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Item 1A. Risk Factors

2020-12-03 compared with 2019-12-06 · 240 added, 323 removed, 173 unchanged (76% of the section changed)

4 unchanged sentences

Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties.

You should consider carefully the risks and uncertainties described below in addition to other information contained in this Report on Form 10-K, including our consolidated financial statements and related notes.

Risks Related to Our Industry

You should consider carefully the risks and uncertainties described below in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes.

Risks Related to the Extensive Regulation of Our Business

Failure of our schools to comply with the extensive regulatory requirements for school operations could result in financial requirements or penalties, restrictions on our operations and loss of external financial aid funding.

In 2019 , we derived approximately 71% of our revenues, on a cash basis, from Title IV Programs, administered by ED.

To participate in Title IV Programs, an institution must receive and maintain authorization by the appropriate state agencies, be accredited by an accrediting commission recognized by ED and be certified as an eligible institution by ED.

As a result, our institutions are subject to extensive regulation by the state agencies, ACCSC and ED.

Our institutions also are subject to the requirements of other federal and state regulatory agencies.

These regulatory requirements cover the vast majority of our operations, including our educational programs, facilities, instructional and administrative staff, administrative procedures, marketing, recruiting, financial operations and financial condition.

These regulatory requirements also affect our ability to acquire, expand or open additional institutions or campuses, add new, or expand our existing educational programs and change our corporate structure and ownership.

Most ED requirements are applied on an institutional basis, with an “institution” defined by ED as a main campus and its additional locations, if any.

Under ED’s definition, we have three such institutions.

The state agencies, ACCSC and ED periodically revise their requirements and modify their interpretations of existing requirements.

ED has imposed new regulatory requirements, such as the defense to repayment regulations and the expanded financial responsibility regulations, that apply to our schools and plans to develop additional regulations that will apply to our schools.

See "Risks Related to Our Industry - Compliance with the Title IV Program Integrity regulations, gainful employment regulations and ongoing negotiated rulemaking could materially and adversely affect our business" and “Risks Related to Our Industry - Failure to maintain eligibility to participate in Title IV Programs could materially and adversely affect our business - Financial Responsibility Standards.”

If our institutions failed to comply with any of these regulatory requirements, our regulatory agencies could impose monetary penalties;

bring litigation against us;

place limitations on our schools’ operations, such as restricting our ability to recruit or enroll students within certain states or imposing letter of credit requirements;

terminate our schools’ ability to grant certificates, diplomas and degrees;

revoke our schools’ accreditation;

or terminate our schools’ eligibility to receive Title IV Program funds, each of which could adversely affect our cash flows, results of operations and financial condition, and impose significant operating restrictions upon us.

Further, ED and other regulators have increased the frequency and severity of their enforcement actions against postsecondary schools which have resulted in the imposition of material liabilities, sanctions, letter of credit requirements and other restrictions and, in some cases, resulted in the loss of schools’ eligibility to receive Title IV funds or in closure of the schools.

As detailed in “Business - Regulatory Environment,” our institutions are subject to extensive regulatory requirements imposed by a wide range of federal and state agencies, as well as by our institutional accreditor.

These requirements, which are frequently being revisited, revised, and expanded, cover virtually every aspect of our schools’ operations.

The approvals granted by these entities permit our schools to operate and to participate in a variety of government-sponsored financial aid programs, including Title IV Programs, from which we derived approximately 66% of our revenues, on a cash basis, in fiscal year 2020.

If our institutions fail to comply with any of these regulatory requirements, our regulators could take an array of adverse actions, including, without limitation, revocation of the approval granted by the agency.

Any such adverse action could adversely affect our cash flows, results of operations and financial condition, and impose significant operating restrictions upon us.

We cannot predict with certainty how all of these regulatory requirements will be applied or whether each of our schools will be able to comply with all of the requirements in the future.

We believe that we have described the most significant regulatory risks that apply to our schools in the following paragraphs.

Failure to maintain eligibility to participate in Title IV Programs could materially and adversely affect our business.

To participate in Title IV Programs, an institution must be authorized to offer its programs by the relevant state education agencies, be accredited by an accrediting commission recognized by ED and be certified as eligible by ED.

The substantial amount of federal funds disbursed through Title IV Programs, the large number of students and institutions participating in those programs and instances of fraud and abuse have prompted ED to exercise significant regulatory oversight over institutions participating in Title IV Programs.

Accrediting commissions and state agencies also oversee compliance with both their respective standards and with Title IV Program requirements.

As a result, each of our institutions is subject to detailed oversight and review and must comply with a complex framework of frequently changing laws and regulations and subjective regulatory interpretation of these obligations by various regulating entities.

Because ED periodically revises its regulations and changes its interpretation of existing laws and regulations, we cannot predict with certainty how Title IV Program requirements will be applied in all circumstances.

Additionally, given the complex nature of the regulations, the fact that they are subject to multiple interpretations, a stated department policy of providing limited or no interpretive guidance on certain issues and the large volume of Title IV transactions in which we are involved, it is reasonable to conclude that, from time to time, in the conduct of our business, we may inadvertently violate such regulations.

In such an event, remedial action may be necessary, regulatory proceedings could occur and regulatory penalties could be assessed.

Significant factors relating to Title IV Program eligibility that could adversely affect us include the following:

State Authorization

A campus that grants certificates, diplomas or degrees must be authorized to offer postsecondary education programs in that state by the relevant education agency of the state in which it is located.

The recruitment activity of admissions representatives in states where we do not physically have a campus location may also trigger licensing requirements for campuses in those states.

Requirements for authorization vary substantially among states.

State authorization is also required for students to be eligible for funding under Title IV Programs.

Loss of state authorization by any of our campuses from the education agency of the state in which the campus is located would end that campus’ eligibility to participate in Title IV Programs and could cause us to close the campus, which could have a material adverse effect on our cash flows, results of operations and financial condition.

Loss of state authorization in a state where we do not physically have a campus location, but we do have admissions representatives recruiting students would mean that our admissions representatives could no longer recruit students in that state.

See “Business - Regulatory Environment - State Authorization and Regulation” included elsewhere in this Report on Form 10-K for additional information.

Accreditation

A school must be accredited by an accrediting commission recognized by ED in order to participate in Title IV Programs.

Loss of institutional accreditation by any of our institutions (or of any institution that we may acquire or open in the future) would end that institution’s participation in Title IV Programs and could cause us to close the institution, or seek a new accrediting entity.

If an accrediting agency that accredits one of our institutions (or an institution that we may acquire or open in the future) loses its ED recognition, ED may provisionally certify the institution to continue participating in the Title IV Programs for a period of up to 18 months during which time the institution may attempt to obtain accreditation from another ED-recognized accrediting agency.

Moreover, even if ED provisionally certifies the institution for up to 18 months, the loss of ED recognition by an institution’s accrediting agency could result in a more immediate loss of the institution’s state authorization and, in turn, loss of Title IV eligibility, programmatic accreditation, or eligibility to participate in certain federal or state financial assistance programs if accreditation by an ED-recognized accrediting agency is a precondition to such authorization, accreditation or eligibility.

The loss of accreditation by any of our current or future institutions, or the loss of ED recognition of an institution’s accrediting agency, could have a material adverse effect on our cash flows, results of operations and financial condition.

See “Business - Regulatory Environment - Accreditation” included elsewhere in this Report on Form 10-K for additional information.

A change in accreditation to a more restrictive or monitored status could restrict our ability to add new programs, open new campuses or increase recruitment activity.

The “90/10 Rule”

Under the “90/10 Rule,” a for-profit institution loses its eligibility to participate in Title IV Programs if it derives more than 90% of its revenue from those programs for two consecutive institutional fiscal years, under a cash-basis calculation mandated by ED.

The period of ineligibility covers at least the next two succeeding fiscal years, and any Title IV Program funds already received by the institution and its students during the period of ineligibility would have to be returned to ED.

If an institution exceeds the 90% level for a single year, ED will place the institution on provisional certification for a period of at least two years and could impose other restrictions or conditions on the institution's Title IV eligibility, including, under the Defense to Repayment regulations, the requirement to submit to ED a letter of credit or other form of financial protection.

