UNIVERSAL TECHNICAL INSTITUTE INC (UTI) FY 2023 MD&A
This page reproduces the company's own Item 7 MD&A text from the linked SEC filing. It is filer text, not grepcent analysis, scoring, or investment advice.
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.
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Company Overview
Universal Technical Institute, Inc., which together with its subsidiaries is referred to as the “Company,” “we,” “us” or “our,” was founded in 1965 and is a leading workforce solutions provider of transportation, skilled trades and healthcare education programs, whose mission is to serve students, partners, and communities by providing quality education and support services for in-demand careers across a number of highly-skilled fields. We offer the majority of our programs in a blended learning model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.
Concord Career Colleges Acquisition
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 the Company, 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. Under the terms of the Purchase Agreement, we acquired of all of the issued and outstanding shares of capital stock of Concorde for a base purchase price of $50.0 million, less $1.9 million in net adjustments including the post-closing working capital adjustment, for total cash consideration paid of $48.1 million. See the “Liquidity and Capital Resources” section of this MD&A for a discussion on the financing used to fund the acquisition. 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.
In conjunction with the Concorde acquisition on December 1, 2022, we redefined our reporting structure into two reportable segments as follows:
Universal Technical Institute (“UTI”): UTI operates 16 campuses located in nine states and offers a wide range of degree and non-degree transportation and skilled trades technical training programs under brands such as Universal Technical Institute, Motorcycle Mechanics Institute, Marine Mechanics Institute, NASCAR Technical Institute, and MIAT College of Technology (“MIAT”). UTI also offers manufacturer specific advanced training programs (“MSAT”), which include student-paid electives, at our campuses and manufacturer or dealer sponsored training at certain campuses and dedicated training centers. Lastly, UTI provides dealer technician training or instructor staffing services to manufacturers. UTI works closely with multiple original equipment manufacturers and industry brand partners to understand their needs for qualified service professionals.
Concorde Career Colleges (“Concorde”): Concorde operates 17 campuses located in eight states and online, offering degree, non-degree, and continuing education programs in the allied health, dental, nursing, patient care and diagnostic fields. The Company has designated campuses that offer degree granting programs “Concorde Career College;” where allowed by State regulation. The remaining campuses are designated as “Concorde Career Institute.” Concorde believes in preparing students for their healthcare careers with practical, hands-on experiences including opportunities to learn while providing care to real patients. Prior to graduation, students will complete a number of hours in a clinical setting or externship, depending upon their program of study.
“Corporate” includes corporate related expenses that are not allocated to the UTI or Concorde reportable segments. In prior years, these costs were allocated across our former “Postsecondary Education” reportable segment and “Other” category based upon compensation expense. See Note 22 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 our segments.
All of our campuses are accredited and are eligible for federal student financial assistance funds under the Higher Education Act of 1965, as amended, commonly referred to as Title IV Programs, which are administered by the U.S. Department of Education. 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 and under the Workforce Innovation and Opportunity Act.
We believe that our industry-focused educational model and national presence has enabled us to develop valuable industry relationships, which provide us with significant competitive advantages and supports our market leadership, and enables 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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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 to 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, 2023, 2022 and 2021, 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. Tuition revenue and fees generally vary based on the average number of students enrolled and average tuition charged per program.
For students at our UTI and MMI branded schools, we offer a proprietary loan program, where we provide the students who participate in this program with extended payment terms for a portion of their tuition for up to ten years. UTI also provides dealer technician training or instructor staffing services to manufacturers where revenue is recognized 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, and 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;
•Length of our education programs;
•Availability of federal and alternative funding for our programs; and
•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 the opening of additional campuses is expected to influence our average full-time enrollment. UTI currently offers start dates at its campuses that range from every three to nine weeks throughout the year in the core programs. The number of start dates of UTI advanced training programs varies by the duration of those programs and the needs of the manufacturers that sponsor them. Concorde enrolls students throughout the year with core terms starting every month and clinical terms starting every ten weeks. Although Concorde operates year-round with lower seasonality than UTI, Concorde experiences population fluctuations dictated by their clinical programmatic accreditors and how many student starts are allowed and the time required between those starts.
