdings, Inc.
Loretta L. SanchezFormer U.S. Congresswoman; Chief Executive Officer, Datamatica, LLC
Christopher S. ShackeltonManaging Partner, Coliseum Capital Management, LLC
Linda J. SrereFormer President, Young and Rubicam Advertising
Kenneth R. TrammellFormer Executive Vice President and Chief Financial Officer, Tenneco Inc.

The information set forthrequired by this Item is incorporated by reference from our Proxy Statement to be filed in connection with our proxy statement for the 20182023 Annual Meeting of Stockholders underwithin 120 days after the headings “Electionend of Directors”; “Corporate Governance and Related Matters”; “Code of Conduct”; “Corporate Governance Guidelines” and “Section 16(a) Beneficial Ownership Reporting Compliance” is incorporated herein by reference. Information regarding executive officers of the Company is set forth under the caption “Executive Officers of Universal Technical Institute, Inc.” in Part I hereof.
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fiscal year ended September 30, 2022.


ITEM 11. EXECUTIVE COMPENSATION

The information set forthrequired by this Item is incorporated by reference from our Proxy Statement to be filed in connection with our proxy statement for the 20182023 Annual Meeting of Stockholders underwithin 120 days after the heading “Executive Compensation”, “Compensation Committee Interlocks” and “Compensation Committee Report” is incorporated herein by reference.end of fiscal year ended September 30, 2022.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information set forthrequired by this Item is incorporated by reference from our Proxy Statement to be filed in connection with our proxy statement for the 20182023 Annual Meeting of Stockholders underwithin 120 days after the headings “Equity Compensation Plan Information” and “Security Ownershipend of Certain Beneficial Owners and Management” is incorporated herein by reference.fiscal year ended September 30, 2022.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information set forthrequired by this Item is incorporated by reference from our Proxy Statement to be filed in connection with our proxy statement for the 20182023 Annual Meeting of Stockholders underwithin 120 days after the heading “Certain Relationships and Related Transactions” and “Corporate Governance and Related Matters” is incorporated herein by reference.end of fiscal year ended September 30, 2022.



56

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information set forthrequired by this Item is incorporated by reference from our Proxy Statement to be filed in connection with our proxy statement for the 20182023 Annual Meeting of Stockholders underwithin 120 days after the heading “Fees Paid to Independent Registered Public Accounting Firm” and “Audit Committee Pre-Approval Procedures for Services Provided by the Independent Registered Public Accounting Firm” is incorporated herein by reference.end of fiscal year ended September 30, 2022.

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57



PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this Annual Report on Form 10-K:
(1) The financial statements required to be included in this Annual Report on Form 10-K are included in Item 8 of this Report.
(2) All other schedules have been omitted because they are not required, are not applicable, or the required information is shown on the financial statements or the notes thereto.
(3) Exhibits:

(a)Exhibit NumberDocuments filed as partDescription
2.1#
10-Q dated May 7, 2021.)
(1)2.2The financial statements required
10-Q dated May 5, 2022).
(2)2.3All other schedules have been omitted because they are not required, are not applicable, or
Form 10-Q dated May 5, 2022).
(3)2.4Exhibits:
3.1
Exhibit NumberDescription
Fifth Amended and Restated Certificate of Incorporation of the Registrant.Universal Technical Institute, Inc. dated February 26, 2021. (Incorporated by reference to Exhibit 3.1 to the Registrant’s AnnualQuarterly Report on Form 10-K10-Q dated December 23, 2004.May 7, 2021.)
3.2
3.3
3.4
4.1
4.2
4.3
4.4
4.5
4.6+



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Exhibit NumberDescription
10.1*
10.2*
10.3*
10.4.1*
10.4.2*
10.4.3*
10.4.4*
10.4.5*
10.4.6*
10.5
10.6
10.7*
10.8*
10.11.1*
10.11.2*
10.13*
10.14*
10.15
10.16*
10.17*
10.18
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59


Exhibit NumberDescription
10.19
10.20
10.21
10.22
10.23
21.1+
23.1
23.1+
24.1
31.1
31.1+
31.2
31.2+
32.1
32.1+
32.2
32.2+
101101.INS
The following financial information from our Annual Report on Form 10-K for the year ended September 30, 2017, formattedInline XBRL Instance Document.
101.SCHInline XBRL Taxonomy Extension Schema Document.
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Extensible Business Reporting Language (XBRL): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Loss; (iii) Condensed Consolidated Statements of Comprehensive Loss; (iv) Consolidated Statements of Shareholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements.Exhibit 101)


*Indicates a contract with management or compensatory plan or arrangement.
+ Filed 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.

ITEM 16. FORM 10-K SUMMARY

Not applicable.
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60


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.


Date: December 1, 2017

Date:December 12, 2022UNIVERSAL TECHNICAL INSTITUTE, INC.
By:/s/ Jerome A. Grant
Jerome A. Grant, Chief Executive Officer
UNIVERSAL TECHNICAL INSTITUTE, INC.


By:/s/ Kimberly J. McWaters
Kimberly J. McWaters
President and Chief Executive Officer

POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Kimberly J. McWatersJerome A. Grant and Bryce H. Peterson,Troy R. Anderson, or either of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution,re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K and any documents related to this report and filed pursuant to the Securities Exchange Act of 1934, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.



SIGNATURETITLEDATE
/s/ Jerome A. GrantChief Executive Officer (Principal Executive Officer)December 12, 2022
Jerome A. Grant
SIGNATURETITLEDATE
/s/ Kimberly J. McWaters
Kimberly J. McWaters
Troy R. Anderson		President and Chief Executive Officer (Principal Executive Officer)December 1, 2017
/s/ Bryce H. Peterson
Bryce H. Peterson
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)December 1, 201712, 2022
Troy R. Anderson
/s/ Robert T. DeVincenzi
Robert T. DeVincenzi
Chairman of the BoardDecember 1, 201712, 2022
Robert T. DeVincenzi
/s/ David A. Blaszkiewicz
DirectorDecember 12, 2022
David A. BlaszkiewiczDirectorDecember 1, 2017
/s/ Conrad A. Conrad
Conrad A. Conrad
George W. Brochick		DirectorDecember 1, 201712, 2022
George W. Brochick
/s/ William J. Lennox, Jr.
DirectorDecember 12, 2022
William J. Lennox, Jr.DirectorDecember 1, 2017
/s/ Dr. Roderick Paige
Dr. Roderick Paige
Shannon L. Okinaka		DirectorDecember 1, 201712, 2022
Shannon L. Okinaka


61

/s/ Roger S. Penske
Roger S. Penske
DirectorDecember 1, 2017
/s/ Loretta L. SanchezDirectorDecember 12, 2022
Loretta L. Sanchez
/s/ Christopher S. Shackelton
DirectorDecember 12, 2022
Christopher S. ShackeltonDirectorDecember 1, 2017
/s/ Linda J. Srere
DirectorDecember 12, 2022
Linda J. SrereDirectorDecember 1, 2017
/s/ Kenneth R. Trammell
DirectorDecember 12, 2022
Kenneth R. TrammellDirectorDecember 1, 2017
/s/ John C. White
John C. White
DirectorDecember 1, 2017



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62



UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page

Number
F- 2
F- 3
F- 56
F- 67
F- 78
F- 89
F- 910
F- 1112

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F-1



MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company and for assessing the effectiveness of internal control over financial reporting as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934, as amended. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Internal control over financial reporting includes policies and procedures that pertain to maintaining records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of the company’s assets; providing reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with accounting principles generally accepted in the United States; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management and director authorization; and providing reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risks that controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework established in “Internal Control — Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the Company’s internal control over financial reporting was effective as of September 30, 2017. There were changes in our internal control over financial reporting during the quarter ended September 30, 2017 as part of our efforts to adopt the new revenue recognition standard. Those efforts resulted in changes to our accounting processes and procedures. In particular, we enhanced controls related to:

Monitoring the adoption process.
Enhanced the risk assessment process to take into account risks associated with the new revenue standard.
Gathering the information and evaluating the analyses used in the development of the required disclosures.
We evaluated the design of these enhanced controls during the quarter ended September 30, 2017.  As we continue the implementation process, we expect that there will be additional changes in internal controls over financial reporting. However, there were no other material changes in internal controls over financial reporting during the quarter ended September 30, 2017.2022.
The effectiveness of the Company’s internal control over financial reporting as of September 30, 20172022 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report which appears herein.
Table of Contents
F-2



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Report of Independent Registered Public Accounting Firm
To the shareholders and the Board of Directors and Shareholders of Universal Technical Institute, Inc.
Scottsdale, Arizona
Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Universal Technical Institute, Inc. and subsidiaries (the "Company"“Company”) as of September 30, 2017,2022, based on criteria established in Internal Control -— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the financial statements as of and for the year ended September 30, 2022, of the Company and our report dated December 12, 2022 expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company'sCompany’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company'sCompany’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.


Definition and Limitations of Internal Control over Financial Reporting

A company'scompany’s internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company'scompany’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company'scompany’s assets that could have a material effect on the financial statements.


Because of theits inherent limitations, of internal control over financial reporting including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be preventedprevent or detected on a timely basis.detect misstatements. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


/s/ DELOITTE & TOUCHE LLP

Tempe, Arizona
December 12, 2022



F-3

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the shareholders and the Board of Directors of Universal Technical Institute, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of Universal Technical Institute, Inc. (the "Company") as of September 30, 2022 and 2021, the related statements of operations, other comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the Company maintained,financial statements present fairly, in all material respects, effective internal control overthe financial reportingposition of the Company as of September 30, 2017, based on2022 and 2021, and the criteria established in Internal Control - Integrated Framework (2013) issued by the Committeeresults of Sponsoring Organizationsits operations and its cash flows for each of the Treadway Commission.three years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.


We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidatedCompany's internal control over financial statementsreporting as of and for the year ended September 30, 20172022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the CompanyTreadway Commission and our report dated December 1, 201712, 2022, expressed an unqualified opinion on thosethe Company’s internal control over financial statements.reporting.
/s/ DELOITTE & TOUCHE LLP
Phoenix, ArizonaBasis for Opinion
December 1, 2017


Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Universal Technical Institute, Inc.
Scottsdale, Arizona
We have audited the accompanying consolidated balance sheets of Universal Technical Institute, Inc. and subsidiaries (the “Company”) as of September 30, 2017 and 2016, and the related consolidated statements of loss, comprehensive loss, shareholders’ equity, and cash flows for each of the three years in the period ended September 30, 2017. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on thesethe Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.


We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesmisstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the financial statements. An auditOur audits also includes assessingincluded evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statement presentation.statements. We believe that our audits provide a reasonable basis for our opinion.


InCritical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, referredtaken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to above present fairly,which it relates.

Revenues - Proprietary Loan Program Revenue Recognition - Refer to Note 2 in all material respects, the financial positionFY 2022 Form 10K

Critical Audit Matter Description

The portion of tuition revenue related to the Company’s proprietary loan program is considered a form of variable consideration, in accordance with ASC 606, Revenue from Contracts with Customers. The Company estimates the amount it expects to collect on these loans by calculating the amount due compared to historical loan collections over the past 10 years, and recognizes that amount of estimated revenue over the student’s program, resulting in a Notes Receivable balance of $35.9 million as of September 30, 20172022. The Company evaluates the collectability rate of its outstanding loans each quarter, which requires significant management judgment. The Company currently uses the actual collection experience over the past 10 years to determine the expected collection rate.

F-4

The key judgment made by management is the length of historical collection experience used to calculate the expected collection rate and 2016, andrequires a high degree of auditor judgement in determining the results of their operations and their cash flows for eachreasonableness of the three yearsperiod of time used by management to estimate the expected collection rate.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the expected collection rate for the proprietary loan program included the following, among others:
•Tested the design and effectiveness of the Company’s internal controls related to the Company’s evaluation of the proprietary loan program expected collection rate.
•Considered how the expected collection rate might change if the Company had used a different time period ended September 30, 2017 in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standardscalculation of the Public Company Accounting Oversight Board (United States),expected collection rate, and what impact it would have on the Company's internal controlfinancial statements.
•Performed a trend analysis by comparing recent repayment trends and collection rates by quarter over financial reporting as of September 30, 2017,the past 3 years compared to the expected collection rate calculated to evaluate whether the expected collection rate estimate is reasonable.
•Recalculated the expected collection rate based on the criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizationsactual collection rates of the Treadway Commissionloan portfolio for the most recent 10 years.
•Evaluated the underlying historical loan data by making selections of loans included in the data population and our report dated December 1, 2017 expressed an unqualified opinion ontraced to source documentation, and recalculated the Company's internal control over financial reporting.amount of the loan due as of the reporting date.
•Agreed monthly loan collection amounts for selected months to bank statements.
•Tested completeness of the loan data population by tracing a selection of students from historical accounting records to the underlying population used to calculate the expected collection rate.

/s/ DELOITTE & TOUCHE LLP
Phoenix,
Tempe, Arizona
December 1, 201712, 2022



We have served as the Company's auditor since 2015.











Table of Contents
F-5


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and per share amounts)
  September 30, 2017 September 30, 2016
Assets (In thousands)
Current assets:    
Cash and cash equivalents $50,138
 $119,045
Restricted cash 14,822
 5,956
Trading securities 40,020
 —
Held-to-maturity investments, current portion 7,759
 1,691
Receivables, net 15,197
 15,253
Prepaid expenses and other current assets 18,890
 20,004
Total current assets 146,826
 161,949
Property and equipment, net 106,664
 114,033
Goodwill 9,005
 9,005
Other assets 11,607
 12,172
Total assets $274,102
 $297,159
Liabilities and Shareholders’ Equity    
Current liabilities:    
Accounts payable and accrued expenses $37,481
 $42,545
Deferred revenue 41,338
 44,491
Accrued tool sets 2,764
 2,938
Financing obligation, current 1,106
 913
Income tax payable 490
 —
Other current liabilities 3,210
 3,673
Total current liabilities 86,389
 94,560
Deferred tax liabilities, net 3,141
 3,141
Deferred rent liability 6,887
 8,987
Financing obligation 42,035
 43,141
Other liabilities 9,874
 10,716
Total liabilities 148,326
 160,545
Commitments and contingencies (Note 13) 
 
Shareholders’ equity:    
Common stock, $0.0001 par value, 100,000,000 shares authorized, 31,872,433 shares issued and 25,007,536 shares outstanding as of September 30, 2017 and 31,489,331 shares issued and 24,624,434 shares outstanding as of September 30, 2016 3
 3
Preferred stock, $0.0001 par value, 10,000,000 shares authorized; 700,000 shares of Series A Convertible Preferred Stock issued and outstanding as of September 30, 2017 and September 30, 2016, liquidation preference of $100 per share
 —
 —
Paid-in capital - common 185,140
 182,615
Paid-in capital - preferred 68,853
 68,820
Treasury stock, at cost, 6,864,897 shares as of September 30, 2017 and September 30, 2016 (97,388) (97,388)
Retained deficit (30,832) (17,454)
Accumulated other comprehensive income —
 18
Total shareholders’ equity 125,776
 136,614
Total liabilities and shareholders’ equity $274,102
 $297,159
The accompanying notes are an integral part of these consolidated financial statements.

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS

  Year Ended September 30,
  2017 2016 2015
  (In thousands, except per share amounts)
Revenues $324,263
 $347,146
 $362,674
Operating expenses:      
Educational services and facilities 181,027
 194,395
 194,416
Selling, general and administrative 145,060
 171,374
 165,124
Goodwill impairment —
 —
 12,357
Total operating expenses 326,087
 365,769
 371,897
Loss from operations (1,824) (18,623) (9,223)
Other (expense) income:      
Interest income 900
 243
 215
Interest expense (3,381) (3,439) (2,340)
Equity in earnings of unconsolidated affiliate 484
 342
 527
Other income (expense) 1,090
 (49) 140
Total other expense, net (907) (2,903) (1,458)
Loss before income taxes (2,731) (21,526) (10,681)
Income tax expense (benefit) 5,397
 26,170
 (1,532)
Net loss $(8,128) $(47,696) $(9,149)
Preferred stock dividends
5,250

1,424

—
Loss available for distribution

$(13,378)
$(49,120)
$(9,149)
       
Loss per share:      
Net loss per share - basic $(0.54) $(2.02) $(0.38)
Net loss per share - diluted $(0.54) $(2.02) $(0.38)
Weighted average number of shares outstanding:      
Basic 24,712
 24,313
 24,391
Diluted 24,712
 24,313
 24,391
Cash dividends declared per common share $—
 $0.04
 $0.32

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

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS



Year Ended September 30,
 
2017
2016
2015
 
(In thousands)
Net loss
$(8,128)
$(47,696)
$(9,149)
Other comprehensive loss (net of tax):





Equity interest in investee's unrealized gains (losses) on hedging derivatives, net of taxes(1)

(18)
(2)
20
Comprehensive loss
$(8,146)
$(47,698)
$(9,129)
(1)The tax effect during the years ended September 30, 2017, 2016, and 2015 was not significant.


September 30, 2022September 30, 2021
Assets
Cash and cash equivalents$66,452 $133,721 
Restricted cash3,544 12,256 
Held-to-maturity investments28,918 — 
Receivables, net16,450 17,151 
Notes receivable, current portion5,641 5,538 
Prepaid expenses6,139 6,658 
Other current assets8,809 8,068 
Total current assets135,953 183,392 
Property and equipment, net214,292 122,051 
Goodwill16,859 8,222 
Intangible assets, net14,215 124 
Notes receivable, less current portion30,231 30,586 
Right-of-use assets for operating leases132,038 159,075 
Deferred tax assets, net3,365 — 
Other assets5,958 9,120 
Total assets$552,911 $512,570 
Liabilities and Shareholders’ Equity
Accounts payable and accrued expenses$63,504 $54,397 
Deferred revenue54,223 57,648 
Accrued tool sets3,176 3,292 
Operating lease liability, current portion12,959 14,075 
Long-term debt, current portion1,115 876 
Other current liabilities2,745 2,430 
Total current liabilities137,722 132,718 
Deferred tax liabilities, net— 674 
Operating lease liability129,302 153,228 
Long-term debt66,423 29,850 
Other liabilities4,067 7,570 
Total liabilities337,514 324,040 
Commitments and contingencies (Note 18)
Shareholders’ equity:
Common stock, $0.0001 par value, 100,000 shares authorized, 33,857 and 32,915 shares issued, and 33,775 and 32,833 shares outstanding as of September 30, 2022 and 2021, respectively3 3 
Preferred stock, $0.0001 par value, 10,000 shares authorized; 676 and 700 shares of Series A Convertible Preferred Stock issued and outstanding as of September 30, 2022 and 2021, liquidation preference of $100 per share— — 
Paid-in capital - common148,372 142,314 
Paid-in capital - preferred66,481 68,853 
Treasury stock, at cost, 82 shares as of September 30, 2022 and 2021, respectively(365)(365)
Retained deficit(1,307)(21,996)
Accumulated other comprehensive income (loss)2,213 (279)
Total shareholders’ equity215,397 188,530 
Total liabilities and shareholders’ equity$552,911 $512,570 
The accompanying notes are an integral part of these consolidated financial statements.

Table of ContentsF-6


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITYOPERATIONS
(In thousands, except per share amounts)
  Common Stock Preferred Stock Paid-in
Capital - Common		 Paid-in
Capital - Preferred		 Treasury Stock Retained
Earnings (Deficit)		 Accumulated Other Comprehensive Income Total
Shareholders’
Equity
  Shares Amount Shares Amount  Shares Amount 
  (In thousands)
Balance as of September 30, 2014 30,838
 $3
 —
 $—
 $174,376
 $—
 6,013
 $(90,769) $49,582
 $—
 $133,192
Net loss —
 —
 —
 —
 —
 —
 —
 —
 (9,149) —
 (9,149)
Issuance of common stock under employee plans 383
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Shares withheld for payroll taxes (123) —
 —
 —
 (519) —
 —
 —
 —
 —
 (519)
Stock-based compensation —
 —
 —
 —
 4,345
 —
 —
 —
 —
 —
 4,345
Shares repurchased —
 —
 —
 —
 —
 —
 852
 (6,619) —
 —
 (6,619)
Common stock cash dividends declared —
 —
 —
 —
 —
 —
 —
 —
 (7,795) —
 (7,795)
Equity interest in investee's unrealized gains on hedging derivatives, net of taxes —
 —
 —
 —
 —
 —
 —
 —
 —
 20
 20
Balance as of September 30, 2015 31,098
 $3
 —
 $—
 $178,202
 $—
 6,865
 $(97,388) $32,638
 $20
 $113,475
Net loss —
 —
 —
 —
 —
 —
 —
 —
 (47,696) —
 (47,696)
Issuance of Series A Convertible Preferred Stock —
 —
 700
 —
 —
 68,820
 —
 —
 —
 —
 68,820
Issuance of common stock under employee plans 565
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Shares withheld for payroll taxes (174) —
 —
 —
 (394) —
 —
 —
 —
 —
 (394)
Stock-based compensation —
 —
 —
 —
 4,807
 —
 —
 —
 —
 —
 4,807
Common stock cash dividends declared —
 —
 —
 —
 —
 —
 —
 —
 (972) —
 (972)
Preferred stock cash dividends declared —
 —
 —
 —
 —
 —
 —
 —
 (1,424) —
 (1,424)
Equity interest in investee's unrealized gains on hedging derivatives, net of taxes —
 —
 —
 —
 —
 —
 —
 —
 —
 (2) (2)
Balance as of September 30, 2016 31,489
 $3
 700
 $—
 $182,615
 $68,820
 6,865
 $(97,388) $(17,454) $18
 $136,614
Net loss —
 —
 —
 —
 —
 —
 —
 —
 (8,128) —
 (8,128)
Issuance of Series A Convertible Preferred Stock —
 —
 —
 —
 —
 33
 —
 —
 —
 —
 33
Issuance of common stock under employee plans 559
 —
 —
 —
 —
 —
 —
 —
 —
 —
 —
Shares withheld for payroll taxes (176) —
 —
 —
 (595) —
 —
 —
 —
 —
 (595)
Stock-based compensation —
 —
 —
 —
 3,120
 —
 —
 —
 —
 —
 3,120
Preferred stock cash dividends declared —
 —
 —
 —
 —
 —
 —
 —
 (5,250) —
 (5,250)
Equity interest in investee's unrealized gains on hedging derivatives, net of taxes —
 —
 —
 —
 —
 —
 —
 —
 —
 (18) (18)
Balance as of September 30, 2017 31,872
 $3
 700
 $—
 $185,140
 $68,853
 6,865
 $(97,388) $(30,832) $—
 $125,776

The accompanying notes are an integral part of these consolidated financial statements.
Table of Contents
Year Ended September 30,
 202220212020
Revenues$418,765 $335,083 $300,761 
Operating expenses:
Educational services and facilities207,233 166,818 155,932 
Selling, general and administrative189,158 153,318 148,700 
Total operating expenses396,391 320,136 304,632 
Income (loss) from operations22,374 14,947 (3,871)
Other (expense) income:
Interest income507 83 1,152 
Interest expense(2,002)(365)(10)
Other (expense) income(438)518 135 
Total other (expense) income, net(1,933)236 1,277 
Income (loss) before income taxes20,441 15,183 (2,594)
Income tax benefit (expense)5,407 (602)10,602 
Net income25,848 14,581 8,008 
Preferred stock dividends(5,159)(5,250)(5,264)
Income available for distribution20,689 9,331 2,744 
Income allocated to participating securities(7,847)(3,647)(1,135)
Net income available to common shareholders$12,842 $5,684 $1,609 
Earnings per share (See Note 21):
Net income per share - basic$0.39 $0.17 $0.05 
Net income per share - diluted$0.38 $0.17 $0.05 
Weighted average number of shares outstanding:
Basic33,218 32,766 29,812 
Diluted33,743 33,123 30,113 