If we are placed on provisional certification status for any reason, ED will require us to obtain prior approval for changes to our programs and locations and may more closely review any application we file for recertification, new locations, new educational programs, revisions to existing educational programs, acquisitions of other schools, increases in degree level or other significant changes.

Furthermore, for an institution that is provisionally certified, ED may revoke the institution’s certification without advance notice or advance opportunity to challenge the action.

In our 2019 fiscal year, under the regulatory formula prescribed by ED, each of our institutions derived approximately 69% to 72% of its revenues from Title IV Programs.

We received a letter from ED in September 2015 requesting additional documentation in connection with revisions to our methodology for performing prior year 90/10 calculations.

We provided the requested documentation in September 2015 and have not received a further response from ED.

While the revisions did not cause any of our institutions to exceed the 90% revenue threshold, it is possible that ED may take other actions against our institutions or require us to provide additional information.

See “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - the '90/10 Rule'” included elsewhere in this Report on Form 10-K for additional information.

Multiple legislative proposals have been introduced in Congress that would increase the requirements of the 90/10 Rule, such as reducing the 90% maximum under the rule to 85% and/or including military and veterans' funding in the 90% portion of the calculation.

If any of our institutions loses eligibility to participate in Title IV Programs, such a loss would adversely affect our students’ access to Title IV Program funds they need to pay their educational expenses, which could reduce our student population and would have a material adverse effect on our cash flows, results of operations and financial condition.

Federal Student Loan Defaults

An institution may lose its eligibility to participate in some or all Title IV Programs or fail to meet ED’s standards of financial responsibility if its former students default on the repayment of their federal student loans in excess of specified levels.

Based upon the most recent student loan default rates published by ED, none of our institutions have federal student loan default rates that exceed the specified levels.

If any of our institutions lose eligibility to participate in Title IV Programs because of high student loan default rates, such a loss would adversely affect our students’ access to various Title IV Program funds, which could reduce our student population and would have a material adverse effect on our cash flows, results of operations and financial condition.

See “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Federal Student Loan Defaults” included elsewhere in this Report on Form 10-K for additional information.

Financial Responsibility Standards

To participate in Title IV Programs, an institution must satisfy specific measures of financial responsibility prescribed by ED or post a letter of credit in favor of ED and possibly accept other conditions on its participation in Title IV Programs.

The operating conditions that may be placed on a school that does not meet the standards of financial responsibility include being transferred from the advance payment method of receiving Title IV Program funds to either the reimbursement or the heightened cash monitoring system, which could result in a significant delay in the institution’s receipt of those funds, require the institution to pay credit balances due to students and parents before drawing down funds from ED for the amount of disbursements made to the student or parent, and increased administrative costs related to those funds.

See “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Financial Responsibility Standards” included elsewhere in this Report on Form 10-K for additional information.

ED’s current financial responsibility regulations that are in effect until July 1, 2020 expanded the list of actions or events that would require an institution to provide ED with a letter of credit or other form of acceptable financial protection.

ED’s new regulations that take effect on July 1, 2020 shortens and reduces the scope of actions or events that could require an institution to provide ED with a letter of credit or other form of acceptable financial protection.

See “Regulation of Federal Student Financial Aid Programs - Defense to Repayment Proposed Regulations” and “Regulation of Federal Student Financial Aid Programs - Financial Responsibility Standards” included elsewhere in this Report on Form 10-K for additional information.

ED has historically evaluated the financial condition of our institutions on a consolidated basis based on the financial statements of Universal Technical Institute, Inc.

as the parent company.

ED’s regulations permit ED to examine the financial statements of Universal Technical Institute, Inc., the financial statements of each institution and the financial statements of any related party.

For our 2019 fiscal year, we calculated our composite score to be 1.8.

However, the composite score calculations and resulting requirements imposed on our institutions are subject to determination by ED once it receives and reviews our audited financial statements.

ED has not required us currently to post a letter of credit on behalf of any of our schools.

ED has required us to provide certain information on a regular basis following our issuance of preferred stock.

ED concluded that the transaction did not constitute a change in ownership resulting in a change of control requiring ED approval, but did require us to provide 13-week projected cash flow statements every two weeks and to provide a roster of our current students on a monthly basis.

We began providing this information to ED on a regular basis on July 15, 2016, and we continue to provide monthly per ED's direction.

We may be required to post letters of credit or to comply with limitations on our Title IV participation in the future, which could increase our costs of regulatory compliance or change the timing of receipt of Title IV Program funds.

ED has imposed material letters of credit and limitations on some schools and also has denied the eligibility of other schools to continue participating in the Title IV Programs.

Our inability to obtain a required letter of credit or the imposition of other limitations on our participation in Title IV Programs could limit or result in the loss of our students’ access to Title IV Program funds, which could reduce our student population and could have a material adverse effect on our cash flows, results of operations and financial condition.

Return of Title IV Funds

A school participating in Title IV Programs must correctly calculate and return funds received for students who withdraw before completing their educational programs whose aid exceeds the amount earned under Title IV Program guidelines.

Returns must be completed in a timely manner, generally within 45 days of the date the school determines that the student has withdrawn.

If the unearned funds are not properly calculated or timely returned, we may be required to post a letter of credit in favor of ED, pay interest on the late repayment of funds, or be otherwise sanctioned by ED, which could increase our cost of regulatory compliance and adversely affect our results of operations.

Additionally, the failure to timely return Title IV Program funds also could result in the termination of eligibility to receive such funds going forward or the imposition of other sanctions.

Any of these results could have a material adverse effect on our cash flows, results of operations and financial condition.

the complex nature of the regulations applicable to Title IV refunds and the fact they are subject to multiple interpretations, and the large volume of such transactions in which we are involved, it is reasonable to conclude that, from time to time, in the conduct of our business, we may inadvertently violate such regulations.

In such an event, remedial actions may be necessary, regulatory proceedings could occur and regulatory penalties could be assessed.

We cannot predict how Title IV Program requirements described in “Business - Regulatory Environment-Title IV Programs” will change in the future or be interpreted.

Additionally, given the complex nature of the regulations and the fact that they are subject to interpretation, it is reasonable to conclude that in the conduct of our business, we may inadvertently violate such regulations.

In the event of a violation, ED could impose sanctions or limitations, or terminate an institution’s Title IV Program eligibility.

Types of sanctions or limitations ED might impose include, without limitation:

requiring the repayment of Title IV Program funds;

imposing a less favorable payment system for the institution’s receipt of Title IV Program funds;

placing an institution on provisional certification status;

commencing a proceeding to impose a fine or to limit, suspend, or terminate the institution’s participation in Title IV Programs;

or declining to renew the institution’s program participation agreement.

Such sanctions or limitations, or the loss of Title IV Program eligibility by any of our current or future institutions, could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition.

Forms of noncompliance that could result in sanctions or limitations, or cause the institution to lose its eligibility to participate in some or all Title IV Programs, include, without limitation:

a failure to maintain the state authorizations described in “Business - Regulatory Environment-State Authorization”;

a failure to maintain the institutional accreditation described in “Business - Regulatory Environment-Accreditation”;

a failure to satisfy the administrative capability standards discussed in “Business - Regulatory Environment-Administrative Capability”;

a failure to satisfy the loan default rate thresholds discussed in “Business - Regulatory Environment-Three Year Student Loan Default Rates”;

a failure to satisfy the loan default rate thresholds discussed in “Business - Regulatory Environment-Perkins Loan Default Rates”;

a failure to correctly calculate and timely return unearned Title IV Program funds received for students who withdraw before completing their educational programs;

a failure to correctly determine whether students are making satisfactory academic progress in their programs and, as such, remain eligible to receive Title IV Program funds;

or a failure to satisfy the financial responsibility standards detailed in “Business - Regulatory Environment-Financial Responsibility.” Similarly, the following types of noncompliance could result in sanctions or limitations, or cause the institution to lose its eligibility to participate in some or all Title IV Programs:

• 90/10 Rule.