Our tuition charges vary by type and length of our programs and the program level, such as core or advanced training. The UTI segment implemented tuition rate increases of up to 6.0%, 2.5% and 2.5% for each of the years ended September 30, 2023, 2022 and 2021, respectively, and the Concorde segment implemented a tuition rate increase of 3.0% for the year ended September 30, 2023. 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 67% of our revenues, on a cash basis, were collected from funds distributed under Title IV Programs for the year ended September 30, 2023 as calculated under the 90/10 rule. Additionally, approximately 10% of our revenues, on a cash basis, were collected from funds distributed under various veterans' benefits programs for the year ended September 30, 2023.
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The Company extends 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 the 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, including stock-based compensation, 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.
2023 Overview
Student Metrics
| September 30, 2023 | September 30, 2022 | % Change | |||||||
|---|---|---|---|---|---|---|---|---|---|
| UTI | |||||||||
| Total new student starts | 14,181 | 13,374 | 6.0 | % | |||||
| Average undergraduate full-time active students | 12,614 | 12,838 | (1.7) | % | |||||
| End of period undergraduate full-time active students | 14,833 | 14,380 | 3.2 | % | |||||
| Concorde | |||||||||
| Total new student starts | 8,432 | — | 100.0 | % | |||||
| Average undergraduate full-time active students | 7,654 | — | 100.0 | % | |||||
| End of period undergraduate full-time active students | 8,369 | — | 100.0 | % | |||||
| Consolidated | |||||||||
| Total new student starts | 22,613 | 13,374 | 69.1 | % | |||||
| Average undergraduate full-time active students | 20,268 | 12,838 | 57.9 | % | |||||
| End of period undergraduate full-time active students | 23,202 | 14,380 | 61.3 | % |
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The increase in consolidated new student starts, average undergraduate full-time active students and end of period undergraduate full-time active students was due primarily to the acquisition of Concorde in December 2022. The new student starts for the UTI segment increased during the year, partially due to the opening of new campuses in Austin, Texas and Miramar, Florida during late fiscal 2022 and program expansion during both the current and prior year.
Our ability to start new students can be influenced by various factors including: 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 to fund their education; unemployment rates; competition; adverse media coverage; legislative, or 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 can cast the aggregate “for-profit” education industry in a negative light; and pandemics and or other national, state or local emergencies as declared by various government authorities. For more information, see Item 1A. “Risk Factors.”
Operations
Our revenues for the year ended September 30, 2023 were $607.4 million, an increase of $188.6 million, or 45.0%, from the prior year. Excluding Concorde, which contributed $178.1 million of revenue between December 1, 2022 and September 30, 2023, UTI revenues increased 2.5% when compared to the prior year.
In fiscal 2023, we had operating income of $21.4 million, as compared to $22.4 million in the prior year, with the acquired Concorde segment contributing $10.5 million. Our operating expenses for fiscal 2023 were $586.0 million, a 47.8% increase over the prior year, with the acquired Concorde segment contributing $167.6 million. The remainder of the increase was primarily driven by the incremental cost of delivery associated with UTI new campus and program rollouts in the prior year, and both one-time and ongoing investments in support of our growth and diversification strategy. 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, 2023 was $12.3 million compared to $25.8 million in the prior year.
Business Strategy
Our business strategy has three key tenets: to grow the business by more deeply penetrating existing target markets and adding new markets; to diversify the business by adding new locations, programs, and offerings that maximize the lifetime value of our students; and to continually optimize the business by constantly enhancing operational efficiency.
During the year ended September 30, 2023, we executed the following as part of our growth, diversification and optimization strategy:
Acquisition and Optimization
•We closed the acquisition of Concorde on December 1, 2022. The acquisition aligns with our growth and diversification strategy, which is focused on offering a broader array of high-quality, in-demand workforce education 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.
•In March 2023, we purchased the three primary buildings and the associated land at our UTI Orlando, Florida campus which were previously leased.
Program Expansion and New Industry Partnerships
•In the fourth quarter of 2023 we started the following programs: Aviation at the UTI Avondale, Arizona and UTI Long Beach, California campuses; HVACR at the UTI Austin, Texas and NASCAR Tech campuses; Wind Energy Technician training at the UTI Rancho Cucamonga, California and UTI Lisle, Illinois campuses; Robotics and Automation at UTI Exton, Pennsylvania, UTI Lisle, Illinois, NASCAR Tech Mooresville, North Carolina, and the UTI Rancho Cucamonga, California campuses; and Welding at the UTI Sacramento, California campus.