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
  Year Ended September 30,
  2017 2016 2015
  (In thousands)
Cash flows from operating activities:      
Net loss $(8,128) $(47,696) $(9,149)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Depreciation and amortization 14,204
 15,067
 17,294
Amortization of assets subject to financing obligation 2,682
 2,682
 1,861
Amortization of discount on investments 57
 405
 1,627
Unrealized gains on trading securities (89) —
 —
Goodwill impairment —
 —
 12,357
Impairment of investment in unconsolidated affiliate —
 815
 —
Bad debt expense 827
 1,153
 1,589
Stock-based compensation 2,945
 4,904
 4,265
Deferred income taxes —
 27,928
 (5,394)
Equity in earnings of unconsolidated affiliates (484) (342) (527)
Training equipment credits earned, net (1,198) (1,176) (899)
Other losses, net 17
 24
 24
Changes in assets and liabilities:      
Restricted cash (11,126) 165
 60
Receivables (2,976) 8,202
 (11,443)
Prepaid expenses and other current assets 692
 (2,009) (1,065)
Other assets 84
 (127) (677)
Accounts payable and accrued expenses (4,759) 1,855
 2,705
Deferred revenue (3,153) (202) (1,672)
Income tax payable/receivable 2,697
 (3,394) (3,149)
Accrued tool sets and other current liabilities 556
 489
 1,678
Deferred rent liability (2,100) (1,835) (753)
Other liabilities (726) 476
 (490)
Net cash provided by (used in) operating activities (9,978) 7,384
 8,242
Cash flows from investing activities:      
Purchase of property and equipment (8,190) (7,495) (29,030)
Proceeds from disposal of property and equipment 2
 22
 3
Purchase of held-to-maturity investments (9,672) —
 (26,061)
Proceeds received upon maturity of investments 3,565
 27,709
 51,792
Purchase of trading securities (42,696) —
 —
Proceeds from sales of trading securities 2,747
 —
 —
Acquisitions —
 (1,500) —
Investment in joint venture —
 (1,000) —
Capitalized costs for intangible assets (575) (575) (453)
Return of capital contribution from unconsolidated affiliate 390
 475
 464
Restricted cash: other 2,258
 (289) 607
Net cash provided by (used in) investing activities (52,171) 17,347
 (2,678)
Cash flows from financing activities:      
Proceeds from sale of preferred stock, net of issuance costs paid —
 68,886
 —
Payment of preferred stock dividend (5,250) (1,424) —
Payment of common stock dividends —
 (1,457) (7,310)
Repayment of financing obligation (913) (736) (663)
Payment of payroll taxes on stock-based compensation through shares withheld (595) (393) (519)
Purchase of treasury stock —
 —
 (6,619)
Net cash provided by (used in) financing activities (6,758) 64,876
 (15,111)
Net increase (decrease) in cash and cash equivalents (68,907) 89,607
 (9,547)
Cash and cash equivalents, beginning of period 119,045
 29,438
 38,985
Cash and cash equivalents, end of period $50,138
 $119,045
 $29,438



UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, continued
  Year Ended September 30,
  2017 2016 2015
  (In thousands)
Supplemental disclosure of cash flow information:      
Taxes paid $2,700
 $1,636
 $7,010
Interest paid $3,382
 $3,439
 $2,340
Training equipment obtained in exchange for services $1,897
 $2,738
 $969
Depreciation of training equipment obtained in exchange for services
$1,283

$1,342

$1,168
Change in accrued capital expenditures during the period $(187) $1,792
 $435
Construction period financing obligation - building $—
 $—
 $(4,825)
Construction liability recognized as financing obligation $—
 $—
 $12,316
Stock based compensation classified as liability instruments $—
 $175
 $—
Vesting of stock based compensation liability $175
 $78
 $80

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

F-7

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME
(In thousands)


Year Ended September 30,
 202220212020
Net income$25,848 $14,581 $8,008 
Other comprehensive income:
Unrealized gain (loss) on interest rate swaps, net of taxes2,492 (279)— 
Comprehensive income$28,340 $14,302 $8,008 

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

F-8

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(In thousands)
 Common StockPreferred StockPaid-in
Capital - Common		Paid-in
Capital - Preferred		Treasury StockRetained DeficitAccumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
 SharesAmountSharesAmountSharesAmount
Balance as of September 30, 201932,499 $3 700 $— $187,493 $68,853 (6,865)$(97,388)$(44,673)$— $114,288 
Net income— — — — — — — — 8,008 — 8,008 
Adjustment for the adoption of ASC 842— — — — — — — — 8,958 — 8,958 
Issuance of common stock under employee plans328 — — — — — — — — — — 
Shares withheld for payroll taxes(97)— — — (698)— — — — — (698)
Stock-based compensation— — — — 2,077 — — — — — 2,077 
Shares issued for equity offering— — — — (47,870)— 6,783 97,023 — — 49,153 
Preferred stock cash dividends declared— — — — — — — — (5,264)— (5,264)
Balance as of September 30, 202032,730 $3 700 $— $141,002 $68,853 (82)$(365)$(32,971)$— $176,522 
Net income— — — — — — — — 14,581 — 14,581 
Cumulative effect from adoption of ASC 326— — — — — — — — 1,644 — 1,644 
Issuance of common stock under employee plans251 — — — — — — — — — — 
Shares withheld for payroll taxes(66)— — — (421)— — — — — (421)
Stock-based compensation— — — — 1,733 — — — — — 1,733 
Preferred stock cash dividends declared— — — — — — — — (5,250)— (5,250)
Unrealized loss on interest rate swap— — — — — — — — — (279)(279)
Balance as of September 30, 202132,915 $3 700 $— $142,314 $68,853 (82)$(365)$(21,996)$(279)$188,530 
Net income— — — — — — — — 25,848 — 25,848 
Issuance of common stock under employee plans300 — — — — — — — — — — 
Shares withheld for payroll taxes(82)— — — (651)— — — — — (651)
Stock-based compensation— — — — 4,337 — — — — — 4,337 
Preferred stock conversion724 — (24)— 2,372 (2,372)— — — — — 
Preferred stock cash dividends declared— — — — — — — — (5,159)— (5,159)
Unrealized gain on interest rate swap, net of taxes— — — — — — — — — 2,492 2,492 
Balance as of September 30, 202233,857 $3 676 $— $148,372 $66,481 (82)$(365)$(1,307)$2,213 $215,397 
The accompanying notes are an integral part of these consolidated financial statements.
F-9

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended September 30,
 202220212020
Cash flows from operating activities:
Net income$25,848 $14,581 $8,008 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization16,884 14,027 11,804 
Amortization of right-of-use assets for operating leases15,893 15,605 24,273 
Intangible asset impairment expense2,000 — — 
Bad debt expense2,510 1,718 1,767 
Stock-based compensation4,337 1,733 2,077 
Deferred income taxes(6,014)— 345 
Training equipment credits earned, net180 364 541 
Unrealized gain (loss) on derivative contract2,492 (279)— 
Other losses (gains), net663 (13)(52)
Changes in assets and liabilities:
Receivables564 8,483 (13,749)
Notes receivable252 (1,687)2,286 
Prepaid expenses and other current assets(1,737)(4,391)(1,016)
Other assets(1,673)(768)(76)
Accounts payable and accrued expenses5,652 1,790 7,020 
Deferred revenue(5,268)16,954 (2,192)
Income tax receivable— 7,145 (6,989)
Accrued tool sets and other current liabilities1,685 2,025 1,863 
Operating lease liability(13,952)(20,469)(25,617)
Other liabilities(4,285)(1,633)739 
Net cash provided by operating activities46,031 55,185 11,032 
Cash flows from investing activities:
Purchase of property and equipment(79,457)(61,586)(9,262)
Proceeds from disposal of property and equipment7 280 64 
Purchase of held-to-maturity investments(28,821)— (69,678)
Proceeds received upon maturity of investments— 37,651 31,289 
Proceeds from insurance policy— 427 1,566 
Cash paid for acquisitions, net of cash acquired(26,514)— — 
Return of capital contribution from unconsolidated affiliate188 277 261 
Net cash used in investing activities(134,597)(22,951)(45,760)
Cash flows from financing activities:
Proceeds from term loan38,000 31,150 — 
Debt issuance costs related to the term loan(378)(272)— 
Proceeds from equity offering— — 49,153 
Payment of preferred stock cash dividend(5,159)(5,250)(5,264)
Payment of term loans and finance leases(19,227)(383)(99)
Payment of payroll taxes on stock-based compensation through shares withheld(651)(421)(698)
Net cash provided by financing activities12,585 24,824 43,092 
Change in cash, cash equivalents and restricted cash(75,981)57,058 8,364 
Cash and cash equivalents, beginning of period133,721 76,803 65,442 
Restricted cash, beginning of period12,256 12,116 15,113 
Cash, cash equivalents and restricted cash, beginning of period145,977 88,919 80,555 
Cash and cash equivalents, end of period66,452 133,721 76,803 
Restricted cash, end of period3,544 12,256 12,116 
Cash, cash equivalents and restricted cash, end of period$69,996 $145,977 $88,919 
F-10

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)

Year Ended September 30,
202220212020
Supplemental disclosure of cash flow information:
Taxes paid (refunded)$859 $(6,712)$(113)
Interest paid1,937 349 7 
Training equipment obtained in exchange for services1,454 679 985 
Depreciation of training equipment obtained in exchange for services918 1,174 1,345 
Change in accrued capital expenditures during the period(2,592)(1,203)(490)
CARES Act funds received for student emergency grants (See Note 25)6,689 20,039 16,565 
CARES Act funds disbursed for student emergency grants (See Note 25)(6,919)(19,745)(17,184)
CARES Act funds received for institutional costs (See Note 25)— 2,677 13,889 
CARES Act funds for institutional costs included in Receivables, net (See Note 25)— — 1,797 
The accompanying notes are an integral part of these consolidated financial statements.
F-11

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)





1.Note 1 - Business Description

Founded in 1965, with approximately 250,000 graduates in its history, Universal Technical Institute, Inc. (“UTI”we,” “us” or collectively, “we”, "us"“our”) is a leading provider of transportation and “our”) provides postsecondary education for students seeking careers as professional automotive, diesel, collision repair, motorcycle and marine technicians. We offertechnical training programs. As of September 30, 2022, we offered certificate, diploma or undergraduate degree programs at 1216 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 (collectively, “MMI”), NASCAR Technical 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 advanced training programs that are sponsored by the manufacturer or dealer sponsored training at certain campuses and dedicated training centers. We recently began offering undergraduate diplomaoffer the majority of our programs for weldingin a blended learning model that combines instructor-facilitated online teaching and computer numerical control (CNC) machining. demonstrations with hands-on labs.

We work closely with leadingover 35 original equipment manufacturers in the automotive, diesel, motorcycle and marine industriesindustry 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)(“HEA”), as well as from various veteransveterans’ benefits programs. For further discussion, see "Concentration of Risk" under Note 2 on “Summary of Significant Accounting Policies - Concentration of Risk” and Note 18 “Governmental24 on “Government Regulation and Financial Aid”.Aid.”

2.
Note 2 - Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of UTI and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets, liabilities, revenues and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and assumptions, including those related to revenue recognition, ourthe proprietary loan program, allowance for uncollectible accounts, investments, property and equipment, goodwill recoverability, self-insurance claim liabilities, income taxes, contingencies and stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of our analysis form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and the impact of such differences may be material to our consolidated financial statements.
Revenue Recognition
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 anddates. We apply the portion of tuition students have funded through our proprietary loan program for which payment has not been received.five-step model outlined in Accounting Standards Codification Topic 606, Revenue from Contracts from Customers (“ASC 606”). Tuition and fee revenue is recognized ratably over the term of the course or program offered. Approximately 98%99% of our revenues for each of the years ended September 30, 2017, 20162022, 2021 and 20152020, respectively, consisted of gross tuition. The majority of our undergraduateUTI programs are designed to be completed in 36 to 10290 weeks while our MIAT programs are completed in 28 to 96 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 sales occurthe transfer of goods or services are performed.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 consolidated balance sheets because it is expected to be earned within the next 12 months.

F-12


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


Other

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

Proprietary Loan Program
    
In order to provide funding for students who are not able to fully finance the cost of their education under traditional governmental financial aid programs, commercial loan programs or other alternative sources, we established a private loan program with a bank. Through the proprietary loan program, the bank provides the students who participate in this program with extended payment terms for a portion of their tuition. Based on historical collection rates, we can demonstrate that 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 this collection rate.


Under the terms of the proprietary loan program, the bank originates loans for our students who meet our specific credit criteria with the related proceeds used exclusively to fund a portion of their tuition. We then purchase all such loans from the bank at least monthly and assume all of the related credit risk. The loans bear interest at market rates;rates ranging from approximately 7% to 10%; however, principal and interest payments are not required until six months after the student completes or withdraws from his or her program. After the deferral period, monthly principal and interest payments are required over the related term of the loan. The repayment term is up to 10 years.


The bank provides these services in exchange for a fee at a percentage of the principal balance of each loan and related fees. Under the terms of the related agreement, we transfer funds for loan purchases to a deposit account with the bank in advance of the bank funding the loan, which secures our related loan purchase obligation. Such funds are classified as restricted cash in our consolidated balance sheet.

In substance, we provide the students who participate in this program with extended payment terms for a portion of their tuition and as a result, we account for the underlying transactions in accordance with our tuition revenue recognition policy. However, due to the nature of the program coupled with the extended payment terms required under the student loan agreements, collectability is not reasonably assured. Accordingly, we recognize tuition and loan origination fees financed by the loan and any related interest income required under the loan when such amounts are collected. All related expenses incurred with the bank or other service providers are expensed as incurred within educational services and facilities expense and were approximately $1.3$1.1 million, $1.5$1.1 million, and $1.4$0.9 million for the years ended September 30, 2017, 2016,2022, 2021, and 2015,2020, respectively. Since loan collectability is not reasonably assured, the loans and related deferred
The portion of tuition revenue are not recognized in our consolidated balance sheets.
The following table summarizes the impact ofrelated to the proprietary loan program on ouris considered a form of variable consideration. We estimate the amount we ultimately expect to collect from the portion of tuition revenue and interest income during each period in our consolidated statements of loss as well as on a cumulative basis atthat is funded by the end of the current period. Tuition revenue and interest income excluded represents amounts which would have been recognized during the period had collectability of the related amounts been assured. Amounts collected and recognized represent actual cash receipts during the period.

  Year Ended September 30, 
Inception
to date
  2017 2016 2015 
Tuition and interest income excluded $19,764
 $22,622
 $24,192
 $162,478
Amounts collected and recognized (8,005) (7,166) (5,440) (29,091)
Net amount excluded during the period $11,759
 $15,456
 $18,752
 $133,387
As of September 30, 2017, we had committed to provide loans to our students for approximately $153.6 million since inception.


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



The following table summarizes the activity related to the balances outstanding under our proprietary loan program, including loans outstanding, interestresulting in a note receivable. Estimating the collection rate requires significant management judgment. Upon adoption of ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326) as of October 1, 2020, we revised our estimated collection rate to only include historical collections from the past ten years as we determined that such population better represents our current expected collections and origination fees, which are not recognized inaligns with the typical term of the loan. The estimated amount is determined at the inception of the contract, and we recognize the related revenue as the student progresses through school. Each reporting period, we update our consolidated balance sheets. Amounts written off represent amounts which have been turned over to third party collectors; such amounts are not included within bad debt expense in our consolidated statementsassessment of loss.the variable collection rate associated with the proprietary loan program.
  Year Ended September 30,
  2017 2016
Balance at beginning of period $75,511
 $74,664
Loans extended 13,391
 19,341
Interest accrued 3,451
 3,888
Amounts collected and recognized (8,005) (7,166)
Amounts written off (18,337) (15,216)
Balance at end of period $66,011
 $75,511

Restricted Cash

Restricted cash includes the funds transferred in advance of loan purchases under our proprietary loan program, funds held for students from Title IV financial aid program funds that result in credit balances on a student’s account and funds held as collateral for certain of the surety bonds that our insurers issue on behalf of our campuses and admissions representatives with multiple states which are required to maintain authorization to conduct our business. Changesbusiness, funds transferred in restricted cash that representadvance of loan purchases under the proprietary loan program and funds held for students orfrom Title IV financial aid program funds that result from changes in the collateralization required for surety bonds as described above are included in cash flows from operating activitiescredit balances on our consolidated statements of cash flows because these restricted funds are related to the core activity of our operations. All other changes in restricted cash are included in cash flows from investing activities on our consolidated statements of cash flows.a student’s account.

Allowance for Uncollectible Accounts

We maintain an allowance for uncollectible accounts for estimated losses resulting from the inability, failure or refusal of our students to make required payments. We offer a variety of payment plans to help students pay that portion of their education expenses not covered by financial aid programs or alternate fund sources, which are unsecured and not guaranteed. Management analyzes accounts receivable, historical percentages of uncollectible accounts, customer credit worthiness and changes in payment history when evaluating the adequacy of the allowance for uncollectible accounts. We use an internal
F-13

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
group of collectors, augmented by third party collectors as deemed appropriate, in our collection efforts. Although we believe that our allowance is adequate, if the financial condition of our students deteriorates, resulting in an impairment of their ability to make payments, or if we underestimate the allowances required, additional allowances may be necessary, which would result in increased selling, general and administrative expenses in the period such determination is made.
Investments
Prior to April 2017, we invested solely in pre-funded municipal bonds which are generally secured by escrowed-to-maturity U.S. Treasury notes. Municipal bonds represent debt obligations issued by states, cities, counties and other governmental entities, which earn interest that is exempt from federal income taxes. Additionally, we invest in certificates of deposit issued by financial institutions and 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 our investments until maturity and therefore classify these investments as held-to-maturity and report them at amortized cost. Investments with an original maturity date of 90 days or less at the time of purchase are classified as cash

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



equivalents and investments with a maturity date greater than one year at the end of the period are classified as non-current.
We review our held-to-maturity investments for impairment quarterly to determine if other-than-temporary declines in the carrying value have occurred for any individual investment. Other-than-temporary declines in the value of our held-to-maturity investments are recorded as expense in the period in which the determination is made. We determined that no other-than-temporary declines occurred in our held-to-maturity investments during the years ended September 30, 2017 and 2016.
During the third quarter of 2017, we began investing in various bond funds. These investments are held principally for resale in the near term and are classified as trading securities. Trading securities are recorded at fair value based on the closing market price of the security. Realized and unrealized gains and losses for trading securities are recognized in earnings and included in other income, net in the consolidated statements of loss.
Property and Equipment
Property, equipment and leasehold improvements are recorded at cost less accumulated depreciation and amortization. Depreciation and amortization expense are calculated using the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is calculated using the straight-line method over the remaining useful life of the asset or term of lease, whichever is shorter. Costs relating to software developed for internal use and curriculum development are capitalized and amortized using the straight-line method over the related estimated useful lives. Such costs include direct costs of materials and services as well as payroll and related costs for employees who are directly associated with the projects. Maintenance and repairs are expensed as incurred.
We review the carrying value of our property and equipment for possible impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. We evaluate our long-lived assets for impairment by examining estimated future cash flows. These cash flows are evaluated by using probability weighting techniques as well as comparisons of past performance against projections. Assets may also be evaluated by identifying independent market values. If we determine that an asset’s carrying value is impaired, we will write-down the carrying value of the asset to its estimated fair value and charge the impairment as an operating expense in the period in which the determination is made. There were no impairment charges requiredrecorded for property and equipment for the years ended September 30, 2017, 2016,2022, 2021 and 2015.
Goodwill2020.
Goodwill represents the excess of the cost of an acquired business over the estimated fair values of theand Intangible Assets
We test goodwill and indefinite-lived intangible assets acquired and liabilities assumed. Goodwill is reviewed at least annually for impairment which may result fromannually 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. Any resulting impairment charge would be recognized as an expense in the period in which impairmentcircumstances, to determine whether it is identified.

Our goodwill resulted primarily from the acquisition of our motorcycle and marine education business in 1998. We recorded an impairment charge of $12.4 million related to the goodwill allocated to our MMI Phoenix, Arizona campus during the year ended September 30, 2015. The remaining $8.2 million of goodwill from this acquisition is allocated to our MMI Orlando, Florida campusmore-likely-than-not that provides the related educational programs. Additionally, we recorded $0.8 million of goodwill related to the acquisition of BrokenMyth Studios, LLC in February 2016. Our total recorded goodwill was $9.0 million as of September 30, 2017.We assess our goodwill for impairment during the fourth quarter of each fiscal year.


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



During the year ended September 30, 2017, we utilized a discounted cash flow model that incorporated estimated future cash flows for the next five years and an associated terminal value to determine 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 MMI Orlando, Florida campus. Key managementqualitative 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 includedand estimates in determining the cash flow model includedestimated 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. Based uponThe assumptions used in determining our annual assessments, we determined thatexpected 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 was not impaired as of September 30, 2017 and that impairment charges were not required. For2022.
During the goodwill associatedfourth quarter of 2022, in conjunction with our BMS reporting unit,growth and diversification initiatives, we performedcompleted a qualitative goodwill impairment analysisbranding study. We reviewed the results of this study and determined itthat the useful life of the MIAT trademarks and trade name was no longer indefinite and a four-year finite useful life was more likely than notappropriate. We completed the required impairment testing when changing from an indefinite to a finite useful life for an intangible asset and determined that the carrying value of the MIAT trademarks and trade name exceeded its fair value. We determined the fair value of this reporting unit exceeded its carrying value.  Our analysis included considerationintangible asset to be $1.0 million using the relief from royalty method and recorded an intangible asset impairment charge of macro-economic and company-specific factors as well as$2.0 million during the synergies we are beginning to realize as we integrate this reporting unit into our business.year ended September 30, 2022. Actual experience willresults may differ from the amounts included in our assessment, which could result in additional impairment of our goodwillintangible assets in the future. There were no impairment charges related to intangible assets recorded for the years ended September 30, 2021 and 2020 and no impairments for the remaining intangible assets in 2022.
F-14

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
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 10 and Note 11 for additional details on our goodwill and intangible assets.
Self-Insurance Plans
We are self-insured for claims related to employee health and dental care and claims related to workers’ compensation. Liabilities associated with these plans are estimated by management with consideration of our historical loss experience, severity factors and independent actuarial analysis. Our claim liabilities are based on estimates, and while we believe the amounts accrued are adequate, the ultimate losses may differ from the amounts provided. Our recorded net liability related to self-insurance plans was $3.5$3.3 million as of September 30, 2017.2022.
Deferred Rent LiabilityLeases
We lease the majority of our administrative and educational facilities under operating lease agreements. Some lease agreements contain tenant improvement allowances, freeUpon adoption of Accounting Standards Codification Topic 842, Leases (“ASC 842”) as of October 1, 2019, we derecognized our previously recorded deferred rent periods or rent escalation clauses. In instances where one or more of these items are included inbalance. ASC 842 requires lessees to recognize a right-of-use (“ROU”) asset and a lease agreement, we record a deferred rent liability on the consolidated balance sheet for substantially all leases, with the exception of short-term leases. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. We adopted ASC 842 under a modified retrospective method without the recasting of comparative periods’ financial information.