A failure by one of our institutions to derive at least 10% of its revenues for each fiscal year from sources other than Title IV Program funds, as described in “Business - Regulatory Environment-The 90/10 Rule.” We also observe that multiple legislative proposals have been introduced in Congress that would impact the 90/10

Rule, such as reducing the 90% maximum under the rule to 85% or including military and veterans’ funding in the 90% portion of the calculation.

Such statutory revisions could negatively impact our institutions’ ability to satisfy the 90/10 Rule.

• Substantial Misrepresentations.

Under ED regulations, an institution participating in the Title IV Programs is prohibited from engaging in substantial misrepresentation of the nature of its educational programs, financial charges, graduate employability or its relationship with ED.

A “misrepresentation” includes any false, erroneous, or misleading statement (whether made in writing, visually, orally, or through other means) that is made by an eligible institution, by one of its representatives, or by a third party that provides to the institution educational programs, marketing, advertising, recruiting, or admissions services and that is made to a student, prospective student, any member of the public, an accrediting or state agency, or to ED.

ED regulations define a “substantial misrepresentation” to include any misrepresentation on which the person to whom it was made could reasonably be expected to rely, or has reasonably relied, to that person’s detriment.

The definition of “substantial misrepresentation” is broad and, therefore, it is possible that a statement made by the institution or one of its service providers or representatives could be construed by ED to constitute a substantial misrepresentation.

If ED determines that one of our institutions has engaged in substantial misrepresentation, ED may impose sanctions or other conditions upon the institution including, but not limited to, initiating an action to fine the institution or limit, suspend, or terminate its eligibility to participate in the Title IV Programs and may seek to discharge loans under the defense to repayment regulations and impose liabilities upon the institution.

Administrative Capability

ED regulations specify extensive criteria an institution must satisfy to establish that it has the requisite “administrative capability” to participate in Title IV Programs.

These criteria require, among other things, that the institutions:

comply with all Title IV Program regulations;

have capable and sufficient personnel to administer Title IV Programs;

have acceptable methods of defining and measuring the satisfactory academic progress of its students;

administer Title IV Programs with adequate checks and balances in its system of internal controls over financial reporting;

divide the function of authorizing and disbursing or delivering Title IV Program funds so that no office has the responsibility for both functions;

establish and maintain records required under Title IV Program regulations;

develop and apply an adequate system to identify and resolve discrepancies in information from sources regarding a student’s application for financial aid under Title IV Programs;

not have a student loan cohort default rate above specified levels;

refer to the Office of the Inspector General any credible information indicating that any applicant, student, employee or agent of the institution has been engaged in any fraud or other illegal conduct involving Title IV Programs;

not be, and not have any principal or affiliate who is, debarred or suspended from federal contracting or engaging in activity that is the cause of debarment or suspension;

provide adequate financial aid counseling to its students;

show no significant problems that affect the administrative ability of the institution;

develop and follow procedures to evaluate the validity of a student's high school completion;

timely submit all reports and financial statements required by the regulations;

not otherwise appear to lack administrative capability.

If an institution fails to satisfy any of these criteria, ED may, among other things:

require the repayment of Title IV Program funds;

impose a less favorable payment system for the institution’s receipt of Title IV Program funds;

place the institution on provisional certification status;

commence a proceeding to impose a fine or to limit, suspend or terminate the participation of the institution in Title IV Programs, or decline to renew the institution’s program participation agreement.

Moreover, ED could take one or more of the actions identified above based on an institution’s noncompliance with ED requirements or the pendency of an ongoing audit or review even if ED does not conclude that the institution lacks administrative capability.

Furthermore, for an institution that is provisionally certified, ED may revoke the institution’s certification without advance notice or advance opportunity to challenge the action.

If we fail to maintain administrative capability as defined by ED or otherwise fail to comply with ED requirements, we could lose our eligibility to participate in Title IV Programs or have that eligibility adversely conditioned, which could have a material adverse effect on our cash flows, results of operations and financial condition.

Compliance with the Title IV Program Integrity regulations, the defense to repayment regulations and other current and future regulations arising out of ongoing negotiated rulemaking could materially and adversely affect our business.

Since the publication of the program integrity regulations in 2010, ED has issued interpretive guidance on the regulations in the form of multiple Dear Colleague Letters and electronic announcements to institutions.

The letters and announcements provide sub-regulatory guidance on certain aspects of the regulations, which assists institutions with understanding the regulations in these areas.

The laws and regulations governing certain of the requirements do not establish clear criteria for compliance, and ED has indicated that they do not intend to provide additional guidance on certain topics.

In particular, the elimination of the 12 safe harbors regarding the incentive compensation prohibition significantly impacted our business.

ED published guidance in November 2015 that eliminated certain restrictions on incentive compensation for admissions representatives.

Specifically, ED reconsidered its previous interpretation and stated that its regulations do not prohibit compensation for admissions representatives that is based upon students’ graduation from, or completion of, educational programs.

Compensation based on enrolling students, however, continues to be prohibited.

For a description of additional information regarding these regulatory changes, see “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Incentive Compensation” included elsewhere in this Report on Form 10-K.

Although ED has not provided safe harbor language for compensation based on graduate metrics, we have made adjustments to the compensation practices for our admissions representatives which we believe are compliant with ED's November 2015 guidance.

As described in our 2018 Annual Report on Form 10-K filed with the SEC on November 30, 2018, ED’s gainful employment regulations include debt to earning (DE) metrics and disclosure requirements for program certifications, reporting and disclosure of program information and warnings.

On July 1, 2019, ED issued final regulations that rescind the gainful employment regulations.

The final regulations have an effective date of July 1, 2020.

However, ED stated in a June 28, 2019 electronic announcement that institutions may elect to immediately implement the new regulations.

Institutions that early implement the regulations will not be required to:

report gainful employment data for the 2018-2019 award year;

comply with requirements for including a gainful employment disclosure template in their promotional materials or for directly distributing the disclosure template to prospective students;

post gainful employment disclosures on their web pages or comply with certification requirements for gainful employment.

ED stated in the electronic announcement that institutions that do not early implement the new regulations are expected to comply with the existing gainful employment regulations by July 1, 2020.

We have taken steps to early implement the new regulations.

On November 1, 2016, ED published the current regulations in the Federal Register establishing new rules regarding, among other things, the ability of borrowers to obtain discharges of their obligations to repay certain Title IV loans and for ED to initiate a proceeding to collect from the institution the discharged and returned amounts and the extensive list of circumstances that may require institutions to provide letters of credit or other financial protection to ED.

The new regulations, among other things:

Establish amended procedures and standards for borrowers, either individually or as a group, to assert through an ED-administered process a defense to the borrowers’ obligation to repay certain Title IV loans based on certain acts or omissions of the institution.

The regulations also expand the types of defenses available for loans first disbursed on or after July 1, 2017.

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

Revise the financial responsibility regulations to expand the list of actions or events that would require an institution to provide ED with a letter of credit or other form of acceptable financial protection and potentially be subject to other conditions and requirements.

The specified list of events is extensive and includes, among other potential triggers, certain debts or liabilities arising from settlements or final judgments in judicial or administrative proceedings and certain lawsuits pending for 120 days and initiated by a federal or state authority against the institution with respect to Direct Loans or educational services;

certain other lawsuits in which the institution’s summary judgment motion was denied or not filed, certain closures of one or more of the institution’s locations, one or more gainful employment programs with gainful employment rates that could result in the program becoming ineligible in the next award year, certain withdrawals of owner’s equity from the institution including by dividend, failure to comply with the 90/10 Rule for the most recently completed fiscal year, SEC warning that it may suspend trading on the institution’s stock, failure to file certain reports with the SEC, the exchange on which the institution’s stock is traded notifying the institution that it is not in compliance with exchange requirements or that its stock is delisted, cohort default rates of at least 30 percent for its two most recent rates, certain significant fluctuations in Title IV funding, certain citations for failure to comply with state agency requirements, failure to comply with yet to be developed ED financial stress tests, high annual dropout rates, the institution being placed on probation or issued a show-cause or similar action by its accrediting agency, certain violations of loan agreements, expected or pending claims for borrower relief discharges, and certain

other events that ED might identify as reasonably likely to have a material adverse effect on the financial condition, business or results of operations of the institutions.