•We executed a new agreement which continues the UTI partnership with Snap-on Tools to ensure automotive, diesel, motorcycle, marine and collision repair technician students have the tools and training they need to launch careers in the transportation industry.
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•UTI expanded the Volvo TEKNIKER Apprentice Program, a 12-week, manufacturer-paid apprentice program to Volvo's training facility in Ridgeville, South Carolina.
In addition, we continue to pursue other opportunities that align with our growth, diversification and optimization strategy.
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, | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2021 | |||||||
| Revenues | 100.0 | % | 100.0 | % | 100.0 | % | |||
| Operating expenses: | |||||||||
| Educational services and facilities | 54.3 | % | 49.5 | % | 49.8 | % | |||
| Selling, general and administrative | 42.2 | % | 45.2 | % | 45.8 | % | |||
| Total operating expenses | 96.5 | % | 94.7 | % | 95.6 | % | |||
| Income from operations | 3.5 | % | 5.3 | % | 4.4 | % | |||
| Interest (expense) income, net | (0.6) | % | (0.4) | % | (0.1) | % | |||
| Other income (expense) | 0.1 | % | (0.1) | % | 0.2 | % | |||
| Total other (expense) income, net | (0.5) | % | (0.5) | % | 0.1 | % | |||
| Income before income taxes | 3.0 | % | 4.8 | % | 4.5 | % | |||
| Income tax (expense) benefit | (0.9) | % | 1.3 | % | (0.2) | % | |||
| Net income | 2.1 | % | 6.1 | % | 4.3 | % | |||
| Preferred stock dividends | (0.8) | % | (1.2) | % | (1.6) | % | |||
| Income available for distribution | 1.3 | % | 4.9 | % | 2.7 | % | |||
| Income allocated to participating securities | (0.4) | % | (1.9) | % | (1.1) | % | |||
| Net income available to common shareholders | 0.9 | % | 3.0 | % | 1.6 | % |
Year Ended September 30, 2023 Compared to Year Ended September 30, 2022
Revenues
The following table presents revenue by segment (in thousands):
| Year ended September 30, 2023 | Year ended September 30, 2022 | ||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| UTI | Concorde | Consolidated | UTI | Concorde | Consolidated | ||||||||||||||||||
| Revenue | $ | 429,317 | $ | 178,091 | $ | 607,408 | $ | 418,765 | $ | — | $ | 418,765 | |||||||||||
| Year over Year % Change | 2.5 | % | 100.0 | % | 45.0 | % |
Our revenues for the year ended September 30, 2023 were $607.4 million, an increase of $188.6 million, or 45.0%, as compared to revenues of $418.8 million for the year ended September 30, 2022.
UTI
Revenues for UTI for the year ended September 30, 2023 were $429.3 million, an increase of 2.5% versus the prior period. Revenue increased primarily due to the addition of two new campuses in fiscal 2022 and an overall increase in average revenue per student. This was partially offset by a 1.7% decrease in overall average undergraduate full-time active students due to lower student starts across many campuses over the last several quarters.
We recognized $8.8 million on an accrual basis related to revenues and interest under the proprietary loan program for the year ended September 30, 2023, as compared to $9.1 million recognized for the year ended September 30, 2022.
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Concorde
Revenues for Concorde, which represent ten months as Concorde was acquired on December 1, 2022, were $178.1 million. Concorde programs are offered year-round, however, there can be fluctuations in the student population due to the timing and size of class starts which are dictated by the accrediting bodies governing the clinical and core programs.
Educational services and facilities expenses
Our educational services and facilities expenses for the year ended September 30, 2023 were $329.9 million, representing an increase of $122.6 million, or 59.2%, as compared to $207.2 million for the year ended September 30, 2022. This increase was primarily due to the acquisition of Concorde on December 1, 2022 and both ongoing and one-time costs associated with our growth, diversification, and optimization strategy.