To determine if a contract is or contains a lease, we considered whether (1) explicitly or implicitly identified assets have been deployed in the contract and record rent expense evenly over(2) we obtain substantially all of the economic benefits from the use of that underlying asset anddirect how and for what purpose the asset is used during the term of the contract. If we determine a contract is, or contains, a lease, we assess whether the contract contains multiple lease components. We consider a lease component to be separate from other lease components in the contract if (a) we can benefit from the right of use either on its own or together with other resources that are readily available to us and (b) the right of use is neither highly dependent on nor highly interrelated with the other right(s) to use underlying assets in the contract. In contracts involving the use of real estate, we separate the right to use land from other underlying assets unless the effect of separating the land is insignificant to the resulting lease accounting. We have elected to account for the lease and non-lease components as a single lease component.

For all leases we are a party to, the discount rate implicit in the lease was not readily determinable. Therefore, we used our incremental borrowing rate for each lease to determine the present value of the lease. We determined the incremental borrowing rate applicable to each lease through a model that represents the rate of interest we would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The incremental borrowing rate was applied to each lease based on the remaining term of the lease. See Note 13 for additional disclosures on our leases.
Advertising Costs
Costs related to advertising are expensed as incurred and totaled approximately $38.6$51.5 million, $41.2$38.7 million, and $44.7$39.7 million for the years ended September 30, 2017, 2016,2022, 2021, and 2015,2020, respectively.
Stock-Based Compensation
Historically, we have issued restricted stock awardsunits and stock options. All restricted stock units with vestingare subject to service vesting conditions, and stock options.while some are also subject to performance conditions. We measure all share-based payments to employees at estimated fair value. We recognize the compensation expense for restricted stock awards and restricted stock units with only service conditions on a straight-line basis over the requisite service period. We granted restricted stock units with service only conditions (“RSUs”) and restricted stock units with both service and performance conditions (“PSUs”) during the years ended September 30, 2022, 2021 and 2020. We did not grant any stock options during the years ended September 30, 2017, 2016,2022, 2021 and 2015.2020. Shares issued under our equity compensation plans are new shares.
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Compensation expense associated with restrictedRSUs, PSUs or stock awards, restricted stock units and performance unitsoptions is measured based on the grant date fair value of our common stock, discounted for non-participation in anticipated dividends during the vesting period.stock. The requisite service period for restricted stock awards, restricted stock unitsRSUs and performance unitsPSUs is generally the vesting period.


We estimate the fair value of performance unitsPSUs using a Monte Carlo simulation which requires assumptions for expected volatility, risk-free rates of return, and dividend yields. Expected volatilities are derived using a method that calculates historical volatility over a period equal to the length of the measurement period for UTI. We use a risk-free rate of return that is equal to the yield of a zero-coupon U.S. Treasury bill that is commensurate with each measurement period, and we assume that any dividends paid were reinvested. Actual results against the performance condition are measured at the end of the performance period, which typically coincides with the vesting period. The fair value of the PSUs is amortized on a straight-line basis over the requisite service period based upon the fair market value on the date of grant, adjusted on a quarterly basis for the anticipated or actual achievement against the established performance condition.


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



We estimate the fair value of each stock option grant on the date of grant using the Black-Scholes option-pricing model. The estimated fair value is affected by our stock price, as well as assumptions regarding a number of complex and subjective variables, including, but not limited to, our expected stock price volatility, the expected term of the awards and actual and projected employee stock exercise behaviors. We evaluate our assumptions on the date of each grant.
Stock-based compensation expense of $3.0$4.4 million, $4.9$1.8 million and $4.3$2.1 million (pre-tax) was recorded for the years ended September 30, 2017, 2016,2022, 2021 and 2015,2020, respectively. The tax benefit related to stock-based compensation recognized was $1.1 million, $1.9$0.5 million, and $1.6$0.5 million for the years ended September 30, 2017, 2016,2022, 2021 and 2015,2020, respectively. See Note 20 for further discussion.
Income Taxes
We recognize deferred tax assets and liabilities for the estimated future tax consequences of events attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. We also recognize deferred tax assets for net operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. Deferred tax assets are reduced through a valuation allowance if it is more likely than not that the deferred tax assets will not be realized. See Note 17 for additional details.
Concentration of Risk
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and cash equivalents, restricted cash, short-term held-to-maturity investments and receivables. As of September 30, 2017,2022, we held cash and cash equivalents of $50.1$66.5 million, restricted cash of $14.8$3.5 million, and held-to-maturity investments of $47.8$28.9 million.
We place our cash and cash equivalents, and restricted cash, and held-to-maturity investments with high quality financial institutions and limit the amount of credit exposure with any one financial institution. We mitigate the concentration risk of our investments by limiting the amount invested in any one issuer. We mitigate the risk associated with our investment in corporate bonds by requiring a minimum credit rating of A. We have the ability and intention to hold our short-term investments until maturity and therefore have classified these investments as held-to-maturity and recorded them at amortized cost.
We extend credit for tuition and fees, for a limited period of time, to a majority of our students. A substantial portion is repaid through the student’s participation in federally funded financial aid programs. Transfers of funds from the financial aid programs to us are made in accordance with the U.S. Department of Education (ED)ED requirements. Approximately 65%67% of our revenues, on a cash basis, were collected from funds distributed under Title IV Programs for the year ended September 30, 2017. This percentage differs from our Title IV percentage2022 as calculated under the 90/10 rule due to the prescribed treatment of certain Title IV stipends under the rule. Additionally, approximately 19%13% of our revenues, on a cash basis, were collected from funds distributed under various veterans benefits programs for the year ended September 30, 2017.2022.
The financial aid and veterans benefits programs are subject to political and budgetary considerations. There is no assurance that such funding will be maintained at current levels. Extensive and complex regulations govern the financial assistance programs in which our students participate. Our administration of these programs is periodically reviewed by various
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
regulatory agencies. Any regulatory violation could be the basis for the initiation of potential adverse actions, including a suspension, limitation, placement on reimbursement status or termination proceeding, which could have a material adverse effect on our business. ED and other regulators have increased the frequency and severity of their enforcement actions against postsecondary schools which have resulted in the imposition of material liabilities, sanctions, letter of credit requirements and other restrictions and, in some cases, resulted in the loss of schools’ eligibility to receive Title IV funds or in closure of the schools.
If any of our institutions were to lose its eligibility to participate in federal student financial aid programs, the students at that institution would lose access to funds derived from those programs and would have to seek alternative sources of funds to pay their tuition and fees. Students obtain access to federal student financial aid through an ED prescribed application and eligibility certification process. Student financial aid funds are generally made available to students at prescribed intervals throughout their predetermined expected length of study. Students typically apply the funds received from the federal financial aid programs to pay their tuition and fees. The transfer

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



of funds is from the financial aid program to the student, who then uses those funds to pay for a portion of the cost of their education. The receipt of financial aid funds reduces the student’s amounts due to us and has no impact on revenue recognition, as the transfer relates to the source of funding for the costs of education, which may occur either through Title IV or other funds and resources available to the student.
Fair Value of Financial Instruments
The carrying value of cash equivalents, restricted cash, held-to-maturity investments, accounts receivable, accounts payable, accrued liabilities and deferred tuition approximates their respective fair value as of September 30, 20172022 and 20162021 due to the short-term nature of these instruments.
Comprehensive Income
During the year ended September 30, 2012, we invested $4.0 million to acquire an equity interest in a joint venture (JV) related to the lease of our Lisle, Illinois campus facility. Currently, the JV uses an interest rate cap to manage interest rate risk associated with its floating rate debt. This derivative instrument is designated as a cash flow hedge based on the nature of the risk being hedged. As such, the effective portion of the gain or loss on the derivative is initially reported as a component of the JV’s accumulated other comprehensive income or loss, net of tax, and is subsequently reclassified into earnings when the hedged transaction affects earnings.  Any ineffective portion of the gain or loss is recognized in the JV’s current earnings.  Due to our equity method investment in the JV, when the JV reports a current year component of other comprehensive income (OCI), we, as an investor, likewise adjust our investment account for the change in investee equity. 
Start-up Costs
Costs related to the start-up of new campuses and programs are expensed as incurred.
Derivative Financial Instruments
3.    Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In January 2017,On occasion, we may use interest rate swaps to manage interest rate risk and limit the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04, Intangible - Goodwillimpact of future interest rate changes on earnings and Other (Topic 350) - Simplifyingcash flows, primarily with variable-rate debt. We do not use derivative financial instruments for trading or speculative purposes. We recognize all derivatives at fair value within the Test for Goodwill Impairment. ASU 2017-04 is intended to simplify how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Instead, an entity will record an impairment charge basedline items “Other current assets,” “Other assets,” “Other current liabilities,” and “Other liabilities” on the excessconsolidated balance sheet. Management reviews our derivative positions and overall risk management strategy on a regular basis. We only enter into transactions that we believe will be highly effective at offsetting the underlying risk, and we do not use derivatives for trading or speculative purposes.

We may choose to designate our derivative financial instruments, which are generally interest rate swaps, to hedge future interest payments on variable debt. At inception of the transaction, we formally designate and document the derivative financial instrument as a hedge of a reporting unit's carryingspecific underlying exposure, the risk management objective, and strategy for undertaking the hedge transaction. We formally assess both at inception and at least quarterly thereafter, the effectiveness of our hedging transactions. Due to the high degree of effectiveness between the hedging instruments and the underlying exposures hedged, fluctuations in the value over itsof the derivative financial instruments will generally be offset by the changes in the cash flows or fair value (Step 1 of the existing goodwill impairment test). We adopted this guidance prospectively duringunderlying exposures being hedged.

Changes in the quarter ended March 31, 2017 for our interim goodwill impairment testing;fair value of derivatives that are designated and qualify as cash flow hedges are recorded in “Accumulated other comprehensive income (loss)” on the adoption had no impact on our resultsconsolidated 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 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 condition orinstrument 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 consolidated statements of operations.

See Note 16 for additional disclosures related to our derivative financial statement disclosures.instruments.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation (Topic 718) - Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several areas
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Table of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. We adopted this guidance prospectively as of October 1, 2016; the adoption had an immaterial impact on our results of operations, financial condition and financial statement disclosures.Contents

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 simplifies the balance sheet classification of deferred taxes. The guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. We adopted this guidance prospectively as of October 1, 2016; the adoption had no impact on our results of operations, financial condition or financial statement disclosures.


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


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 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 consolidated balance sheet for comparable presentation.

Certain other prior year amounts have been reclassified to conform to current year presentation in our Income taxes disclosures included in Note 17.

Note 3 - Recent Accounting Pronouncements
Accounting Pronouncements Effective in Fiscal 2022
In April 2015,December 2019, the FASB issued ASU 2015-05, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)2019-12, Income Taxes (Topic 740): Customer’sSimplifying the Accounting for Fees PaidIncome Taxes (“ASU 2019-12”). The amendments in a Cloud Computing Arrangement. ASU 2015-05provides clarification on whether a cloud computing arrangement includes a software license. If an arrangement includes a software license, then2019-12 simplify the software license elementaccounting 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 have evaluated the new guidance and determined that there is accounted for consistent with the acquisition of other such licenses. If the arrangement does not include a software license, the arrangement is accounted for as a service contract. We adopted this guidance prospectively as of October 1, 2016; the adoption had an immaterialno material impact on our results of operations, financial condition and financial statement disclosures.

In February 2015,October 2021, the FASB issued ASU 2015-02, Consolidation2021-08, Business Combinations (Topic 810)805): Amendments to the Consolidation Analysis. Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2015-02 includes changes to the analysis2021-08”). The amendments in ASU 2021-08 require that an entity recognize and measure contract assets and contract liabilities acquired in a reporting entity must perform to determine whether it should consolidate certain types of legal entities. Specifically, the amendments (1) modify the evaluation of whether limited partnerships with similar legal entities are variable interest entities (VIEs) or voting interest entities, (2) eliminate the presumption that a general partner should consolidate a limited partnership, (3) affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships and (4) provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operatebusiness combination in accordance with requirements thatAccounting 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 similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. We adopted this guidance as of October 1, 2016. The guidance had no impact on our results of operations, financial condition or financial statement disclosures.
Effective the first quarter of fiscal 2018:

In May 2014, the FASB issued ASU 2014-09 which outlines a single comprehensive revenue model for entities to use in accounting for revenue arising from contracts with customers. The guidance supersedes most current revenue recognition guidance, including industry-specific guidance, and requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. ASU 2014-09 is effective for fiscal years and interim periods within those years beginning after December 15, 2017.2022, including interim periods within those fiscal years. Early adoption of ASU 2021-08 is permitted, for periods beginning after December 15, 2016. The guidance permits two methods of adoption:including adoption in an interim period. An entity that early adopts in an interim period should apply the amendments (1) retrospectively to each prior reportingall business combinations for which the acquisition date occurs on or after the beginning of the fiscal year that includes the interim period presented (full retrospective method),of early application and (2) prospectively to all business combinations that occur on or retrospectively with the cumulative effect of initially applying the guidance recognized atafter the date of initial application (modified retrospective method). In 2016,application. Due to the FASB issued further guidance that offers narrow scope improvements and clarifies certain implementation issues related to revenue recognition, including principal versus agent considerations, the identification of performance obligations and licensing. These additional updatesMIAT acquisition on November 1, 2021, we have the same effective date as the new revenue guidance. The new standard and its related amendments are collectively known as “ASC 606.”
We expectelected to early adopt ASC 606 using the modified retrospective methodASU 2021-08 as of October 1, 2017. However, our ability to early adopt is subject2021 and have applied the guidance in ASU 2021-08 to the completiondeferred revenue recorded for MIAT. See Note 4 for further information on the acquisition of MIAT.
Accounting Pronouncements Not Yet Adopted
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 one of our analysis of certain matters and obtaining the information necessary to calculate the cumulative effect ofterm loans (which is further described in Note 15) references LIBOR, we are currently evaluating the new guidance. This approach was applied to all contracts not completed as of October 1, 2017. In addition to the enhanced footnote disclosures related to customer contracts, we anticipate that the most significant impact of the new standardreference rate reform practical expedients and will relate to the timing of revenue recognition for our proprietary loan program and the accounting for student program changes. In addition, ASC 606 is not expected to change our accounting for costs to obtain and fulfill a contract. No other significant changes to the accounting for tuition or other revenues is expected.
The quantitative amounts provided below are estimates of the expected effects of our adoption of ASC 606. The amounts below represent management’s best estimates of the effects ofconsider adopting ASC 606 at the time of the preparation of this Annual Report on Form 10-K. The actual impact of ASC 606 is subject to change from these estimates and such change may be significant, pending the completion of our assessment in the first quarter of fiscal year 2018. In order to complete this assessment,guidance when we are continuingrequired to update and enhance its internal accounting systems and internal controls over financial reporting.modify our contract for the discontinuation of LIBOR.


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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


Note 4 - Acquisition MIAT College of Technology


Proprietary Loan Program Revenue RecognitionOn 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.
Prior
The acquisition is part of our growth and diversification strategy and allows us to adoptingexpand MIAT programs throughout UTI brand campuses and extend UTI’s presence and programs into the new revenue standard, we recognized revenue related to proprietary loan program as cash was received. The adoptionCanton, 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 new standard will result in a change in the timing of revenue recognition. Under ASC 606, the portion tuition revenue related to the proprietary loan program is considered a form of variable consideration. We estimate the amountPurchase Agreement, we ultimately expect to collect from the portion of tuition that is funded by the proprietary loan program. Estimating the collection rate requires significant management judgment. The estimated amount is determined at the inception of the contract and we recognize the related revenue as the student progresses through school. The change in the timing of revenue recognition will also result in the recognition of a loan receivable.
The cumulative impact of changing the timing of revenue recognition for the proprietary loan program as of October 1, 2017 will be an increase in stockholders' equity of approximately $33.0 million to $38.0 million and a corresponding increase in receivables.
Program Changes
From time to time, a student may elect to “upgrade” or “downgrade” their program which will change the program length and price. When a student changes their program, a new enrollment agreement is signed and a new financial aid package is completed for the student since this modification will impact the length of the program and/or transaction price.
Prior to adopting the standard, when a student changed their program, we recorded any changes to the tuition price or program length through a cumulative catch up adjustment from the inception of the contract through the date of the change. Under ASC 606, we must assess the contract modification to determine if there has been an increase in price or scope. For those program changes that result in either an increase in price or scope, we will now record the change on a prospective basis. Based on our analysis, we do not expect the cumulative change to be material as of October 1, 2017.
Effective the first quarter of fiscal 2019:
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business. ASU 2017-01 clarifies the definition of a business. If substantiallyacquired 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 $1.7 million of which $0.9 million were incurred during the year ended September 30, 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 consolidated statements of operations.

Under the acquisition method of accounting, the total purchase price was allocated to the identifiable assets acquired and the liabilities assumed based on our valuation estimates of the fair values as of the acquisition date. As we have finalized the related tax returns, there will be no further adjustments to the carrying value of the grossrespective recorded assets acquiredand liabilities, or residual amount allocated to goodwill.

The final allocation of the purchase price at November 1, 2021 is concentrated in a single identifiable asset or groupsummarized as follows:

Assets acquired:
Cash and cash equivalents$2,301 
Accounts receivable, net3,230 
Prepaid expenses268 
Other current assets507 
Property and equipment3,043 
Goodwill8,637 
Intangible assets16,200 
Right-of-use assets for operating leases14,979 
Other assets314 
Total assets acquired$49,479 
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Table of similar identifiable assets, then the acquisition is not a business. In addition, a business must include at least one substantive process. The standard is to be applied on a prospective basis to purchases or disposals of a business or an asset. The effect of this new standard on our consolidated financial statements will be dependent on any future acquisitions.Contents
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments, which clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. We are currently evaluating the impact that the standard will have on our consolidated statements of cash flows. Further, in November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. This guidance requires restricted cash and cash equivalents to be included with cash and cash equivalents on the statement of cash flows. Based on the restricted cash balances on our consolidated balance sheets, we expect this standard to have an impact on the presentation of our consolidated statements of cash flows.    

In January 2016, the FASB issued ASU 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 primarily impacts the accounting for equity investments other than those accounted for using the equity method of accounting, financial


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


Less: Liabilities assumed
Accounts payable and accrued expenses$1,720 
Deferred revenue1,843 
Operating lease liability, current portion817 
Deferred tax liabilities, net1,975 
Operating lease liability14,216 
Other liabilities93 
Total liabilities assumed20,664 
Net assets acquired$28,815 


liabilitiesThe 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 10 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 optionby discounting them to present value. The trademarks and trade names were valued using the presentation and disclosure requirementsrelief 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 11 for financial instruments. Additionally, the FASB clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. The accounting for other financial instruments, such as loans, investments in debt securities and financial liabilities is largely unchanged. Based on our current portfolio of investments in debt securities accounted for as held-to-maturity securities and investments made in equity securities accounted for as trading securities, the adoption of this standard is not expected to have a material impact on our financial statements.
Effective the first quarter of fiscal 2020:

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires lessees to recognize a right-of-use asset and a lease liabilityfurther details on the balance sheet for substantially all leases, with the exception of short-term leases. Leases will be classified as either financing or operating, with classification affecting the pattern of expense recognitionintangible assets recorded. As previously discussed in the statement of income. We are currently evaluating the impact that the update will have on our results of operations, financial conditionNote 3, we early adopted ASU 2021-08 and financial statement disclosures.
Effective the first quarter of fiscal 2021:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss (CECL) model) that is based on expected losses rather than incurred losses. Underapplied the new guidance an entity recognizeswhen recording the initial deferred revenue.

Pro forma financial information is not presented as an allowance its estimatethe fiscal 2021 revenues and earnings of expected credit losses (ECL), which the FASB believes will result in more timely recognitionMIAT are not material to our consolidated statements of such losses. We are currently evaluating the impact that the update will have on our results of operations, financial conditionoperations. MIAT’s principal business is providing postsecondary education and financial statement disclosures.

4.  Postemployment Benefits
In November 2016, we completed a reduction in workforce and provided postemployment benefits totaling approximately $1.3 million to approximately 75 impacted employees. Additionally, we periodically enter into agreements which provide postemployment benefits to personnel whose employment is terminated. The postemployment benefit liability, which is included in accounts payableour “Postsecondary Education” reporting unit disclosed in Note 23 on Segments. MIAT’s corporate expenses are allocated to “Postsecondary Education” and accrued expensesthe “Other” category based on compensation expense.

Note 5 - Revenue from Contracts with Customers
Nature of Goods and Services
See Note 2 for a description of the accompanyingnature of revenues.
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. 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 while our MIAT programs are completed in 28 to 96 weeks. Our advanced training programs range from 12 to 23 weeks in durations. 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 consolidated balance sheets because it is generally paid out ratably overexpected to be earned within the next 12 months.
Additionally, certain students participate in the 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 the agreements, which range from 1 month to 24 months, with the final agreement expiring in November 2018.
The postemployment benefit accrual activity for the year ended September 30, 2017 was as follows:these loans are collectible.
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  Liability Balance at
September 30, 2016		 Postemployment
Benefit Charges		 Cash Paid Other
Non-cash (1)		 Liability Balance at
September 30, 2017
Severance $4,046
 $1,765
 $(4,508) $(675) $628
Other 189
 117
 (228) (75) 3
Total $4,235
 $1,882
 $(4,736) $(750) $631
Table of Contents

(1)Primarily relates to the expiration of benefits not used within the time offered under the separation agreement and non-cash severance.



UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


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
5.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 23 for disaggregated segment revenue information.
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:
September 30,
20222021
Receivables, which includes tuition and notes receivable$46,826 $46,489 
Deferred revenue$54,223 $57,648 

During the year ended September 30, 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.

Note 6 - Receivables, net
Receivables, net consist of the following:
  September 30,
2017 2016
Tuition receivables $12,150
 $10,664
Tax receivables
—

2,207
Other receivables 3,626
 3,333
Receivables 15,776
 16,204
Less allowance for uncollectible accounts (579) (951)
  $15,197
 $15,253
 September 30,
20222021
Tuition receivables$18,931 $16,265 
Other receivables3,153 3,673 
Total receivables22,084 19,938 
Less: allowance for uncollectible accounts(5,634)(2,787)
Receivables, net$16,450 $17,151 
The allowance for uncollectible accounts is estimated using our historical write-off experience applied to the receivable balances for students who are no longer attending school due to graduation or withdrawal or who are in school and have receivable balances in excess of financial aid available to them. We write off receivable balances against the allowance for uncollectible accounts at the time we transfer the balance to a third partythird-party collection agency.
 