One such reportable event is the planned closure of our Norwood, Massachusetts campus before the end of fiscal year 2020, which we announced on February 18, 2019.

The occurrence, and notification to ED, of such actions, events, or conditions could result in ED recalculating our composite score and/or requiring us to submit a letter of credit in an amount to be calculated by ED and agree to other conditions on our Title IV participation, which could have a material adverse effect on the company.

In May 2019, we submitted our formal notification to ED regarding the closure of our Norwood, Massachusetts campus.

ED has acknowledged receipt of our notification but has not requested any further information at this time.

A determination by ED that one or more of our institutions engaged in a substantial misrepresentation, as described in “Business - Regulatory Environment - Substantial Misrepresentations.” If ED determines that one of our institutions has engaged in substantial misrepresentation, ED may impose sanctions or other conditions upon the institution including, but not limited to, initiating an action to fine the institution or limit, suspend, or terminate its eligibility to participate in the Title IV Programs.

Either ED or the person to whom the alleged misrepresentation was made also could seek to have the person’s loans discharged under the borrower defense to repayment regulations discussed below.

• Incentive Compensation.

A determination by ED that one or more of our institutions failed to comply with the “incentive compensation” prohibition, as described in “Business - Regulatory Environment - Incentive Compensation.” Because the current regulations differ significantly from prior regulations, and because of the imprecise nature of many aspects of these regulations and ED’s published guidance, it is not clear how ED will apply these regulations in all circumstances.

For this reason, we cannot guarantee that ED will not take a position that some aspect of our compensation practices is not in compliance with these regulations.

For more information, see “Business - Regulatory Environment - Title IV Programs.”

Compliance with current and future Title IV Program regulations arising out of negotiated rulemakings could materially and adversely affect our business.

ED is almost continuously engaged in one or more negotiated rulemakings, which is the process pursuant to which it revisits, revises, and expands the complex and voluminous Title IV Program regulations.

These regulations also are frequently challenged through litigation, creating significant uncertainty as to when and what part of the regulations have taken effect, how they should be implemented, and how they will be interpreted and enforced.

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

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

Significant negotiated rulemakings that could materially and adversely affect our business are discussed in “Business - Regulatory Environment - Title IV Program Rulemaking.”

The 2019 BDTR Rule, which took effect July 1, 2020, requires institutions to report certain events to ED.

One such reportable event is the closure of our Norwood, Massachusetts campus in July 2020.

In May 2019, we submitted our formal notification to ED regarding the closure of the Norwood, Massachusetts campus.

ED has acknowledged receipt of our notification and has not requested any further information at this time.

We cannot predict the timing, content or impact of any future requests from ED, if any, related to the closure of our Norwood, Massachusetts campus.

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

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

For a more extended summary of the current regulations, see “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Defense to Repayment Regulations” and “Business - Regulatory Environment - Financial Responsibility Regulations” included elsewhere in this Report on Form 10-K.

On September 23, 2019, ED published the final regulations.

The final regulations have a general effective date of July 1, 2020.

The Department has not authorized institutions to early implement the new regulations prior to July 1, 2020 with the exception of certain financial responsibility regulations related to operational leases and long-term debt.

Consequently, we generally will remain subject to the current regulations until the new regulations take effect on July 1, 2020.

For a more extended summary of the proposed rules, see “Business - Regulatory Environment - Regulation of Federal Student Aid Programs - Defense to Repayment Regulations.”

On October 15, 2018, ED also published a notice in the Federal Register announcing its intent to establish a negotiated rulemaking committee and three subcommittees to develop proposed regulations related to several matters.

On June 12, 2019, ED published proposed regulations on a portion of these issues (primarily those related to accreditation) in a notice of proposed rulemaking in the Federal Register for public comment and to consider revisions to the regulations in response to the comments before publishing the final versions of the regulations.

ED stated that it intends to publish proposed regulations on the remaining issues in a separate notice of proposed rulemaking, but did not indicate when it would publish these proposed changes.

On November 1, 2019, ED published the final regulations.

The general effective date of the final regulations is July 1, 2020.

We are in the process of reviewing the potential impact of the final regulations on us.

For a more extended summary of the topics under consideration, see “Business - Regulatory Environment - Regulation of Federal Student Aid Programs - Accreditation and Academic Definitions.” We cannot provide any assurances as to the timing, content or ultimate effective date of any such regulations.

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

However, the solutions related to implementation and compliance with these and future final and proposed rules, including, but not limited to, compensation, and defense to repayment, may have a material adverse effect on the manner in which we conduct our business, our student populations and the nature of our programs and could have a material adverse effect on our cash flows, results of operations and financial condition.

Interpretation of the regulations is subject to change if ED provides further guidance and clarification.

The solutions may require further analysis based on the uncertainty noted above and any additional interpretive guidance that is provided.

Existing or future understandings could be different from ED’s interpretations and thus lead to repayments, restrictions, fines or litigation.

The occurrence, and notification to ED, of such actions, events, or conditions could result in ED recalculating our composite score or requiring us to submit a letter of credit in an amount to be calculated by ED and agree to other conditions on our Title IV participation, which could have a material adverse effect on our business.

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

To participate in veterans' benefits programs, including the Post-9/11 GI Bill, the Montgomery GI Bill, the REAP, and VA Vocational Rehabilitation, an institution must comply with certain requirements applicable to the programs.

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

For additional information regarding this activity, see “Business - Regulatory Environment - Other Federal and State Programs - Veterans' Benefits” included elsewhere in this Report on Form 10-K.

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

Access to military installations.

Our access to military installations for student recruitment has become highly restricted due to the changes described in “Business - Regulatory Environment - Other Federal and State Programs” included elsewhere in this Report on Form 10-K.

Restrictions on access necessary to continue to develop awareness of our programs with this population could reduce our enrollments.

90/10 rule changes.

Implementation of these proposals could have a negative impact on our 90/10 ratio, which could have a negative impact on our eligibility to participate in Title IV Programs.

Funding for veterans' benefits programs.

Funding for veterans' benefits programs is dependent upon Congressional appropriations.

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

State Approving Agencies.

The VA shares responsibility for VA benefit approval and oversight with designated SAAs.

SAAs play a critical role evaluating institutions and their programs to determine if they meet VA benefit eligibility requirements.

Processes and approval criterion as well as interpretation of applicable requirements can vary from state to state.

Therefore, approval in one state does not necessarily result in approval in all states.

If we are unable to secure approvals in one or more states, if the process for obtaining an approval takes significant time or if our approval is revoked, we could be required to alter the delivery methodology or structure of the program or experience delays in or the loss of a portion of VA funding, or could be required to return a portion of the funding received.

Students receiving VA funding may not be able to receive the full benefit of our Automotive and Diesel Technology II curricula methodology, which could reduce our enrollments and have a material adverse effect on our cash flows, results of operations and financial condition.

Any loss of funds from veterans' benefits programs could reduce our student population and have a material adverse effect on our cash flows, results of operations and financial condition.

A discussed in “Business - Regulatory Environment - Other Federal and State Student Aid Programs,” to participate in veterans’ benefits programs, including the Post-9/11 GI Bill, the Montgomery GI Bill, the REAP, and VA Vocational Rehabilitation, our institutions must comply with certain requirements applicable to these programs.

If we fail to comply with these requirements, we could lose our eligibility to participate in veterans’ benefits programs, which could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition.

Specific considerations that could negatively impact the funding we receive from veterans’ benefits programs include, without limitation:

(1) restricted access to military installations for student recruitment;

(2) the success of federal legislative proposals that would increase the requirements of the 90/10 Rule, such as reducing the 90% maximum under the rule to 85% and/or including military and veteran funding in the 90% portion of the calculation;

(3) a reduction in appropriations for veterans’ benefits programs, or an extended government shutdown;

and (4) an inability to secure approvals in one or more states, delays in the process for obtaining approvals, or the revocation of an approval.

