UNIVERSAL TECHNICAL INSTITUTE INC (UTI) FY 2021 MD&A

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

Founded in 1965, with more than 225,000 graduates in its history, we are a leading provider of transportation and technical training programs. As of September 30, 2021, we offered certificate, diploma or degree programs at 12 campuses across the United States under the banner of several well-known brands, including Universal Technical Institute, Motorcycle Mechanics Institute and Marine Mechanics Institute and NASCAR Technical Institute. 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.

Revenues

Our 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. Tuition and fee revenue is recognized ratably over the term of the course or program offered. Approximately 99% of our revenues for each of the years ended September 30, 2021, 2020 and 2019, 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, which are recognized as the transfer of goods or services occurs. Through our proprietary loan program, we, in substance, provide 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 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. 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 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 full-time 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 full-time enrollments are influenced by the:

•Attractiveness of our program offerings to high school graduates and potential adult students;

•Effectiveness of our marketing efforts;

•Depth of our industry relationships;

•Strength of employment markets and long-term career prospects;

•Quality of our instructors and student services professionals;

•Persistence of our students; the length of our education programs;

•Availability of federal and alternative funding for our programs; and

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•Number of graduates of our programs who elect to attend the advanced training programs we offer and general economic conditions.

The introduction of additional program offerings at existing campuses and opening additional campuses is expected to influence our average full-time enrollment. We currently offer start dates at our campuses that range from every three to six weeks throughout the year in our core 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 core or advanced training. We implemented tuition rate increases of up to 2.5%, 3.5% and 3.0% for each of the years ended September 30, 2021, 2020 and 2019, 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 financial aid programs, predominantly Title IV Programs and various veterans' benefits programs, to pay a substantial portion of their tuition and other education-related expenses. Approximately 68% of our revenues, on a cash basis, were collected from funds distributed under Title IV Programs for the year ended September 30, 2021 as calculated under the 90/10 rule. Additionally, approximately 14% of our revenues, on a cash basis, were collected from funds distributed under various veterans' benefits programs for the year ended September 30, 2021.

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 veterans' benefit programs unless students withdraw prior to the receipt by us of Title IV or veterans' benefit funds for those students. 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 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 veterans' benefit programs, the students at that institution, and other locations of 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. 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 our 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 include: faculty and other campus administration employees’ compensation and benefits; facility rent; maintenance; utilities; depreciation and amortization of property and equipment used in the provision of educational services; tools; training aids; royalties under our licensing arrangements; and other costs directly associated with teaching our programs and providing educational services to our students.

Selling, general and administrative expenses include: compensation and benefits of employees who are not directly associated with the provision of educational services, such as: executive management, finance and central accounting, information technology, legal, human resources, marketing and student admissions; marketing and student enrollment expenses; 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 services; 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.

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2021 Overview

Student Metrics

The increase in new student starts, average undergraduate full-time active students and end of period undergraduate full-time active students was due to increased effectiveness of our marketing and admissions efforts and the impacts of the COVID-19 pandemic on the prior year.

Our ability to start new students continues to be influenced by various factors including: unemployment rates; competition; adverse media coverage, legislative hearings, regulatory actions and investigations by attorneys general and various agencies related to allegations of wrongdoing on the part of other companies within the education and training services industry, which have cast the industry in a negative light; and the state of the general macro-economic environment and its impact on price sensitivity and the ability and willingness of students and their families to incur debt. For more information, see Item 1A. “Risk Factors.”

Operations

Our revenues for the year ended September 30, 2021 were $335.1 million, an increase of $34.3 million, or 11.4%, from the prior year. The increase in revenue was due to growth in students, increased revenue per student, and the impact of the COVID-19 pandemic in the prior year, which resulted in more students being on leave of absence and the suspension of operations at our campuses for a period of time in fiscal 2020. All of our campuses were fully operational during fiscal 2021, and as of September 30, 2021, all students were attending in person for labs at our campuses with less than 1% of students with catch-up lab work outstanding. As a result, there was no deferred revenue related to the impact of COVID-19 as of September 30, 2021, while we had $6.1 million of deferred revenue as of September 30, 2020.