F-21
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
The following table summarizes the activity for our allowance for uncollectible accounts for the year ended September 30:
  Balance at
Beginning of
Period		 Additions to
Bad Debt
Expense		 Write-offs of
Uncollectible
Accounts		 Balance at
End of
Period
2017 $951
 $827
 $(1,199) $579
2016 $1,820
 $1,153
 $(2,022) $951
2015 $3,794
 $2,634
 $(4,608) $1,820

During the yearyears ended September 30, 2015,2022, 2021 and 2020:
Year Ended September 30,
202220212020
Balance at beginning of period$2,787 $1,793 $1,097 
Additions due to opening balance of MIAT acquisition1,682 — — 
Additions to bad debt expense2,510 1,718 1,767 
Write-offs of uncollectible accounts(1,345)(724)(1,071)
Balance at end of period$5,634 $2,787 $1,793 

Note 7 - Investments

In July 2022, we reversed,invested a portion of our cash and recorded as a reduction to bad debt expense, approximately $1.0 million of bad debt expense recordedcash equivalents in 2011 and 2012 for processing issues related to student funds received from a non-Title IV federal funding agency. Based on communication with the agency, we determined it was no longer probable that we will be required to return such funds. This amount is presented within write-offs of uncollectible accounts in the table above.
6.  Investments

During the third quarter of 2017, we began investing in various bond funds. Theseshort-term investments are held principally for resale in the near term and are classified as trading securities. Trading securities are recorded at fair value based on the closing market price of the security. The unrealized gain on trading securities at September 30, 2017 was less than $0.1 million and was included in other income, net in the accompanying condensed consolidated statements of loss.
Held-to-maturity securitieswhich primarily consist of corporate bonds from large cap industrial and selected financial companiesmunicipal bonds with a minimum credit rating of A. Additionally, we invest in certificates of deposit issued by financial institutions and pre-funded municipal bonds, which are generally secured by escrowed-to-maturity U.S. Treasury notes. Municipal bonds represent debt obligations issued by states, cities, counties and other governmental entities, which earn interest that is exempt from federal income taxes. We have the ability and intention to hold ourthese investments until maturity and therefore classifyhave classified these investments as held-to-maturity and reportrecorded them at amortized cost.cost and presented them in “Held-to-maturity investments” on our consolidated balance sheet as of September 30, 2022.


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



AmortizedThe amortized cost, gross unrealized gains or losses, and fair value forof held-to-maturity investments classified as held-to-maturity at September 30, 2017 were as follows:
        Estimated
  Amortized Gross Unrealized Fair Market
  Cost Gains Losses Value
Due in less than 1 year:        
Corporate bonds $7,759
 $—
 $(4) $7,755
  $7,759
 $—
 $(4) $7,755

Amortized cost and fair value for investments classified as held-to-maturity at 2022 are noted in the table below. As of September 30, 20162021, there were as follows:no outstanding held-to-maturity investments.
September 30, 2022
Gross UnrealizedEstimated Fair
Due in less than 1 year:Amortized CostGainsLossesMarket Value
   Corporate, municipal bonds and other$28,918 $— $(19)$28,899 
        Estimated
  Amortized Gross Unrealized Fair Market
  Cost Gains Losses Value
Due in less than 1 year:        
Municipal bonds $744
 $—
 $—
 $744
Corporate bonds 200
 —
 —
 200
Certificates of deposit 747
 —
 —
 747
  $1,691
 $—
 $—
 $1,691

Investments are exposed to various risks, including interest rate, market and credit risk and asrisk. 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 consolidated balance sheets and consolidated statements of loss.financial statements.

7.Note 8 - 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, defined1:    Defined as quoted market prices in active markets for identical assets or liabilities; liabilities.
Level 2, defined2:    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 and liabilities.
Level 3, defined3:    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.

F-22
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)



Assets measured or disclosed at fair value on a recurring basis consisted of the following:
  Fair Value Measurements Using
 September 30, 2022Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Money market funds(1)
$23,439 $23,439 $— $— 
Notes receivable(2)
35,872 — — 35,872 
Corporate bonds, municipal bonds, and other(3)
28,899 28,899 — — 
Total assets at fair value on a recurring basis$88,210 $52,338 $— $35,872 

  Fair Value Measurements Using
 September 30, 2021Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		Significant
Other
Observable
Inputs
(Level 2)		Significant
Unobservable
Inputs
(Level 3)
Money market funds(1)
$62,100 $62,100 $— $— 
Notes receivable(2)
36,124 — — 36,124 
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 consolidated balance sheets as of September 30, 2022 and 2021.
(2)    Notes receivable relate to the proprietary loan program and are reflected as “Notes receivable, current portion” and “Notes receivable, less current portion” in our consolidated balance sheets as of September 30, 2022 and 2021. See Note 2 for further discussion over the proprietary loan program.
(3)     Corporate bonds, municipal bonds and other are reflected as “Held-to-maturity investments” in our consolidated balance sheet as of September 30, 2022.

Note 9 - Property and Equipment, net
Property and equipment, net consisted of the following:
September 30,
Depreciable Lives (in years)20222021
Land—$16,603 $8,355 
Building and building improvements3-30126,244 71,036 
Leasehold improvements1-2086,751 63,502 
Training equipment3-1096,907 91,191 
Office and computer equipment3-1031,900 31,718 
Curriculum development520,130 19,692 
Software developed for internal use1-512,150 12,524 
Vehicles51,458 1,436 
Right-of-use assets for finance leases2-3215 215 
Construction in progress—16,359 10,171 
408,717 309,840 
Less: accumulated depreciation and amortization(194,425)(187,789)
Property and equipment, net$214,292 $122,051 
F-23
    Fair Value Measurements Using
  September 30, 2017 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Trading securities $40,020
 $40,020
 $—
 $—
Money market funds 39,569
 39,569
 —
 —
Corporate bonds 7,755
 7,755
 —
 —
Total assets at fair value on a recurring basis $87,344
 $87,344
 $—
 $—
Table of Contents

    Fair Value Measurements Using
  September 30, 2016 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Money market funds $108,963
 $108,963
 $—
 $—
Corporate bonds 200
 200
 —
 —
Municipal bonds 744
 —
 744
 —
Commercial paper 2,501
 —
 2,501
 —
Certificates of deposit 747
 —
 747
 —
Total assets at fair value on a recurring basis $113,155
 $109,163
 $3,992
 $—

Our Level 2 investments are valued using readily available pricing sources which utilize market observable inputs, including the current interest rate for similar types of instruments.



UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)



8.   Property and Equipment, net
Property and equipment, net consisted of the following:
  Depreciable
Lives (in years)		 September 30,
2017		 September 30,
2016
Land — $3,189
 $3,189
Building and building improvements 30-35 79,712
 78,870
Leasehold improvements 1-28 41,825
 39,539
Training equipment 3-10 94,817
 92,601
Office and computer equipment 3-10 36,458
 37,688
Curriculum development 5 19,713
 18,702
Software developed for internal use 1-5 11,772
 11,905
Vehicles 5 1,269
 1,228
Construction in progress — 1,599
 2,195
    290,354
 285,917
Less accumulated depreciation and amortization   (183,690) (171,884)
    $106,664
 $114,033
Depreciation expense related to our property and equipment was $16.8 million and $14.0 million for years ended September 30, 2022 and 2021, 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 acquisition, we had a 28% interest in 2611 through our unconsolidated affiliate, as described in Note 12, and previously leased the campus from 2611. The total cash consideration paid, including transaction related costs, for the remaining 72% interest in 2611 was $28.7 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 was secured by a mortgage on the Lisle Campus. The total net assets recorded for the transaction equals $33.2 million, of which $8.2 million was allocated to land, $43.3 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 and building improvements.

Note 10 - Goodwill

Our goodwill balance of $16.9 million $17.3 millionas of September 30, 2022 represents the excess of the cost of an acquired business over the estimated fair values of the assets acquired and $16.5 millionliabilities assumed. The changes in the carrying value of goodwill for the years ended September 30, 2017, 2016,2022 and 2015, respectively. Amortization expense related to curriculum development and software developed for internal use was $0.72021 are presented in the table below.
Year ended September 30,
20222021
Balance at beginning of period$8,222 $8,222 
Additions to Goodwill for acquisition of MIAT8,637 — 
Balance at end of period$16,859 $8,222 

Of the $16.9 million $1.1 million and $3.6 million for the years endedrecorded as goodwill as of September 30, 2017, 2016,2022, $8.6 million relates to the acquisition of MIAT as of November 1, 2021 as previously described in Note 4, and 2015, respectively.$8.2 million resulted from the acquisition of our motorcycle and marine education business in Orlando, Florida in 1998. All of the goodwill relates to our Postsecondary Education reportable operating segment.
The following amounts,Goodwill is reviewed at least annually for impairment, which are includedmay result from the deterioration in the above table, represent assets financed by financing obligations:
  September 30,
2017		 September 30,
2016
Assets financed by financing obligations, gross $45,816
 $45,816
Less accumulated depreciation and amortization (8,844) (6,162)
Assets financed by financing obligation, net $36,972
 $39,654

9.   Build-to-Suit Lease

We entered into build-to-suit facility lease agreements related tooperating performance of the designacquired businesses, adverse market conditions, adverse changes in applicable laws or regulations and constructiona variety of our Long Beach, California campus and the relocationother circumstances. Historically, this testing has been performed as of our Glendale Heights, Illinois campus to, and the design and constructionSeptember 30 of a new campus in, Lisle, Illinois. Under each agreement,fiscal year. Effective as of October 1, 2021, we determined that we have continued involvementour goodwill will be tested annually for impairment 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 material and believe that the timing is preferable as it allows additional time to complete the annual assessment in the related facility after the construction period was completed. Therefore, the arrangements are accounted for as financing obligations. Accordingly, the asset and a corresponding financing obligation are included in our consolidated balance sheet. The asset is being depreciated over the initial lease term of 15 years for our Long Beach, California campus, and over the initial lease term of 18 years for our Lisle, Illinois campus. The financing obligation is amortized through the effective interest method in which a portionadvance of the lease payments is recognizedannual 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 interest expense, a portion is allocated to the imputed land lease and the remaining portion decreases the financing obligation.of September 30, 2022.



F-24
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


Note 11 - Intangible Assets, net


Additionally,The following table provides the gross carrying value, accumulated amortization, net book value and remaining useful life for each campus, we have an imputed operating lease relatedintangible assets subject to our use of the land which is recognized from the time we entered into the agreement through the initial lease term. Construction for our Long Beach, California campus was completed during August 2015 and the facility was placed into service effective September 1, 2015. Construction for our Lisle, Illinois campus was completed during November 2013 and the facility was placed into service effective December 1, 2013.

Future minimum lease payments under the Lisle, Illinois and Long Beach, California leasesamortization as of September 30, 20172022:
Gross Carrying ValueAccumulated AmortizationNet Book ValueWeighted Average Remaining Useful Life (Years)
Accreditations and regulatory approvals - MIAT$12,800 $— $12,800 Indefinite
Trademarks and trade names - MIAT1,000 — 1,000 4.00
Curriculum - MIAT400 (73)327 4.08
Non-compete agreement and trade name442 (354)88 2.58
Total$14,642 $(427)$14,215 3.93

Of the $14.6 million gross carrying value recorded as intangible assets as of September 30, 2022, $14.2 million relates to the MIAT acquisition completed on November 1, 2021 as previously described in Note 4, and $0.4 million relates to previously recorded non-complete agreements and trade names. The remaining weighted average useful lives shown are as follows: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 $108.8 thousand and $35.5 thousand for the years ended September 30, 2022 and 2021, respectively.


As discussed in Note 2, we determined the fair value of our MIAT trademarks and trade names intangible asset to be $1.0 million and recorded an intangible asset impairment charge of $2.0 million within “Selling, general and administrative” on the consolidated statement of operations during the year ended September 30, 2022. There were no impairment charges related to intangible assets recorded for the year ended September 30, 2021 or the other remaining intangible assets for the year ended September 30, 2022.

Years ending September 30, 
2018 $4,522
2019 4,646
2020 4,772
2021 4,902
2022 5,035
Thereafter 49,966
Total future minimum lease obligation $73,843
Less imputed interest on financing obligation (30,098)
Less imputed accrued land lease obligation (604)
Net present value of financing obligation $43,141

10.Note 12 - Investment in Unconsolidated AffiliatesAffiliate


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

Currently, the JV uses an interest rate cap to manage interest rate risk associated with its floating rate debt.  This derivative instrument is designated as a cash flow hedge based on the nature of the risk being hedged.  As such, the effective portion of the gain or loss on the derivative is initially reported as a component of the JV’s accumulated other comprehensive income or loss, net of tax, and is subsequently reclassified into earnings when the hedged transaction affects earnings.  Any ineffective portion of the gain or loss is recognized in the JV’s current earnings.  Due to our equity method investment in the JV, when the JV reports a current year component of other comprehensive income (OCI), we, as an investor, likewise adjust our investment account for the change in investee equity.  In addition, we adjust our OCI for our share of the JV’s currently reported OCI item. 

Additionally, in February 2016, we made an investment in and entered into a licensing agreement with Pro-MECH Learning Systems, LLC (Pro-MECH), a company that provides comprehensive technician development programs and shop operations services. This investment,facility which included $0.7 million in cash as well as the conversion of a $0.3 million note receivable extended during the first quarter of 2016, resulted in our ownership of 25% of the outstanding equity interests of Pro-MECH. The $1.0 million investment was accounted for under the equity method of accounting. DuringAs discussed in Note 9, in February 2022, this JV was dissolved and we acquired the three monthsbuilding, land and debt associated with this campus through the acquisition of the 2611 entity.

Our equity in earnings of unconsolidated affiliates was $0.1 million for the year ended September 30, 2016, we determined that2022, and $0.4 million for the years ended 2021 and 2020.

Investment in unconsolidated affiliate is included within “Other assets” on our consolidated balance sheets as noted below:

September 30,
20222021
Carrying ValueOwnership PercentageCarrying ValueOwnership Percentage
Investment in JV$— — %$4,627 28.0 %
F-25
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)



investment was impaired and recorded an other-than-temporary impairment charge of $0.8 million, which was included within other expense on our consolidated statements of loss.

Our equity in earnings of unconsolidated affiliates was $0.5 million, $0.3 million and $0.5 million for the years ended September 30, 2017, 2016 and 2015, respectively.

Investment in our unconsolidated affiliates consists of the following:
  September 30, 2017 September 30, 2016
  Carrying Value Ownership Percentage Carrying Value Ownership Percentage
Investment in JV $4,112
 27.972% $4,036
 27.972%

Investment in unconsolidated affiliatesaffiliate included the following activity during the period:
Year ended September 30,
20222021
Balance at beginning of period$4,627 $4,494 
Equity in earnings of unconsolidated affiliate113 410 
Return of capital contribution from unconsolidated affiliate(188)(277)
Dissolution of unconsolidated affiliate(4,552)— 
Balance at end of period$— $4,627 

Note 13 - Leases
  Year ended September 30,
  2017 2016
Balance at beginning of period $4,036
 $3,986
Investment in unconsolidated affiliate —
 1,000
Equity in earnings of unconsolidated affiliates
 484
 342
Return of capital contribution from unconsolidated affiliates (390) (475)
Loss on impairment of investment in unconsolidated affiliates —
 (815)
Equity interest in investee's unrealized gains on hedging derivatives, net of taxes
(18)
(2)
Balance at end of period $4,112
 $4,036


As of September 30, 2022, we lease 12 of our 16 campuses and our corporate headquarters under non-cancelable operating leases, some of which contain escalation clauses and requirements to pay other fees associated with the leases. Our facility leases have original lease terms ranging from 8 to 20 years and expire at various dates through 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 September 30, 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 consolidated balance sheets.

As previously discussed in Note 9, 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 consolidated statement of operations for the year ended September 30, 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.

The followingcomponents of lease expense are included in “Educational services and facilities” and “Selling, general and administrative” on the consolidated statement of operations, with the exception of interest on lease liabilities, which is summarized financial informationincluded in “Interest expense.”

The components of lease expense during the years ended September 30, 2022, 2021, and 2020 are presented below. The operating lease expense excludes expense for our equity method investment inshort-term leases not accounted for under ASC 842, which was not significant for the JV as required by the guidance in SEC Regulation S-X Rule 4-08(g). The amounts shown below represent 100%years ended September 30, 2022, 2021, or 2020.
Year ended September 30,
Lease Expense202220212020
Operating lease expense$22,424 $22,623 $29,348 
Finance lease expense:
   Amortization of leased assets72 123 102 
   Interest on lease liabilities2 6 7 
Variable lease expense5,469 3,682 4,120 
Sublease income(155)(444)(744)
Total net lease expense$27,812 $25,990 $32,833 

F-26
Table of this equity method investment's financial position and results of operations.Contents
Balance Sheet September 30, 2017
 September 30, 2016
Current assets $2,713
 $2,058
Noncurrent assets 36,013
 36,984
  $38,726
 $39,042
     
Current liabilities 1,481
 1,093
Noncurrent liabilities 22,510
 23,609
Noncontrolling interests 4,112
 4,036
Shareholders' equity 10,623
 10,304
  $38,726
 $39,042


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


Supplemental balance sheet, cash flow and other information related to our leases was as follows:
September 30,
LeasesClassification20222021
Assets:
Operating lease assetsRight-of-use assets for operating leases$132,038 $159,075 
Finance lease assets
Property and equipment, net(1)
22 94 
Total leased assets$132,060 $159,169 
Liabilities:
Current
Operating lease liabilitiesOperating lease liability, current portion$12,959 $14,075 
Finance lease liabilitiesLong-term debt, current portion23 73 
Noncurrent
Operating lease liabilitiesOperating lease liability129,302 153,228 
Finance lease liabilitiesLong-term debt— 23 
Total lease liabilities$142,284 $167,399 
(1)     Finance lease assets are recorded net of accumulated amortization of $0.2 million and $0.1 million as of September 30, 2022 and 2021, respectively.
September 30,
Lease Term and Discount Rate20222021
Weighted-average remaining lease term (in years):
Operating leases8.929.37
Finance leases0.331.32
Weighted average discount rate:
Operating leases3.91 %4.31 %
Finance leases3.08 %3.08 %

Year ended September 30,
Supplemental Disclosure of Cash Flow Information and Other Information202220212020
Cash paid for amounts included in the measurement of lease liabilities:
   Operating cash flows from operating leases$13,952 $20,469 $25,617 
   Financing cash flows from finance leases73 119 99 
Non-cash activity related to lease liabilities:
Lease assets obtained in exchange for new operating lease liabilities$3,313 $30,017 $20,321 
Leases assets obtained in exchange for new finance lease liabilities— — 215 

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)

Maturities of lease liabilities were as follows:

As of September 30, 2022
Years ending September 30,Operating LeasesFinance Leases
2023$16,673 $23 
202419,005 — 
202519,228 — 
202619,447 — 
202719,469 — 
2028 and thereafter74,507 — 
Total lease payments168,329 23 
Less: interest(26,068)— 
Present value of lease liabilities142,261 23 
Less: current lease liabilities(12,959)(23)
Long-term lease liabilities$129,302 $— 

Related Party Transactions for Leases

From 1991 through February 2022, two of our properties comprising our MMI Orlando, Florida location were leased from entities controlled by John C. White, a former director on our board of directors. Effective as of November 30, 2020, Mr. White voluntarily retired from our board of directors. During October and November 2020, we paid rent expense to the entities controlled by Mr. White of $0.3 million and $2.0 million for the year ended September 30, 2020. The leases were terminated in February 2022 in connection with the consolidation of the Orlando, Florida campus into one site.

  Year Ended September 30,
Results of Operations 2017 2016 2015
Revenues $3,658
 $3,658
 $3,658
Income from operations 2,671
 2,672
 2,633
Net income 1,731
 1,883
 1,903
Net income attributable to noncontrolling interest 484
 527
 532

11.Note 14 - Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consisted of the following:
September 30,
20222021
Accounts payable$21,746 $13,702 
Accrued compensation and benefits28,430 29,506 
Other accrued expenses13,328 11,189 
Accounts payable and accrued expenses$63,504 $54,397 

Note 15 - Debt

September 30, 2022September 30, 2021
Interest RateMaturity Date
Carrying Value of Debt (6)
Carrying Value of Debt (6)
Avondale Term Loan(1)
4.56 %May 2028$30,083 $30,886 
Lisle Term Loan - VN(2)
4.51 %Apr 202938,000 — 
Lisle Term Loan - WA(3)
5.29 %Nov 2031— — 
Finance leases(4)
3.08 %Various23 96 
Total debt68,106 30,982 
F-28
  September 30, 2017 September 30, 2016
Accounts payable $9,515
 $11,805
Accrued compensation and benefits 16,612
 22,501
Other accrued expenses 11,354
 8,239
  $37,481
 $42,545
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12.   Income Taxes

Each reporting period, we estimate the likelihood that we will be able to recover our deferred tax assets, which represent timing differences in the recognition of revenue and certain tax deductions for accounting and tax purposes. The realization of deferred tax assets is dependent, in part, upon future taxable income. In assessing the need for a valuation allowance, we consider all available evidence, including our historical profitability and projections of future taxable income. If, based on the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, we record a valuation allowance. Such valuation allowance is maintained on our deferred tax assets until sufficient positive evidence exists to support its reversal in future periods. The weight given to the positive and negative evidence is commensurate with the extent to which the evidence may be objectively verified. Significant judgment is required to determine if, and the extent to which, valuation allowances should be recorded against deferred tax assets.

During the three months ended March 31, 2016, there were several pieces of negative evidence that contributed to our conclusion that a valuation allowance was appropriate against all deferred tax assets that rely upon future taxable income for their realization. This negative evidence included (1) a significant pre-tax loss during the three months ended March 31, 2016, (2) deterioration in leading indicators, such as applications and new student starts, and projected population during the three months ended March 31, 2016, which negatively impacts projected future operating results, (3) financial projections that indicated we will be in a 3-year cumulative loss position during 2016 and (4) the continued challenging business and regulatory environment facing for-profit education institutions.

As a result of our assessment, our income tax expense was impacted by $34.2 million related to the increase in the valuation allowance within our consolidated statements of loss during the year ended September 30, 2016. The amount of the deferred tax assets considered realizable, however, could be adjusted in future periods if estimates of future taxable income during the carryforward period are increased, if objective negative evidence in the form of cumulative losses is no longer present and if additional weight may be given to subjective evidence such as our


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


September 30, 2022September 30, 2021
Interest RateMaturity Date
Carrying Value of Debt (6)
Carrying Value of Debt (6)
Debt issuance costs presented with debt (5)
(568)(256)
Total debt, net67,538 30,726 
Less: current portion of long-term debt(1,115)(876)
Long-term debt$66,423 $29,850 
(1)     Interest on the Avondale Term Loan (as defined below) accrues at annual rate equal to the LIBOR plus 2.0%.
(2)     Interest on the Lisle Term Loan - VN (as defined below) accrues at annual rate equal to the SOFR plus 2.0%.
(3)     The Lisle Term Loan - WA (as defined below) was paid off and retired.
(4)    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 13 for additional details on our finance leases.
(5)    The unamortized debt issuance costs as of September 30, 2022 relate to the Avondale Term Loan and the Lisle Term Loan - VN. The unamortized debt issuance costs as of September 30, 2021 relate entirely to the Avondale Term Loan.
(6)    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).

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 “Lender”) on May 12, 2021 in the maximum principal amount of $31.2 million with a maturity of seven years (the “Term Loan”). The Term Loan bears interest at the rate of LIBOR plus 2.0%. Principal and interest payments are due monthly. The 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 Lender that effectively fixes the interest rate on 50% of the principal amount of the Term Loan, or approximately $15.6 million, at 3.5% for the entire loan term. See Note 16 below for further discussion on the interest rate swap.