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

Congress periodically revises the HEA and other laws, and enacts new laws, governing Title IV Programs and annually determines the funding level for each Title IV Program, and may make changes in the laws at any time.

Congress most recently reauthorized the HEA in 2008, is actively working on another HEA reauthorization, but it is uncertain whether and when the process will be completed.

Any action by Congress that significantly reduces funding for Title IV Programs or the ability of our schools or students to receive funding through these programs or places restrictions on the use of funds received by an institution through these programs could reduce our student population and revenues.

Congress periodically revises the HEA and other laws, and enacts new laws, governing Title IV Programs and determining the funding level for each Title IV Program, and may make changes in the laws at any time.

Congress most recently reauthorized the HEA in 2008.

It is actively working on another HEA reauthorization, but it is uncertain whether and when the process will be completed.

Such action may occur during HEA reauthorization, or such action could also occur as part of separate technical amendments to the HEA or during Congress’ annual budget and appropriations cycle.

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

Continued Congressional examination of the for-profit education sector could result in legislation or further ED rulemaking restricting Title IV Program participation by for-profit schools in a manner that materially and adversely affects our business.

Congress has historically focused on for-profit education institutions, specifically regarding participation in Title IV Programs and U.S.

DOD oversight of tuition assistance for military service members attending for-profit colleges.

For a description of additional information regarding this activity, see “Business - Regulatory Environment - Regulation of Federal Student Financial Aid Programs - Congressional Action” included elsewhere in this Report on Form 10-K.

Continued Congressional activity could result in the enactment of more stringent legislation by Congress, further rulemakings affecting participation in Title IV Programs and other governmental actions, increasing regulation of the for-profit sector.

Action by Congress may also increase our administrative costs and require us to modify our practices in order for our institutions to comply with Title IV Program requirements.

In addition, concerns generated by this Congressional activity may adversely affect enrollment in for-profit educational institutions such as ours.

Any laws that are adopted that limit our or our students’ participation in Title IV Programs or in programs to provide funds for active duty service members and veterans or the amount of student financial aid for which our students are eligible, or any decreases in enrollment related to the Congressional activity concerning this sector, could have a material adverse effect on our cash flows, results of operations and financial condition.

Changes in the composition of the executive branches of federal or state governments or of federal or state legislatures as a result of the outcome of elections or other events could result in further legislation, appropriations, regulations, and enforcement actions that could materially or adversely affect our business.

Our schools are subject to ongoing federal and state regulation and enforcement activities by federal and state executives and executive agencies and by federal and state legislatures, including, for example, ED, Congress, the White House, the governors and state legislatures in the states in which we are located or conduct business, state attorneys general, and other federal and state agencies.

These uncertainties could reduce our student population, revenues and/or profit margin.

Continued or increased examination of the for-profit education sector could result in further legislation, appropriations, regulations, and enforcement actions that could materially or adversely affect our business.

Over the last decade, Congress has focused significantly on for-profit education institutions, specifically regarding participation in Title IV Programs and DOD oversight of tuition assistance for military service members attending for-profit colleges.

Continued or increased Congressional activity could result in the enactment of more stringent legislation, further rulemakings affecting participation in Title IV Programs and other governmental actions, increasing regulation of the for-profit sector.

The likelihood of such activity could be increased as a result of elections and appointments.

The composition of federal and state executive offices, executive agencies, and legislatures are subject to change based on the results of periodic elections, appointments, and other events.

In some cases, candidates for elected positions in federal or state executive or legislative offices or for appointments to positions in federal or state agencies have negative opinions on for-profit education providers or may support initiatives such as, for example, eliminating or reducing student aid eligibility for for-profit education providers or providing funding to free or reduced tuition programs at public and other nonprofit postsecondary education institutions, which could adversely impact our ability to compete with such institutions.

Changes in the control or composition of Congress, the White House, state executive offices or legislatures, or ED or other federal or state agencies resulting directly or indirectly from elections or other events could result in an increase in legislation, appropriations, rulemakings, and enforcement actions that are adverse to us and the for-profit education sector and could materially and adversely affect our business.

In some cases, candidates for elected positions in federal or state executive or legislative offices or for appointments to positions in federal or state agencies have negative opinions on for-profit education providers or may support initiatives such as eliminating or reducing student aid eligibility for for-profit education providers or providing funding to free or reduced tuition programs at public and other nonprofit postsecondary education institutions, which could adversely impact our ability to compete with such institutions.

Action by Congress or other regulators may increase our administrative costs and require us to modify our practices in order for our institutions to comply with Title IV Program requirements.

In addition, concerns generated by this Congressional activity may adversely affect enrollment in for-profit educational institutions such as ours.

Any laws that are adopted that limit our or our students’ participation in Title IV Programs or in programs to provide funds for active duty service members and veterans or the amount of student financial aid for which our students are eligible, or any decreases in enrollment related to the Congressional activity concerning this sector, could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition.

Our business could be harmed if we experience a disruption in our ability to process student loans under the Federal Direct Loan Program.

Because all Title IV Program student loans (other than Perkins loans) are now processed under the DL program, any processing disruptions by ED may impact our students’ ability to obtain student loans on a timely basis.

If we experience a disruption in our ability to process student loans through the DL program, either because of administrative challenges on our part or the inability of ED to process the increased volume of loans through the DL program on a timely basis, our cash flows, results of operations and financial condition could be adversely and materially affected.

A disruption in our ability to process student loans through the DL program, either because of administrative challenges on our part or the inability of ED to process the increased volume of loans through the DL program on a timely basis, could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition.

Government and regulatory agencies and third parties may conduct compliance reviews, bring claims or initiate litigation against us.

Because we operate in a highly regulated industry, we are subject to compliance reviews and claims of noncompliance by government agencies, regulatory agencies and third parties alleging noncompliance with applicable standards.

These compliance reviews and claims could also result from our notification to an agency or third party based upon our own internal compliance review.

Each of our institutions’ administration of Title IV Program funds must be audited annually by independent accountants and the resulting audit report must be submitted to ED for review.

Compliance reviews and claims could also result from our notification to an agency or third party based upon our own internal compliance review.

We are also subject to various lawsuits, investigations and claims, covering a wide range of matters, including, but not limited to, alleged violations of federal and state laws, false claims made to the federal government and routine employment matters.

While we are committed to strict compliance with all applicable laws, regulations and accrediting standards, if the results of government, regulatory or third party reviews or proceedings are unfavorable to us, or if we are unable to defend successfully against lawsuits or claims, we may be required to pay monetary damages or be subject to fines, limitations, loss of regulatory approvals or Title IV Program funding or other federal and state funding, injunctions or other penalties.

We could also incur substantial legal costs in excess of our insurance coverage.

While we are committed to strict compliance with all applicable laws, regulations, and accrediting standards, if the results of government, regulatory or third party reviews or proceedings are unfavorable to us, or if we are unable to successfully defend against lawsuits or claims, we may be required to pay monetary damages or be subject to fines, limitations, loss of regulatory approvals or Title IV Program funding or other

federal and state funding, injunctions or other penalties.

We could also incur substantial legal costs that are not covered or are in excess of our insurance coverage.

Even if we adequately address issues raised by an agency review or successfully defend a lawsuit or claim, we may have to divert significant financial and management resources from our ongoing business operations to address issues raised by those reviews or defend those lawsuits or claims.

Additionally, given the significant public scrutiny being placed on the sector, numerous state attorneys general have initiated investigations either of the operation of the for-profit schools in their state or of particular institutions operating in that state.

Additionally, given the significant public scrutiny being placed on the sector we operate in, numerous state attorneys general have initiated investigations either of the operation of the for-profit schools in their state or of particular institutions operating in that state.

Changes occurring at the federal or state level, as well as our financial performance in recent years, may spur further action or additional reporting requirements by state attorneys general, congressional leadership or state licensing bodies.

We cannot predict the ultimate outcome of unsettled matters, and we may incur significant defense costs and other expenses in connection with them in excess of our insurance coverage related to these matters.