The following table sets forth the significant components of our educational services and facilities expenses (in thousands):
| Year ended September 30, 2023 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| UTI | Concorde | Consolidated | |||||||||
| Salaries, employee benefits and tax expense | $ | 111,030 | $ | 68,238 | $ | 179,268 | |||||
| Bonus expense | 2,027 | — | 2,027 | ||||||||
| Stock-based compensation | 192 | — | 192 | ||||||||
| Compensation and related costs | 113,249 | 68,238 | 181,487 | ||||||||
| Occupancy costs | 30,798 | 18,612 | 49,410 | ||||||||
| Supplies, maintenance and student expense | 27,357 | 14,114 | 41,471 | ||||||||
| Depreciation and amortization expense | 19,738 | 3,618 | 23,356 | ||||||||
| Contract services expense | 3,763 | 431 | 4,194 | ||||||||
| Other educational services and facilities expenses | 21,666 | 8,286 | 29,952 | ||||||||
| Total educational services and facilities expense | $ | 216,571 | $ | 113,299 | $ | 329,870 |
| Year ended September 30, 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| UTI | Concorde | Consolidated | |||||||||
| Salaries, employee benefits and tax expense | $ | 106,016 | $ | — | $ | 106,016 | |||||
| Bonus expense | 2,335 | — | 2,335 | ||||||||
| Stock-based compensation | 240 | — | 240 | ||||||||
| Compensation and related costs | 108,591 | — | 108,591 | ||||||||
| Occupancy costs | 35,408 | — | 35,408 | ||||||||
| Supplies, maintenance and student expense | 22,295 | — | 22,295 | ||||||||
| Depreciation and amortization expense | 15,709 | — | 15,709 | ||||||||
| Contract services expense | 4,764 | — | 4,764 | ||||||||
| Other educational services and facilities expenses | 20,466 | — | 20,466 | ||||||||
| Total educational services and facilities expense | $ | 207,233 | $ | — | $ | 207,233 |
UTI
Compensation and related costs increased $4.7 million for the year ended September 30, 2023 primarily due to increased instructor salaries related to the opening of two new campuses in fiscal 2022 and new program expansions in fiscal 2022 and 2023.
Occupancy costs decreased $4.6 million during fiscal year 2023. The decrease was primarily due to purchasing the Lisle, Illinois campus in February 2022 and the three primary buildings at our UTI Orlando, Florida campus in March 2023, as well as realizing the benefits of the consolidation of the MMI and UTI campuses in both Arizona and Florida into single sites during fiscal 2022.
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Supplies, maintenance and student expense increased by $5.1 million primarily due to approximately $4.4 million in additional grants for student housing and $1.2 million in technical supplies due to the addition of the UTI Austin, Texas and UTI Miramar, Florida campuses.
Depreciation and amortization expense increased $4.0 million during the year ended September 30, 2023 primarily due to the purchase of the UTI Lisle, Illinois campus during fiscal year 2022 and the three primary buildings at our UTI Orlando, Florida campus in March 2023.
Other educational services and facilities expense increased by $1.2 million. The increase is primarily due to a gain of $1.6 million in the prior year period as a result of the settlement of the UTI Lisle, Illinois campus lease.
Selling, general and administrative expenses
Our selling, general and administrative expenses for the year ended September 30, 2023 were $256.1 million, representing an increase of $67.0 million, or 35.4%, as compared to $189.2 million for the year ended September 30, 2022. This increase was primarily due to the acquisition of Concorde on December 1, 2022 and both ongoing and one-time costs associated with our growth, diversification and optimization strategy.