In fiscal 2021, we had operating income of $14.9 million, as compared to an operating loss of $3.9 million in the prior year. Our operating expenses for fiscal 2021 increased 5.1% as compared to the prior year primarily due to support activities related to the increase in student enrollment. Productivity improvements and proactive cost actions have been a key part of our operating model for the past several years, and we continue to identify and execute on efficiency opportunities throughout our cost structure, while improving and investing in the overall student experience. Net income for the year ended September 30, 2021 was $14.6 million, compared to net income of $8.0 million in the prior year. The prior period included a $10.7 million tax benefit resulting from the application of revised net operating loss carryback regulations from the CARES Act.

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, 2021, we executed the following as part of our growth and diversification strategy:

•We entered into a definitive agreement to acquire MIAT College of Technology (“MIAT”) from HCP & Company. MIAT served approximately 1,200 students as of September 30, 2021 through its campuses in Canton, Michigan and Houston, Texas. The company offers vocational and technical certificates as well as associates degrees in fields with robust and growing demand for skilled technical workers, including aviation maintenance, energy technology, wind power, robotics and automation, non-destructive testing, HVACR, and welding. The acquisition will enable us to further expand our program offerings into growing industry sectors and rapidly expanding fields likely to be bolstered by technological innovation and the country’s focus on sustainable energy. The transaction closed on November 1, 2021.

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•Announced and began execution on our plans to open two additional campus locations during fiscal 2022 in Austin, Texas and Miramar, Florida.

•Announced the expansion of our welding technology program to our Bloomfield, New Jersey campus (launched in July 2021), to our Mooresville, North Carolina campus (in January 2022), and plans to launch a ninth welding program later in fiscal 2022.

•Launched or expanded the following MSAT programs:

◦The Fendt® Technician Academy, a new program with AGCO Corporation, a global leader in the design, manufacture and distribution of agricultural machinery and solutions, at our Lisle, Illinois campus.

◦The Daimler Trucks North America (“DTNA”) Finish First program to our Orlando, Florida campus.

◦Transition of BMW to the Fast Track program our Avondale, Arizona and Orlando, Florida campuses, with Long Beach, California launching in May 2022 and three additional locations launching by the end of fiscal 2022.

•Launched or expanded the following military base MSAT programs:

◦Premier Truck Group Technician Skills Program, a first-of-its-kind diesel-commercial vehicle technician career skills program, for service members at Fort Bliss, a U.S. Army post in El Paso, Texas.

◦BMW Military Service Technician Education Program at Fort Bragg, a U.S. Army post near Fayetteville, North Carolina.

•Purchased our Avondale, Arizona campus at the end of December 2020, for approximately $45.2 million, including closing costs and other fees, with the intention of consolidating our MMI Phoenix, Arizona campus into the same location by the end of fiscal 2022. During May 2021, we completed the financing of our Avondale, Arizona campus which replenished approximately $31.2 million of the funds used to purchase the campus.

•Announced the future consolidation and reconfiguration of the UTI and MMI Orlando, Florida campus facilities into one site which is currently scheduled for completion by the end of the second quarter of 2022.

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, 2021 Compared to Year Ended September 30, 2020

Revenues

Our revenues for the year ended September 30, 2021 were $335.1 million, an increase of $34.3 million, or 11.4%, as compared to revenues of $300.8 million for the year ended September 30, 2020. During fiscal 2021, our average full-time

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student enrollment increased by 9.8% and our new student starts increased 15.5%, reflecting strong front-end demand across all channels. Revenues for fiscal 2020 were impacted by a higher number of students on leave of absence and the deferral of $6.1 million of revenue related to the large number of make-up labs and online-only students that resulted when we paused operations during the year due to the onset of the COVID-19 pandemic in March 2020. Our revenue recognized for active students in fiscal 2021 was also impacted by COVID-19, with lower average revenue per student versus pre-COVID levels driven by the pace at which students were progressing through their programs and by students retaking courses previously completed or attempted. However, as of September 30, 2021, all students were attending in person for labs at our campuses with less than 1% of students with catch-up lab work outstanding. As a result, we had no deferred revenue as of September 30, 2021.

We recognized $9.7 million on an accrual basis related to revenues and interest under our proprietary loan program for the year ended September 30, 2021, as compared to $7.4 million recognized for the year ended September 30, 2020.

Educational services and facilities expenses

Our educational services and facilities expenses for the year ended September 30, 2021 were $166.8 million, representing an increase of $10.9 million, or 7.0%, as compared to $155.9 million for the year ended September 30, 2020.