We cannot predict the outcome of unsettled matters, and we may incur significant defense costs and other expenses in connection with them in excess of our insurance coverage related to these matters.

We may be required to pay substantial damages, settlement costs or fines or penalties.

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An adverse outcome in any of these matters could also materially and adversely affect our licenses, accreditation and eligibility to participate in Title IV Programs.

For more information, see “Risk Factors - Risks Related to the Extensive Regulation of Our Business - Failure to maintain eligibility to participate in Title IV Programs could materially and adversely affect our business” and “Business - Regulatory Environment - Title IV Programs.”

Our business and stock price could be adversely affected as a result of regulatory investigations of, or actions commenced against, us or other companies in our industry.

The operations of companies in the education and training services industry, including UTI, are subject to intense regulatory scrutiny.

The operations of companies in the education and training services industry, including us, are subject to intense regulatory scrutiny.

In some cases, allegations of wrongdoing on the part of such companies have resulted in formal or informal investigations by the U.S.

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These investigations of, or regulatory actions against, specific companies in the education and training services industry could have a negative impact on our industry as a whole and on our stock price.

Furthermore, the outcome of such investigations and any accompanying adverse publicity could negatively affect student enrollment and heighten the risk of class action lawsuits against us, which could have a material adverse effect on our cash flows, results of operations and financial condition.

Furthermore, the outcome of such investigations and any accompanying adverse publicity could negatively affect student enrollment and heighten the risk of class action lawsuits against us, which could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition.

Changes in the state regulatory environment, state and agency budget constraints and increased regulatory requirements, may affect our ability to obtain and maintain necessary authorizations or approvals from those states to conduct or change our operations.

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A delay or refusal by any state education agency in approving any changes in our operations that require state approval, such as the opening of a new campus, the introduction of new programs or the revision of existing programs, a change of control or the hiring or placement of new admissions representatives, could prevent us from making such changes or delay our ability to make such changes, or could require substantial additional costs to accommodate such delay.

State education agencies that authorize our schools continue to revise and/or issue new regulations requiring significant additional reporting and monitoring of student outcomes.

State education agencies that authorize our schools continue to revise or issue new regulations requiring significant additional reporting and monitoring of student outcomes.

Additionally, state education agencies may request additional information or supplemental reporting as a result of our recent financial performance.

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This could impose substantial additional costs on our institutions, which could have a material adverse effect on our cash flows, results of operations and financial condition.

Moreover, some states have added regulations that impose additional requirements on our schools and increase the complexity of existing requirements.

For example, some states, such as California and Massachusetts, have added requirements for institutions to report institutional data to current and prospective students.

California has added requirements to its existing rules for calculating job placement rates for graduates that are more exacting and difficult to substantiate.

As we previously reported, a series of bills were proposed in the California legislature that would impose substantial new requirements on our schools in California.

In the ensuing period, there have been major proposed revisions to the bills, which decrease their potential risk to our current business;

however, these bills are not final, and are still subject to additional change.

We cannot predict the timing, content or impact of any final laws that may emerge from the California legislature on these or other topics.

Other states have added, or may add in the future, new or more complex requirements applicable to our institutions, but we cannot predict

the timing, content or impact of any such requirements.

The enactment of one or more of these proposed laws or similar laws could create compliance challenges and impose substantial additional costs on our institutions, which could have a material adverse effect on our cash flows, results of operations and financial condition.

State legislatures also continue to contemplate creating new performance metrics that would have to be satisfied to maintain eligibility.

The enactment of one or more of these proposed laws or similar laws could create compliance challenges and impose substantial additional costs on our institutions, which could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition.

Budget constraints in states that provide state financial aid to our students could reduce the amount of such financial aid that is available to our students, which could reduce our student population and negatively affect our 90/10 Rule calculation and other compliance metrics.

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These states may decide to reduce or redirect the amount of state financial aid that they provide to students, but we cannot predict how significant any of these reductions will be or how long they will last.

If the level of state funding available to our students decreases and our students are not able to secure alternative sources of funding, our student population could be reduced, which could have an adverse effect on our profitability.

The decrease or loss of this funding could also negatively impact our cohort default rates.

Additionally, loss of state funding would negatively impact our 90/10 Rule calculation and the cost of our compliance with the 90/10 Rule, as this funding is counted in the non-Title IV Program funds portion of the ratio, and such loss would drive up the percentage of revenue attributable to Title IV Programs.

If we acquire an institution that participates in Title IV Programs or open an additional location, one or more of our regulators could decline to approve the acquired institution and/or additional location, or could impose material conditions or restrictions, which could prevent or limit the ability of the acquired institution and/or additional location to participate in Title IV Programs and, in turn, impair our ability to operate the acquired institution and/or the additional location as planned or to realize the anticipated benefits from the acquisition of that institution and/or opening of the additional location.

If we acquire an institution that participates in Title IV Program funding and/or open an additional location, we must obtain approval from ED and applicable state education agencies and accrediting commissions in order for the institution and/or additional location to be able to operate and participate in Title IV Programs.

While we would attempt to ensure we will be able to receive such approval prior to acquiring an institution and/or opening an additional location, approval may be withheld or delayed.

If the level of state funding available to our students decreases and our students are not able to secure alternative sources of funding, it could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition, negatively impact our cohort default rates, or impact our performance under the federal 90/10 Rule calculation, as this state funding is counted in the non-Title IV Program funds portion of the ratio.

If we acquire an institution that participates in Title IV Programs or open an additional location, one or more of our regulators could decline to approve the acquired institution or additional location, or could impose material conditions or restrictions, which could prevent or limit the ability of the acquired institution and/or additional location to participate in Title IV Programs and, in turn, impair our ability to operate the acquired institution and/or the additional location as planned or to realize the anticipated benefits from the acquisition of that institution and/or opening of the additional location.

If we acquire an institution that participates in Title IV Program funding or open an additional location, we must obtain approval from ED and applicable state education agencies and accrediting commissions in order for the institution or additional location to be able to operate and participate in Title IV Programs.

Such approvals may be withheld or delayed.

An acquisition can result in the temporary suspension of the acquired institution’s participation in Title IV Programs and opening an additional location can result in a delay of the campus’ participation in Title IV Programs unless we submit a timely and materially complete application for approval of the acquisition or the opening of the new location.

Upon an acquisition, an institution must apply for a temporary certification from ED that remains in effect on a month-to-month basis while ED reviews the application and subject to the institution timely submitting required documentation to ED.

If we were unable to timely establish or re-establish the state authorization, accreditation or ED certification of the acquired institution or obtain approval for the new location, our ability to operate the acquired institution and/or open the additional location as planned or to realize the anticipated benefits from the acquisition of that institution and/or the opening of the additional location could be impaired.

Further, ED and applicable state education agencies and accrediting agencies could impose material conditions or restrictions on us and the acquired institution and/or the additional location, including, but not limited to, a material letter of credit, limitations or prohibitions on the ability to add new campuses or add or change educational programs, placement of the institution on the heightened cash monitoring or reimbursement method of payment and reporting and notification requirements.

If we were unable to timely establish or re-establish the state authorization, accreditation or ED certification of the acquired institution or obtain approval for the new location, our ability to operate the acquired institution or open the additional location as planned or to realize the anticipated benefits from the acquisition of that institution or the opening of the additional location could be significantly impaired.

Further, ED and applicable state education agencies and accrediting agencies could impose material conditions or restrictions on us and the acquired institution or the additional location, including, but not limited to, a material letter of credit, limitations or prohibitions on the ability to add new campuses or add or change educational programs, placement of the institution on the heightened cash monitoring or reimbursement method of payment and reporting and notification requirements.

Additionally, an acquired institution may have known or unknown instances of noncompliance with federal, state or accrediting agency requirements, including, but not limited to, noncompliance with requirements included in the defense to repayment regulations that could result in liabilities, sanctions, or material conditions or restrictions that we may inherit by acquiring the institution.