The following table sets forth the significant components of our selling, general and administrative expenses (in thousands):
| Year ended September 30, 2023 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| UTI | Concorde | Corporate | Consolidated | ||||||||||||
| Salaries, employee benefits and tax expense | $ | 67,485 | $ | 21,401 | $ | 18,869 | $ | 107,755 | |||||||
| Bonus expense | 11,257 | 2,594 | 5,141 | 18,992 | |||||||||||
| Stock-based compensation | 877 | — | 2,779 | 3,656 | |||||||||||
| Compensation and related costs | 79,619 | 23,995 | 26,789 | 130,403 | |||||||||||
| Advertising and marketing expense | 52,809 | 19,358 | — | 72,167 | |||||||||||
| Professional and contract services expense | 8,093 | 608 | 9,110 | 17,811 | |||||||||||
| Intangible asset impairment expense | — | — | — | — | |||||||||||
| Other selling, general and administrative expenses | 16,546 | 10,298 | 8,914 | 35,758 | |||||||||||
| Total selling, general and administrative expenses | $ | 157,067 | $ | 54,259 | $ | 44,813 | $ | 256,139 |
| Year ended September 30, 2022 | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| UTI | Concorde | Corporate | Consolidated | ||||||||||||
| Salaries, employee benefits and tax expense | $ | 56,521 | $ | — | $ | 18,532 | $ | 75,053 | |||||||
| Bonus expense | 10,685 | — | 3,644 | 14,329 | |||||||||||
| Stock-based compensation | 648 | — | 3,524 | 4,172 | |||||||||||
| Compensation and related costs | 67,854 | — | 25,700 | 93,554 | |||||||||||
| Advertising and marketing expense | 54,501 | — | — | 54,501 | |||||||||||
| Professional and contract services expense | 4,412 | — | 10,157 | 14,569 | |||||||||||
| Intangible asset impairment expense | 2,000 | — | — | 2,000 | |||||||||||
| Other selling, general and administrative expenses | 18,393 | — | 6,141 | 24,534 | |||||||||||
| Total selling, general and administrative expenses | $ | 147,160 | $ | — | $ | 41,998 | $ | 189,158 |
UTI
Compensation and related costs increased by $11.8 million for the year ended September 30, 2023 as compared to the prior year, primarily due to an increase in headcount to support our growth, diversification and optimization initiatives.
Advertising and marketing expense decreased by $1.7 million for the year ended September 30, 2023, as compared to the prior year. We continue to target cost-efficient marketing with an increased focus on digital media. Advertising expense as a percentage of revenues decreased to 12.3% for the year ended September 30, 2023 as compared to 13.0% in the prior year.
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Professional and contract services increased by $3.7 million for the year ended September 30, 2023. The increases were primarily due to costs incurred related to our growth, diversification and optimization initiatives.
Other selling, general and administrative expenses decreased by $1.8 million for the year ended September 30, 2023, as compared to the prior year, due to a decrease of $0.9 million for bad debt expense and $0.8 million for employee recruitment and hiring.
Concorde
Selling, general and administrative expenses for Concorde for the ten months ended September 30, 2023, were $54.3 million. Concorde advertising and marketing expense as a percentage of revenue for the ten months ended September 30, 2023 was 10.9%.
Corporate
Selling, general and administrative expenses for Corporate increased by $2.8 million for the year ended September 30, 2023. This was primarily due to increased integration costs of $2.8 million which is included within other selling, general and administrative costs.
Other (expense) income, net
Other expense for the year ended September 30, 2023 was $3.3 million, compared to other income of $1.9 million for the year ended September 30, 2022. The $3.3 million of other expense in fiscal 2023 was comprised primarily of $9.7 million of interest expense from our revolving credit facility and existing term loans, partially offset by interest income of $5.9 million.
Income taxes
Our income tax expense for the year ended September 30, 2023 was $5.8 million, or 31.9% of pre-tax income, compared to an income tax benefit of $5.4 million, or 26.5% of pre-tax income, for the year ended September 30, 2022. The effective income tax rate for the year ended September 30, 2023 differed from the federal statutory tax rate of 21% primarily due to non-deductible executive compensation, transaction costs, federal research and development tax credits and state and local income and franchise taxes. The effective income tax rate for the year ended September 30, 2022 differed from the federal statutory 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. 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.
Preferred stock dividends
As of September 30, 2023 and 2022, 675,885 shares of Series A Convertible Preferred Stock were issued and outstanding, respectively. Pursuant to the Certificate of Designations of the Series A Preferred Stock, we paid preferred stock cash dividends of $5.1 million and $5.2 million during the years ended September 30, 2023 and 2022, respectively. See Note 18 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, 2023 and 2022 of $7.3 million and $20.7 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 must 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,
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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, 2023 and 2022 was $2.7 million and $7.8 million, respectively.
Net income available to common shareholders
After allocating the income to the participating securities, we had $4.5 million and $12.8 million of net income available to common shareholders for the years ended September 30, 2023 and 2022, respectively.