We are subject to customary affirmative and negative covenants under the Credit Agreement, including, without limitation, certain reporting obligations and certain limitations on restricted payments, and limitations on liens, encumbrances and indebtedness. The Term Loan is also subject to certain financial maintenance covenants. The debt service coverage ratio shall not be less than 1.25 to 1.00 and is defined as the ratio of the sum of consolidated income (loss) for the year, to the extent deducted in determining income for such period, before income taxes, interest expense, amortization, depreciation and other non-cash charges including net stock-based compensation, fees and expenses related to potential acquisitions and expansion of operations and certain non-recurring charges, including relating to restructuring, business optimization and diversification strategy, less any extraordinary non-recurring gains, interest income and non-cash gains (“Consolidated EBITDA”) (less dividends payable on our Series A Preferred Stock) and other extraordinary items to the current portion of long-term debt and interest paid during the period being measured (which commenced on September 30, 2021 and is tested annually thereafter on a trailing 12-month basis). The funded debt to Consolidated EBITDA ratio is required to be no greater than 3.50 to 1.00 (which commenced on June 30, 2021 and is tested quarterly thereafter on a trailing 12-month basis). Beginning on May 12, 2024, the Lender may request new appraisals of the Avondale property in order to maintain the ratio of the amortized loan balance to the value of the location at 70%, the approximate ratio that existed at May 12, 2021. Events of default under the Credit Agreement include, among others, the failure to make payments when due, breach of covenants (including certain financial maintenance covenants) and breach of representations or warranties. If we fail to meet the minimum debt service coverage ratio, loan-to-value or debt yield and fail to cure such non-compliance within a time period acceptable to the Lender, we will be in default. As of September 30, 2022, we were in compliance with all debt covenants.
Lisle Term Loan - WA
As discussed in Note 9, 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
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)

Loan - WA”). In April 2022, this term loan was repaid in full with proceeds from the Lisle Term Loan - VN, as discussed below.
projectionsLisle Term Loan - VN
On April 14, 2022, 2611 (the “Borrower”) entered into a new Loan Agreement (“Lisle Loan Agreement - VN”) with Valley National Bank (the “Lisle Lender”), to fund the acquisition and retirement of the Lisle Term Loan - WA, via a term loan in the original principal amount of $38.0 million with a maturity of seven years (the “Lisle Term Loan - VN”). The Lisle Term Loan - VN bears interest at a rate of one-month Secured Overnight Financing Rate (“SOFR”) plus 2.0%. In connection with the Lisle Term Loan - VN, we entered into an interest rate swap agreement with the Lisle Lender that effectively fixes the interest rate on 50% of the principal amount of the Lisle Term Loan - VN, or $19.0 million, at 4.69% for growth.the entire loan term. The Lisle Term Loan - VN is secured by a mortgage on the Lisle Campus and is guaranteed by the Company.
As guarantor, the Company is subject to certain customary affirmative and negative covenants under the Lisle Loan Agreement - VN, including, without limitation, reporting and notice obligations and certain financial maintenance covenants. The Company’s fixed charge coverage ratio is required to be not less than 1.25 to 1.00 during the period being measured (which commences on June 30, 2022 and may be tested no more than quarterly thereafter on a trailing 12-month basis) and is defined as the ratio of (a) the sum of consolidated net income (loss) for the year, before interest expense, income taxes, depreciation and amortization, and other extraordinary non-recurring items (“Adjusted EBITDA”) plus rent paid to Borrower and less cash taxes paid, distributions, and unfinanced capital expenditures to (b) principal and interest expenses plus rent paid to Borrower. The ratio of total indebtedness to Adjusted EBITDA is required to be no greater than 3.50 to 1.00 (which commences on the date the Company shall submit its initial compliance certificate in accordance with the Loan Agreement and may be tested no more than annually thereafter on a trailing 12-month basis). In addition, the Borrower’s debt service coverage ratio is required to equal or exceed 1.20 to 1.00 during the period being measured (which commences on June 30, 2022 and may be tested no more than quarterly thereafter on a trailing 12-month basis) and is defined as the ratio of (a) net operating income of the Lisle Campus to (b) actual annual debt service due under the Loan Agreement. Events of default under the Loan Agreement include, among others, the failure to make payments when due, breach of covenants (including certain financial maintenance covenants) and breach of representations or warranties. If the Company fails to meet the minimum fixed charge coverage ratio or ratio of total indebtedness to Adjusted EBITDA and fails to cure such non-compliance within a time period acceptable to the Lender, the Company will be in default. As of September 30, 2022, we were in compliance with all debt covenants.
Debt Maturities
Scheduled principal payments due on our debt for each year through the period ended September 30, 2027, and thereafter were as follows at September 30, 2022:
MaturityTerm LoansFinance LeasesTotal
2023$1,092 $23 $1,115 
20241,672 — 1,672 
20251,763 — 1,763 
20261,836 — 1,836 
20271,909 — 1,909 
Thereafter59,811 — 59,811 
Subtotal68,083 23 68,106 
Debt issuance costs presented with debt(568)— (568)
Total$67,515 $23 $67,538 

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 16 - 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 will continuemay enter into derivative financial instruments to evaluateoffset these underlying market risks. See Note 2 for our valuation allowancederivative financial instruments policy.

On May 12, 2021, in future periodsconnection with the Avondale Term Loan discussed in Note 15, we entered into an interest rate swap agreement with the 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 anythe 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.

On April 14, 2022, in connection with the Lisle Term loan - VN discussed in Note 15, we entered into an interest rate swap agreement with the Lisle Lender that effectively fixes the interest rate on 50% of the principal amount of the Lisle Term Loan - VN at 4.69% for the entire loan term, or seven years (the “Lisle Swap”). On April 14, 2022, the Lisle 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 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 consolidated statements of operations over the corresponding period of the underlying hedged item. The ineffective portion of the change in circumstances that causesfair value of a changederivative financial instrument is recognized in judgment about“Interest expense” at the realizabilitytime 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 consolidated statements of operations. Of the net amount of the deferred tax assets.

Under Section 382existing gains that are reported in “Accumulated other comprehensive income (loss)” as of September 30, 2022, we estimate that $0.7 million will be reclassified to “Interest expense” within the next twelve months. As of September 30, 2022, the notional amounts of the Internal Revenue Code, for income tax purposes only, we underwent an ownership changeAvondale Swap and Lisle Swap was approximately $15.0 million and $19.0 million, respectively.

Fair Value of Derivative Instruments

The following table presents the fair value of our Swap and Lisle Swap (Level 2), both of which are designated as a resultcash flow hedges, and the related classification on the consolidated balance sheets as of September 30, 2022 and 2021:

September 30,
Interest Rate Swaps20222021
Other current assets$632 $194 
Other assets2,067 85 
   Total fair value of assets designated as hedging instruments$2,699 $279 

Effect of Cash Flow Hedge Accounting on the preferred stock issuance in June 2016. Accordingly, certain deductionsConsolidated Statement of Operations and losses will be subject to an annual Section 382 limitationAccumulated Other Comprehensive Income (Loss)

The table below presents the effect of cash flow hedge accounting for both federalour Swap and state tax purposes. The limitation may affectLisle Swap on the timingconsolidated statement of when these deductionsoperations and losses can be usedAccumulated other comprehensive income (loss) for the years ended September 30, 2022 and in turn, may impact the timing2021:
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Table of the payment of income taxes. The limitation may also cause such deductions and losses to expire unused.Contents

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Amount of Gain (Loss) Recognized in Other Comprehensive Income (Loss) on DerivativeLocation of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into IncomeAmount of Gain (Loss) Reclassified from Accumulated Other Comprehensive Income (Loss) into Income
Year Ended September 30, 2022
Interest Rate Swaps$2,787 Interest expense$(192)
Year Ended September 30, 2021
Interest Rate Swaps$(365)Interest expense$(86)

Note 17 - Income Taxes

The components of income tax expense (benefit)benefit (expense) for the years ended September 30, 2022, 2021 and 2020 are as follows:
  Year Ended September 30,
2017 2016 2015
Current expense (benefit)      
United States federal $4,153
 $(2,043) $2,819
State 1,244
 285
 1,043
Total current expense (benefit) 5,397
 (1,758) 3,862
Deferred (benefit) expense      
United States federal —
 24,877
 (5,109)
State —
 3,051
 (285)
Total deferred (benefit) expense —
 27,928
 (5,394)
Total provision (benefit) for income taxes $5,397
 $26,170
 $(1,532)

 Year Ended September 30,
202220212020
Current (expense) benefit:
United States federal$(17)$5 $11,250 
State(1,065)(607)(303)
Total current (expense) benefit(1,082)(602)10,947 
Deferred benefit (expense):
United States federal2,380 — (345)
State4,109 — — 
Total deferred benefit (expense)6,489 — (345)
Total income tax benefit (expense)$5,407 $(602)$10,602 
The income tax provision differs from the tax that would result from application of the statutory federal tax rate of 35.0%21.0% to pre-tax income for the year.years ended September 30, 2022, 2021 and 2020. The reasons for the differences are as follows:
 Year Ended September 30,
202220212020
Income tax (expense) benefit at statutory rate$(4,293)$(3,188)$545 
State income taxes, net of federal tax benefit(1,356)(480)(246)
Excess officers compensation(276)(203)(304)
Adjustment to deferred taxes(345)— — 
Decrease in valuation allowance12,075 3,229 6,135 
Net operating losses carryback to higher federal statutory rate years— — 4,270 
Other, net(398)40 202 
Total income tax benefit (expense)$5,407 $(602)$10,602 

F-32
  Year Ended September 30,
2017 2016 2015
Income tax expense at statutory rate $(956) $(7,534) $(3,738)
State income taxes, net of federal tax benefit 302
 (531) 265
Deferred tax asset write-off related to share based
compensation		 —
 51
 1,572
Increase in valuation allowance 6,192
 34,184
 128
Other, net (141) —
 241
Total income tax expense (benefit) $5,397
 $26,170
 $(1,532)
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Beginning in December 2013, certain stock-based compensation awards granted to employees expired, which required a write-off of the related deferred tax asset through income tax expense as our pro forma windfall pool of available excess tax benefits was no longer sufficient to absorb the shortfall. As a result of the full valuation allowance recorded on our deferred tax assets during the three months ended March 31, 2016, any write-offs of deferred tax assets related to stock-based compensation will have no impact on income tax expense. In the year ended September 30, 2016, we wrote off $1.8 million of deferred tax assets related to stock-based compensation and reduced the corresponding valuation allowance by the same amount.


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)




The components of the deferred tax assets (liabilities) recorded in the accompanying consolidated balance sheets were as follows:
September 30,
20222021
Gross deferred tax assets:
Right-of-use assets for operating leases$36,212 $43,039 
Deferred compensation$542 $707 
Accrued compensation2,217 2,277 
Accrued tool sets823 865 
Other reserves and accruals3,826 2,815 
Deferred revenue5,178 4,595 
Net operating losses5,406 5,442 
Tax credit carryforwards165 247 
Charitable contribution carryovers1,252 893 
Deductions limited by Section 382249 670 
Other comprehensive income— 70 
Other84 13 
Valuation allowance(1,200)(13,492)
Total gross deferred tax assets54,754 48,141 
Gross deferred tax liabilities:
Operating lease liability(33,655)(40,984)
Amortization of goodwill and intangibles(4,666)(2,056)
Depreciation and amortization of property and equipment(11,673)(4,587)
Prepaid and other expenses deductible for tax(720)(1,188)
  Other comprehensive income(675)— 
Total gross deferred tax liabilities(51,389)(48,815)
Net deferred tax assets (liabilities)$3,365 $(674)
  September 30,
2017 2016
Gross deferred tax assets:    
Deferred compensation $1,976
 $2,083
Reserves and accruals 5,017
 5,417
Accrued tool sets 1,111
 1,188
Deferred revenue 27,056
 22,326
Deferred rent liability 455
 1,213
Net operating losses and tax credit carryforwards 416
 479
Depreciation and amortization of property and equipment 3,151
 684
Charitable contribution carryovers 665
 671
Deductions limited by Section 382 943
 592
Valuation allowance (38,407) (32,828)
Total gross deferred tax assets 2,383
 1,825
Gross deferred tax liabilities:    
Amortization of goodwill and intangibles (3,141) (3,141)
Prepaid and other expenses deductible for tax (2,383) (1,825)
Total deferred tax liabilities, gross (5,524) (4,966)
Net deferred tax liabilities $(3,141) $(3,141)

In assessing whether a valuation allowance was required, we considered the weight of all available positive and negative evidence. The following table summarizes the activity for the valuation allowance for the years ended September 30, 2022, 2021 and 2020:
Year Ended September 30,
202220212020
Balance at beginning of period$13,492 $17,449 $25,673 
Reductions to income tax(12,075)(3,957)(5,947)
Write-offs(1)
(217)— (2,277)
Balance at end of period$1,200 $13,492 $17,449 
(1)     The write-offs in the year ended September 30:30, 2020 relate to the adoption of ASC 842 as of October 1, 2019.
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
  
Balance at
Beginning of
Period
 
Additions
(Reductions)
to Income
Tax
Expense
 Write-offs 
Balance at
End of
Period
2017 $32,828
 $6,192
 $(613) $38,407
2016 $401
 $34,184
 $(1,757) $32,828
2015 $273
 $128
 $—
 $401
During the year ended September 30, 2022, based in part on our sustained positive earnings, we determined that there was 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. The release of the valuation allowance resulted in the recognition of certain deferred tax assets on the consolidated balance sheet and a non-cash tax benefit recorded in the consolidated statement of operations for the year ended September 30, 2022. As of September 30, 2022, our remaining valuation allowance of $1.2 million relates to certain federal and state attributes for which we determined that it was more likely than not that a benefit will be realized prior to expiration.


As of September 30, 2017,2022, we had approximately $2.0$17.9 million and $19.9 million in deferred tax assets related to charitable contribution carryforwards, deductions limited by Section 382, as well as net operating losslosses for federal and credit carryforwards. These attributes will expirestate tax purposes, respectively. The federal net operating losses can be carryforward indefinitely, while the state net operating losses expires in the years 20182027 through 2038.2042 if not utilized.


We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities. The determination is based on the technical merits of the position and presumes that each uncertain tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. Although we believe the estimates are reasonable, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the historical income tax provisions and accruals.

The following table summarizes the activity related to the Company's gross unrecognized tax benefits for the fiscal year ended September 30, 2022 (amounts in thousands):
Year Ended September 30,
2022
Balance at beginning of period$— 
Increases related to acquisitions387 
Balance at end of period$387 

The total amount of gross unrecognized tax benefits was $0.4 million as of September 30, 2022, of which $0.3 million, if fully recognized, would decrease our effective tax rate.

We recognize interest and penalties related to unrecognized tax benefits through income tax expense. No interest or penalties were accrued as of September, 30 2022. We do not expect a significant decrease in our liability for unrecognized tax benefits in the next 12 months.

We file income tax returns for federal purposes and in many states. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time, generally three to four years, following the tax year to which these filings relate. OurIn 2019 and 2020, we filed returns to carried back federal and certain state net operating losses to prior years. The statute of limitations for adjustment of the net operating losses utilized on these tax returns remains open an additional three to four years, depending on jurisdiction, from the date these returns were filed.

On August 16, 2022, the U.S. federalgovernment enacted the Inflation Reduction Act (“IRA”) which, among other changes, created a new corporate alternative minimum tax based on adjusted financial statement income and imposes a 1% excise tax return for fiscal year 2015on corporate stock repurchases. The effective date of these provisions is currently under review byJanuary 1, 2023. We do not expect the Internal Revenue Service.enactment of the IRA will have an impact on our financial statements.


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



13.Note 18 - Commitments and Contingencies
Operating Leases
We lease certain of our facilities and certain equipment under non-cancelable operating leases, some of which contain renewal options, escalation clauses and requirements to pay other fees associated with the leases. We recognize rent expense on a straight-line basis. Property at one of our campus locations is leased from a related party. Future minimum rental commitments as of September 30, 2017 for all non-cancelable operating leases are as follows:
Years ending September 30,Gross Sublease income Net
2018$28,008
 $(657) $27,351
201927,401
 (660) 26,741
202022,896
 (239) 22,657
202120,095
 —
 20,095
202218,470
 —
 18,470
Thereafter12,345
 —
 12,345

$129,215
 $(1,556) $127,659
The table above does not include the lease agreement executed in October 2017 for a new campus in Bloomfield, New Jersey. The approximately 102,000 square-foot facility is expected to open in the fall of 2018.
Rent expense for operating leases was approximately $27.8 million, $27.9 million and $28.0 million for the years ended September 30, 2017, 2016 and 2015, respectively.
Rent expense includes rent paid to related parties, which was approximately $2.0 million, $2.0 million and $2.1 million for the years ended September 30, 2017, 2016 and 2015, respectively. Since 1991, certain of our properties have been leased from entities controlled by John C. White, an independent Director on our Board of Directors.
A portion of the property comprising our Orlando, Florida location is occupied pursuant to a lease with the John C. and Cynthia L. White 1989 Family Trust, with the lease term expiring on August 19, 2022. The annual base lease payments for the first year under this lease totaled approximately $0.3 million, with annual adjustments based on the higher of (i) an amount equal to 4% of the total annual rent for the immediately preceding year or (ii) the percentage of increase in the Consumer Price Index.
Another portion of the property comprising our Orlando, Florida location is occupied pursuant to a lease with Delegates LLC, an entity controlled by the White Family Trust, with the lease term expiring on August 31, 2022. The beneficiaries of this trust are Mr. White’s children, and the trustee of the trust is not related to Mr. White. Annual base lease payments for the first year under this lease totaled approximately $0.7 million, with annual adjustments based on the higher of (i) an amount equal to 4% of the total annual rent for the immediately preceding year or (ii) the percentage of increase in the Consumer Price Index.

Licensing Agreements
In 1999, weWe have entered into avarious licensing agreementagreements with varying expiration dates that givesgive us the right to use certain materials, and trademarks in the development of our courses. The agreement was amended in November 2009. Under the terms of the amended agreement, we are required to pay a flat fee per student for each program a student completes. There are no minimum

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



license fees required to be paid. The agreement terminates upon the written notice of either party providing not less than ninety days notification of intent to terminate. License fees related to this agreement were $0.9 million, $0.9 million and $1.1 million for the years ended September 30, 2017, 2016 and 2015, respectively, and were recorded in educational services and facilities expenses.
In May 2007, we entered into a licensing agreement that gives us the right to use certain trademarks, trade names, trade dress, and other intellectual property in connection with the operation of our campuses and the development of our courses. The agreement was amended January 2015expense for the license fees under these various agreements totaled $2.1 million, $2.0 million, and expires December 31, 2024. We are committed to pay royalties based upon minimum amounts specified in the agreement, throughout the term. The agreement required a minimum royalty payment of $1.6 million in calendar year 2017. The minimum royalty payments increase approximately $0.05 million every other calendar year thereafter. The expense related to these agreements was $1.6 million, $1.7 million and $1.9$2.2 million for the years ended September 30, 2017, 20162022, 2021 and 2015,2020, respectively, and waswere recorded in educational“Educational services and facilities expenses.expenses” on the consolidated statements of operations.

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(In July 2013, we entered into a training and materials agreement that gives us the right to use certain materials and trademarks in development of our courses. Under the terms of the agreement, we are required to pay a flat feethousands, except per student for each related program a student completes. There is an immaterial minimum annual fee required to be paid upon commencement of the program and annually thereafter. The agreement terminates upon the written notice of either party providing not less than 90 days notification of intent to terminate. The expense related to this agreement was $0.1 million for the year ended September 30, 2017 and 2016, and less than $0.1 million for the year ended September 30, 2015, and was recorded in educational services and facilities expenses.share amounts)

In April 2015, we entered into a licensing agreement that gives us the right to use certain trademarks in connection with the operation of our campuses and courses. The agreement has an initial term of four years, with options for three annual renewals totaling a seven year term. The maximum license fee over seven years is $2.3 million. The expense related to this agreement was $0.4 million, $0.5 million and $0.2 million for the years ended September 30, 2017, 2016 and 2015, respectively, and was recorded in educational services and facilities expenses.
Vendor RelationshipsSnap-on Tools Product Support Agreement
We have an agreement with a vendorSnap-on Tools that allows us to purchase promotional tool kits for our students at a discount from the vendor’s list price. In addition, we earn credits that are redeemable for equipment from the vendorSnap-on Tools that we use in our business. Credits are earned on our purchases as well as purchases made by students enrolled in our programs. We have agreed to grant the vendorSnap-On Tools exclusive access to our campuses, to display advertising and to use their tools to train our students. The credits under this agreement may be redeemed in multiple ways, which historically has been for additional equipment at the full retail list price, which is more than we would be required to pay using cash. The renewal was executed in October 2017 also allowsand originally expired October 31, 2022, however we executed an extension through January 6, 2023. The renewal allowed us to redeem our credits for a portion of the tool sets we purchase for our students. Any product credits remaining at termination will expire 60 days after the date of termination. A net prepaid expense with the vendorSnap-on Tools resulted from an excess of credits earned over credits used of $7.9$4.0 million and $7.1$4.8 million as of September 30, 20172022 and 2016, respectively.2021, respectively, included in “Other current assets” in our consolidated balance sheets.
Students are provided a voucherCareer Starter Tool Set Voucher which can be redeemed for a tool kitset near graduation. The cost of the tool kits,sets, net of the credit,discount, is accrued during the time period in which the students begin attending school until they have progressed to the point that the promotional tool kitset vouchers are provided. Our consolidated balance sheets include an accrued“Accrued tool setsets” liability of $2.8$3.2 million and $2.9$3.3 million as of September 30, 20172022 and 2016,2021, respectively. Additionally, our liability to the vendorSnap-on Tools for vouchers redeemed by students was $1.7$2.3 million and $1.5$1.6 million as of September 30, 20172022 and 2016,2021, respectively, and is included in accounts“Accounts payable and accrued expenses in our consolidated balance sheets.

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



Executive Employment Agreements
We have employment agreements with key executives that provide for continued salary payments and benefits if the executives are terminated for reasons other than cause or in the event of a change in control, as defined in the agreements. The range of the aggregate commitment upon termination of employment under these agreements and existing equity award agreements as of September 30, 2017 is approximately $1.9 million to $3.8 million.
Change in Control Agreements
We have severance agreements with other executives that provide for continued salary payments if the employees are terminated for any reason within twelve months subsequent to a change in control. Under the terms of the agreements, these employees are entitled to between six and twelve months salary at their highest rate during the previous twelve months. In addition, the employees are eligible to receive the unearned portion of their target bonus in effect in the year termination occurs and would be eligible to receive medical benefits under the plans maintained by us at no cost. The aggregate amount of our commitments under these agreements as of September 30, 2017 is approximately $9.6 million.
Deferred Compensation Plans
We have established a deferred compensation plan (the Plan) effective April 1, 2010, into which certain members of management are eligible to defer a maximum of 75% of their regular compensation and a maximum of 100% of their incentive compensation. Non-employee members of our Board of Directors are eligible to defer up to 100% of their cash compensation. The amounts deferred by the participant under this Plan are credited with earnings or losses based upon changes in values of participant elected notional investments. Each participant is fully vested in the amounts deferred.
We may make contributions at the discretion of our Board of Directors that will generally vest according to a five year vesting schedule. Distribution elections under the Plan may be for separation from service distribution or in-service distribution. We are not obligated to fund the Plan; however, we have purchased life insurance policies on the participants in order to fund the related benefits and such policies have been placed into a rabbi trust.
Our obligations under the Plan totaled $4.4 million and $4.5 million as of September 30, 2017 and 2016, respectively, and are included in other liabilities while the cash surrender value of the life insurance policies totaled $5.1 million and $5.3 million as of September 30, 2017 and 2016, respectively, and are included in other assetsexpenses” in our consolidated balance sheets.
Surety Bonds
Each of our campuses must be authorized by the applicable state education agency in which the campus is located to operate and to grant certificates, diplomas or degrees to its students. Our campuses are subject to extensive, ongoing regulation by each of these states. Additionally, our campuses are required to be authorized by the applicable state education agencies of certain other states in which our campuses recruit students. Our insurers issue surety bonds for us on behalf of our campuses and admissions representatives with multiple states to maintain authorization to conduct our business. We are obligated to reimburse our insurers for any surety bonds that are paid by the insurers. As of September 30, 2017,2022, the total face amount of these surety bonds was approximately $21.4$20.5 million. During the year ended September 30, 2017, we renegotiated the bonds required to operate and collateralized $11.5 million in bonds, which is reflected in restricted cash on our consolidated balance sheets.