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

Compensation and related costs increased $4.8 million for the year ended September 30, 2021, as compared to the prior year:

•Salaries expense increased $4.0 million primarily related to incremental headcount developing new learning products as we continue to invest in and develop our online curriculum and increases in instructor salaries and overtime as the prior year had reduced instructor headcount due to lower student counts and as a result of cost reduction actions taken during the COVID-19 pandemic.

•Bonus expense increased $1.0 million. The increase was the result of actual achievement against management bonus plan metrics in the current year.

Occupancy costs decreased $6.3 million during fiscal year 2021. The decrease was primarily attributable to cost reductions from closing our Norwood, Massachusetts campus, downsizing our Exton, Pennsylvania and Sacramento, California campuses, and purchasing our Avondale, Arizona campus in December 2020. Our future occupancy costs will increase due to the addition of the new Austin, Texas and Miramar, Florida campus locations. In order to have the campuses ready for the anticipated opening dates in fiscal 2022, we took possession of the Austin campus building in September 2021 and the Miramar campus in October 2021 to complete tenant improvements. Lease expense begins at the possession date. Additionally, future occupancy costs will be favorably impacted as we complete our campus consolidation plans for both MMI Phoenix, Arizona and MMI Orlando, Florida.

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Depreciation and amortization expense increased $1.0 million during the year ended September 30, 2021 primarily due to the purchase of the Avondale, Arizona campus during fiscal year 2021.

Supplies and maintenance expense decreased by $2.2 million primarily due to $5.7 million in laptops purchased for our students to support their transition to the new blended on-line learning model in fiscal 2020, while we only purchased $2.6 million in laptops in the current year. In fiscal 2020, the laptops were one of the allowable costs qualifying for reimbursement from the institutional HEERF funds received which is reflected in the “Other educational services and facilities expense” line.

Student expense increased by $1.0 million primarily due to a $1.1 million increase in student housing expense.

Other educational services and facilities expense increased by $12.8 million. The increase is primarily related to a credit of $13.3 million for the reimbursement of allowable costs related to the changes in delivery of instruction due to the coronavirus during the year ended September 30, 2020, while the year ended September 30, 2021 includes a $0.3 million credit for allowable costs. The allowable costs are included in the relevant line items above. See Note 22 of the notes to the Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further information on the HEERF funds.

Selling, general and administrative expenses

Our selling, general and administrative expenses for the year ended September 30, 2021 were $153.3 million, representing an increase of $4.6 million, or 3.1%, as compared to $148.7 million for the year ended September 30, 2020.

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

Compensation and related costs increased by $2.1 million for the year ended September 30, 2021, as compared to the prior year:

•Bonus expense increased by $3.6 million. The increase was the result of higher student counts and related admissions representative graduation incentives, and actual achievement against management bonus plan metrics in the current year.

•Salaries expense decreased by $0.6 million, primarily due to a decrease in admission representative salaries of $1.0 million, which was partially offset by a $0.4 million increase in salaries to support our growth strategy.

•Employee benefits and tax decreased by $0.6 million, primarily due to a decrease in medical claims.

Advertising expense decreased by $1.0 million for the year ended September 30, 2021, as compared to the prior year. The decrease was attributable to targeted cost-efficient marketing efforts, with a shift away from television advertising toward

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digital media. Advertising expense as a percentage of revenues decreased to 11.6% for the year ended September 30, 2021 as compared to 13.2% in the prior year.

Other selling, general and administrative expenses increased by $0.9 million for the year ended September 30, 2021, as compared to the prior year, primarily due to increases of $0.8 million in software costs and $0.4 million in charitable contributions, which were partially offset by a decrease of $0.8 million in occupancy costs primarily due to relocating our headquarters to a more cost-effective location. Other selling, general and administrative expenses includes a $0.6 million credit for the reimbursement of allowable costs related to the changes in the delivery of instruction due to the coronavirus, while the prior year included a $1.8 million credit for allowable costs. The allowable costs are included in the relevant line items above. See Note 22 of the notes to the Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K for further information on the HEERF funds.

Contract services expense increased by $1.2 million and professional services increased by $1.6 million for the year ended September 30, 2021. The increases were primarily due to costs incurred related to our growth and diversification initiatives, including the acquisition of MIAT which closed in November 2021.