For a discussion of the financial results of operations for the year ended September 30, 2022 compared to the year ended September 30 2021, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” of our 2022 Form 10-K filed with the SEC on December 12, 2022 which discussion is incorporated herein by reference and which is available free of charge on the SEC’s website at www.sec.gov.
Non-GAAP Financial Measures
Our earnings before interest, tax, depreciation and amortization (“EBITDA”) for the years ended September 30, 2023, 2022 and 2021 were $47.1 million, $38.8 million and $29.5 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 as follows (in thousands):
| Year Ended September 30, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2023 | 2022 | 2021 | |||||||||
| Net income | $ | 12,322 | $ | 25,848 | $ | 14,581 | |||||
| Interest expense (income), net | 3,795 | 1,495 | 282 | ||||||||
| Income tax expense (benefit) | 5,765 | (5,407) | 602 | ||||||||
| Depreciation and amortization | 25,215 | 16,883 | 14,028 | ||||||||
| EBITDA | $ | 47,097 | $ | 38,819 | $ | 29,493 |
Liquidity and Capital Resources
Overview of Liquidity
Based on past performance and current expectations, we believe that our cash flows from operations, cash on hand and investments will satisfy our working capital needs, capital expenditures, commitments and other liquidity requirements associated with our existing operations, as well as announced growth and diversification initiatives through the next fiscal year and beyond. 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 liquidity as of September 30, 2023 totaled $159.7 million and was comprised of cash and cash equivalents of $151.5 million and undrawn revolving credit facility capacity of $8.2 million. This represents an increase of $64.4 million from our total liquidity as of September 30, 2022.
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Strategic Uses of Cash
On December 1, 2022, using funds from our new revolving credit facility, we acquired all of the issued and outstanding shares of capital stock of Concorde for a base purchase price of $50.0 million, less $1.9 million in net adjustments including the post-closing working capital adjustment, for total cash consideration paid of $48.1 million. The net cash consideration, taking into account cash acquired from Concorde, was $16.4 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.
We purchased three buildings and land at our UTI Orlando, Florida campus in March 2023 for approximately $26.2 million, including closing costs and other fees. We used previously drawn funds from our revolving credit facility to complete the purchase.
We believe that additional uses of our cash resources may include consideration of strategic acquisitions and organic growth initiatives, purchase of real estate assets, subsidizing funding alternatives for our students, and the repurchase of common stock, among others. To the extent that potential acquisitions are large enough to require financing beyond cash from operations, cash and cash equivalents, short-term investments, or available revolving credit facility capacity, 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.
Long-term Debt
As of September 30, 2023, we had $162.6 million of long-term debt outstanding, which is comprised of two term loans, a finance lease and a revolving credit facility. Of the $162.6 million outstanding, $29.3 million relates to a term loan that bears interest at the rate of Term SOFR plus 2.0% and a tranche rate adjustment of 0.046% over the seven-year term secured in connection with the UTI Avondale, Arizona campus property purchased in December 2020. Approximately $37.7 million relates to a term loan that bears interest at the rate of Term SOFR plus 2.0% over the seven-year term, secured in connection with the purchase of the UTI Lisle, Illinois campus property in February 2022. Approximately $5.6 million relates to a finance lease for a campus within our Concorde segment. The remaining $90.0 million relates to funds drawn from the $100.0 million revolving credit facility that was secured in connection with the Concorde acquisition. 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 additional details on the term loans and the revolving credit facility.
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 $5.1 million and $5.2 million during the years ended September 30, 2023 and 2022, respectively. The preferred stock dividends are subject to adjustment for any preferred stock conversions that occur during the year.
Principal Sources of Liquidity
Our principal source of liquidity is operating cash flows and existing cash and cash equivalents. A majority of our revenues are derived from Title IV Programs and various veterans’ 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 UTI 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. Similarly, we bear all credit and collection risk for students paying through UTI cash payment plans and those under a retail installment contract at Concorde. These factors, together with the timing of when our students begin their programs, affect the timing and seasonality of 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
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reimburse our insurers for any surety bonds that are paid by the insurers. As of September 30, 2023, the total face amount of these surety bonds was approximately $22.3 million.