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)




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 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 theWe are not currently a party to any material 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 pendingbut note that legal proceedings to which we are a party maycould, generally, have a material adverse effect on our business, cash flows, results of operations or financial condition.


In September 2012, we received a Civil Investigative Demand (CID) from the Attorney General of the Commonwealth of Massachusetts related to a pending investigation in connection with allegations that we caused false claims to be submitted to the Commonwealth relating to student loans, guarantees and grants provided to students at our Norwood, Massachusetts campus. The CID required us to produce documents and provide written testimony regarding a broad range of our business from September 2006 to the September 2012. We responded timely to the request. The Attorney General made a follow-up request for documents, and we complied with this request in February 2013.  In response to a status update request from us, the Attorney General requested and we provided in April 2015 additional documents and information related to graduate employment at our Norwood, Massachusetts campus and our policies and practices for determining graduate employment. We have not received any additional requests since April 2015. At this time, we cannot predict the eventual scope, duration, outcome or associated costs of this request and accordingly we have not recorded any liability in the accompanying consolidated financial statements.

14.Note 19 - 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 one vote per share on all matters requiring shareholder approval. On October 5, 2015, December 18, 2015 and March 31, 2016, we paid cash dividends of $0.02 per share to common stockholders of record as of September 28, 2015, December 4, 2015 and March 21, 2016, respectively. The aggregate payment was approximately $1.5 million. 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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Preferred Stock


Preferred Stock consists of 10,000,000 authorized preferred shares of $0.0001 par value each. On June 24, 2016, we entered into a Securities Purchase Agreement (“Purchase Agreement”) with Coliseum Holdings I, LLC (“Purchaser”) to sell to the Purchaser 700,000 shares of Series A Convertible Preferred Stock (“Series A Preferred Stock”) for a total purchase price of $70.0 million. The Series A Preferred Stock is perpetual, and therefore does not have a maturity date.

In June 2022, one stockholder elected to convert its 24,115 shares of Series A Preferred Stock into 724,174 shares of our common stock in accordance with the terms of the Series A Preferred Stock as set forth in the Certificate of Designations (“Certificate of Designations”), which reduced the Series A Preferred Stock outstanding to 675,885 shares.

As of September 30, 20172022 and 2016,2021, 675,885 and 700,000 shares of Series A Preferred Stock were issued and outstanding.outstanding, respectively. The liquidation preference associated with the Series A Preferred Stock was $100 per share at September 30, 20172022 and 2016.2021.

Series A Convertible Preferred Stock

On June 24, 2016, we entered into a Securities Purchase Agreement (Purchase Agreement) with Coliseum Holdings I, LLC (Purchaser) to sell to the Purchaser 700,000 shares of Series A Preferred Stock for a total purchase price of $70.0 million. The proceeds from the offering are intended to be used to fund strategic long-term growth

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



initiatives, including the expansion to new markets of campuses on a scale similar to our Long Beach, California and Dallas/Ft. Worth, Texas campuses and the creation of new programs in existing markets with under-utilized campus facilities. Additionally, we may use the proceeds to fund strategic acquisitions that complement our core business. The Series A Preferred Stock is perpetual, and therefore does not have a maturity date. In conjunction with this purchase, we incurred $1.2 million in stock issuance costs, which were recorded as a reduction of the additional paid-in capital associated with the Series A Preferred Stock.


The description below provides a summary of certain material terms of the Series A Preferred Stock pursuant to the Purchase Agreement and set forth in the Certificate of Designations (Certificate) of the Series A Preferred Stock:Stock.


Rank


The Series A Preferred Stock will, with respect to dividend rights and rights upon liquidation, winding up or dissolution, rank senior to our common stock and each other junior class or series of shares that we may issue in the future. The Series A Preferred Stock will also rank junior to any future indebtedness.


Dividends


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)(“Cash Dividend”). Such dividend shall be paidThe Cash Dividend is payable before any dividends would be declared or paid to common stockholders or other junior stockholders. 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)(“Accrued Dividend”). Cash Dividends are payable semi-annually in arrears on September 30 and March 31 of each year, and will begin to accrue on the first day of the applicable dividend period. We paid Cash Dividends of $5.2 million and $5.3 million during the yearyears ended September 30, 20172022 and of $1.4 million during the year ended September 30, 2016.2021.


The Series A Preferred Stock includes participation rights such that, in the event that we pay a dividend or make a distribution on the outstanding common stock, we shall also pay to each holder of the Series A Preferred Stock a dividend on an as converted basis.


If we are required to or elect to obtain stockholder and regulatory approval and if such approval is not obtained within the time periods set forth in the Certificate, the dividend rates with respect to the Cash Dividend and Accrued Dividend will be increased by 5.0% per year, not to exceed a maximum of 14.5% per year, subject to downward adjustment on obtaining the foregoing approvals.


Liquidation Preference


In the event of voluntary or involuntary liquidation, dissolution or winding up of our company, holders of the Series A Preferred Stock are entitled to receive, before any distribution or payment to the holders of any common or junior stock, an amount per share of Series A Preferred Stock equal to the liquidation preference then in effect, which would include any Accrued Dividends. Alternatively, the holder may choose to receive the amount that would be payable per share of common stock issued upon conversion of the Series A Preferred Stock immediately prior to such liquidation event.


Mergers (regardless of whether we remain the surviving entity), sale of substantially all of our assets or any other recapitalization, reclassification or other transaction in which substantially all of our common stock is exchanged or converted into cash or other property are considered Deemed Liquidation Events. The agreement

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($’s inIn thousands, except per share amounts)



converted into cash or other property are considered “Deemed Liquidation Events.” The Certificate of Designations provides that, in the case of a Deemed Liquidation Event, each holder of Series A Preferred Stock shall be entitled to receive the liquidation amount they would receive under a normal liquidation event; however, the liquidation amount must be in the same form of consideration as is payable to the holders of our common stock.


The liquidation preference associated with the Series A Preferred Stock was $100 per share at September 30, 2022 and 2021.

Voting


Holders of shares of Series A Preferred Stock will beare entitled to vote with the holders of shares of common stock on an as-converted basis. The holders ofas converted basis, subject to the Series Continuing Caps as discussed below.

A Preferred Stock may vote only to an extent not to exceed 4.99% of the aggregate voting power of all of our voting stock outstanding at the close of business on the issue date (Investor Voting Cap), until such time that we seek regulatory approval to remove this cap. Additionally, a majority of the voting power of the Series A Preferred Stock must approve certain significant actions, including, among others,without limitation, the issuance of certain equity securities; the repurchase, redemption or acquisition of our common stock; the incurrence of debt; the payment of dividends or distributions to any junior stock prior to December 31, 2017; the consummation of certain acquisitions, mergers or other such transactions; and the sale of material assets.


Coliseum Capital Management, LLC,The Certificate of Designations includes a Conversion Cap and an affiliateInvestor Voting Cap (each as defined in the Certificate of Designations), which generally prohibit: (i) the Purchaser,conversion of Series A Preferred Stock into common stock; and its affiliates also beneficially own 3,643,199 shares(ii) the voting of our common stock as reported in a form 13D/A filed with the SEC on June 28, 2016; this represents approximately 14.6%issuable upon conversion of our outstanding common stock. There is no voting limitation on this common stock.

Conversion

Conversion Rate and Conversion Price

The conversion rate for the Series A Preferred Stock, willto the extent that such conversion results in the issuance of a number of shares of common stock exceeding 4.99% of our outstanding shares of common stock as of June 24, 2016 or that has voting power that exceeds 4.99% of the voting power of our outstanding shares of common stock as of June 24, 2016.

The Certificate of Designations provides that the Conversion Cap and the Investor Voting Cap may only be calculatedremoved upon our receipt of: (i) certain stockholder approvals required by dividingSection 312.03 of the current liquidation preferenceNew York Stock Exchange Listed Company Manual (“NYSE Rule 312”); and (ii) either (A) Education Regulatory Approval (as defined in the Certificate of Designations), or (B) a good faith determination by our board of directors that Education Regulatory Approval is not required. Our stockholders approved a proposal at the conversion price thenannual meeting of stockholders on February 27, 2020, in effect. The initial conversion priceaccordance with the listing standards of the NYSE, that satisfied NYSE Rule 312.

In August 2020, the Purchaser notified us that it intended to distribute all 700,000 Series A Preferred Stock to its members, and that certain of its members would subsequently distribute their Series A Preferred Stock to (i) limited partners affiliated with the Purchaser and certain other entities for whom Coliseum Capital Management, LLC (an affiliate of the Purchaser) holds voting and dispositive power with respect to the Series A Preferred Stock is $3.33 per share. The conversion price is subject to adjustment upon the occurrence(the “Affiliated Holders”), which six Affiliated Holders, following such distribution, will own Series A Preferred Stock that would represent, on an as converted basis, approximately 24.9% of certain common stock events, as defined in the Purchase Agreement, including stock splits, reverse stock splits or the issuanceour outstanding shares of common stock dividends.and voting power, and (ii) limited partners unaffiliated with the Purchaser (the “Unaffiliated Holders”), which 12 Unaffiliated Holders, following such distribution, each will own Series A Preferred Stock that would represent, on an as converted basis, 9.9% or less of our outstanding shares of common stock and voting power (collectively, the “Distributions”).


In connection with the Distributions, our board of directors, based on advice of legal counsel, determined that: (i) no Education Regulatory Approval would be required for the Unaffiliated Holders to remove the Conversion Cap and the Investor Voting Cap with respect to the Series A Preferred Stock acquired in the Distributions; and (ii) as to the Series A Preferred Stock held by the Affiliated Holders, no Education Regulatory Approval is required prior to the Affiliated Holders (A) converting a number of Series A Preferred Stock into common stock provided that the number of shares of common stock issued pursuant to such conversion, in the aggregate, is less than or equal to 9.9% of the number of shares of common stock outstanding on an as converted basis as of the date of the Distributions, and (B) voting a number of Series A Preferred Stock provided that the voting power of such Series A Preferred Stock and any shares of common stock issued upon conversion of such Series A Preferred Stock is less than or equal to 9.9% of the voting power of the common stock outstanding as of the date of the Distributions (the foregoing limitations, the “Continuing Caps”).

The removal of the Conversion Cap and Voting Cap became effective as of the date of the Distributions, subject to the Continuing Caps remaining in place with respect to the Series A Preferred Stock distributed to the Affiliated Holders.
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Education Regulatory Approval continue to be required for, and the Continuing Caps will remain in place with respect to, the Series A Preferred Stock acquired by the Affiliated Holders in the Distributions to the extent such shares, on an as converted basis, represent in excess of 9.9% of our common stock and voting power as of the date of the Distributions. The Affiliated Holders may, at any time, request that we seek Education Regulatory Approval or make a good faith determination that such approval is not required.

Optional Conversion by Purchaser


Shares ofThe Series A Preferred Stock are convertible to common stock at any time at the option of the holder. The Series A Preferred Stock may be converted onlyFollowing the Distributions, the Conversion Cap currently applies to the extent that the number of shares of common stock issued upon conversion does not exceed 4.99% of the total share of common stock outstanding on the issue date (Conversion Cap). The Conversion Cap was calculated to be 1,225,227 shares on the issue date of June 24, 2016, and may be removed upon regulatory approval.    Affiliated Holders.


Optional Conversion by Our Company


If at any time following the third anniversary of the issuance of the Series A Preferred Stock, the volume weighted average price of our common stock equals or exceeds 2.5 times the conversion price of the Series A Preferred Stock, or $8.33 as of September 30, 2022, for a period of 20 consecutive trading days (Conversion Trigger)during an open trading window (“Conversion Trigger”), we may, at our option and subject to obtaining any required stockholder and regulatory approvals, require that any or all of the then outstanding shares of Series A Preferred Stock be automatically converted into our common stock at the conversion rate. We may not elect such conversion during the closed trading window periods in which any director or executive officer of our company is prohibited by us to, directly or indirectly, purchase, sell or otherwise acquire or transfer any equity security of our company. If we are unable to obtain the necessary regulatory approvals to remove the Conversion Cap within 120 days of giving our notice of intent to convert, we will have the option to redeem all shares of the Series A Preferred Stock at a premium.


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIESConversion Rate and Conversion Price
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’sThe conversion rate for the Series A Preferred Stock will be calculated by dividing the current liquidation preference by the conversion price then in thousands, excepteffect. The initial and current conversion price for the Series A Preferred Stock is $3.33 per share amounts)share. The conversion price is subject to adjustment upon the occurrence of certain common stock events, as defined in the Purchase Agreement, including stock splits, reverse stock splits or the issuance of common stock dividends.





Optional Special Dividend and Conversion on Certain Change of Control


Upon a change of control, at the written election by holders of a majority of the then outstanding shares of Series A Preferred Stock, we shall declare and pay a special cash dividend in the amount equal to either 1.5 or 2.0 times the Cash Dividend rate, depending on the type of change in control, multiplied by the liquidation preference per share then in effect.


Redemption at the Option of Our Company


We have the ability to redeem the Series A Preferred Stock at any time after the third anniversary of the issue date, provided that the Conversion Trigger has not been met on the date of the redemption notice. Holders of the Series A Preferred Stock will be able to convert their shares into common stock if neither the Investor Voting Cap nor Conversion Cap is in effect. If they do not provide notice of conversion within 10 days of receipt of the redemption notice, the redemption will proceed at a price per share equal to the product of the current conversion rate and 2.5 times the conversion price. If either the Investor Voting Cap or Conversion Cap is in effect at the date of the notice of redemption, the holder may request that we obtain the necessary regulatory approval for its removal.


After the tenth anniversary of the issue date, we have the ability to redeem the Series A Preferred Stock in whole or in part at any time. Holders of the Series A Preferred Stock will then be able to convert their shares into common stock if neither the Investor Voting Cap nor Conversion Cap is in effect. If they do not provide notice of conversion within 10 days of receipt of the redemption notice, the redemption will proceed at a price per share equal to the current liquidation preference. If either the Investor Voting Cap or Conversion Cap is in effect at the date of the notice of redemption, the holder may request that we obtain the necessary regulatory approval for its removal.

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Anti-dilution


The conversion price of the Series A Preferred Stock is subject to certain customary anti-dilution protections should we effect certain common stock events, such as stock splits, stock dividends or subdivisions, reclassifications or combinations of our common stock. In such events, the conversion price will be adjusted in a proportionate manner to the change in outstanding share of common stock immediately preceding and immediately after the event.


Reservation of Shares Issuable upon Conversion


We are required, at all times, to reserve and keep available out of our authorized and unissued shares of common stock the number of shares that would be issuable upon conversion of all Series A Preferred Stock, assuming that the Conversion Cap does not apply. If this reserve is not sufficient at any point to allow for full conversion, we shall be required to take action to increase our pool of authorized but unissued shares.

Under the Securities Act, we were not required to register the offer or sale of the Series A Preferred Stock to the Purchaser. In conjunction with the Purchase Agreement, the parties entered into a Registration Rights Agreement in order to grant the Purchaser certain demand and piggyback registration rights covering the purchased shares. In the event that the Purchaser requests such registration of the Series A Preferred Stock, the Registration Rights agreement provides that we shall bear all expenses associated with the registration, with the exception of underwriting discounts and commissions and brokerage fees. On October 18, 2019, we filed a Form S-3 with the Securities and Exchange Commission to register shares of common stock currently held by selling stockholders as well as shares of common stock issuable upon the optional conversion of Series A Convertible Preferred Stock held by the selling stockholders. That registration statement became effective on October 30, 2019.


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



The Offering of the Firm Shares closed on February 25, 2020. The net proceeds from the Offering were approximately $49.2 million, after deducting underwriting discounts. Direct costs of $0.4 million related to the offering were recorded to equity during the three months ended March 31, 2020. The Underwriters did not exercise the Option in full for the additional 1,017,390 shares. The 6,782,610 shares purchased were issued from Treasury Stock on February 25, 2020, leaving 82,287 shares in Treasury stock. We utilized the proceeds for our growth and diversification initiatives.


Share Repurchase Program

On December 20, 2011,10, 2020, our Board of Directors authorized a new share repurchase plan that would allow for the repurchase of up to $25.0$35.0 million of our common stock in the open market or through privately negotiated transactions. The timing and actual number of shares purchased will depend on a variety of factors such as price, corporate and regulatory requirements and prevailing market conditions. We may terminate or limitThis new share
repurchase plan replaced the share repurchase program at any time without prior notice. During the year ended September 30, 2017, we did not repurchase shares. As of September 30, 2017, we have repurchased 1,677,570 shares at an average price per share of $9.09 and a total cost of approximately $15.3 millionpreviously authorized plan from fiscal 2012. Any repurchases under this program. Under the terms of the Purchase Agreement,new stock purchases under thisrepurchase program require the approval of a majority of the voting power of theour Series A Preferred Stock. We did not repurchase any

shares during the years ended September 30, 2022, 2021 and 2020.
Stock Option and
Note 20 - Stock-Based Compensation

Our stock-based compensation is governed by the 2021 Equity Incentive Compensation Plans

We have two stock-based compensation plans;Plan (“2021 Plan”). The 2021 Plan was adopted by our Board of Directors in January 2021 and approved by our shareholders at the February 2021 annual meeting. The 2021 Plan replaced the Management 2002 Stock Option Program (2002 Plan) and the 2003 Incentive Compensation Plan, (2003 Plan).

The 2002 Plan was approved by our Board of Directors on April 1, 2002 and provided for the issuance of options to purchase 0.7 million shares of our common stock. On February 25, 2003, our Board of Directors authorized an additional 0.1 million options to purchase our common stock under the 2002 Plan.

Options issued under the 2002 Plan vest ratably each year over a four-year period. The expiration date of options granted under the 2002 Plan is the earlier of the ten-year anniversary of the grant date; the one-year anniversary of the termination of the participant’s employment by reason of death or disability; 30 days after the date of the participant’s termination of employment if caused by reasons other than death, disability, cause, material breach or unsatisfactory performance or on the termination date if termination occurs for reasons of cause, material breach or unsatisfactory performance. We do not intend to grant any additional options under the 2002 Plan.

The 2003 Plan was approved by our Board of Directors and adopted effective December 22, 2003 upon consummation of our initial public offering and amended on February 28, 2007 and February 22, 2012 by our stockholders. The 2003 Plan, as amended authorizes(the “Former Plans”). Under the issuance2021 Plan, we are authorized to issue incentive compensation convertible into up to
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Table of various common stock awards, including stock options, restricted stock and stock units, for approximately 5.3 million shares of our common stock.Contents

As of September 30, 2017, 3.0 million shares of common stock were reserved for issuance under the 2003 Plan, of which 2.4 million shares are available for future grant.

Effective October 1, 2016, we adopted the March 2016 guidance issued by the FASB and account for forfeitures as they occur.

The following table summarizes the operating expense line and the impact on net loss in the consolidated statements of loss in which stock-based compensation expense has been recorded:

  Year Ended September 30,
2017 2016 2015
Educational services and facilities $166
 $280
 $294
Selling, general and administrative 2,829
 4,624
 3,971
Total stock-based compensation expense $2,995
 $4,904
 $4,265
Income tax benefit $1,144
 $1,873
 $1,629



UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


2.0 million shares of common stock, increased by 0.7 million shares that remained available for future grants of awards under the Former Plans immediately prior to termination. Additionally, subject to and in accordance with the 2021 Plan, 1.5 million shares that are subject to outstanding awards under the Former Plans that are subsequently expired, forfeited, or are otherwise terminated will also become available for awards under the 2021 Plan. As of September 30, 2022, 1.9 million shares remained available for future grants under the 2021 Plan.
Stock-Based Compensation Expense
As previously discussed in Note 2, compensation expense associated with RSUs, PSUs or stock options is measured based on the grant date fair value of our common stock. The fair value of the RSUs is amortized on a straight-line basis over the requisite service period. The fair value of the PSUs is amortized on a straight-line basis over the requisite service period based upon the fair market value on the date of grant, adjusted quarterly for the anticipated or actual achievement against the established performance condition.
For all stock-based compensation expense, we account for forfeitures as they occur. The following table summarizes the operating expense line in which stock-based compensation expense has been recorded and the impact on net income in the consolidated statements of operations for the years ended September 30, 2022, 2021 and 2020:
 Year Ended September 30,
202220212020
Educational services and facilities$240 $60 $64 
Selling, general and administrative4,172 1,748 2,013 
Total stock-based compensation expense$4,412 $1,808 $2,077 
Income tax benefit$1,103 $452 $519 
Stock Options
We have not issued stock options since fiscal 2019. These options, under the Former Plans, have an expiration date of seven years. Under the 2021 Plan, the maximum term of any option granted under the 2021 Plan is ten years and, unless otherwise permitted by our Compensation Committee, an option generally will remain exercisable for three months following the participant’s termination of service, provided that if service terminates as a result of the participant’s death or disability, the option generally will remain exercisable for 12 months, but in any event the option must be exercised no later than its expiration date.
The following table summarizes stock option activity under the Former Plans and the 2021 Plan for the years ended September 30, 2022, 2021 and 2020:
Number of 
Shares		Weighted
Average 
Exercise
Price		Weighted
Average
Remaining
Contractual
Life		Aggregate
Intrinsic
Value
(In thousands)(per Share)(Years)
Outstanding as of September 30, 2018— $— — $— 
Granted210 $3.14 
Outstanding as of September 30, 2019210 $3.14 6.19$483 
Outstanding as of September 30, 2020210 $3.14 5.18$407 
Outstanding as of September 30, 2021210 $3.14 4.18$760 
Outstanding as of September 30, 2022210 $3.14 3.18$483 
Stock options exercisable as of September 30, 2022210 $3.14 3.18$483 

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Restricted Stock AwardsUnits and Performance Units


Restricted Stock Units

Our restricted stock awardsRSUs are issued at fair market value, which is based on the closing pricesprice of our stock on the grant date, discounted for non-participation in anticipated dividends during the vesting period. The restrictions on these awardsdate. RSUs generally lapsevest ratably over a four or fivethree year service period based onfrom the termsdate of the individual grant. The restrictions associated with our restricted stock awarded under the 2003 Plan will lapse upon the death, disability, or if, within one year following a change of control, employment is terminated without cause or for good reason. If employment is terminated for any other reason, all shares of restricted stock shall be forfeited upon termination.

The following table summarizes restricted stock activity under the 2003 Plan:
  
Number of Shares
(In thousands)
 
Weighted Average
Grant Date
Fair Value
per Share
Nonvested restricted stock outstanding as of September 30, 2016 58
 $12.38
Restricted stock vested (53) $12.49
Restricted stock forfeited (1) $12.64
Nonvested restricted stock outstanding as of September 30, 2017 4
 $10.84

As of September 30, 2017,2022, unrecognized stock compensation expense related to restricted stock awardsRSUs was less than $0.1$3.4 million which is expected to be recognized over a weighted average period of 0.41.9 years.


There were no restricted stock awards granted during the years ended September 30, 2017, 2016 or 2015.