Other income, net

Other income for the year ended September 30, 2021 was $0.2 million, a decrease of $1.0 million as compared to other income of $1.3 million for the year ended September 30, 2020. The $0.2 million of other income in fiscal 2021 was comprised primarily of $0.4 million of gains on our non-qualified deferred compensation plan due to investment performance which was partially offset by $0.3 million of interest expense on our Term Loan (as defined below). Fiscal 2020 other income was primarily attributable to interest income on held-to-maturity securities.

Income taxes

Our income tax expense for the year ended September 30, 2021 was $0.6 million, or (4.0)% of pre-tax income, compared to an income tax benefit of $10.6 million, or (408.7)% of pre-tax loss, for the year ended September 30, 2020. The effective income tax rate in each period differed from the federal statutory tax rate of 21% primarily as a result of changes in the valuation allowance and state taxes. Our income tax expense/benefit was impacted by a decrease in the valuation allowance of $3.2 million and $6.1 million during the years ended September 30, 2021 and 2020, respectively. The significant decrease in the valuation allowance for the year ended September 30, 2020, and the related income tax benefit, was primarily attributable to the carryback of NOLs under the provisions of the CARES Act and the adoption of ASC 842 as of October 1, 2019. We will maintain a valuation allowance on our deferred tax assets until sufficient positive evidence exists to support its reversal. See Note 14 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

On June 24, 2016, we sold 700,000 shares of Series A Preferred Stock for $70.0 million in cash, less $1.2 million in issuance costs. Pursuant to the 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 $5.3 million during the years ended September 30, 2021 and 2020, respectively. See Note 16 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.

Income available for distribution

Income available for distribution refers to net income reduced by dividends on our Series A Preferred Stock. As a result of the foregoing, we reported income available for distribution for the years ended September 30, 2021 and 2020 of $9.3 million and $2.7 million, respectively.

For a discussion of the financial results of operations for the year ended September 30, 2020 compared to the year ended September 30 2019, refer to Part II, Item 7 of our 2020 Form 10-K filed with the SEC on December 3, 2020 which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.

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Non-GAAP Financial Measures

Our earnings before interest, tax, depreciation and amortization (“EBITDA”) for the years ended September 30, 2021, 2020 and 2019 were $29.5 million, $9.4 million and $11.4 million, respectively. We define EBITDA as net income (loss) for the year, before interest (income) expense, income tax (benefit) expense, and depreciation and amortization.

EBITDA is a non-GAAP financial measure which is provided to supplement, but not substitute for, the most directly comparable GAAP measure. We choose to disclose this non-GAAP financial measure because it provides an additional analytical tool to clarify our results from operations and helps to identify underlying trends. Additionally, this measure helps compare our performance on a consistent basis across time periods. Management also utilizes EBITDA as an internal performance 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 are significant components in understanding 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 EBITDA differently than we do, limiting its usefulness as a comparative measure across companies. Investors are encouraged to use GAAP measures when evaluating our financial performance.

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

(1)     Includes depreciation of training equipment obtained in exchange for services of $1.2 million, $1.3 million and $1.4 million for the years ended September 30, 2021, 2020 and 2019, respectively.

Liquidity and Capital Resources

Based on past performance and current expectations, we believe that our cash flows from operations, cash on hand and investments will satisfy our working capital needs, capital expenditures, commitments and other liquidity requirements associated with our existing operations, as well as announced growth and diversification initiatives through at least the next fiscal year. Our cash position is available to fund strategic long-term growth initiatives, including opening additional campuses in new markets and the creation and expansion of new programs, such as welding, in existing markets and campus facilities.

Our aggregate cash and cash equivalents were $133.7 million as of September 30, 2021, an increase of $56.9 million from September 30, 2020. There were no held-to-maturity investments as of September 30, 2021. We had short-term held-to-maturity investments of $38.1 million as of September 30, 2020. We had $30.9 million of long-term debt outstanding as of September 30, 2021 and no long-term debt outstanding as of September 30, 2020.

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

As previously noted, we purchased our Avondale, Arizona campus at the end of December 2020, for approximately $45.2 million, including closing costs and other fees. Due to the timing of the close for the Avondale property, we used available operating cash for the purchase. On May 12, 2021, we entered into a credit agreement to refinance the Avondale property through a $31.2 million term loan that bears interest at the rate of LIBOR plus 2.0% over the seven year term (the “Term Loan”). In connection with the Term Loan, we entered into an interest rate swap agreement with the lender that effectively

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fixes the interest rate on 50% of the principal amount of the term loan at 3.5% for the entire loan term. The Term Loan is secured by a first priority lien on our Avondale, Arizona property, including all land and improvements. See Note 12 of the notes to the consolidated financial statements herein for additional details on the Term Loan.