Operating Activities
Our net cash provided by operating activities was $49.1 million and $46.0 million for the years ended September 30, 2023 and 2022, respectively.
Net income, after adjustments for non-cash items, provided cash of $71.8 million for the year ended September 30, 2023. The non-cash items included $25.2 million for depreciation and amortization expense, $20.6 million for amortization of right-of-use assets for operating leases, $4.6 million of deferred taxes, $3.8 million for stock-based compensation expense and $3.3 million for bad debt expense.
Changes in operating assets and liabilities for the year ended September 30, 2023 used cash of $22.7 million primarily due to the following:
•Changes in our operating lease liability as a result of rent payments used cash of $20.5 million.
•The change in deferred revenue provided cash of $11.4 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, 2023 as compared to September 30, 2022.
•Changes in our accounts payable and accrued expenses due to the timing of payments used cash of $5.9 million.
•The increase in receivables used cash of $4.9 million and was primarily due to the timing of Title IV disbursements and other cash receipts on behalf of our students.
Net income, after adjustments for non-cash items, for the year ended September 30, 2022 provided cash of $64.8 million. The non-cash items included $16.9 million for depreciation and amortization expense, $15.9 million for amortization of right-of -use assets for operating leases, $4.3 million for stock-based compensation expense, and $2.5 million for bad debt expense, partially offset by an adjustment of deferred taxes of $6.0 million due primarily to the release of our valuation allowance during the year.
Changes in operating assets and liabilities for the year ended September 30, 2022 used cash of $18.8 million primarily due to the following:
•Changes in our operating lease liability as a result of rent payments used cash of $14.0 million.
•Changes in our accounts payable and accrued expenses due to the timing of payments provided cash of $5.7 million.
•The decrease in deferred revenue used cash of $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, 2022 as compared to September 30, 2021.
•The increase in prepaid expense and other current assets used cash of $1.7 million primarily related to the change in training equipment credits earned as of September 30, 2022.
Investing Activities
For the year ended September 30, 2023, net cash used in investing activities was $44.1 million. The cash outflow was primarily related to the purchase of property and equipment of $56.7 million. During the year ended September 30, 2023, we purchased three buildings and the associated land at our UTI Orlando, Florida campus for $26.2 million. Additionally, we had continued capital expenditures for further construction at the UTI Austin, Texas and Miramar, Florida campuses, in addition to program expansion costs for both UTI and Concorde. Further, on December 1, 2022, we completed the acquisition of Concorde which resulted in $16.4 million of cash paid for acquisitions, net of cash acquired. Partially offsetting the cash outflows, is the $29.0 million in proceeds from maturities of held-to-maturity securities.
For the year ended September 30, 2022, net cash used in investing activities was $134.6 million. The cash outflow was primarily related to the purchase of property and equipment of $79.5 million, of which $28.7 million related to the purchase of the UTI Lisle, Illinois campus. Other capital expenditures included investments for new UTI campuses in Austin, Texas and Miramar, Florida, the consolidation of the UTI Orlando, Florida and the UTI Arizona campuses, and the rollout of new
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programs at the UTI campuses. We purchased $28.8 million of short term held-to-maturity investments. Additionally, we purchased MIAT for $26.5 million, net of cash consideration received.
Financing Activities
For the year ended September 30, 2023, net cash provided by financing activities was $81.8 million which was primarily related to proceeds from our revolving credit facility of $90.0 million, offset by the semi-annual payments of preferred stock dividends of $5.1 million, and the repayment of long-term debt of $1.8 million.
For the year ended September 30, 2022, net cash provided by financing activities was $12.6 million which was primarily related to proceeds from the term loan related to the UTI Lisle, Illinois campus purchase of $38.0 million, offset by the repayment of long-term debt of $19.2 million and the semi-annual payments of preferred stock dividends of $5.2 million.
For a discussion of our liquidity for the year ended September 30 2021, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Position and Results of Operations,” of our 2022 Form 10-K filed with the SEC on December 12, 2022 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 years ended September 30, 2023, 2022, and 2021.