Although we attempt to conduct thorough due diligence of institutions that we intend to acquire, our due diligence efforts may be unsuccessful and fail to identify noncompliance or other facts that could result in liabilities, sanctions, or material conditions or restrictions.

The imposition of liabilities, sanctions, or material conditions or restrictions

by one or more regulators could impair our ability to operate the acquired institution and/or open the additional location as planned or to realize the anticipated benefits from the acquisition of that institution and/or the opening of the additional location.

Further, our due diligence efforts relating to institutions that we intend to acquire may be unsuccessful and fail to identify noncompliance or other facts that could result in liabilities, sanctions, or material conditions or restrictions.

The imposition of liabilities, sanctions, or material conditions or restrictions by one or more regulators could impair our ability to operate the acquired institution or open the additional location as planned or to realize the anticipated benefits from the acquisition of that institution or the opening of the additional location.

If regulators do not approve additional or revised programs, it could have an adverse effect on our academic or operational initiatives

A student may only use Title IV Program funds to pay the costs associated with enrollment in an eligible educational program offered by an institution participating in Title IV Programs.

Our expansion plans are based, in part, on our ability to add new educational programs at our existing institutions.

Generally, an institution that is eligible to participate in Title IV Programs, and is not provisionally certified, may obtain ED approval if the new program is licensed by the applicable state agency and accredited by an agency recognized by ED.

However, ED, or state education agencies, and our accreditor could decline to approve a new program, or impose material conditions or restrictions on us.

Any such denial or material limitation could have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition.

If regulators do not approve or delay their approval of transactions involving a change of control of our company or any of our schools, our ability to participate in Title IV Programs may be impaired.

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Some of these transactions or events may be beyond our control.

Our failure to obtain, or a delay in receiving, approval of any change of control from ED, our accrediting commission or any state in which our schools are located would impair our ability to participate in Title IV Programs, which would have a material adverse effect on our cash flows, results of operations and financial condition.

Our failure to obtain, or a delay in receiving, approval of any change of control from ED, our accrediting commission or any state in which our schools are located would impair our ability to participate in Title IV Programs, which would have a material adverse effect on our academic or operational initiatives, cash flows, results of operations, or financial condition.

Our failure to obtain, or a delay in obtaining, approval of any change of control from any state in which we do not have a school but in which we recruit students could require us to suspend our recruitment of students in that state until we receive the required approval.

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Risks Related to Our Business

If we fail to improve our underutilized capacity, we may experience a deterioration of our profitability and operating margins.

We have underutilized capacity at a number of our campuses.

Our ongoing efforts to fill or reduce existing capacity may strain our management, operations, employees or other resources.

We may not be able to maintain our current capacity utilization rates, effectively manage our operations or achieve planned capacity utilization on a timely or profitable basis.

If we are unable to improve our underutilized capacity, we may experience operating inefficiencies at a level that would result in higher than anticipated costs, which would adversely affect our profitability and operating margins.

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

In December 2019, a novel strain of coronavirus (“COVID-19”) emerged in Wuhan, China.

While initially concentrated in China, the outbreak has spread to other countries and infections have been reported globally including in the United States.

The World Health Organization has declared the outbreak to be a pandemic, the United States had declared a state of national emergency, and many state and local governments are continuing to take various actions to combat the spread of the virus.

The extent to which COVID-19, like any other rapidly spreading contagious illness, may impact our business and operations will depend on the evolution of the outbreak, which is highly speculative at this time and cannot be predicted with any level of certainty.

The duration of the outbreak, new information which emerges concerning the severity of the illness and the actions to be taken to contain the spread of COVID-19 or its treatment remains unclear.

We believe that the continued spread of COVID-19 could adversely impact our business and operations.

In addition, a quarantine of one or more of our faculty members for two or more weeks due to exposure to COVID-19 or other contagious illness could eliminate a program unless a substitute was readily available and quarantine of a faculty member or student could cause the temporary closure of an affected campus which could have an adverse impact on our business and our financial results.

Further, workforce limitations and travel restrictions resulting from pandemics or disease outbreaks and related government actions may impact many aspects of our business.

If a significant percentage of our workforce is unable to work, including because of illness or travel or government restrictions in connection with pandemics or disease outbreaks, our operations and enrollment may be negatively impacted.

Finally, state and federal regulators, including the ED, are augmenting existing regulatory processes, waiving others, and overseeing various emergency relief and aid programs.

It is highly uncertain how long such regulatory accommodations will continue, or how long and in what amount emergency relief and aid funds will continue to be available.

We also cannot predict the types of conditions that may be attached to participation in emergency relief and aid programs, and whether and to what extent compliance with such conditions will be monitored and enforced.

On March 19, 2020, we suspended all in-person classes at all of our campuses for the safety and protection of our students and staff, to help slow the spread of COVID-19 and to comply with state and local orders and restrictions.

Upon the suspension of all in-person classes, we provided all students with the opportunity to take a leave of absence or to continue their education via an online curriculum.

On March 25, 2020, we began offering the classroom portion of our training online so that the more than 8,000 students who elected to remain active in the program could continue their education remotely.

As our training is a combination of classroom lectures and hands-on labs, there is a portion of most classes that cannot be delivered online and needs to be completed in-person at the campus labs.

We transitioned our on-campus, in-person education model to a blended training model that combines instructor-facilitated online teaching and demonstrations with hands-on labs.

On-campus labs have been redesigned to meet the health, safety and social distancing guidelines imposed by the CDC and state and local jurisdictions, while still meeting our accreditation and curriculum requirements.

In May 2020, we resumed in-person labs at eight of our campus locations.

Four of our campuses resumed in-person labs in June 2020, and our final campus in Bloomfield, New Jersey resumed in-person labs on July 1, 2020.

Once a student returns to campus for in-person labs, under the new guidelines it takes on average approximately six to nine weeks for that student to catch-up on the lab work that he was unable to complete during the campus closure and prior to his return.

Additionally, some students have not returned to campus to complete the in-person labs and remain only in the online portion of the curriculum, essentially only completing half of each course, while others are completing catch-up labs, but over an extended period of time.

We continue to recognize revenue ratably over the term of the course or program offered, taking into consideration those only completing the online curriculum, and the catch-up period for active students and the impact it has on expected graduation dates.

As a result, as of September 30, 2020, we deferred revenue of $6.1 million.

While we have reopened all of our campus locations, some students have delayed returning to campus for in-person labs even with the new social distancing protocols in place and remain on leave of absence or continue only with the online instruction portion of the curriculum.

If students continue to remain on a leave of absence, withdraw, or do not make up the required in person labs on a timely basis, our revenues could continue to be impacted in fiscal 2021.

Macroeconomic conditions and aversion to debt could adversely affect our business.

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Adverse market conditions for consumer and federally guaranteed student loans could negatively impact the ability of borrowers with little or poor credit history, such as many of our students, to borrow the necessary funds at an acceptable interest rate.

These events could adversely affect the ability or willingness of our former

students to repay student loans, which could increase our student loan cohort default rate and require increased time, attention and resources to manage these defaults.

These events could adversely affect the ability or willingness of our former students to repay student loans, which could increase our student loan cohort default rate and require increased time, attention and resources to manage these defaults.

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

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Some traditional public and private colleges and universities and community colleges, as well as other private career-oriented schools, offer programs that may be perceived by students to be similar to ours.

W e compete with local community colleges for students seeking programs that are similar to ours, mainly due to local accessibility, low tuition rates and in certain cases free tuition.

We compete with local community colleges for students seeking programs that are similar to ours, mainly due to local accessibility, low tuition rates and in certain cases free tuition.

Most public institutions are able to charge lower tuition than our schools, due in part to government subsidies and other financial sources not available to for-profit schools.

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These relationships enable us to support enrollment in our core programs by attracting students through brand name recognition and the associated prospect of high-quality employment opportunities.

Additionally, these relationships allow us to diversify funding sources, expand the scope and increase the number of programs we offer and reduce our costs and capital expenditures due to the fact that, pursuant to the terms of the underlying contracts with OEMs, we provide a variety of specialized training programs and typically do so using tools, equipment and vehicles provided by the OEMs.