Additionally, on March 29, 2021, we entered into a definitive agreement to acquire MIAT from HCP & Company for a purchase price not to exceed $26.0 million in cash, subject to closing working capital adjustments. On November 1, 2021, following the satisfaction of all closing conditions, we closed the acquisition using cash on hand to pay the $26.0 million consideration contemplated under the definitive agreement.

We currently do not pay a cash dividend on our common stock. We paid preferred stock cash dividends of $5.3 million during the years ended September 30, 2021, 2020, and 2019, respectively.

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

Operating Activities

Our net cash provided by operating activities was $55.2 million and $11.0 million for the years ended September 30, 2021 and 2020, respectively.

Net income, after adjustments for non-cash items, provided cash of $47.7 million for the year ended September 30, 2021. 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 operating assets and liabilities for the year ended September 30, 2021 provided cash of $7.4 million primarily due to the following:

•The increase in deferred revenue provided cash of $17.0 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, 2021 as compared to September 30, 2020.

•The decrease in receivables provided cash of $8.5 million and was primarily due to the timing of Title IV disbursements and other cash receipts on behalf of our students.

•The decrease in 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 prepaid expense and other current liabilities used cash of $4.4 million primarily related to prepaid insurance as of September 30, 2021.

Net income, after adjustments for non-cash items, for the year ended September 30, 2020 provided cash of $48.8 million. The non-cash items included $24.3 million for amortization of right-of -use assets for operating leases, $11.8 million for depreciation and amortization expense, $2.1 million for stock-based compensation expense, and $1.8 million for bad debt expense.

Changes in operating assets and liabilities for the year ended September 30, 2020 used cash of $37.7 million primarily due to the following:

•Changes in our operating lease liability as a result of rent payments used cash of $25.6 million.

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•The increase in receivables used cash of $13.7 million and was primarily attributable to the timing of Title IV disbursements and other cash receipts on behalf of our students. Due to the COVID-19 pandemic, more students took a leave of absence in fiscal 2020 and our campuses suspended operations for a period of time during the second quarter. The COVID-19 pandemic has impacted the pace in which students progress through their programs.

•The increase in the income taxes receivable used cash of $7.0 million and was primarily attributable to the CARES Act, which allowed us to carryback NOLs from fiscal 2019 and fiscal 2018 and record an $11.3 million income tax refund. Of the $11.3 million income refund recorded, $4.2 million was received during fiscal 2020.

•The increase in deferred revenue used cash of $2.2 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 relations to completion of their program at September 30, 2020 as compared to September 30, 2019. We had deferred revenue of $6.1 million as of September 30, 2020 due to students retaking courses that were previously completed and the additional time needed to complete in-person catch-up labs that were unable to be completed during the time the campuses were closed due to the COVID-19 pandemic.

•The increase in accounts payable and accrued expenses provided cash of $7.0 million primarily related to the timing of payments to vendors and bonus accruals.

Investing Activities

For the year ended September 30, 2021, net cash used in investing activities was $23.0 million. The cash outflow was primarily related to the purchase of property and equipment of $61.6 million, of which $45.2 million related to the purchase of the building 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 was partially offset by proceeds from maturities of held-to-maturity securities of $37.7 million.

For the year ended September 30, 2020, net cash used in investing activities was $45.8 million. The cash outflow was primarily related to the net purchase of $38.4 million in held-to-maturity investments with a portion of the proceeds received from a public offering of our common stock in February 2020. Net cash used in investing activities was also impacted by purchases of property and equipment of $9.3 million which includes capital expenditures for the Houston, Texas and Long Beach, California welding program expansions.

Financing Activities

For the year ended September 30, 2021, net cash provided by financing activities was $24.8 million which was primarily the result of the $31.2 million in proceeds received from the financing of the Avondale, Arizona property in May 2021. This was partially offset by our semi-annual payments of preferred stock dividends of $5.3 million.

For the year ended September 30, 2020, net cash provided by financing activities was $43.1 million and related primarily to the $49.2 million of net proceeds received from a public offering of our common stock in February 2020, partially offset by our semi-annual payments of preferred stock dividends of $5.3 million.