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.
| Revenues | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars shown in thousands) | Year Ended September 30, | |||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Three Month Period Ending: | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||
| December 31 | $ | 120,004 | 19.8 | % | $ | 105,075 | 25.1 | % | $ | 76,125 | 22.7 | % | ||||||||
| March 31 | 163,820 | 27.0 | % | 102,086 | 24.4 | % | 77,709 | 23.2 | % | |||||||||||
| June 30 | 153,286 | 25.2 | % | 100,966 | 24.1 | % | 83,768 | 25.0 | % | |||||||||||
| September 30 | 170,298 | 28.0 | % | 110,638 | 26.4 | % | 97,481 | 29.1 | % | |||||||||||
| Total fiscal year | $ | 607,408 | 100.0 | % | $ | 418,765 | 100.0 | % | $ | 335,083 | 100.0 | % |
The increase in revenues for each of the three months ended December 31, 2022, March 31, 2023, June 30, 2023 and September 30, 2023, as compared to the same periods in fiscal 2022, was due to an increase in student population during fiscal 2023 primarily related to the acquisition of Concorde.
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The increase in revenues for each of the three months ended December 31, 2021, March 31, 2022, June 30, 2022 and September 30, 2022, as compared to the same periods in fiscal 2021, was primarily due to an increase in student population during fiscal 2022 in conjunction 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.
| Income (Loss) from Operations | ||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars shown in thousands) | Year Ended September 30, | |||||||||||||||||||
| 2023 | 2022 | 2021 | ||||||||||||||||||
| Three Month Period Ending: | Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||
| December 31 | $ | 4,448 | 20.8 | % | $ | 13,578 | 60.7 | % | $ | 775 | 5.2 | % | ||||||||
| March 31 | 5,949 | 27.8 | % | 3,377 | 15.1 | % | (1,661) | (11.1) | % | |||||||||||
| June 30 | 663 | 3.1 | % | 1,954 | 8.7 | % | 3,052 | 20.4 | % | |||||||||||
| September 30 | 10,339 | 48.3 | % | 3,465 | 15.5 | % | 12,781 | 85.5 | % | |||||||||||
| Total fiscal year | $ | 21,399 | 100.0 | % | $ | 22,374 | 100.0 | % | $ | 14,947 | 100.0 | % |
The decrease in income from operations for fiscal year 2023 was primarily due to increased compensation related costs primarily due to an increase in headcount to support our growth, diversification and optimization initiatives.
The increase in income from operations for fiscal year 2022 was primarily due to increased revenues well as continued execution of cost control measures.
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, the 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, 2023, 2022 and 2021, respectively, consisted of gross tuition.
The majority of the UTI programs are designed to be completed in 30 to 100 weeks. The UTI advanced training programs range from 8 to 26 weeks in duration. UTI also provides dealer technician training or instructor staffing services to manufacturers. Revenues are recognized as transfer of the services occurs. The majority of Concorde’s core programs are
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nine to ten months in duration, Concorde’s clinical programs are completed in 12 to 24 months. In addition to revenue from tuition and fees, UTI and Concorde derive supplemental revenues from 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 on our consolidated balance sheets because it is expected to be earned within the next 12 months.
All of our revenues are generated within the United States. The impact of economic factors on the nature, amount, timing and uncertainty of revenue and cash flows is consistent across our various programs for both the UTI and Concorde segments.
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. This program is currently offered to students at our UTI and MMI branded schools. Through the proprietary loan program, the bank originates the loans to the students who participate in this program 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 specific 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 6% 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 Accounting Standards Update 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 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
Determining the fair value of acquired goodwill and intangible assets is judgmental in nature and involves the use of significant estimates and assumptions. We believe the most critical assumptions and estimates in determining the estimated
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fair value 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. As a result, significant judgments and interpretations are required in determining the value of acquired goodwill and 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 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 benefit (expense).
As a result of our assessment, income tax (expense) benefit within our statements of operations was impacted by a decrease of $0.2 million and $12.1 million in the valuation allowance during the years ended September 30, 2023 and 2022, 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.
Recent Accounting Pronouncements
As of September 30, 2023, there were no recently issued accounting pronouncements which are not yet effective that are expected to have an impact on our financial statements. Note 3 of the notes to our Consolidated Financial Statements within Part II, Item 8 of this Annual Report on Form 10-K includes a discussion on Accounting Standards Update 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting which was effective in fiscal 2023.