Restricted StockPerformance Share Units


Our restricted stock units are issued at fair market value, which is based onoutstanding PSUs vest over a three year service period from the closing pricesdate of our stock on the grant date, discountedand are based upon a mix of certain pre-established targets for non-participation in anticipated dividends during the vesting period. The restrictions on these units generally lapse ratably over a four or five year period based on the terms of the individual grant. The restrictions associated with our restricted stock units awarded under the 2003 Plan will lapse upon the death, disability, or if, within one year following a change of control, employment is terminated without cause or for good reason. If employment is terminated for any other reason, all shares of restricted stock shall be forfeited upon termination. The awards to our Chief Executive Officer and President were made pursuant to updated forms of award agreements that implement certain retirement vesting provisions of such executive's April 2014 employment agreement. The updated award agreement includes a provision for continued vesting for 12 months after a qualifying retirement, as defined by the executive's employment agreement and subject to compliance with certain covenants.

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



The following table summarizes restricted stock unit activity under the 2003 Plan:
  Number of Shares
(In thousands)		 Weighted Average
Grant Date
Fair Value
per Share
Nonvested restricted stock units outstanding as of September 30, 2016 958
 $4.61
Restricted stock units awarded 34
 $3.41
Restricted stock units vested (381) $5.86
Restricted stock units forfeited (88) $4.02
Nonvested restricted stock units outstanding as of September 30, 2017 523
 $3.71

As of September 30, 2017, unrecognized stock compensation expense related to restricted stock awards was $1.4 million which is expected to be recognized over a weighted average period of 1.7 years.

The following table summarizes the weighted average fair values of the restricted stock units granted:

  Year Ended September 30,
2017 2016 2015
Weighted average grant date fair value per share $3.41
 $2.30
 $4.49

The assumed quarterly dividend rate was $0.10 per share for restricted stock units granted during the first nine months of the year ended September 30, 2015. The assumed quarterly dividend rate was $0.02 per share for restricted stock units granted during the three months ended September 30, 2015. The assumed quarterly dividend rate was $0.00 per share for restricted stock units granted during the year ended September 30, 2017 and 2016 due to the elimination of the quarterly cash dividend by our Board of Directors on June 9, 2016.

Performance Units

The performance condition for performance units isrevenue, compounded annual total shareholder return (TSR) for the measurement periods included in the grant.period and net income. On the settlement date for each measurement period, participants will receive shares of our common stock equal to 0% to 150%187.5% of the performance unitsPSUs originally granted depending on the total stockholder returnactual achievement against the performance metrics for that measurement period. The performance unitsPSUs vest subject to a market condition and on the settlement date which is expected to be no later than two and a half months after the end of each measurement period.

We estimate the fair value of performance units using a Monte Carlo simulation which requires assumptions for expected volatility, risk-free rates of return, and dividend yields. Expected volatilities are derived using a method that calculates historical volatility over a period equal to the length of the measurement period for UTI. We use a risk-free rate of return that is equal to the yield of a zero-coupon U.S. Treasury bill that is commensurate with each measurement period, and we assume that any dividends paid were reinvested. 

To receive the performance units awarded for a measurement period, participants are required to be employed by us on the settlement date unless one of the following conditions is met. Upon death or disability of a participant, the participant will receive a pro-rated number of performance units reflecting actual performance through the vesting date and the number of months of the performance period during which the participant was employed. If an employee is terminated without cause or leaves for good reason within one year following certain changes in control, a determination of whether, and to what extent the performance condition has been achieved

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



will be based on actual performance against the stated criteria through the separation date. If an employee is terminated without cause or leaves for good reason after the one-year anniversary of certain changes in control, the participant will receive a pro-rated number of performance units reflecting actual performance through the separation date and the number of complete twelve-month periods of the performance period during which the participant was employed. If employment is terminated for any other reason, all unvested performance units shall be forfeited upon termination. The award to our President and Chief Executive Officer was made pursuant to updated forms of award agreements that implement certain retirement vesting provisions of such executive's April 2014 employment agreement. The updated award agreement includes a provision for continued vesting for 12 months after a qualifying retirement, as defined by the executive's employment agreement and subject to compliance with certain covenants.

The September 2017 grant includes a measurement period of 24 months. The performance units do not have voting rights or rights to dividends. Compensation expense for the performance units is recognized over the requisite period. All compensation expense for the grant will be recognized for participants who fulfill the requisite service period, regardless of whether the performance condition for issuing shares is satisfied.
The following table summarizes performance unit activity under the 2003 Plan:
  Number of Shares
(In thousands)		 Weighted Average
Grant Date
Fair Value
per Share
Nonvested performance units outstanding as of September 30, 2016 —
 $—
Performance units awarded 132
 $3.11
Nonvested performance units outstanding as of September 30, 2017 132
 $3.11

As of September 30, 2017,2022, unrecognized stock compensation expense related to performance unitsPSUs was $0.5$3.3 million, which is expected to be recognized over a weighted average period of 2.0 years.


The following table summarizes the activity for RSUs and PSUs granted under the Former Plans and 2021 Plan for the years ended September 30, 2022, 2021 and 2020:
15.
RSUsPSUs
Number of 
Shares
(In thousands)		Weighted Average
Grant Date
Fair Value
per Share		Number of 
Shares
(In thousands)		Weighted Average
Grant Date
Fair Value
per Share
Outstanding as of September 30, 2019236 $2.74 133 $2.40 
Granted306 $7.46 314 $7.72 
Adjustment to grant based on achieved attainment level— $— 33 
Vested(141)$2.62 (100)$2.32 
Forfeited(63)$2.96 (39)$2.48 
Outstanding as of September 30, 2020338 $7.01 341 $7.30 
Granted376 $6.11 371 $6.37 
Adjustment to grant based on achieved attainment level— $— 11 $— 
Vested(130)$6.31 (39)$2.48 
Forfeited(36)$6.90 (42)$7.30 
Outstanding as of September 30, 2021548 $6.56 642 $6.97 
Granted377 $8.34 377 $8.75 
Adjustment to grant based on achieved attainment level— $— (256)$— 
Vested(209)$6.69 (24)$7.73 
Forfeited(21)$7.21 (23)$7.14 
Outstanding as of September 30, 2022695 $7.47 716 $7.60 

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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
Note 21 - Earnings per Share


Basic net income (loss)We calculate basic earnings per common share has historically been calculated by dividing net income (loss) attributable(“EPS”) pursuant to common stock by the weighted average numbertwo-class method as a result of common shares outstanding for the period.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. As such, for periods subsequent to the issuance of the Series A Preferred Stock, we calculated basic earnings per share pursuant to the two-class method. The two-class method is an earnings allocation formula that determines earnings per shareEPS for common stock and participating securities according to dividend and participation rights in undistributed earnings. Under this method, all earnings, distributed and undistributed, are allocated to common shares and participating securities based on their respective rights to receive dividends. The Series A Preferred Stock is not included in the computation of basic earnings (loss) per shareEPS in periods in which we have a net loss, as the Series A Preferred Stock is not contractually obligated to share in our net losses.

Diluted earnings per common share is calculated using the more dilutive of the two-class method or as-converted method. The two-class method was not applicable foruses net income available to common shareholders and assumes conversion of all potential shares other than the years ended September 30, 2017participating securities. The as-converted method uses net income and 2016.assumes conversion of all potential shares including the participating securities. Dilutive potential common shares include outstanding stock options, unvested restricted stock units, unvested performance units and convertible preferred stock.



The following table summarizes the computation of basic and diluted earnings per common share under the two-class or as-converted method, as well as the anti-dilutive shares excluded:
Year Ended September 30,
 202220212020
Basic earnings per common share:
Net income$25,848 $14,581 $8,008 
Less: Preferred stock dividend declared(5,159)(5,250)(5,264)
Income available for distribution20,689 9,331 2,744 
Income allocated to participating securities(7,847)(3,647)(1,135)
Net income available to common shareholders$12,842 $5,684 $1,609 
Weighted average basic shares outstanding33,218 32,766 29,812 
Basic income per common share$0.39 $0.17 $0.05 
Diluted earnings per common share:
Method used:Two-classTwo-classTwo-class
Net income available to common shareholders$12,842 $5,684 $1,609 
Weighted average basic shares outstanding33,218 32,766 29,812 
Dilutive effect related to employee stock plans525 357 301 
Weighted average diluted shares outstanding33,743 33,123 30,113 
Diluted income per common share$0.38 $0.17 $0.05 
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


Year Ended September 30,
 202220212020
Anti-dilutive shares excluded:
Outstanding stock-based grants9 186 14 
Convertible preferred stock20,297 21,021 21,021 
   Total anti-dilutive shares excluded20,306 21,207 21,035 
Dilutive shares under the as-converted method(1)
54,040 54,144 51,134 

Diluted(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 (loss) per share is calculated usingdetermined by the more dilutive of the as-convertedtwo-class method or the two-classas-converted method. The two-class method assumes conversion of all potential shares other than the participating securities. Dilutive potential common shares include outstanding stock options, unvested restricted share awards and units and convertible preferred stock. For the years ended September 30, 2017, 2016 and 2015, diluted loss per share equaled basic loss per share as the assumed activity related to outstanding stock-based grants would have an anti-dilutive effect.
The following table summarizes the computation of basic and diluted earnings (loss) per share under the as-converted method:

 Year Ended September 30,
  2017 2016 2015
  (In thousands)
Loss available for distribution $(13,378) $(49,120) $(9,149)
       
Weighted average number of shares      
Basic shares outstanding 24,712
 24,313
 24,391
Dilutive effect related to employee stock plans —
 —
 —
Diluted shares outstanding 24,712
 24,313
 24,391
       
Net loss per share - basic $(0.54) $(2.02) $(0.38)
Net loss per share - diluted $(0.54) $(2.02) $(0.38)

The following table summarizes the potential weighted average shares of common stock that were excluded from the determination of our diluted shares outstanding as they were anti-dilutive:

  Year Ended September 30,
  2017 2016 2014
  (In thousands)
Outstanding stock-based grants 689
 816
 1,044
Convertible preferred stock 21,021
 5,629
 —
  21,710
 6,445
 1,044

16.Defined ContributionNote 22 - Employee Benefit PlanPlans

We sponsor a defined contribution 401(k) plan, under which our employees elect to withhold specified amounts from their wages to contribute to the plan and we have a fiduciary responsibility with respect to the plan. The plan provides for matching a portion of employees’ contributions at management’s discretion. All contributions and matches by us are invested at the direction of the employee in one or more mutual funds or cash. We made matching contributions of approximately $0.9$1.5 million, $0.7$1.1 million, and $0.2$1.0 million to the 401(k) plan for the years ended September 30, 2017, 20162022, 2021 and 2015,2020, respectively.



Additionally, we have a legacy deferred compensation plan into which certain members of management were eligible to defer a maximum of 75% of their regular compensation and a maximum of 100% of their incentive compensation. No new members have been added to the deferred compensation plan in the past two years. We are not obligated to fund the deferred compensation plan; however, we have purchased life insurance policies on the participants in order to fund the related benefits and such policies have been placed into a rabbi trust. Our obligations under the deferred compensation plan totaled $2.2 million and $2.8 million as of September 30, 2022 and 2021, respectively, and are included in “Other liabilities” while the cash surrender value of the life insurance policies totaled $2.6 million and $3.1 million as of September 30, 2022 and 2021, respectively, and are included in “Other assets” in our consolidated balance sheets.
UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



17.Note 23 - 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“Other” category. Our equity method investmentsinvestment and other non-Postsecondary Educationnon-postsecondary education operations are also included within the Other“Other” category. Corporate expenses are allocated to Postsecondary education“Postsecondary Education” and the Other“Other” category based on compensation expense. Depreciation and amortization includes amortization of assets subject to financing obligation.
Summary information by reportable segment is as follows:
Postsecondary EducationOtherConsolidated
Year Ended September 30, 2022
Revenues$404,685 $14,080 $418,765 
Income (loss) from operations24,190 (1,816)22,374 
Depreciation and amortization(1)
16,779 105 16,884 
Net income (loss)27,664 (1,816)25,848 
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share amounts)
  Year Ended September 30,
  2017 2016 2015
Revenues      
Postsecondary education $308,884
 $334,156
 $350,682
Other 16,273
 12,990
 11,992
Intersegment eliminations (894) —
 —
Consolidated $324,263
 $347,146
 $362,674
Loss from operations      
Postsecondary education $(315) $(13,980) $(5,911)
Other (1,509) (4,643) (3,312)
Consolidated $(1,824) $(18,623) $(9,223)
Depreciation and amortization (1)
      
Postsecondary education $16,502
 $17,222
 $18,888
Other 384
 527
 267
Consolidated $16,886
 $17,749
 $19,155
Net income (loss)      
Postsecondary education $(8,422) $(44,467) $(7,477)
Other 294
 (3,229) (1,672)
Consolidated $(8,128) $(47,696) $(9,149)
       
  As of September 30,
  2017 2016 2015
Goodwill      
Postsecondary education $8,222
 $8,222
 $8,222
Other 783
 783
 —
Consolidated $9,005
 $9,005
 $8,222
Total assets      
Postsecondary education $266,370
 $289,688
 $266,922
Other 7,732
 7,471
 7,380
Consolidated $274,102
 $297,159
 $274,302
Postsecondary EducationOtherConsolidated
Year Ended September 30, 2021
Revenues$323,476 $11,607 $335,083 
Income (loss) from operations15,841 (894)14,947 
Depreciation and amortization(1)
13,941 86 14,027 
Net income (loss)15,475 (894)14,581 
Year Ended September 30, 2020
Revenues$287,195 $13,566 $300,761 
Loss from operations(3,493)(378)(3,871)
Depreciation and amortization(2)
11,698 106 11,804 
Net income (loss)8,386 (378)8,008 
As of September 30, 2022
Total assets$549,817 $3,094 $552,911 
As of September 30, 2021
Total assets$504,934 $7,636 $512,570 

(1)     Includes depreciation of training equipment obtained in exchange for services of $0.9 million and $1.2 million for the years ended September 30, 2022 and 2021, respectively.
(1)(2)     Excludes depreciation of training equipment obtained in exchange for services of $1.3 million $1.3 million and $1.2 million for the yearsyear ended September 30, 2017, 20162020.

Note 24 - Government Regulation and 2015, respectively.Financial Aid


Our institutions are subject to extensive regulatory requirements imposed by a wide range of federal and state agencies, as well as by institutional and programmatic accreditors. These requirements, which are frequently being revisited, revised, and expanded, cover virtually every aspect of our schools’ operations, and our institutions are subject to periodic audits and program compliance reviews by various external agencies for compliance with these requirements. Each of our institutions’ administration of the federal programs of student financial assistance under Title IV of the HEA (“Title IV Programs”) also must be audited annually by independent accountants and the resulting audit report submitted to ED for review. The approvals granted by these regulatory entities permit our schools to operate and to participate in a variety of government-sponsored financial aid programs, including Title IV Programs. If our institutions fail to comply with any of these regulatory requirements, our regulators could take an array of adverse actions, up to and including revocation of the approval granted by the agency. Such adverse actions could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition. Below, we discuss certain, specific elements of this regulatory environment.

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 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 or engaging in educational 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,
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UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)



18.   Government Regulationqualifications of faculty, location and Financial Aid

Ournature 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 are subject to extensive regulation by federal and state governmental agencies and accrediting bodies. In particular, HEA, and the regulations promulgated thereunder by ED, subject thepost surety bonds. Many states have requirements for institutions to significant regulatory scrutiny ondisclose institutional data to current and prospective students, as well as to the basis of numerous standards that schools must satisfy in order to participate in the various federal student financial assistance programs under Title IV of the HEA.
To participate in the Title IV Programs, an institution must be authorized to offer its programs of instruction by relevant state education agencies, be accredited by an accrediting commission recognized by ED and be certified as an eligible institution by ED. ED will certify an institution to participate in the Title IV Programs only after the institution has demonstrated compliance with the HEA and ED’s extensive regulations regarding institutional eligibility. An institution must also demonstrate its compliance to ED on an ongoing basis. The Program Participation Agreement (PPA) document serves as ED’s formal authorization of an institution and its associated additional locations to participate in Title IV Programs for a specified period of time. In December 2016, we were advised by EDpublic. And some states require that our applications for Title IV program participation recertification with respect to our Universal Technical Instituteschools meet prescribed performance standards as a condition of Arizonacontinued approval. States can and Universal Technical Institute of Phoenix institutions had been processed. The Universal Technical Institute of Arizona institution has received its program participation agreement, which places the institution on provisional certification until March 31, 2018, based on an open ED program review from April 2015 for which we had not received a report at the time of review. See "Regulation of Federal Student Financial Aid Programs - Compliance with Regulatory Standardsoften do revisit, revise, and Effect of Regulatory Violations" below for discussion of this open program review.
As a result of the institution's placement on provisional certification, ED requires that we apply for and receive approval prior to awarding or disbursing Title IV aid for any new locations or new programs. In March 2017, we received a standard, non-provisional program participation agreement for the Universal Technical Institute of Phoenix institution with an expiration date of March 31, 2018. This timeframe has been designed to allow for participation alignment of all three of our institutions, as our Universal Technical Institute of Texas institution is also set to expire on March 31, 2018. We will submit recertification applications for all of our institutions in December 2017 as required.

State Authorization

Each of our institutions must be authorized by the applicable state education agency where the institution is located to operate and offer aexpand their regulations governing postsecondary education program to its students. Our institutions are subject to extensive, ongoing regulation by each of these states. Additionally, our institutions are required to be authorized by the applicable state education agencies of certain other states in which our institutions recruit students. If any one of our campuses were to lose its authorization from the education agency of the state in which the campus is located, that campus would be unable to offer its programs and we could be forced to close that campus. If one of our campuses were to lose its authorization from a state other than the state in which the campus is located, that campus would not be able to recruit students in that state.recruiting.


Accreditation

Accreditation is a non-governmental process through which an institution voluntarily submits to ongoing qualitative reviews by an organization of peer institutions. Accrediting commissions primarily examine the academic quality of the institution’s instructional programs. A grant ofInstitutional accreditation is generally viewed as confirmation that the institution’s programs meet generally accepted academic standards. Accrediting commissions also review the administrative and financial operations of the institutions they accredit to ensure that each institution has the resources necessary to perform its educational mission.


UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



Accreditation by an ED recognized commissionED-recognized accreditor is required for an institution to be certified to participate in Title IV Programs. In order to be recognized by ED, accrediting commissions must adopt specific standards for their review of educational institutions. All of our institutions are accredited by the Accrediting Commission of Career Schools and Colleges (“ACCSC”), which is an accrediting commissionagency recognized by ED.

An accrediting commission may place an ACCSC reviews the academic quality of each institution’s instructional programs, as well as the administrative and financial operations of the institution on reporting status to monitor one or more specified areas of performance in relationensure 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 standards. An institution placed on reporting status is required to report periodically to the accrediting commission on that institution’s performanceby completing a comprehensive renewal of accreditation process.

Title IV Programs

The federal government provides a substantial part of its support for postsecondary education through Title IV Programs in the area or areas specifiedform of grants and loans to students who can use those funds at any institution that has been certified as eligible to participate by the commission.

RegulationED. All of Federal Student Financial Aid Programs

Congress continuesour institutions are certified to be focused on for-profit education institutions, specifically regarding participationparticipate in Title IV Programs and U.S. DOD oversight of tuition assistance for military service members attending for-profit colleges. This Congressional activity could result in the enactment of more stringent legislation by Congress, further rulemakings affecting participation in Title IV Programs and other governmental actions, increasing regulation of the for-profit sector. Action by Congress may also increase our administrative costs and require us to modify our practices in order for our institutions to comply with Title IV Program requirements. In addition, concerns generated by this Congressional activity may adversely affect enrollment in for-profit educational institutions such as ours.

Political and budgetary concerns significantly affect Title IV Programs. Congress has historically reauthorized the HEA approximately every five to six years with the last reauthorization in 2008; a new reauthorization process has begun. Significant factors relating to Title IV Programs that could adversely affect us include the following:include:


Gainful Employment

In June 2017, ED announced its intent to convene•The 90/10 Rule. As a negotiated rulemaking committee to develop proposed regulations to revise the gainful employment regulations. ED has announced that the committee will convenecondition of participation in December 2017 and in early 2018 and issue proposed regulations for public comment during the first half of 2018, but ED has not established a final schedule for publication of proposed or final regulations. Any regulations published in final form by November 1, 2018 typically would take effect on July 1, 2019.

On June 30, 2017, ED announced the extension of the compliance date for certain gainful employment disclosure requirements from July 1, 2017 to July 1, 2018. ED stated thatTitle IV Programs, proprietary institutions are still requiredmust agree when they sign their PPA to comply with the 90/10 rule. Under the current 90/10 rule, to remain eligible to participate in the federal student aid programs, a proprietary institution must derive at least 10% of their revenues for each fiscal year from sources other gainful employment disclosure requirements bythan Title IV Program funds. Under the American Rescue Plan Act of 2021 (“ARPA”), a proprietary institution must derive at least 10% of its revenue from sources other than “Federal education assistance funds.” Federal education assistance funds are defined as “federal funds that are disbursed or delivered to or on behalf of a student to be used to attend such institution.” ED published a proposed 90/10 rule on July 28, 2022 and a final rule on October 28, 2022. The new rule will take effect July 1, 2017. On August 18, 2017, ED announced in the Federal Registernew deadlines2023 and will apply to any annual audit submission for submitting notices of intent to file alternate earnings appeals of gainful employment rates and for submitting alternate earnings appeals of those rates. The deadline to file a notice of intent to file an appeal is October 6, 2017 and the deadline to file the alternate earnings appeal is Februaryproprietary institutional fiscal year beginning on or after January 1, 2018. ED has not announced a delay or suspension in the enforcement of any other gainful employment regulations. However, on August 8, 2017, ED officials announced that ED did not have a timetable for the issuance of completer lists to schools, which is the first step toward generating the data for calculating new gainful employment rates.2023.

Borrower Defense to Repayment Regulations

In November 2016, ED published final regulations establishing new rules regarding, among other things, the ability of borrowers to obtain discharges of their obligations to repay certain Title IV loans and for ED to initiate a proceeding to collect from the institution the discharged and returned amounts and the extensive list of circumstances that may require institutions to provide letters of credit or other financial protection to ED. These

UNIVERSAL TECHNICAL INSTITUTE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s in thousands, except per share amounts)



regulations are discussed at “Business - Regulation of Federal Student Financial Aid Programs - Defense To Repayment Regulations” included elsewhere in this Report on Form 10-K. In June 2017, ED announced a delay until further notice in the effective date of the majority of these regulations. ED also announced its intent to convene a negotiated rulemaking committee to develop proposed regulations to revise the regulations on borrower defenses to repayment of Federal student loans and other matters published on November 1, 2016. On October 24, 2017, ED published an interim final rule that delayed until July 1, 2018 the effective date of the majority of these regulations. On the same date, ED also published a notice of proposed rulemaking that proposed to further delay, until July 1, 2019, the effective date of the majority of the regulations to ensure that there is adequate time to conduct negotiated rulemaking and, as necessary, develop revised regulations. ED provided the public until November 24, 2017 to submit comments to its proposal. ED convened the first meeting of negotiated rulemaking in November 2017 and is scheduled to continue additional meetings into early 2018. ED intends to issue proposed regulations for public comment during the first half of 2018, but ED has not established a final schedule. Any regulations published in final form by November 1, 2018 typically would take effect on July 1, 2019.

90/10 Rule


A for-profitproprietary 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 if it derives more than 90% of its revenue from Title IV ProgramsPrograms/Federal education assistance funds, as applicable, for two consecutive fiscal years as calculatedyears.