Additionally, these relationships allow us to diversify funding sources, expand the scope and increase the number of programs we offer and reduce our costs and capital expenditures due to the fact that, pursuant to the terms of the underlying contracts with manufacturer brand partners, we provide a variety of specialized training programs and typically do so using tools, equipment and vehicles provided by the manufacturer brand partners.

These relationships also provide additional incremental revenue opportunities from training the employees of our industry customers.

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If we are not able to effectively and efficiently integrate curricula, this could have a material adverse effect on our cash flows, results of operations and financial condition.

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

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

Under our proprietary loan program, the bank originates loans for our students who meet our specific credit criteria with the related proceeds to be used exclusively to fund a portion of their tuition.

We then purchase all such loans from the bank at least monthly and assume all the related credit and collection risk.

See Note 2 of the notes to our consolidated financial statements within Part IV of this Report on Form 10-K for further discussion of activity under our proprietary loan program.

Factors that may impact our ability to collect these loans include the following:

current economic conditions;

compliance with laws applicable to the origination, servicing and collection of loans;

the quality of our loan servicers’ performance;

a decline in graduate employment opportunities and the priority that the borrowers under this loan program attach to repaying these loans as compared to other obligations, particularly students who did not complete or were dissatisfied with their programs of study.

The portion of a student's tuition revenue related to the proprietary loan program is considered a form of variable consideration.

We estimate the amount we ultimately expect to collect from the portion of tuition that is funded by the proprietary loan program, resulting in a note receivable.

The estimated amount is determined at the inception of the contract, and we recognize the related revenue as the student progresses through school.

Each reporting period, we update our assessment of the variable consideration associated with the proprietary loan program.

Estimating the collection rate requires significant management judgment.

If we are unable to accurately assess the variable consideration, our revenues and profitability may be adversely impacted.

Federal, state and local laws and general legal and equitable principles relating to the protection of consumers can apply to the origination, servicing and collection of the loans under our proprietary loan program.

Any violation of various federal, state or local laws, including, in some instances, violations of these laws by parties not under our control, may result in losses on the loans or may limit our ability to collect all or part of the principal or interest on the loans.

This may be the case even if we are not directly responsible for the violations by such parties.

Our proprietary loan program may also be subject to oversight by the CFPB, which could result in additional reporting requirements or increased scrutiny.

Other proprietary postsecondary institutions have been subject to information requests from the CFPB with regard to their private student loan programs.

The possibility of litigation, and the associated cost, are risks associated with our proprietary loan program.

At least two proprietary education institutions have been subject to lawsuits under the Consumer Financial Protection Act of 2010;

the institutions are accused of having unfair private student loan programs and of allegedly engaging in certain abusive practices, including interfering with students' ability to understand their debt obligations and failing to provide certain material information.

Changes in laws or public policy could negatively impact the viability of our proprietary loan program and cause us to delay or suspend the program.

Additionally, depending on the terms of the loans, state consumer credit regulators may assert that our activities in connection with our proprietary loan program require us to obtain one or more licenses, registrations or other forms of regulatory approvals, any of which may not be able to be obtained in a timely manner, if at all.

All of these factors could result in our proprietary loan program having a material adverse effect on our cash flows, results of operations and financial condition.

We rely on third parties to originate, process and service loans under our proprietary loan program.

If these companies fail or discontinue providing such services, our business could be harmed.

A state chartered bank with a small market capitalization originates loans under our proprietary loan program.

If the bank no longer provides service under the contract, we do not currently have an alternative bank to fulfill the demand.

There are a limited number of banks that are willing to participate in a program such as our proprietary loan program.

The time it could take us to replace the bank could result in an interruption in the loan origination process, which could result in a decrease in our student populations.

Furthermore, a single company

processes loan applications and services the loans under our proprietary loan program.

There is a 90-day termination clause in the contract under which they provide these services.

If this company were to terminate the contract, we could experience an interruption in loan application processing or loan servicing, which could result in a decrease in our student populations.

Growing our online academic programs could be difficult for us.

The expansion of our existing online programs and the creation of new online programs may not be accepted by students or employers, or by government regulators or accreditation agencies.

In addition, our efforts may be materially adversely affected by increased competition in the online education market or because of problems with the performance or reliability of our online program infrastructure.

There is also increasing development of online programs by traditional universities, both in the public and private sectors, which may have more consumer acceptance than programs we develop because of lower pricing or perception of greater value of their degrees in the marketplace, which may materially adversely affect our business, financial condition and results of operations.

We are heavily dependent on the reliability and performance of an internally developed student management and reporting system, and any difficulties in maintaining this system may result in service interruptions, decreased customer service or increased expenditures.

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The for-profit education sector is under significant regulatory and government scrutiny, which may make it more difficult to attract and retain talent.

If we are unable to, or are perceived to be unable to, attract and retain experienced and qualified personnel, our business, financial condition and results of operations may be materially adversely affected.

Additionally, key personnel may leave us and subsequently compete against us.

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

If we fail to improve our underutilized capacity, we may experience a deterioration of our profitability and operating margins.

We have underutilized capacity at a number of our campuses.

Our ongoing efforts to fill or reduce existing capacity may strain our management, operations, employees or other resources.

We may not be able to maintain our current capacity utilization rates, effectively manage our operations or achieve planned capacity utilization on a timely or profitable basis.

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

In order to maintain and increase our revenues and margins, we must continue to develop our admissions programs and attract new students in a cost-effective manner.

The level of marketing and advertising and types of strategies used are affected by the specific geographic markets, regulatory compliance requirements and the specific individual nature of each institution and its students.

The complexity of these marketing efforts contributes to their cost.

If we are unable to advertise and market our institutions and programs successfully, our ability to attract and enroll new students could be materially adversely affected and, consequently, our financial performance could suffer.

We use marketing tools such as the Internet, radio, television and print media advertising to promote our institutions and programs.

Our representatives also make presentations at high schools and career fairs.

Additionally, we rely on the general reputation of our institutions and referrals from current students, alumni and employers as a source of new enrollment.

As part of our marketing and advertising, we also subscribe to lead-generating databases in certain markets, the cost of which may increase.

Among the factors that could

prevent us from marketing and advertising our institutions and programs successfully are the failure of our marketing tools and strategies to appeal to prospective students, regulatory constraints on marketing, current student and/or employer dissatisfaction with our program offerings or results and diminished access to high school campuses and military bases.

In order to maintain our growth, we will need to attract a larger percentage of students in existing markets and increase our addressable market by adding locations in new markets and rolling out new academic programs.

Any failure to accomplish this may have a material adverse effect on our future growth.

Failure on our part to effectively identify, establish and operate additional schools or campuses could reduce our ability to implement our growth strategy.

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Additionally, to be eligible for Title IV Program funding, a new school or campus would have to be certified by ED.

We cannot be sure that we will be able to identify suitable

expansion opportunities to maintain or accelerate our current growth rate or that we will be able to successfully integrate or profitably operate any new schools or campuses.

We cannot be sure that we will be able to identify suitable expansion opportunities to maintain or accelerate our current growth rate or that we will be able to successfully integrate or profitably operate any new schools or campuses.

Our failure to effectively identify, establish, license, accredit, obtain necessary approvals and manage the operations of newly established schools or campuses could slow our growth and make any newly established schools or campuses more costly to operate than we have historically experienced.

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These results could have a material adverse effect on our cash flows, results of operations and financial condition or result in dilution to current stockholders.

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

We then purchase all such loans from the bank at least monthly and assume all the related credit and collection risk.

See Note 2 of the notes to our Consolidated Financial Statements within Part II.

Item 8 of this Annual Report on Form 10-K for further discussion of activity under our proprietary loan program.

Factors that may impact our ability to collect these loans include the following, without limitation:

current economic conditions;

compliance with laws applicable to the origination, servicing and collection of loans;

the quality of our loan servicers’ performance;

and a decline in graduate employment opportunities and the priority that the borrowers under this loan program attach to repaying these loans as compared to other obligations, particularly students who did not complete or were dissatisfied with their programs of study.