For a discussion of our liquidity for the year ended September 30 2019, refer to Part II, Item 7 of our 2020 Form 10-K filed with the SEC on December 3, 2020 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 10, 2020, our Board of Directors authorized a new share repurchase plan that would allow for the repurchase of up to $35.0 million of our common stock in the open market or through privately negotiated transactions. This new share repurchase plan replaced the previously authorized plan from fiscal 2012. Any repurchases under this new stock repurchase program require the approval of a majority of the voting power of our Series A Preferred Stock. We did not repurchase any shares during the year ended September 30, 2021.

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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, 2021, the total face amount of these surety bonds was approximately $15.3 million.

Related Party Transactions

Information concerning certain related party transactions is included in Note 10 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 2022 Annual Meeting of Stockholders under the heading “Certain Relationships and Related Transactions.”

Seasonality

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

The increase in revenues from December 31, 2020 to September 30, 2021 was primarily related to student growth and 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.

The decline in revenues from December 31, 2019 to June 30, 2020 was primarily due to the impact of the COVID-19 pandemic as a higher number of students went on leave of absence. Additionally, timing of revenue recognition for active students was impacted by additional time needed to complete in-person catch-up labs that were unable to be completed during the time the campuses were closed and by students retaking courses that were previously completed. The increase in revenue for the three months ended September 30, 2020 was primarily due to our successful transition of our on-campus, in-person education model to a blended training model that combines instructor-facilitated online teaching and demonstrations

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with hands-on labs. During the year ended September 30, 2020, the COVID-19 pandemic impacted our financials throughout each of the three months ended March 31, 2020, June 30, 2020, and September 30, 2020, and therefore are not comparative for seasonality effects.

The increase in income from operations from December 31, 2020 to September 30, 2021 was primarily due to increased revenue as well as continued execution of cost control measures.

During the year ended September 30, 2020, the COVID-19 pandemic impacted our financials throughout each of the three months ended March 31, 2020, June 30, 2020 and September 30, 2020, and therefore, are not comparative for seasonality effects. Management's continued cost control efforts contributed to the improvement in income (loss) from operations for the each of the three months ended March 31, 2019, June 30, 2019 and September 30, 2019, as compared to the same periods in fiscal 2018.

Effect of Inflation

To date, inflation has not had a significant effect on our 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, our 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

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 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 99% of our revenues for each of the years ended September 30, 2021, 2020 and 2019, respectively, consisted

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of gross tuition. The majority of our core programs are designed to be completed in 36 to 90 weeks, and our advanced training programs range from 12 to 23 weeks in duration. We supplement our revenues with sales of textbooks and program supplies and other revenues, which are recognized as the transfer of goods or services occurs. Deferred revenue represents the excess of tuition and fee payments received as compared to tuition and fees earned and is reflected as a current liability in our consolidated balance sheets because it is expected to be earned within the next 12 months.

For most of our programs, we have transitioned our on-campus, in-person education model to a blended training model that combines instructor-facilitated online teaching and demonstrations with hands-on labs. We continue to recognize revenue ratably over the term of the course or program offered. All of our campuses were fully operational during fiscal 2021, and as of September 30, 2021, all students were attending in person for labs at our campuses with less than 1% of students with catch-up lab work outstanding. As a result, there was no deferred revenue related to the impact of COVID-19 as of 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

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 our proprietary loan program, we, in substance, provide 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 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.

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 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 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 assessment of the variable consideration associated with the proprietary loan program.

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.

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

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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

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 would be recognized as an expense in the period in which impairment is identified.

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 factors to determine whether it is more likely than not that the fair value of a reporting unit or intangible, as applicable, is less than its carrying amount. 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.

When performing a quantitative goodwill impairment test, we generally determine 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 under 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.

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.

2021 Impairment Testing

Our total recorded goodwill was $8.2 million as of September 30, 2021 which resulted primarily from the acquisition of our motorcycle and marine education business in 1998 in Orlando, Florida. We completed our 2021 annual goodwill impairment tests and determined that 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.

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 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

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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 benefit (expense).

As a result of our assessment, income tax benefit (expense) within our statements of operations was impacted by decreases of $3.2 million and $6.1 million in the valuation allowance during the years ended September 30, 2021 and 2020, 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 and if additional weight may be given to subjective 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.