We are currently reviewing the potential impact of the proposed 90/10 rule and will be monitoring any proposed or final regulations promulgated by ED to carry out this change.

•Administrative 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 cash basis formula mandated by ED. The lossseries of such eligibility would begin onstandards listed in the first day followingregulations, which cover a wide range of operational and administrative topics, including the conclusiondesignation 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
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counseling. Failure to satisfy any of the second consecutive year in whichstandards may lead ED to find the institution exceededineligible to participate in Title IV Programs, require the 90% limit and, as such, anyinstitution to repay Title IV Program funds, already received bychange the institution and its students during a periodmethod of ineligibility would have to be returned to ED or a lender. Additionally, if an institution exceeds the 90% level for a single year, ED willpayment of Title IV Program funds, place the institution on provisional certification foras a periodcondition of at least two years. Forits continued participation or take other actions against the year ended September 30, 2017, approximately 71% of our revenues, on a cash basis, were derived from funds distributed under Title IV Programs, as calculated under the 90/10 rule.institution.


Federal•Three-Year Student Loan Defaults

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 30%15% or more for three consecutive federal fiscal years (FFYs) or 40% or moregreater for any given FFY loses eligibility to participate in some or all Title IV Programs. This sanction is effective for the remainderone of the FFYthree preceding years is subject to a 30-day delay in whichreceiving the institution lost its eligibilityfirst disbursement on federal student loans for first-time borrowers. As of September 30, 2022, Universal Technical Institute of Texas and MIAT College of Technology were subject to a 30-day delay in receiving the first disbursement on federal student loans for the two subsequent FFYs. None of our institutions hadfirst-time borrowers due to a three-year FFEL/DL cohort default rate of 30%that was 15% or greater for 2014, 2013 or 2012,one of the three most recent FFYs with published rates.years.


•Financial Responsibility Standards

An institution’sResponsibility. All institutions participating in Title IV Programs also must satisfy specific ED standards of financial responsibility is measured by its composite score, which is calculated by ED based on three ratios. ED assigns a strength factor to the results of each of these ratios on a scale from negative 1.0 to positive 3.0, with negative 1.0 reflecting financial weakness and positive 3.0 reflecting financial strength. ED then assigns a weighting percentage to each ratio and adds the weighted scores for the three ratios together to produce a composite score for the institution. The composite score must be at least 1.5 for the institution to be deemed financially responsible without the need for further oversight. In addition to having an acceptable composite score,responsibility. Among other things, an institution must among other things, 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. IfEach year, ED determines thatalso 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 does not satisfy itsfollowing 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. ED is currently managing two significant rulemaking efforts. First, between October and December 2021, ED held three rounds of negotiations as part of the Affordability and Student Loans rulemaking. The negotiators considered nine issue areas, including the 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, standards, dependinggainful employment, change of ownership and control, ability to benefit and the 90/10 rule. On October 28, 2022, ED published a final rule amending regulations governing Pell Grants for prison education programs, the 90/10 rule, and changes in ownership and control, effective July 1, 2023. On November 1, 2022, ED published a final rule governing borrower defense to repayment rule, closed school loan discharges, pre-dispute arbitration and class action waiver clauses, interest capitalization on Federal student loans, Public Student Loan Forgiveness, total and permanent disability discharges, and false certification discharges, also effective July 1, 2023. The regulated community is awaiting proposed rules on the resulting composite scoreremaining topics covered by ED’s negotiated rulemakings. 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.

Department of Veterans Affairs Benefit Programs

Some of our students also receive financial aid from federal sources other factors, thatthan Title IV Programs, such as the programs administered by the Department of Veterans Affairs (“VA”), the Department of Defense (“DOD”) and under the Workforce Innovation and Opportunity Act.

In 2022, we derived approximately 13% 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 may establish its financial responsibility on an alternative basis.must comply with certain requirements established by the VA.



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Other Federal and State Student Aid Programs


If an institution's composite score is below 1.5, but is at least 1.0, the institution is in a category classified by ED as the zone. Under ED regulations, institutions in the zone solely because their composite score is less than 1.5 are still consideredAdditionally, some states provide financial aid to be financially responsible, but require additional oversight by EDour students in the form of cash monitoringgrants, loans or scholarships. Our Long Beach, Rancho Cucamonga and other participation requirements. Institutions in the zone typicallySacramento, California campuses, for example, are permitted by ED to continuecurrently eligible to participate in the title IV programs under oneCal Grant program. All of two alternatives:  1) the “Zone Alternative” under which an institution is required to make disbursements to students under a payment method other than ED’s standard repayment, typically the Heightened Cash Monitoring 1 (HCM1) payment method; to notify ED within 10 days after the occurrence of certain oversight and financial events and toour institutions must comply with the eligibility and participation requirements applicable to each of these funding programs, which vary by funding agency and program.

Consumer Protections Laws and Regulations

As a postsecondary educational institution, we are subject to a broad range of consumer protection and other operating conditions imposedlaws, such as recruiting, marketing, the protection of personal information, student financing and payment servicing, enforced by ED or 2) submitfederal agencies such as the FTC and CFPB and various state agencies and state attorneys general. We devote significant effort to complying with state and federal consumer protection laws.

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 ED equal to at least 50 percentUTI students; generally explained the source and scope of the Title IV fundsCFPB’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.

We, along with 69 other proprietary institutions, received an October 6, 2021 letter from the FTC providing notice that engaging in deceptive or unfair conduct in the education marketplace violates consumer protection laws and could lead to significant civil penalties. The notice stated that an institutions receipt of the letter “does not reflect any assessment as to whether they have engaged in deceptive or unfair conduct,” and the FTC did not request any information.

The CARES Act, the CRRSAA, and the ARPA

During fiscal 2020 and 2021, various pieces of legislation were issued related to the COVID-19 pandemic, including the Coronavirus Aid Relief, and Economic Security Act (“CARES Act”), the Coronavirus Response and Relief Supplemental Appropriations Act 2021 (“CRRSAA”) and the American Rescue Plan Act (“ARPA”). This legislation created additional regulatory flexibilities for institutions of higher education and established the Higher Education Emergency Relief Fund to support institutions and eligible students impacted by the institutions duringCOVID-19 pandemic.

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 completed the most recent fiscal year.required audit of our participation in the HEERF grant program for the year ended September 30, 2020 which was filed with the ED permits an institution to participate under the “Zone Alternative” for a period of up to three consecutive fiscal years.  Under the “Zone Alternative” notification requirement, the institution must provide timely information to ED regarding anyon July 26, 2021.

We have reviewed and implemented many of the following oversightflexibilities created by Congress and financial events:ED’s guidance. We continue to review new guidance from ED and to implement available legislative and regulatory relief as applicable.
any adverse action, including a probation or similar action, taken against the institution by its accrediting agency, state authority or other federal agency;

Distance Education
any event that causes the institution to realize any liability that was noted as a contingent liability in the institution's most recent audited financial statements;

any violation by the institution of any loan agreement;

any failure of the institution to make a payment in accordance with its debt obligations that results in a creditor filing suit to recover funds under those obligations;

any withdrawal of owner's equity/net assets from the institution by any means, including by declaring a dividend;

any extraordinary losses as defined in accordance with generally accepted accounting principles; or

any filing of a petition by the institution for relief in bankruptcy court.

Under the new regulations that were scheduled to take effect on July 1, 2017, but that ED delayed until further notice, the list of information that an institution must provide timely to ED would change to the following: any event that causes the institution, or a related entity, to realize any liability that was noted as a contingent liability in the institution’s or related entity’s most recent audited financial statements or any losses that are unusual in nature and infrequently occur or both as defined in accordance with certain specified accounting standards. The institution also would be required to notify ED of certain other events described in the new Defense to Repayment regulations. ED could impose a letter of credit or other conditions or requirements upon us inIn response to the reporting of any oversight or financial events.

Under the HCM1 payment method, the institution is required to make Title IV disbursements to eligible students and parents before it requests or receives fundsCOVID-19 pandemic, ED provided broad approval for the amount of those disbursements from ED.  As long as the student accounts are credited before the funding requests are initiated, an institution is permitted to draw down funds through ED’s electronic system for grants management and payments for the amount of disbursements made to eligible students.  Unlike the Heightened Cash Monitoring 2 (HCM2) or reimbursement payment methods, the HCM1 payment method typically does not require institutions to submit documentation to ED and wait foruse distance education without going through the standard ED approval before drawing down Title IV funds.process. ED mayalso permitted accreditors to waive their distance education review requirements. Taking advantage of these flexibilities, we transitioned our students into blended program formats, which permitted their non-clinical training to be offered online.

ED’s temporary flexibilities currently remain in place an institutionand will continue through the end of the payment period that begins after the date on which the federally-declared national emergency related to COVID-19 is inrescinded. However, having observed that our blended learning programs offer a range of academic, operational, and financial efficiencies, we have determined to seek the zone onpermanent approvals that will permit us to continue offering blended learning programming after the HCM2 or reimbursement methodsnoted 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
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Table of payment. An institution on the HCM1, HCM2 or reimbursement payment methods must pay any credit balances due to a student or parent before drawing down funds from ED for the amount of disbursements made to the student or parent.Contents


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($’s inIn thousands, except per share amounts)


effective July 1, 2021. We intend to offer our Automotive, Diesel, Automotive/Diesel, Motorcycle and Marine programs in a blended learning format on a permanent basis. Additionally, we intend to continue to invest in our blended learning platform and curriculum to further enhance the student experience and student outcomes.


If an institution's composite score is below 1.0,To date, we have received approval from ACCSC to permanently offer blended format programs that utilize both distance and on-ground education. Additionally, we have received permanent approvals by all state education authorizing agencies to offer blended format programs.

Note 25 - Higher Education Emergency Relief Fund under the CARES Act

Fiscal 2020 HEERF I Grants for Students and for Significant Changes to the Delivery of Instruction Due to the Coronavirus under the CARES Act

In 2020, the CARES Act established the HEERF. The HEERF includes approximately $14.0 billion in relief funds to be distributed directly to institutions of higher education. The most significant portion of that funding allocation provides that $12.56 billion will be distributed to institutions using a formula based on student enrollment. Of the amount allocated to each institution is considered by EDunder this formula, at least 50% must be reserved to lackprovide students with emergency financial responsibility. If ED determines that an institution does not satisfy ED's financial responsibility standards, depending on its composite scoreaid grants to help cover expenses related to the disruption of campus operations due to coronavirus. The remaining funds must be used “to cover any costs associated with significant changes to the delivery of instruction due to the coronavirus.”

HEERF Funds for Student Grants

Per the HEERF Funding and other factors, that institution may establish its financial responsibility on an alternative basis by, among other things:

posting a letter of credit in an amount equal toCertification Agreements, at least 50% of the total Title IV ProgramHEERF funds received were to be used exclusively for emergency financial aid grants to students impacted by COVID-19, supporting their efforts to stay in school and continue their training toward graduation and future careers. In May 2020, we received approximately $16.5 million designated for student grants and deposited these funds into a separate restricted cash account. As of September 30, 2020, we had awarded all $16.5 million designated for student grants to approximately 9,000 students.

HEERF Funds for Significant Changes to the institution during its most recently completed fiscal year;Delivery of Instruction Due to Coronavirus

In addition, in May of 2020 we were awarded approximately $16.5 million for the institutional portion of the HEERF funds. Such funds may be used to provide additional emergency financial aid grants to students, to cover institutional costs associated with significant changes to the delivery of instruction due to coronavirus, or not used at all and returned to the government. During the years ended September 30, 2020 and 2021, we drew down and utilized the HEERF Institutional funds granted to us as previously noted in our Supplemental Cash Flow disclosures.
posting a letter of credit in
Fiscal 2021 HEERF II Grant for Students under the CRRSAA and HEERF III Grant for Students under the ARPA

The CRRSAA includes HEERF II, which makes an amount equaladditional $22.7 billion available to at least 10% of such prior year's Title IV Program funds, accepting provisional certification for a period of no more than three years, complying with additional ED notification and operating requirements and conditions and agreeing to receive Title IV Program funds under an arrangement other than ED's standard advance funding arrangement. Under new regulations that take effect on July 1, 2017, ED may increasehigher education institutions. Of this amount, private, proprietary institutions are allocated approximately $681 million. The statute permits proprietary institutions to account for ED’s determination of the additional amount of financial protection neededuse HEERF II funds to fully cover any estimated losses.
If an institution is unable to establish financial responsibility on an alternative basis, the institution may be subject to financial penalties, restrictions on our operations and loss of externalprovide financial aid funding.grants to students and requires that institutions prioritize the grants to students with exceptional need, such as students who receive Pell Grants. 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.
ED published final regulations that were scheduled
The ARPA includes almost $40 billion in funding available to take effect on July 1, 2017, but that ED delayed until further notice, that would amendhigher education institutions under the financial responsibility regulations to expand the list of actions or events that require an institutionHEERF III. Of this amount, private, proprietary institutions are allocated approximately $396 million and may only use HEERF III funding to provide EDemergency financial aid grants to students. In accordance with a letterthe ED’s allocation schedule, during the year ended September 30, 2021, we were granted approximately $9.9 million for purposes of credit or other formfunding HEERF III student grants.

As of acceptable financial protection.September 30, 2022 and 2021, we awarded approximately $7.0 million and $19.7 million, respectively, in HEERF II and HEERF III grants to over 15,500 students. The regulations also, among other things, may increaseHEERF II and HEERF III funds were drawn down as student grants were distributed. As the amount of the letter of credit or other form of financial protection that an institution must provide to ED if the institution has a composite score below 1.0,HEERF II and III programs ended in July 2022, there are no longer qualifies for the Zone Alternative, or does not comply with other applicable requirements of the financial responsibility regulations. The regulations also would permit ED to recalculate an institution’s composite score to account for its estimate of actual or potential losses resulting from certain events identified in the new Defense to Repayment Regulations.

ED has historically evaluated the financial condition of our institutions on a consolidated basis based on the financial statements of Universal Technical Institute, Inc. as the parent company. ED’s regulations permit ED to examine the financial statements of Universal Technical Institute, Inc., the financial statements of each institution and the financial statements of any related party. For our 2017 fiscal year, we calculated our composite scorefurther funds to be 2.2. However, the composite score calculations and resulting requirements imposed on our institutions are subject to determination by ED once it receives and reviews our audited financial statements.awarded.
Return
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Table of Title IV FundsContents

An institution participating in Title IV Programs must calculate the amount of unearned Title IV Program funds that have been disbursed to students who withdraw from their educational programs before completing them. The institution must return those unearned funds to ED or the appropriate lending institution in a timely manner, which is generally within 45 days from the date the institution determines that the student has withdrawn. If an institution is cited in an audit or program review for returning Title IV Program funds late for 5% or more of the students in the audit or program review sample, the institution must post a letter of credit in favor of ED in an amount equal to 25% of the total Title IV Program funds that should have been returned in the previous fiscal year.
Because we operate in a highly regulated industry, we, like other industry participants, may be subject from time to time to investigations, claims of non-compliance, or lawsuits by governmental agencies or third parties, which allege statutory violations, regulatory infractions, or common law causes of action.

Compliance with Regulatory Standards and Effect of Regulatory Violations


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($’s inIn thousands, except per share amounts)


Note 26 - Subsequent Events

Revolving Credit Facility

Our institutions are subject to audits and program compliance reviews by various external agencies, including ED, ED’s OfficeOn November 18, 2022, we entered into a $100.0 million senior secured revolving credit facility with Fifth Third Bank, a national banking association (the “Credit Facility”), which includes a $20.0 million sub facility that is available for letters of Inspector General, state education agencies, student loan guaranty agencies, the VA and ACCSC, as well as other federal and state agencies. Eachcredit. The Credit Facility has a term of our institutions’ administration of Title IV Program funds must also be audited annually by independent accountants and the resulting audit report submitted to ED for review. If ED or another regulatory agency determined that one of our institutions improperly disbursed Title IV Program funds or violated a provision of the HEA or ED’s regulations, that institution could be required to repay such funds and could be assessed an administrative fine. ED could also transfer the institution from the advance method of receiving Title IV Program funds to a cash monitoring or reimbursement system, which could negatively impact cash flow at an institution. Significant violations of Title IV Program requirements by us or any of our institutions could be the basis for a proceeding by ED to fine the affected institution or to limit, suspend or terminate the participation of the affected institution in Title IV Programs. Generally, such a termination extends for 18 months before the institution may apply for reinstatement of its participation.
In April 2015, ED completed an ordinary course program review of our administration of the Title IV programs in which we participate for our Avondale, Arizona institution main campus and additional locations of that institution. The site visit covered the 2013-2014 and 2014-2015 award years. An initial program review report dated September 22, 2017 has been issued by ED. The report contains nine findings that are not material because they are limited to errors identified in individual student records and to requests to update and strengthen certain financial aid-related disclosures and procedures. None of the findings require us to perform any retroactive file reviews of all of our students for any issues for any time period. This matter is not yet final. We provided our response to ED within the stated deadline of 30 days from the date we received the report.  ED will review and take into consideration our responsethree years, unless earlier terminated pursuant to the report before issuing its final program review determination letter. ED has not indicated how long it will take to review our responseterms and issue the final program review determination letter.

Veterans' Benefits Programs

Since October 1, 2011, the Post-9/11 GI Bill has been effective for both degree and non-degree granting institutions of higher learning, allowing eligible veterans to use their Post-9/11 GI Bill benefits at all of our institutions. Additionally, veterans use benefits such as the Montgomery GI Bill, the REAP and VA Vocational Rehabilitation at our campuses. We derived approximately 19% of our revenues, on a cash basis, from veterans' benefits programs in 2017. To participate in veterans' benefits programs, including the Post-9/11 GI Bill, the Montgomery GI Bill, the REAP, and VA Vocational Rehabilitation, an institution must comply with certain requirements established by the VA. These criteria require, among other things, that the institution:

report on the enrollment status of eligible students;

maintain student records and make such records available for inspection;

follow current VA rules; and

comply with applicable limits on the percentage of students receiving certain veterans benefits on a program or campus basis.

The VA shares responsibility for VA benefit approval and oversight with designated State Approving Agencies (SAAs).  SAAs play a critical role in evaluating institutions and their programs to determine if they meet VA benefit eligibility requirements. Processes and approval criteria as well as interpretation of applicable requirements can vary from state to state. Therefore, approval in one state does not necessarily result in approval in all states. 

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During 2012, President Obama signed an Executive Order directing the Departments of Defense, Veterans Affairs and Education to establish “Principles of Excellence” (Principles), based on certain guidelinesconditions set forth in the Executive Order,credit agreement.
This agreement provides that the revolver will amortize on an interest-only basis during its term with principal able to applybe borrowed, re-paid and re-borrowed throughout the term of the Facility and with the outstanding principal due and payable at maturity. Advances made under the Credit Facility will bear interest at a floating rate equal to, educational institutions receiving federal fundingat our option, either (a) a variable rate equal to the greater of: (i) 3.5%, or (ii) the rate that the lender publicly announces, publishes or designates from time to time as its index rate or prime rate, or any successor rate thereto, in effect at its principal office, or (b) a variable rate equal to the greater of (i) 0%, or (ii) Term SOFR relating to quotations for service members, veteransone (1) or three (3) months, as selected by us or as otherwise set pursuant to the terms of the credit agreement, as applicable, plus, in the case of any Term SOFR loan, an adjustment equal to 0.10% if the interest period is one (1) month and family members. 0.15% if the interest period is three (3) months. Interest in the case of tranche rate loans will be increased by an applicable margin that varies from 1.75% up to 2.25% based on our then-current total leverage ratio. On November 28, 2022, we drew $90.0 million from the credit facility in support of the closing of the Concorde acquisition.
We are also subject to certain customary affirmative and negative covenants under the credit agreement for financing generally and for the Credit Facility, including financial covenants such as total leverage ratio, a fixed charge coverage ratio, and a quick ratio. In addition, we are required to complymaintain a financial responsibility composite score of at least 1.4 as of the end of the fiscal year ending September 30, 2023 and of at least 1.5 as of the end of any fiscal year thereafter. Lastly, we are subject to a “clean off” provision, under which we will not permit the amount outstanding on the Credit Facility to exceed $20.0 million for a single thirty (30) consecutive day period, during the period commencing on the date of the initial draw under the Credit Facility and ending on the date which falls twenty (20) months thereafter.
Acquisition of Concorde Career Colleges, Inc.

On December 1, 2022, we completed the acquisition contemplated by the previously announced Stock Purchase Agreement (the “Purchase Agreement”), dated May 3, 2022, 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 eight states with approximately 8,000 students, and offers its programs in ground, hybrid and online formats.
The acquisition aligns with our growth and diversification strategy, which is focused on offering a broader array of high-quality, in-demand workforce solutions which both prepare students for a variety of careers in fast-growing fields and help close the country's skills gap by leveraging key industry partnerships.
Under the terms of the Purchase Agreement, we acquired all of the issued and outstanding shares of capital stock of Concorde from the Seller for total consideration of $50.0 million in cash, subject to closing working capital adjustments. As a result, Concorde is now a wholly-owned subsidiary of UTI. The consideration paid was funded by the new Credit Facility established in November 2022.
In connection with this acquisition, we incurred transaction costs of $3.0 million during the year ended September 30, 2022, which are included in “Selling, general and administrative” expenses in the accompanying consolidated statements of operations.
As of the date of this filing, the initial accounting for the business combination, including the allocation of the purchase price to the identifiable assets acquired and the liabilities assumed, is incomplete. We have engaged a third-party specialist to assist with the Principlesvaluation of the property, plant and equipment and intangible assets. We expect to continue recruitment activities on military installations. Additionally, there isdisclose a requirement to possess a memorandumpreliminary allocation of understanding (MOU) with the U.S. DOD as well as with certain individual installations.

19.  Quarterly Financial Summary (Unaudited)

Year ended September 30, 2017 
First
Quarter(1)
 
Second
Quarter (1)
 
Third
Quarter (1)
 
Fourth
Quarter (1)
 
Fiscal
Year(1)
Revenues $84,179
 $82,497
 $76,258
 $81,329
 $324,263
Income (loss) from operations $1,387
 $687
 $(2,784) $(1,114) $(1,824)
Net loss $(1,724) $(1,730) $(3,917) $(757) $(8,128)
Loss per share: 
 
 
 
 
Basic $(0.12) $(0.12) $(0.21) $(0.08) $(0.54)
Diluted $(0.12) $(0.12) $(0.21) $(0.08) $(0.54)

Year ended September 30, 2016 First
Quarter		 
Second
Quarter(1)
 
Third
Quarter(1)
 
Fourth
Quarter (1)
 
Fiscal
Year(1)
Revenues $89,773
 $88,192
 $82,266
 $86,915
 $347,146
Loss from operations $(2,193) $(5,770) $(5,450) $(5,210) $(18,623)
Net loss $(1,680) $(32,002) $(5,069) $(8,945) $(47,696)
Loss per share: 
 
 
 
 
Basic $(0.07) $(1.32) $(0.21) $(0.42) $(2.02)
Diluted $(0.07) $(1.32) $(0.21) $(0.42) $(2.02)

(1) DuringDecember 1, 2022 purchase price in our Form 10-Q for the three months ended MarchDecember 31, 2016, we recorded a full valuation allowance on our deferred tax assets. We will maintain a valuation allowance on our deferred tax assets until sufficient positive evidence exists to support its reversal. See Note 12 for further discussion.

The summation of quarterly per share information does not equal amounts for the full year as quarterly calculations are performed on a discrete basis. Additionally, securities may have had an anti-dilutive effect during individual quarters but not for the full year.


2022.
F- 49
F-49